United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
Form
10-Q
x
Quarterly
Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the
quarterly period ended June 30, 2007
Or
o
Transition
Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the
transition period from _____ to _____
Commission
File Number 1-13145
Jones
Lang LaSalle Incorporated
(Exact
name of registrant as specified in its charter)
Maryland
|
|
36-4150422
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
200
East Randolph Drive, Chicago, IL
|
|
60601
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code:
312/782-5800
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the
Exchange Act).
Large
accelerated filer x
|
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
The
number of shares outstanding of the registrant’s common stock (par value $0.01)
as of the close of business on July 26, 2007 was 37,421,907 which includes
4,970,232 shares held by a subsidiary of the registrant.
Table
of Contents
Part
I
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|
Financial
Information
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Item
1.
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3
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3
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4
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5
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6
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7
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Item
2.
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19
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Item
3.
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29
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Item
4.
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30
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Part
II
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Other
Information
|
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Item
1.
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31
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|
Item
1A.
|
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31
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Item
2.
|
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31
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Item
4.
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32
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Item
5.
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32
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Item
6.
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36
|
JONES
LANG
LASALLE INCORPORATED
Consolidated
Balance Sheets
June
30, 2007 and December 31, 2006
($
in
thousands, except share data)
|
|
June
30, 2007
|
|
|
December
31,
|
|
Assets
|
|
(unaudited)
|
|
|
2006
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
37,513
|
|
|
|
50,612
|
|
Trade
receivables, net of allowances of $13,088 and $7,845
|
|
|
581,272
|
|
|
|
630,121
|
|
Notes
and other receivables
|
|
|
60,408
|
|
|
|
30,079
|
|
Prepaid
expenses
|
|
|
30,319
|
|
|
|
28,040
|
|
Deferred
tax assets
|
|
|
48,034
|
|
|
|
49,230
|
|
Other
assets
|
|
|
22,346
|
|
|
|
19,363
|
|
Total
current assets
|
|
|
779,892
|
|
|
|
807,445
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $189,851 and
$181,959
|
|
|
146,926
|
|
|
|
120,376
|
|
Goodwill,
with indefinite useful lives, net of accumulated amortization of
$39,183
and $38,701
|
|
|
580,237
|
|
|
|
520,478
|
|
Identified
intangibles, with finite useful lives, net of accumulated amortization
of
$63,073 and $58,594
|
|
|
38,822
|
|
|
|
37,583
|
|
Investments
in real estate ventures
|
|
|
130,698
|
|
|
|
131,789
|
|
Long-term
receivables, net
|
|
|
30,744
|
|
|
|
29,781
|
|
Deferred
tax assets
|
|
|
40,967
|
|
|
|
37,465
|
|
Other
assets, net
|
|
|
47,607
|
|
|
|
45,031
|
|
|
|
$ |
1,795,893
|
|
|
|
1,729,948
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
192,377
|
|
|
|
221,356
|
|
Accrued
compensation
|
|
|
365,679
|
|
|
|
514,586
|
|
Short-term
borrowings
|
|
|
30,239
|
|
|
|
17,738
|
|
Deferred
tax liabilities
|
|
|
2,027
|
|
|
|
1,426
|
|
Deferred
income
|
|
|
22,796
|
|
|
|
31,896
|
|
Other
current liabilities
|
|
|
39,593
|
|
|
|
43,444
|
|
Total
current liabilities
|
|
|
652,711
|
|
|
|
830,446
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
|
|
|
Credit
facilities
|
|
|
117,710
|
|
|
|
32,398
|
|
Deferred
tax liabilities
|
|
|
1,289
|
|
|
|
648
|
|
Deferred
compensation
|
|
|
47,267
|
|
|
|
30,668
|
|
Pension
liability
|
|
|
20,152
|
|
|
|
19,252
|
|
Deferred
business acquisition obligations
|
|
|
45,439
|
|
|
|
34,178
|
|
Other
noncurrent liabilities
|
|
|
41,266
|
|
|
|
31,978
|
|
Total
liabilities
|
|
|
925,834
|
|
|
|
979,568
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value per share, 100,000,000 shares authorized;
36,821,901
and 36,592,864 shares issued and outstanding
|
|
|
368
|
|
|
|
366
|
|
Additional
paid-in capital
|
|
|
706,050
|
|
|
|
676,270
|
|
Retained
earnings
|
|
|
349,705
|
|
|
|
255,914
|
|
Shares
held by subsidiary
|
|
|
(219,359 |
) |
|
|
(197,543 |
) |
Shares
held in trust
|
|
|
(1,427 |
) |
|
|
(1,427 |
) |
Accumulated
other comprehensive income
|
|
|
34,722
|
|
|
|
16,800
|
|
Total
shareholders’ equity
|
|
|
870,059
|
|
|
|
750,380
|
|
|
|
$ |
1,795,893
|
|
|
|
1,729,948
|
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Earnings
For
the Three and Six Months Ended June 30, 2007 and 2006
($
in
thousands, except share data) (unaudited)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
676,086
|
|
|
|
509,789
|
|
|
|
1,166,139
|
|
|
|
846,887
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
436,265
|
|
|
|
318,369
|
|
|
|
761,922
|
|
|
|
549,615
|
|
Operating,
administrative and other
|
|
|
126,517
|
|
|
|
96,894
|
|
|
|
242,253
|
|
|
|
184,557
|
|
Depreciation
and amortization
|
|
|
12,309
|
|
|
|
10,378
|
|
|
|
24,935
|
|
|
|
20,354
|
|
Restructuring
credits
|
|
|
—
|
|
|
|
(169 |
) |
|
|
(411 |
) |
|
|
(670 |
) |
Operating
expenses
|
|
|
575,091
|
|
|
|
425,472
|
|
|
|
1,028,699
|
|
|
|
753,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
100,995
|
|
|
|
84,317
|
|
|
|
137,440
|
|
|
|
93,031
|
|
Interest
expense, net of interest income
|
|
|
3,830
|
|
|
|
4,478
|
|
|
|
5,668
|
|
|
|
7,687
|
|
Gain
on sale of investments
|
|
|
3,703
|
|
|
|
—
|
|
|
|
6,129
|
|
|
|
—
|
|
Equity
in earnings from real estate ventures
|
|
|
6,368
|
|
|
|
9,593
|
|
|
|
6,502
|
|
|
|
8,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
107,236
|
|
|
|
89,432
|
|
|
|
144,403
|
|
|
|
93,993
|
|
Provision
for income taxes
|
|
|
28,632
|
|
|
|
23,216
|
|
|
|
38,556
|
|
|
|
24,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before cumulative effect of change in accounting
principle
|
|
|
78,604
|
|
|
|
66,216
|
|
|
|
105,847
|
|
|
|
69,596
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,180
|
|
Net
income
|
|
$ |
78,604
|
|
|
|
66,216
|
|
|
|
105,847
|
|
|
|
70,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders (Note 10)
|
|
$ |
77,932
|
|
|
|
65,694
|
|
|
|
105,175
|
|
|
|
70,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
2.45
|
|
|
|
2.07
|
|
|
|
3.30
|
|
|
|
2.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
31,828,364
|
|
|
|
31,688,327
|
|
|
|
31,878,811
|
|
|
|
31,600,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$ |
2.32
|
|
|
|
1.94
|
|
|
|
3.12
|
|
|
|
2.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
33,655,359
|
|
|
|
33,821,945
|
|
|
|
33,664,471
|
|
|
|
33,796,465
|
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Consolidated
Statement of Shareholders’ Equity
For
the Six Months Ended June 30, 2007
($
in
thousands, except share data) (unaudited)
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Retained
|
|
|
Shares
Held
by
|
|
|
Shares
Held
in
|
|
|
Accumulated
Other
Comprehensive
|
|
|
|
|
|
|
Shares
(1)
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Subsidiary
|
|
|
Trust
|
|
|
Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31,
2006
|
|
|
36,592,864
|
|
|
$ |
366
|
|
|
|
676,270
|
|
|
|
255,914
|
|
|
|
(197,543 |
) |
|
|
(1,427 |
) |
|
|
16,800
|
|
|
$ |
750,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
105,847
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
105,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued under stock compensation programs
|
|
|
229,037
|
|
|
|
2
|
|
|
|
5,275
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,277
|
|
Tax
benefits of vestings and exercises
|
|
|
—
|
|
|
|
—
|
|
|
|
3,754
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,754
|
|
Amortization
of stock compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
20,751
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
acquired by subsidiary (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,816 |
) |
|
|
—
|
|
|
|
—
|
|
|
|
(21,816 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,056 |
) |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
adjustment for gain on sale of available-for-sale securities realized
in
net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,256 |
) |
|
|
(2,256 |
) |
Foreign
currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,178
|
|
|
|
20,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at June 30, 2007
|
|
|
36,821,901
|
|
|
$ |
368
|
|
|
|
706,050
|
|
|
|
349,705
|
|
|
|
(219,359 |
) |
|
|
(1,427 |
) |
|
|
34,722
|
|
|
$ |
870,059
|
|
(1) Shares
repurchased under our share repurchase programs are not cancelled, but are
held
by one of our subsidiaries. The 4,970,232 shares we have repurchased
through June 30, 2007 are included in the 36,821,901 shares total of our
common
stock account, but are deducted from our share count for purposes of calculating
earnings per share.
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Cash Flows
For
the Six Months Ended June 30, 2007 and 2006
($
in
thousands) (unaudited)
|
|
Six
|
|
|
Six
|
|
|
|
Months
Ended
|
|
|
Months
Ended
|
|
|
|
June
30, 2007
|
|
|
June
30, 2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
105,847
|
|
|
|
70,776
|
|
Reconciling
net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
—
|
|
|
|
(1,180 |
) |
Depreciation
and amortization
|
|
|
24,935
|
|
|
|
20,354
|
|
Equity
in earnings from real estate ventures
|
|
|
(6,502 |
) |
|
|
(8,649 |
) |
Gain
on sale of investments
|
|
|
(3,703 |
) |
|
|
—
|
|
Operating
distributions from real estate ventures
|
|
|
8,147
|
|
|
|
12,631
|
|
Provision
for loss on receivables and other assets
|
|
|
6,518
|
|
|
|
4,514
|
|
Amortization
of deferred compensation
|
|
|
22,686
|
|
|
|
16,977
|
|
Amortization
of debt issuance costs
|
|
|
296
|
|
|
|
365
|
|
Change
in:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
27,124
|
|
|
|
(119,799 |
) |
Prepaid
expenses and other assets
|
|
|
(7,652 |
) |
|
|
(6,867 |
) |
Deferred
tax assets, net
|
|
|
(1,064 |
) |
|
|
3,015
|
|
Excess
tax benefits from share-based payment arrangements
|
|
|
(3,754 |
) |
|
|
(8,024 |
) |
Accounts
payable, accrued liabilities and accrued compensation
|
|
|
(152,575 |
) |
|
|
(16,154 |
) |
Net
cash provided by (used in) operating activities
|
|
|
20,303
|
|
|
|
(32,041 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Net
capital additions – property and equipment
|
|
|
(45,396 |
) |
|
|
(28,535 |
) |
Business
acquisitions
|
|
|
(66,697 |
) |
|
|
(168,448 |
) |
Capital
contributions and advances to real estate ventures
|
|
|
(20,663 |
) |
|
|
(35,393 |
) |
Distributions,
repayments of advances and sale of investments
|
|
|
24,075
|
|
|
|
9,365
|
|
Net
cash used in investing activities
|
|
|
(108,681 |
) |
|
|
(223,011 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings under credit facilities
|
|
|
609,179
|
|
|
|
584,090
|
|
Repayments
of borrowings under credit facilities
|
|
|
(509,119 |
) |
|
|
(330,353 |
) |
Shares
repurchased for payment of employee taxes on stock awards
|
|
|
(857 |
) |
|
|
(148 |
) |
Shares
repurchased under share repurchase program
|
|
|
(21,815 |
) |
|
|
(20,362 |
) |
Excess
tax benefits from share-based payment arrangements
|
|
|
3,754
|
|
|
|
8,024
|
|
Common
stock issued under stock option plan and stock purchase
programs
|
|
|
6,193
|
|
|
|
17,658
|
|
Payment
of dividends
|
|
|
(12,056 |
) |
|
|
(8,636 |
) |
Net
cash provided by financing activities
|
|
|
75,279
|
|
|
|
250,273
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(13,099 |
) |
|
|
(4,779 |
) |
Cash
and cash equivalents, January 1
|
|
|
50,612
|
|
|
|
28,658
|
|
Cash
and cash equivalents, June 30
|
|
$ |
37,513
|
|
|
|
23,879
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
8,097
|
|
|
|
6,847
|
|
Income
taxes, net of refunds
|
|
|
28,246
|
|
|
|
18,753
|
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
Deferred
business acquisition obligations
|
|
|
11,261
|
|
|
|
32,854
|
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Notes
to Consolidated Financial Statements (Unaudited)
Readers
of this quarterly report should refer to the audited financial statements
of
Jones Lang LaSalle Incorporated (“Jones Lang LaSalle”, which may also be
referred to as “the Company” or as “the Firm,” “we,” “us” or “our”) for the year
ended December 31, 2006, which are included in Jones Lang LaSalle’s 2006 Annual
Report on Form 10-K, filed with the United States Securities and Exchange
Commission (“SEC”) and also available on our web site
(www.joneslanglasalle.com), since we have omitted from this report
certain footnote disclosures which would substantially duplicate those contained
in such audited financial statements. You should also refer to the “Summary of
Critical Accounting Policies and Estimates” section within Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
contained herein, for further discussion of our accounting policies and
estimates.
(1)
Interim Information
Our
consolidated financial statements as of June 30, 2007 and for the three and
six
months ended June 30, 2007 and 2006 are unaudited; however, in the opinion
of
management, we have included all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the consolidated
financial statements for these interim periods.
Historically,
our revenue and profits have tended to be higher in the third and fourth
quarters of each year than in the first two quarters. This is the result
of a
general focus in the real estate industry on completing or documenting
transactions by calendar-year-end and the fact that certain expenses are
constant throughout the year. Our Investment Management segment earns
investment-generated performance fees on clients’ real estate investment returns
and co-investment equity gains, generally when assets are sold, the timing
of
which is geared towards the benefit of our clients. Within our Investor and
Occupier Services segments, expansion of capital markets activities has an
increasing impact on comparability between reporting periods, as the timing
of
recognition of revenues relates to the size and timing of our clients’
transactions. Non-variable operating expenses, which are treated as expenses
when they are incurred during the year, are relatively constant on a quarterly
basis. As a result, the results for the periods ended June 30, 2007 and 2006
are
not indicative of the results to be obtained for the full fiscal
year.
(2)
New Accounting Standards
Accounting
for Uncertainty in Income Taxes
Effective
January 1, 2007, we adopted FASB Interpretation No. 48 (FIN 48), “Accounting for
Uncertainty in Income Taxes.” FIN 48 clarifies and sets forth consistent rules
for accounting for uncertain income tax positions in accordance with SFAS
109,
“Accounting for Income Taxes.” The Company did not recognize any change to its
liability for unrecognized tax benefits as a result of the adoption. Therefore,
we have not adjusted our retained earnings as of January 1, 2007. As of the
adoption date, the amount of unrecognized tax benefits was $19.9 million,
all of
which would impact the effective tax rate of the Company if recognized. However,
we do not believe that there will be significant changes in the amount of
unrecognized tax benefits within the next 12 months.
The
Company recognizes interest accrued and penalties, if any, related to income
taxes as a component of income tax expense. As of January 1, 2007, $0.3 million
of interest expense and no penalties were accrued. As of June 30, 2007, $0.4
million of interest expense and no penalties were accrued.
The
Company or one of its subsidiaries files income tax returns in the United
States, the United Kingdom including England and Scotland, Australia, Germany,
The People’s Republic of China including Hong Kong, France, Japan, and Singapore
as well as approximately 40 other jurisdictions. Generally, the Company’s open
tax years include those from 2002 to the present, although in a number of
jurisdictions reviews of taxing authorities for more recent years have been
completed or are in process. Although the ultimate outcome of tax audits
is
uncertain, we believe adequate amounts of tax and interest have been provided
for any adjustments that are expected to result related to these
years.
Income
Statement Presentation of Certain Taxes Collected
In
June
2006, the FASB’s Emerging Issues Task Force (EITF) issued EITF Issue No. 06-3,
“How Taxes Collected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (That Is, Gross versus Net
Presentation).” EITF 06-3 includes in its scope taxes assessed by governmental
authorities that are both imposed on and concurrent with a specific
revenue-producing transaction between a seller and a customer, such as sales,
use, value added, and some excise taxes. Effective January 1, 2007,
we adopted EITF 06-3, which requires disclosure of a company’s policies relative
to accounting for such taxes; we present such taxes on net basis (excluded
from
revenues) in our consolidated statements of earnings.
Fair
Value Measurements
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 applies to accounting pronouncements that require
or permit fair value measurements, except for share-based payment transactions
under SFAS 123R. The Company is required to apply the guidance of SFAS 157
beginning January 1, 2008. Management has not yet determined what impact
the
application of SFAS 157 will have on our consolidated financial
statements.
Fair
Value Option
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.” SFAS 159 permits entities to choose to
measure financial instruments and certain other items at fair value and
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes
for
similar types of assets and liabilities. The Company has the option of adopting
fair value accounting for financial assets and liabilities in accordance
with
the guidance of SFAS 159 beginning January 1, 2008. Management has not yet
determined what impact the application of SFAS 159 will have on our consolidated
financial statements.
Investment
Company Accounting
In
June
2007, the AICPA issued Statement of Position (“SOP”) 07–1, “Clarification of the
Scope of the Audit and Accounting Guide, Investment Companies and Accounting
by
Parent Companies and Equity Method Investors for Investments in Investment
Companies.” SOP 07-1 provides guidance for determining whether an entity is
within the scope of the AICPA Audit and Accounting Guide, “Investment Companies”
(“the Guide”) and when companies that own or have significant stakes in
investment companies should and should not retain, in their financial
statements, the specialized industry accounting under the Guide. Management
has
not yet determined if SOP 07-1 is applicable to the Company's investments
in
real estate ventures and what impact, if any, the application of SOP 07-1
will have on our consolidated financial statements.
(3)
Revenue Recognition
We
categorize our revenues as advisory and management fees, transaction
commissions, incentive fees, project and development management and construction
management fees. We recognize advisory and management fees related to property
management services, valuation services, corporate property services, strategic
consulting and money management as income in the period in which we perform
the
related services. We recognize transaction commissions related to agency
leasing
services, capital markets services and tenant representation services as
income
when we provide the related service unless future contingencies exist. If
future
contingencies exist, we defer recognition of this revenue until the respective
contingencies have been satisfied. We recognize incentive fees based on the
performance of underlying funds’ investments and the contractual benchmarks,
formulas and timing of the measurement period with clients. We recognize
project
and development management and construction management fees by applying the
“percentage of completion” method of accounting. We use the efforts expended
method to determine the extent of progress towards completion for project
and
development management fees and costs incurred to total estimated costs for
construction management fees.
Construction
management fees, which are gross construction services revenues net of
subcontract costs, were $3.1 million and $3.1 million for the three months
ended
June 30, 2007 and 2006, respectively, and $4.9 million and $5.5 million for
the
six months ended June 30, 2007 and 2006, respectively.
Gross
construction services revenues totaled $46.3 million and $40.6 million for
the
three months ended June 30, 2007 and 2006, respectively, and $84.4 million
and
$69.1 million for the six months ended June 30, 2007 and 2006,
respectively.
Subcontract
costs totaled $43.2 million and $37.5 million, for the three months ended
June
30, 2007 and 2006, respectively, and $79.5 million and $63.6 million for
the six
months ended June 30, 2007 and 2006, respectively.
Costs
in
excess of billings on uncompleted construction contracts of $10.9 million
and
$3.2 million are included in “Trade receivables,” and billings in excess of
costs on uncompleted construction contracts of $3.0 million and $6.6 million
are
included in “Deferred income,” respectively, in our June 30, 2007 and December
31, 2006 consolidated balance sheets.
In
certain of our businesses, primarily those involving management services,
we are
reimbursed by our clients for expenses incurred on their behalf. The treatment
of reimbursable expenses for financial reporting purposes is based upon the
fee
structure of the underlying contracts. We follow the guidance of EITF 99-19,
“Reporting Revenue Gross as a Principal versus Net as an Agent,” when accounting
for reimbursable personnel and other costs. We report a contract that provides
a
fixed fee billing, fully inclusive of all personnel or other recoverable
expenses incurred but not separately scheduled, on a gross basis. When
accounting on a gross basis, our reported revenues include the full billing
to
our client and our reported expenses include all costs associated with the
client.
We
account for a contract on a net basis when the fee structure is comprised
of at
least two distinct elements, namely (i) a fixed management fee and (ii) a
separate component that allows for scheduled reimbursable personnel costs
or
other expenses to be billed directly to the client. When accounting on a
net
basis, we include the fixed management fee in reported revenues and net the
reimbursement against expenses. We base this accounting on the following
factors, which define us as an agent rather than a principal:
|
·
|
The
property owner, with ultimate approval rights relating to the employment
and compensation of on-site personnel, and bearing all of the economic
costs of such personnel, is determined to be the primary obligor
in the
arrangement;
|
|
·
|
Reimbursement
to Jones Lang LaSalle is generally completed simultaneously with
payment
of payroll or soon thereafter;
|
|
·
|
Because
the property owner is contractually obligated to fund all operating
costs
of the property from existing cash flow or direct funding from
its
building operating account, Jones Lang LaSalle bears little or
no credit
risk; and
|
|
·
|
Jones
Lang LaSalle generally earns no margin in the reimbursement aspect
of the
arrangement, obtaining reimbursement only for actual costs
incurred.
|
Most
of
our service contracts use the latter structure and are accounted for on a
net
basis. We have always presented the above reimbursable contract costs on
a net
basis in accordance with U.S. GAAP. These costs aggregated approximately
$177.5
million and $152.4 million for the three months ended June 30, 2007 and 2006,
respectively, and approximately $362.9 million and $303.8 million for the
six
months ended June 30, 2007 and 2006, respectively. This treatment has
no impact on operating income, net income or cash flows.
(4)
Business Segments
We
manage
and report our operations as four business segments:
|
(i)
|
Investment
Management, which offers money management services on a global
basis,
and
|
|
The
three geographic regions of Investor and Occupier Services
("IOS"):
|
|
(iii)
|
Europe,
Middle East and Africa (“EMEA”) and
|
The
Investment Management segment provides money management services to
institutional investors and high-net-worth individuals. Each geographic region
offers our full range of Investor Services, Capital Markets and Occupier
Services. The IOS business consists primarily of tenant representation and
agency leasing, capital markets and valuation services (collectively
"transaction services") and property management, facilities management, project
and development management and construction management services (collectively
"management services").
Total
revenue by industry segment includes revenue derived from services provided
to
other segments. Operating income represents total revenue less direct and
indirect allocable expenses. We allocate all expenses, other than interest
and
income taxes, as nearly all expenses incurred benefit one or more of the
segments. Allocated expenses primarily consist of corporate global overhead,
including certain globally managed stock-based compensation programs. We
allocate these corporate global overhead expenses to the business segments
based
on the relative revenue of each segment.
Our
measure of segment operating results excludes “Restructuring charges (credits),”
as we have determined that it is not meaningful to investors to allocate
such
charges (credits) to our segments. See Note 5 for discussion of “Restructuring
charges (credits).” Also, for segment reporting, we continue to show
“Equity in earnings (losses) from real estate ventures” within our revenue line,
especially since it is an integral part of our Investment Management segment.
The Chief Operating Decision Maker of Jones Lang LaSalle measures the segment
results without restructuring charges, but with “Equity in earnings (losses)
from real estate ventures” included in segment revenues. We define the Chief
Operating Decision Maker collectively as our Global Executive Committee,
which
is comprised of our Global Chief Executive Officer, Global Chief Operating
and
Financial Officer and the Chief Executive Officers of each of our four reporting
segments.
We
have
reclassified certain prior year amounts to conform to the current
presentation.
The
following table summarizes unaudited financial information by business segment
for the three and six months ended June 30, 2007 and 2006 ($ in
thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
Investor
and Occupier Services
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
85,070
|
|
|
|
66,535
|
|
|
|
157,759
|
|
|
|
114,747
|
|
Management
services
|
|
|
86,021
|
|
|
|
64,801
|
|
|
|
156,952
|
|
|
|
127,062
|
|
Equity
earnings
|
|
|
270
|
|
|
|
135
|
|
|
|
420
|
|
|
|
284
|
|
Other
services
|
|
|
7,638
|
|
|
|
2,891
|
|
|
|
12,134
|
|
|
|
5,432
|
|
|
|
|
178,999
|
|
|
|
134,362
|
|
|
|
327,265
|
|
|
|
247,525
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
153,792
|
|
|
|
121,332
|
|
|
|
289,675
|
|
|
|
229,936
|
|
Depreciation
and amortization
|
|
|
6,084
|
|
|
|
5,281
|
|
|
|
12,006
|
|
|
|
10,583
|
|
Operating
income
|
|
$ |
19,123
|
|
|
|
7,749
|
|
|
|
25,584
|
|
|
|
7,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
157,903
|
|
|
|
109,110
|
|
|
|
300,041
|
|
|
|
188,485
|
|
Management
services
|
|
|
35,181
|
|
|
|
22,561
|
|
|
|
67,264
|
|
|
|
43,782
|
|
Equity
earnings (losses)
|
|
|
172
|
|
|
|
(85 |
) |
|
|
(195 |
) |
|
|
(305 |
) |
Other
services
|
|
|
3,730
|
|
|
|
4,396
|
|
|
|
6,767
|
|
|
|
7,365
|
|
|
|
|
196,986
|
|
|
|
135,982
|
|
|
|
373,877
|
|
|
|
239,327
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
177,830
|
|
|
|
127,877
|
|
|
|
335,555
|
|
|
|
233,596
|
|
Depreciation
and amortization
|
|
|
3,931
|
|
|
|
2,840
|
|
|
|
8,447
|
|
|
|
5,348
|
|
Operating
income
|
|
$ |
15,225
|
|
|
|
5,265
|
|
|
|
29,875
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
162,312
|
|
|
|
45,189
|
|
|
|
201,908
|
|
|
|
73,837
|
|
Management
services
|
|
|
47,018
|
|
|
|
28,041
|
|
|
|
92,077
|
|
|
|
55,881
|
|
Equity
earnings
|
|
|
210
|
|
|
|
1,633
|
|
|
|
231
|
|
|
|
1,850
|
|
Other
services
|
|
|
1,691
|
|
|
|
1,529
|
|
|
|
3,410
|
|
|
|
2,697
|
|
|
|
|
211,231
|
|
|
|
76,392
|
|
|
|
297,626
|
|
|
|
134,265
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
165,194
|
|
|
|
71,556
|
|
|
|
252,715
|
|
|
|
128,301
|
|
Depreciation
and amortization
|
|
|
1,857
|
|
|
|
1,938
|
|
|
|
3,630
|
|
|
|
3,760
|
|
Operating
income
|
|
$ |
44,180
|
|
|
|
2,898
|
|
|
|
41,281
|
|
|
|
2,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
and other services
|
|
$ |
5,411
|
|
|
|
3,886
|
|
|
|
7,930
|
|
|
|
14,936
|
|
Advisory
fees
|
|
|
54,295
|
|
|
|
43,084
|
|
|
|
108,214
|
|
|
|
81,353
|
|
Incentive
fees
|
|
|
29,817
|
|
|
|
117,766
|
|
|
|
51,683
|
|
|
|
131,310
|
|
Equity
earnings
|
|
|
5,716
|
|
|
|
7,910
|
|
|
|
6,046
|
|
|
|
6,820
|
|
|
|
|
95,239
|
|
|
|
172,646
|
|
|
|
173,873
|
|
|
|
234,419
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
65,966
|
|
|
|
94,498
|
|
|
|
126,230
|
|
|
|
142,339
|
|
Depreciation
and amortization
|
|
|
437
|
|
|
|
319
|
|
|
|
852
|
|
|
|
663
|
|
Operating
income
|
|
$ |
28,836
|
|
|
|
77,829
|
|
|
|
46,791
|
|
|
|
91,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment revenue
|
|
$ |
682,454
|
|
|
|
519,382
|
|
|
|
1,172,641
|
|
|
|
855,536
|
|
Reclassification
of equity earnings
|
|
|
(6,368 |
) |
|
|
(9,593 |
) |
|
|
(6,502 |
) |
|
|
(8,649 |
) |
Total
revenue
|
|
|
676,086
|
|
|
|
509,789
|
|
|
|
1,166,139
|
|
|
|
846,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment operating expenses
|
|
|
575,091
|
|
|
|
425,641
|
|
|
|
1,029,110
|
|
|
|
754,526
|
|
Restructuring
credits
|
|
|
—
|
|
|
|
(169 |
) |
|
|
(411 |
) |
|
|
(670 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
100,995
|
|
|
|
84,317
|
|
|
|
137,440
|
|
|
|
93,031
|
|
(5)
Restructuring Charges (Credits)
In
2001,
we closed our non-strategic residential land business in the Americas region
of
the Investment Management segment. We sold assets and collected
cash from this business that resulted in gains of $0.2 million for the three
months ended June 30, 2006 and $0.4 million and $0.7 million for the six
months
ended June 30, 2007 and 2006, respectively.
(6)
Investments in Real Estate Ventures
As
of
June 30, 2007, we had total investments and loans of $130.7 million in
approximately 30 separate property or fund co-investments. Within this $130.7
million are loans of $3.5 million to real estate ventures which bear an 8.0%
interest rate and are to be repaid by 2008.
We
utilize two investment vehicles to facilitate the majority of our co-investment
activity. LaSalle Investment Company I (“LIC I”) is a series of four parallel
limited partnerships which serve as our investment vehicle for substantially
all
co-investment commitments made through December 31, 2005. LIC I is fully
committed to underlying real estate ventures. At June 30, 2007, our maximum
potential unfunded commitment to LIC I is euro 33.4 million ($45.3
million). LaSalle Investment Company II (“LIC II”), formed in January 2006,
is comprised of two parallel limited partnerships which serve as our investment
vehicle for most new co-investments. At June 30, 2007, LIC II has
unfunded capital commitments for future fundings of co-investments of $308.2
million, of which our 48.78% share is $150.3 million. The $150.3 million
commitment is part of our maximum potential unfunded commitment to LIC II
at June 30, 2007 of $454.0 million.
LIC
I and
LIC II invest in certain real estate ventures that own and operate commercial
real estate. We have an effective 47.85% ownership interest in LIC I, and
an effective 48.78% ownership interest in LIC II; primarily institutional
investors hold the remaining 52.15% and 51.22% interests in LIC I and LIC
II,
respectively. We account for our investments in LIC I and LIC II under the
equity method of accounting in the accompanying consolidated financial
statements. Additionally, a non-executive Director of Jones Lang LaSalle
is an
investor in LIC I on equivalent terms to other investors.
LIC
I’s
and LIC II’s exposures to liabilities and losses of the ventures are limited to
their existing capital contributions and remaining capital commitments. We
expect that LIC I will draw down on our commitment over the next three to
five
years to satisfy its existing commitments to underlying funds, and we expect
that LIC II will draw down on our commitment over the next four to eight
years as it enters into new commitments. Our Board of Directors has endorsed
the
use of our co-investment capital in particular situations to control or bridge
finance existing real estate assets or portfolios to seed future investments
within LIC II. The purpose is to accelerate capital raising and growth in
assets
under management. Approvals for such activity are handled consistently with
those of the Firm’s co-investment capital.
As
of
June 30, 2007, LIC I maintains a euro 25 million ($33.9 million) revolving
credit facility (the "LIC I Facility"), and LIC II maintains a $200 million
revolving credit facility (the "LIC II Facility"), principally for their
working
capital needs. The capacity in the LIC II Facility contemplates potential
bridge
financing opportunities. Each facility contains a credit rating trigger and
a
material adverse condition clause. If either of the credit rating trigger
or the
material adverse condition clauses becomes triggered, the facility to which
that
condition relates would be in default and outstanding borrowings would need
to
be repaid. Such a condition would require us to fund our pro-rata share of
the
then outstanding balance on the related facility, which is the limit of our
liability. The maximum exposure to Jones Lang LaSalle, assuming that the
LIC I
Facility were fully drawn, would be euro 12.0 million ($16.2 million); assuming
that the LIC II Facility were fully drawn, the maximum exposure to Jones
Lang
LaSalle would be $97.6 million. Each exposure is included within and cannot
exceed our maximum potential unfunded commitments to LIC I of euro 33.4 million
($45.3 million) and to LIC II of $454.0 million. As of June 30, 2007, LIC
I had
euro 5.4 million ($7.3 million) of outstanding borrowings on the LIC I Facility,
and LIC II had $7.5 million of outstanding borrowings on the LIC II
Facility.
Exclusive
of our LIC I and LIC II commitment structures, we have potential obligations
related to unfunded commitments to other real estate ventures, the maximum
of
which is $12.9 million at June 30, 2007.
During
the first quarter of 2007, we sold our investment in LoopNet, an investment
in
available-for-sale securities under SFAS 115, “Accounting for Certain
Investments in Debt and Equity Securities,” and recognized a “Gain on sale of
investments” of $2.4 million. During the second quarter of 2007, we recognized a
$3.7 million gain on sale of SiteStuff, Inc., a company in which we had a
cost
method investment.
We
apply
the provisions of APB 18, SAB 59, and SFAS 144 when evaluating investments
in
real estate ventures for impairment, including impairment evaluations of
the
individual assets underlying our investments. We recorded no impairment charges
in the first six months of 2007 or 2006.
(7)
Business Combinations, Goodwill, and Other Intangible
Assets
We
have
$619.1 million of unamortized identified intangibles and goodwill as of June
30,
2007 that are subject to the provisions of SFAS 142, “Goodwill and Other
Intangible Assets.” A significant portion of these unamortized intangibles and
goodwill are denominated in currencies other than U.S. dollars, which means
that
a portion of the movements in the reported book value of these balances are
attributable to movements in foreign currency exchange rates. The tables
below
set forth further details on the foreign exchange impact on intangible and
goodwill balances. Of the $619.1 million of unamortized intangibles and
goodwill, $580.3 million represents goodwill with indefinite useful lives,
which
we ceased amortizing beginning January 1, 2002. We will amortize the remaining
$38.8 million of identifiable intangibles (principally representing customer
relationships and management contracts acquired) over their remaining finite
useful lives.
In
the
first quarter of 2007, we acquired 100% interests in each of NSC Corporate,
a
leading Western Australian agency business, and Hargreaves Goswell, a London
agency business. In addition to cash paid at closing, the terms of each
transaction included provisions for future consideration subject to certain
provisions. We recorded the fair value of future consideration which is subject
only to the passage of time as “Deferred business acquisition obligations” on
our consolidated balance sheet. We have recorded the fair value of the contract
pipeline acquired and certain restrictive agreements as identifiable intangibles
with finite useful lives; we attributed the remaining direct costs of
acquisition to goodwill. Payment of an earn-out provision in the NSC Corporate
acquisition is subject to the achievement of certain performance conditions,
which we will record to goodwill at the time those conditions are met; we
will
not record the earn-out if the related conditions are not achieved. Additional
future consideration subject to employment-related provisions in the Hargreaves
Goswell acquisition is recorded as compensation expense over the term of
those
provisions. Also, in the first quarter of 2007, we made adjustments to
accounting for the 2006 Spaulding & Slye acquisition which are reflected as
additions to goodwill in the Americas segment.
In
the
second quarter of 2007, we acquired 100% interests in each of Troostwijk
Makelaars, an independent property advisor firm based in the Netherlands
that
specializes in leasing, capital markets, and advisory and research services,
and
KHK Group, an English project and development services business. Terms for
the
two transactions included cash paid at closing totaling approximately $45.6
million, with provisions for additional consideration and earn-outs subject
to
certain contract provisions and performance. Additional consideration subject
only to the passage of time and scheduled to be paid in 2010 is recorded
in
“Deferred business acquisition obligations” on our consolidated balance sheet at
a current fair value of $3.5 million. Earn-out payments are subject to the
achievement of certain performance conditions, and will be recorded at the
time
those conditions are met; each earn-out will be recorded only if the related
conditions are achieved. Intangible assets with finite useful lives, including
the value of contract pipeline and certain restrictive agreements, were
attributed a total value of $2.7 million, and will be amortized over lives
of up
to three years. We attributed the remaining direct costs of acquisition to
goodwill. Each acquisition also includes provisions for future consideration
subject to employment-related conditions, the total of which is up to $9.4
million to be recorded as compensation expense over the next three
years.
The
following table sets forth, by reporting segment, the current year movements
in
the gross carrying amount and accumulated amortization of our goodwill with
indefinite useful lives ($ in thousands):
|
|
Investor
and Occupier Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
Investment
|
|
|
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
Pacific
|
|
|
Management
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
$ |
328,628
|
|
|
|
104,494
|
|
|
|
95,563
|
|
|
|
30,494
|
|
|
|
559,179
|
|
Additions
|
|
|
418
|
|
|
|
50,646
|
|
|
|
2,917
|
|
|
|
—
|
|
|
|
53,981
|
|
Impact
of exchange rate movements
|
|
|
—
|
|
|
|
2,508
|
|
|
|
3,179
|
|
|
|
573
|
|
|
|
6,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 30, 2007
|
|
|
329,046
|
|
|
|
157,648
|
|
|
|
101,659
|
|
|
|
31,067
|
|
|
|
619,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
$ |
(15,457 |
) |
|
|
(6,429 |
) |
|
|
(7,038 |
) |
|
|
(9,777 |
) |
|
|
(38,701 |
) |
Impact
of exchange rate movements
|
|
|
—
|
|
|
|
(160 |
) |
|
|
(234 |
) |
|
|
(88 |
) |
|
|
(482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 30, 2007
|
|
|
(15,457 |
) |
|
|
(6,589 |
) |
|
|
(7,272 |
) |
|
|
(9,865 |
) |
|
|
(39,183 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value as of June 30, 2007
|
|
$ |
313,589
|
|
|
|
151,059
|
|
|
|
94,387
|
|
|
|
21,202
|
|
|
|
580,237
|
|
The
following table sets forth, by reporting segment, the current year movements
in
the gross carrying amount and accumulated amortization of our intangibles
with
finite useful lives ($ in thousands):
|
|
Investor
and Occupier Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
Investment
|
|
|
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
Pacific
|
|
|
Management
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
$ |
82,929
|
|
|
|
4,449
|
|
|
|
2,965
|
|
|
|
5,834
|
|
|
|
96,177
|
|
Additions
|
|
|
—
|
|
|
|
3,207
|
|
|
|
1,773
|
|
|
|
—
|
|
|
|
4,980
|
|
Impact
of exchange rate movements
|
|
|
—
|
|
|
|
471
|
|
|
|
118
|
|
|
|
149
|
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 30, 2007
|
|
|
82,929
|
|
|
|
8,127
|
|
|
|
4,856
|
|
|
|
5,983
|
|
|
|
101,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
$ |
(47,127 |
) |
|
|
(2,668 |
) |
|
|
(2,965 |
) |
|
|
(5,834 |
) |
|
|
(58,594 |
) |
Amortization
expense
|
|
|
(3,352 |
) |
|
|
(544 |
) |
|
|
(252 |
) |
|
|
—
|
|
|
|
(4,148 |
) |
Impact
of exchange rate movements
|
|
|
—
|
|
|
|
(62 |
) |
|
|
(120 |
) |
|
|
(149 |
) |
|
|
(331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 30, 2007
|
|
|
(50,479 |
) |
|
|
(3,274 |
) |
|
|
(3,337 |
) |
|
|
(5,983 |
) |
|
|
(63,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value as of June 30, 2007
|
|
$ |
32,450
|
|
|
|
4,853
|
|
|
|
1,519
|
|
|
|
—
|
|
|
|
38,822
|
|
Remaining
estimated future amortization expense for our intangibles with finite useful
lives ($ in millions):
2007
(remaining six months)
|
|
$ |
4.5
|
|
2008
|
|
|
8.3
|
|
2009
|
|
|
5.4
|
|
2010
|
|
|
4.2
|
|
2011
|
|
|
3.5
|
|
Thereafter
|
|
|
12.9
|
|
Total
|
|
$ |
38.8
|
|
(8)
Stock-based Compensation
We
adopted SFAS 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) as of
January 1, 2006 using the modified prospective approach. The adoption of
SFAS
123R primarily impacts “Compensation and benefits” expense in our consolidated
statement of earnings by changing prospectively our method of measuring and
recognizing compensation expense on share-based awards. We previously recognized
forfeitures as incurred; we now estimate forfeitures at the date of grant
and
accelerate expense recognition for share-based awards to employees who are
or
will become retirement-eligible prior to the stated vesting period of the
award.
The effect of the change to estimating forfeitures as it relates to periods
prior to 2006 is reflected in “Cumulative effect of change in accounting
principle, net of tax” in the consolidated statement of earnings. In the three
month period ended March 31, 2006, we recorded a $1.8 million pre-tax, $1.2
million net of tax, gain for the cumulative effect of this accounting
change.
Restricted
Stock Unit Awards
Along
with cash base salaries and performance-based annual cash incentive awards,
restricted stock unit awards represent a primary element of our compensation
program for Company officers, managers and professionals.
Restricted
stock unit activity for the three months ended June 30, 2007 is as
follows:
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Grant
Date
|
|
|
Remaining
|
|
|
Intrinsic
Value
|
|
|
|
(thousands)
|
|
|
Fair
Value
|
|
|
Contractual
Life
|
|
|
($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at March 31, 2007
|
|
|
2,601.6
|
|
|
$ |
51.57
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
63.9
|
|
|
|
106.49
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(17.7 |
) |
|
|
42.47
|
|
|
|
|
|
|
|
|
|
Unvested
at June 30, 2007
|
|
|
2,647.8
|
|
|
$ |
52.96
|
|
|
1.28
years
|
|
|
$ |
160.3
|
|
Restricted
stock unit activity for the six months ended June 30, 2007 is as
follows:
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Grant
Date
|
|
|
Remaining
|
|
|
Intrinsic
Value
|
|
|
|
(thousands)
|
|
|
Fair
Value
|
|
|
Contractual
Life
|
|
|
($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at January 1, 2007
|
|
|
2,116.5
|
|
|
$ |
40.29
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
597.8
|
|
|
|
95.97
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(34.1 |
) |
|
|
30.02
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(32.4 |
) |
|
|
42.62
|
|
|
|
|
|
|
|
|
|
Unvested
at June 30, 2007
|
|
|
2,647.8
|
|
|
$ |
52.96
|
|
|
1.28
years
|
|
|
$ |
160.3
|
|
Unvested
shares expected to vest
|
|
|
2,516.0
|
|
|
$ |
51.96
|
|
|
1.21
years
|
|
|
$ |
154.8
|
|
Compensation
expense for restricted stock units included in the “Compensation and
benefits” line of the consolidated statement of earnings was $9.6 million
and $7.3 million for the three months ended June 30, 2007 and 2006,
respectively, and was $20.7 million and $14.0 million for the six months
ended
June 30, 2007 and 2006, respectively.
As
of
June 30, 2007, there was $63.2 million of remaining unamortized deferred
compensation related to unvested restricted stock units. We expect that this
cost will be recognized over the remaining weighted average contractual life
of
the awards.
Approximately
34,100 restricted stock unit awards vested during the first six months of
2007,
having an aggregate fair value of $3.2 million and intrinsic value of $2.1
million. For the same period in 2006, approximately 13,500 restricted stock
unit
awards vested having an aggregate fair value of $0.7 million and intrinsic
value
of $0.3 million. As a result of these vesting events, we recognized tax benefits
of $1.1 million and $0.2 million for the six months ended June 30, 2007 and
2006, respectively.
Stock
Option Awards
We
have
generally granted stock options at the market value of our common stock at
the
date of grant. Our options vest at such times and conditions as the Compensation
Committee of our Board of Directors determined and set forth in the award
agreement; the most recent options granted (in 2003) vest over periods of
up to
five years. As a result of a change in compensation strategy, we do not
currently use stock option grants as part of our employee compensation programs.
We have not granted stock options since 2003.
Stock
option activity for the three months ending June 30, 2007 is as
follows:
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Weighted
Average
|
|
|
Remaining
|
|
|
Intrinsic
Value
|
|
|
|
(thousands)
|
|
|
Exercise
Price
|
|
|
Contractual
Life
|
|
|
($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2007
|
|
|
235.8
|
|
|
$ |
19.50
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(21.7 |
) |
|
|
19.33
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2007
|
|
|
214.1
|
|
|
$ |
19.52
|
|
|
2.55
years
|
|
|
$ |
20.1
|
|
Stock
option activity for the six months ending June 30, 2007 is as
follows:
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Weighted
Average
|
|
|
Remaining
|
|
|
Intrinsic
Value
|
|
|
|
(thousands)
|
|
|
Exercise
Price
|
|
|
Contractual
Life
|
|
|
($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2007
|
|
|
311.3
|
|
|
$ |
18.28
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(96.2 |
) |
|
|
15.59
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1.0 |
) |
|
|
12.25
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2007
|
|
|
214.1
|
|
|
$ |
19.52
|
|
|
2.55
years
|
|
|
$ |
20.1
|
|
Exercisable
at June 30, 2007
|
|
|
210.9
|
|
|
$ |
19.57
|
|
|
2.50
years
|
|
|
$ |
19.8
|
|
As
of
June 30, 2007, we have approximately 214,100 options outstanding, of which
approximately 3,200 options were unvested. We recognized less than $0.01
million
in compensation expense related to the unvested options for the first six
months
of 2007. Approximately $0.01 million of compensation cost remains to be
recognized on unvested options through 2008.
The
following table summarizes option exercises during the three and six months
ended June 30, 2007 and 2006 ($ in millions):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of options exercised
|
|
|
21,697
|
|
|
|
71,196
|
|
|
|
96,197
|
|
|
|
589,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic
value
|
|
$ |
2.0
|
|
|
|
4.5
|
|
|
|
8.6
|
|
|
|
27.2
|
|
Cash
received from options exercised
|
|
|
1.1
|
|
|
|
1.3
|
|
|
|
4.1
|
|
|
|
12.3
|
|
Tax
benefit realized from option exercises
|
|
|
0.7
|
|
|
|
1.7
|
|
|
|
2.9
|
|
|
|
10.3
|
|
Other
Stock Compensation Programs
U.S.
Employee Stock Purchase Plan - In 1998, we adopted an Employee Stock Purchase
Plan ("ESPP") for eligible U.S.-based employees. Under the current plan,
employee contributions for stock purchases are enhanced by us through an
additional contribution of a 5% discount on the purchase price as of the
end of
a program period; program periods are now three months each. Employee
contributions and our contributions vest immediately. Since its inception,
1,352,972 shares have been purchased under the program through June 30, 2007.
In
the second quarter of 2007, 11,446 shares having a grant date market value
of
$113.50 were purchased under the program. For the six months ended June 30,
2007, 29,966 shares having a weighted average grant date market value of
$107.80
were issued under the program. No compensation expense is recorded with respect
to this program.
UK
SAYE -
In November 2001, we adopted the Jones Lang LaSalle Savings Related Share
Option
(UK) Plan (“Save As You Earn” or “SAYE”) for eligible employees of our UK based
operations. In November 2006, the SAYE plan was extended to employees in
our
Ireland operations. Under this plan, employees make an election to contribute
to
the plan in order that their savings might be used to purchase stock at a
15%
discount provided by the Company. The options to purchase stock with such
savings vest over a period of three or five years. Employees have had the
opportunity to contribute to the plan in 2002, 2005, 2006, and 2007. In the
first quarter of 2007, the Company issued approximately 40,000 options at
an
exercise price of $90.02 under the SAYE plan. The fair values of the options
are
being amortized over their respective vesting periods. The first vesting
of the
2007 options will occur in 2010 with the remaining to vest in 2012.
(9)
Retirement Plans
We
maintain contributory defined benefit pension plans in the United Kingdom,
Ireland and Holland to provide retirement benefits to eligible employees.
It is
our policy to fund the minimum annual contributions required by applicable
regulations. We use a December 31 measurement date for our plans.
Net
periodic pension cost consisted of the following for the three and six months
ended June 30, 2007 and 2006 ($ in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer
service cost - benefits earned during the year
|
|
$ |
1,010
|
|
|
|
996
|
|
|
|
2,000
|
|
|
|
1,745
|
|
Interest
cost on projected benefit obligation
|
|
|
2,624
|
|
|
|
2,258
|
|
|
|
5,204
|
|
|
|
4,427
|
|
Expected
return on plan assets
|
|
|
(3,138 |
) |
|
|
(2,606 |
) |
|
|
(6,224 |
) |
|
|
(5,109 |
) |
Net
amortization/deferrals
|
|
|
495
|
|
|
|
524
|
|
|
|
981
|
|
|
|
1,028
|
|
Recognized
actual loss
|
|
|
19
|
|
|
|
57
|
|
|
|
37
|
|
|
|
111
|
|
Net
periodic pension cost
|
|
$ |
1,010
|
|
|
|
1,229
|
|
|
|
1,998
|
|
|
|
2,202
|
|
We
have
made $3.1 million of payments to our defined benefit pension plans in the
six
month period ending June 30, 2007. We expect to contribute a
total of $5.8 million to our defined benefit pension plans in 2007. We made
$6.4
million of contributions to these plans in the twelve months ended December
31,
2006.
(10)
Earnings Per Share and Net Income Available to Common
Shareholders
We
calculate earnings per share by dividing net income available to common
shareholders by weighted average shares outstanding. To calculate net income
available to common shareholders, we subtract dividend-equivalents (net of
tax)
to be paid on outstanding but unvested shares of restricted stock units from
net
income in the period the dividend is declared. Included
in the calculations of net income available to common shareholders are
dividend-equivalents of $0.7 million net of tax, declared and paid in the
second
quarter of 2007, and $0.5 million net of tax, declared and paid in second
quarter of 2006.
The
difference between basic weighted average shares outstanding and diluted
weighted average shares outstanding is the dilutive impact of common stock
equivalents. Common stock equivalents consist primarily of shares to be issued
under employee stock compensation programs and outstanding stock options
whose
exercise price was less than the average market price of our stock during
these
periods. We did not include in weighted average shares outstanding the 4,970,232
or 4,227,651 shares that had been repurchased as of June 30, 2007 and 2006,
respectively, and which are held by one of our subsidiaries. See Part II,
Item
2. Share Repurchases for additional information.
The
following table details the calculations of basic and diluted earnings per
common share for the three and six months ended June 30, 2007 and 2006 ($
in
thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before cumulative effect of change in accounting
principle
|
|
$ |
78,604
|
|
|
|
66,216
|
|
|
|
105,847
|
|
|
|
69,596
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,180
|
|
Net
income
|
|
$ |
78,604
|
|
|
|
66,216
|
|
|
|
105,847
|
|
|
|
70,776
|
|
Dividends
on unvested common stock, net of tax benefit
|
|
|
672
|
|
|
|
522
|
|
|
|
672
|
|
|
|
522
|
|
Net
income available to common shareholders
|
|
$ |
77,932
|
|
|
|
65,694
|
|
|
|
105,175
|
|
|
|
70,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
31,828,364
|
|
|
|
31,688,327
|
|
|
|
31,878,811
|
|
|
|
31,600,591
|
|
Basic
income per common share before cumulative effect of change in accounting
principle and dividends on unvested common stock
|
|
$ |
2.47
|
|
|
|
2.09
|
|
|
|
3.32
|
|
|
|
2.20
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.04
|
|
Dividends
on unvested common stock, net of tax benefit
|
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
Basic
earnings per common share
|
|
$ |
2.45
|
|
|
|
2.07
|
|
|
|
3.30
|
|
|
|
2.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
33,655,359
|
|
|
|
33,821,945
|
|
|
|
33,664,471
|
|
|
|
33,796,465
|
|
Diluted
income per common share before cumulative effect of change in accounting
principle and dividends on unvested common stock
|
|
$ |
2.34
|
|
|
|
1.96
|
|
|
|
3.14
|
|
|
|
2.06
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.03
|
|
Dividends
on unvested common stock, net of tax benefit
|
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.01 |
) |
Diluted
earnings per common share
|
|
$ |
2.32
|
|
|
|
1.94
|
|
|
|
3.12
|
|
|
|
2.08
|
|
(11)
Comprehensive Income (Loss)
For
the
three and six months ended June 30, 2007 and 2006, comprehensive income was
as
follows ($ in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
78,604
|
|
|
|
66,216
|
|
|
|
105,847
|
|
|
|
70,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
14,163
|
|
|
|
22,762
|
|
|
|
20,178
|
|
|
|
27,142
|
|
Unrealized
holding gain on investments
|
|
|
—
|
|
|
|
2,805
|
|
|
|
—
|
|
|
|
2,805
|
|
Reclassification
adjustment for gain on sale of available-for-sale securities realized
in
net income
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,256 |
) |
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
92,767
|
|
|
|
91,783
|
|
|
|
123,769
|
|
|
|
100,723
|
|
(12)
Commitments and Contingencies
We
are a
defendant in various litigation matters arising in the ordinary course of
business, some of which involve claims for damages that are substantial in
amount. Many of these litigation matters are covered by insurance (including
insurance provided through a captive insurance company), although they may
nevertheless be subject to large deductibles or retentions and the amounts
being
claimed may exceed the available insurance. Although the ultimate liability
for
these matters cannot be determined, based upon information currently available,
we believe the ultimate resolution of such claims and litigation will not
have a
material adverse effect on our financial position, results of operations
or
liquidity.
(13)
Subsequent Event – Business Combinations
In
July
2007, we acquired a 44.8% interest in a firm formerly known as Trammell Crow
Meghraj (“TCM”), one of the largest privately held real estate services
companies in India, for approximately $28.1 million. We have agreed to acquire
the remaining interests in TCM in 2010 and 2012. The acquisition of TCM
significantly expands our presence in the rapidly growing Indian market;
the
combined business will operate under the name Jones Lang LaSalle Meghraj,
with
approximately 2,800 employees in offices in ten cities in India, and 44 million
square feet under management across India. Based on the contractual terms
of the transaction, the financial results of the former TCM will be consolidated
in our consolidated financial statements beginning in the third quarter of
2007.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
The
following discussion and analysis should be read in conjunction with the
consolidated financial statements, including the notes thereto, for the three
and six months ended June 30, 2007, included herein, and Jones Lang LaSalle’s
audited consolidated financial statements and notes thereto for the fiscal
year
ended December 31, 2006, which have been filed with the SEC as part of our
2006
Annual Report on Form 10-K and are also available on our web site
(www.joneslanglasalle.com).
The
following discussion and analysis contains certain forward-looking statements
which are generally identified by the words anticipates, believes, estimates,
expects, plans, intends and other similar expressions. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause Jones Lang LaSalle’s actual results, performance, achievements,
plans and objectives to be materially different from any future results,
performance, achievements, plans and objectives expressed or implied by such
forward-looking statements. See the Cautionary Note Regarding Forward-Looking
Statements in Part II, Item 5. Other Information.
Our
quarterly Management’s Discussion and Analysis is presented in five sections, as
follows:
(1)
A
summary of our critical accounting policies and estimates,
(2)
Certain items affecting the comparability of results and certain market and
other risks that we face,
(3)
The
results of our operations, first on a consolidated basis and then for each
of
our business segments,
(4)
Consolidated cash flows, and
(5)
Liquidity and capital resources.
Summary
of Critical Accounting Policies and Estimates
An
understanding of our accounting policies is necessary for a complete analysis
of
our results, financial position, liquidity and trends. See Note 1 of the
notes
to consolidated financial statements in our 2006 Annual Report on Form 10-K
for
a summary of our significant accounting policies.
The
preparation of our financial statements requires management to make certain
critical accounting estimates that impact the stated amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date
of the
financial statements, and the reported amount of revenues and expenses during
the reporting periods. These accounting estimates are based on management’s
judgment and are considered to be critical because of their significance
to the
financial statements and the possibility that future events may differ from
current judgments, or that the use of different assumptions could result
in
materially different estimates. We review these estimates on a periodic basis
to
ensure reasonableness. Although actual amounts likely differ from such estimated
amounts, we believe such differences are not likely to be material.
Interim
Period Accounting for Incentive Compensation
An
important part of our overall compensation package is incentive compensation,
which we typically pay to our employees in the first quarter of the year
after
it is earned. In our interim financial statements we accrue for most incentive
compensation based on a percentage of compensation costs and an adjusted
operating income recorded to date relative to forecasted compensation costs
and
adjusted operating income for the full year, as substantially all incentive
compensation pools are based upon full year results. As noted in “Interim
Information” of Note 1 of the notes to consolidated financial statements,
quarterly revenues and profits have historically tended to be higher in the
third and fourth quarters of each year than in the first two quarters. The
impact of this incentive compensation accrual methodology is that we accrue
smaller percentages of incentive compensation in the first half of the year,
compared to the percentage of our incentive compensation accrued in the third
and fourth quarters. We adjust the incentive compensation accrual in those
unusual cases where earned incentive compensation has been paid to employees.
Incentive compensation pools that are not subject to the normal performance
criteria are excluded from the standard accrual methodology and accrued for
on a
straight-line basis.
Certain
employees receive a portion of their incentive compensation in the form of
restricted stock units of our common stock. We recognize this compensation
over
the vesting period of these restricted stock units, which has the effect
of
deferring a portion of incentive compensation to later years. We recognize
the
benefit of deferring certain compensation under the stock ownership program
in a
manner consistent with the accrual of the underlying incentive compensation
expense.
Given
that we do not finalize individual incentive compensation awards until after
year-end, we must estimate the portion of the overall incentive compensation
pool that will qualify for this program. This estimation factors in the
performance of the Company and individual business units, together with the
target bonuses for qualified individuals. Then, when we determine, announce
and
pay incentive compensation in the first quarter of the year following that
to
which the incentive compensation relates, we true-up the estimated stock
ownership program deferral and related amortization.
The
table
below sets forth the deferral estimated at December 31, 2006 and 2005, and
the
adjustment made in the first quarter of the following year to true-up the
deferral and related amortization ($ in millions):
|
|
December
31, 2006
|
|
|
December
31, 2005
|
|
|
|
|
|
|
|
|
Deferral
of compensation, net of related amortization expense
|
|
$ |
24.7
|
|
|
|
15.8
|
|
Increase
(decrease) to deferred compensation in the first quarter of the
following
year
|
|
|
1.6
|
|
|
|
(0.3 |
) |
The
table
below sets forth the amortization expense related to the stock ownership
program
for the three and six months ended June 30, 2007 and 2006 ($ in
millions):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
compensation expense amortization for prior year programs
|
|
$ |
6.0
|
|
|
|
4.8
|
|
|
|
13.9
|
|
|
|
9.5
|
|
Current
deferral net of related amortization
|
|
|
(7.8 |
) |
|
|
(9.4 |
) |
|
|
(15.1 |
) |
|
|
(12.9 |
) |
Accounting
for Self-insurance Programs
In
our
Americas business, and in common with many other American companies, we have
chosen to retain certain risks regarding health insurance and workers’
compensation rather than purchase third-party insurance. Estimating our exposure
to such risks involves subjective judgments about future developments. We
supplement our traditional global insurance program by the use of a captive
insurance company to provide professional indemnity and employment practices
insurance on a “claims made” basis. As professional indemnity claims can be
complex and take a number of years to resolve, we are required to estimate
the
ultimate cost of claims.
• Health
Insurance – We self-insure our health benefits for all U.S.-based employees,
although we purchase stop loss coverage on an annual basis to limit our
exposure. We self-insure because we believe that on the basis of our historic
claims experience, the demographics of our workforce and trends in the health
insurance industry, we incur reduced expense by self-insuring our health
benefits as opposed to purchasing health insurance through a third party.
We
estimate our likely full-year cost at the beginning of the year and expense
this
cost on a straight-line basis throughout the year. In the fourth quarter,
we
estimate the required reserve for unpaid health costs we would need at
year-end.
Given
the
nature of medical claims, it may take up to 24 months for claims to be processed
and recorded. The reserve balances for the programs related to 2007 and 2006
are
$9.7 million and $0.5 million, respectively, at June 30, 2007.
The
table
below sets out certain information related to the cost of this program for
the
three and six months ended June 30, 2007 and 2006 ($ in millions):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
to Company
|
|
$ |
3.9
|
|
|
|
3.2
|
|
|
|
7.7
|
|
|
|
6.5
|
|
Employee
contributions
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
1.8
|
|
|
|
1.8
|
|
Adjustment
to prior year reserve
|
|
|
(0.8 |
) |
|
|
(0.3 |
) |
|
|
(1.5 |
) |
|
|
(0.3 |
) |
Total
program cost
|
|
$ |
4.0
|
|
|
|
3.8
|
|
|
|
8.0
|
|
|
|
8.0
|
|
• Workers’
Compensation Insurance – Given our belief, based on historical experience, that
our workforce has experienced lower costs than is normal for our industry,
we
have been self-insured for worker’s compensation insurance for a number of
years. We purchase stop loss coverage to limit our exposure to large, individual
claims. We accrue using various state rates based on job classifications.
On an
annual basis in the third quarter, we engage in a comprehensive analysis
to
develop a range of potential exposure, and considering actual experience,
we
reserve within that range. We accrue for the estimated adjustment to income
for
the differences between this estimate and our reserve. The credits taken to
income through the three months ended June 30, 2007 and 2006 were $0.7 million
and $0.8 million, respectively. The credits taken to income through the six
months ended June 30, 2007 and 2006 were $1.4 million and $1.5 million,
respectively.
The
reserves, which can relate to multiple years, were $10.3 million and $8.4
million, as of June 30, 2007 and December 31, 2006, respectively.
• Captive
Insurance Company – In order to better manage our global insurance program and
support our risk management efforts, we supplement our traditional insurance
program by the use of a wholly-owned captive insurance company to provide
professional indemnity and employment practices liability insurance coverage
on
a “claims made” basis. The level of risk retained by our captive is up to $2.5
million per claim (depending upon the location of the claim) and up to $12.5
million in the aggregate.
Professional
indemnity insurance claims can be complex and take a number of years to resolve.
Within our captive insurance company, we estimate the ultimate cost of these
claims by way of specific claim reserves developed through periodic reviews
of
the circumstances of individual claims, as well as reserves against current
year
exposures on the basis of our historic loss ratio. The increase in the level
of
risk retained by the captive means we would expect that the amount and the
volatility of our estimate of reserves will be increased over time. With
respect
to the consolidated financial statements, when a potential loss event occurs,
management estimates the ultimate cost of the claims and accrues the related
cost in accordance with SFAS 5, “Accounting for Contingencies.”
The
reserves estimated and accrued in accordance with SFAS 5 for self-insurance
facilitated through our captive insurance company, which relate to multiple
years, were $7.2 million and $9.3 million, net of receivables from third
party
insurers, as of June 30, 2007 and December 31, 2006, respectively.
Income
Taxes
We
account for income taxes under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases and of operating
loss and tax credit carryforwards. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable income in
the
years in which those temporary differences are expected to be recovered or
settled. We recognize the effect on deferred tax assets and liabilities of
a
change in tax rates in income in the period that includes the enactment
date.
Because
of the global and cross border nature of our business, our corporate tax
position is complex. We generally provide for taxes in each tax jurisdiction
in
which we operate based on local tax regulations and rules. Such taxes are
provided on net earnings and include the provision of taxes on substantively
all
differences between financial statement amounts and amounts used in tax returns,
excluding certain non-deductible items and permanent differences.
Our
global effective tax rate is sensitive to the complexity of our operations as
well as to changes in the mix of our geographic profitability, as local
statutory tax rates range from 10% to 42% in the countries in which we have
significant operations. We evaluate our estimated effective tax rate
on a quarterly basis to reflect forecasted changes in:
|
(i)
|
Our
geographic mix of income,
|
|
(ii)
|
Legislative
actions on statutory tax rates,
|
|
(iii)
|
The
impact of tax planning to reduce losses in jurisdictions where
we cannot
recognize the tax benefit of those losses,
and
|
|
(iv)
|
Tax
planning for jurisdictions affected by double
taxation.
|
We
continuously seek to develop and implement potential strategies and/or actions
that would reduce our overall effective tax rate. We reflect the benefit
from
tax planning actions when we believe that they meet the recognition criteria
under FIN 48, which usually requires that certain actions have been initiated.
We provide for the effects of income taxes on interim financial statements
based
on our estimate of the effective tax rate for the full year.
Based
on
our forecasted results for the full year, we have estimated an effective
tax
rate of 26.7% for 2007. We believe that this is an achievable rate due to
the
mix of our income and the impact of tax planning activities. For the six
months
ended June 30, 2006, we used an effective tax rate of 25.9%. The Company’s
effective tax rate for 2006 was 26.7%.
Items
Affecting Comparability
LaSalle
Investment Management Revenues
Our
money
management business is in part compensated through the receipt of incentive
fees
where performance of underlying funds’ investments exceeds agreed-to benchmark
levels. Depending upon performance and the contractual timing of measurement
periods with clients, these fees can be significant and vary substantially
from
period to period.
“Equity
in earnings (losses) from real estate ventures” may also vary substantially from
period to period for a variety of reasons, including as a result of: (i)
impairment charges, (ii) realized gains on asset dispositions, or (iii)
incentive fees recorded as equity earnings. The timing of recognition of
these
items may impact comparability between quarters, in any one year, or compared
to
a prior year.
The
comparability of these items can be seen in Note 4 of the notes to consolidated
financial statements and is discussed further in Segment Operating Results
included herein.
IOS
Revenues
Expansion
of our real estate investment banking and other capital markets activities
within our Investor and Occupier Services businesses will tend to increase
the
revenues we receive that relate to the size and timing of our clients’
transactions. As we attempt to continue to expand these services, we would
also
expect the timing of recognition of these items to increasingly impact
comparability between quarters, in any one year, or compared to a prior
year.
Foreign
Currency
We
conduct business using a variety of currencies, and most of our revenue is
from
currencies other than U.S. dollars, but we report our results in U.S. dollars.
As a result, our reported results may be positively or negatively impacted
by
the volatility of currencies against the U.S. dollar. This volatility can
make
it more difficult to perform period-to-period comparisons of the reported
U.S.
dollar results of operations, as such results demonstrate a growth rate that
might not have been consistent with the real underlying growth rate in the
local
operations. We therefore provide information about the impact of foreign
currencies in the period-to-period comparisons of the reported results of
operations in our discussion and analysis of financial condition in the Results
of Operations section below.
Seasonality
Our
revenue and profits tend to be significantly higher in the third and fourth
quarters of each year than in the first two quarters. This is the result
of a
general focus in the real estate industry on completing or documenting
transactions by calendar-year-end and the fact that certain expenses are
constant throughout the year. Our Investment Management segment earns
investment-generated performance fees on clients’ real estate investment returns
and co-investment equity gains, generally when assets are sold, the timing
of
which is geared towards the benefit of our clients. Within our IOS segments,
expansion of capital markets activities has an increasing impact on
comparability between reporting periods, as the timing of recognition of
revenues relates to the size and timing of our clients’ transactions.
Non-variable operating expenses, which are treated as expenses when they
are
incurred during the year, are relatively constant on a quarterly basis. As
a
result, the results for the periods ended June 30, 2007 and 2006 are not
indicative of the results to be obtained for the full fiscal year.
Results
of Operations
Reclassifications
We
report
“Equity in earnings (losses) from real estate ventures” in the consolidated
statement of earnings after “Operating income (loss).” However, for segment
reporting we reflect “Equity in earnings (losses) from real estate ventures”
within “Total revenue.” See Note 4 of the notes to consolidated financial
statements for “Equity in earnings (losses) from real estate ventures” reflected
within segment revenues, as well as discussion of how the Chief Operating
Decision Maker (as defined in Note 4) measures segment results with “Equity in
earnings (losses) from real estate ventures” included in segment
revenues.
Three
and Six Months Ended June 30, 2007 Compared to Three and Six Months Ended
June
30, 2006
In
order
to provide more meaningful year-to-year comparisons of the reported results,
we
have included in the table below the U.S. dollar and local currency movements
in
the consolidated statements of earnings ($ in millions).
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
in U.S. Dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
676.1
|
|
|
$ |
509.8
|
|
|
$ |
166.3
|
|
|
|
33 |
% |
|
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
436.3
|
|
|
|
318.4
|
|
|
|
117.9
|
|
|
|
37 |
% |
|
|
33 |
% |
Operating,
administrative and other
|
|
|
126.5
|
|
|
|
96.9
|
|
|
|
29.6
|
|
|
|
31 |
% |
|
|
25 |
% |
Depreciation
and amortization
|
|
|
12.3
|
|
|
|
10.4
|
|
|
|
1.9
|
|
|
|
18 |
% |
|
|
15 |
% |
Restructuring
credits
|
|
|
-
|
|
|
|
(0.2 |
) |
|
|
0.2
|
|
|
|
n.m.
|
|
|
|
n.m.
|
|
Total
operating expenses
|
|
|
575.1
|
|
|
|
425.5
|
|
|
|
149.6
|
|
|
|
35 |
% |
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
101.0
|
|
|
$ |
84.3
|
|
|
$ |
16.7
|
|
|
|
20 |
% |
|
|
19 |
% |
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,166.1
|
|
|
$ |
846.9
|
|
|
$ |
319.3
|
|
|
|
38 |
% |
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
761.9
|
|
|
|
549.6
|
|
|
|
212.3
|
|
|
|
39 |
% |
|
|
34 |
% |
Operating,
administrative and other
|
|
|
242.3
|
|
|
|
184.6
|
|
|
|
57.7
|
|
|
|
31 |
% |
|
|
26 |
% |
Depreciation
and amortization
|
|
|
24.9
|
|
|
|
20.4
|
|
|
|
4.6
|
|
|
|
23 |
% |
|
|
18 |
% |
Restructuring
credits
|
|
|
(0.4 |
) |
|
|
(0.7 |
) |
|
|
0.3
|
|
|
|
n.m.
|
|
|
|
n.m.
|
|
Total
operating expenses
|
|
|
1,028.7
|
|
|
|
753.9
|
|
|
|
274.9
|
|
|
|
36 |
% |
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
137.4
|
|
|
$ |
93.0
|
|
|
$ |
44.4
|
|
|
|
48 |
% |
|
|
47 |
% |
(n.m.
–
not meaningful)
Revenue
for the second quarter of 2007 was $676.1 million, an increase of $166.3
million, or 33% in U.S. dollars and 29% in local currencies. For the first
half
of the year, revenue was $1,166.1 million, an increase of $319.3 million,
or 38%
in U.S. dollars and 33% in local currencies. Positive returns from strategic
investments made in 2005 and 2006 and continued favorable market conditions,
together with the size and timing of transactions, led to strong operating
performance from all segments. The second quarter of 2007 included a significant
transaction advisory fee earned in the Asia Pacific Hotels business. The
2006
second quarter results included a $109.5 million incentive fee earned by
our
money management business, LaSalle Investment Management. The Asia Pacific
region had the strongest revenue and operating income growth, driven by the
significant hotel transaction advisory fee. The Americas and EMEA regions
continued to deliver solid growth for both the second quarter and first six
months of 2007, and LaSalle Investment Management generated healthy increases
in
advisory fee revenue earned from assets under management along with significant
incentive fees from performance for clients.
Operating
expenses were $575.1 million for the second quarter of 2007, an increase
of 35%
in U.S. dollars and 31% in local currencies. Operating expenses for the first
half of the year were $1,028.7 million, an increase of 36% in U.S. dollars
and 31% in local currencies. Continued additions to capital markets and leasing
teams, additional client-service staff, and the expansion of offices contributed
to the increase in operating expenses. Higher accrued incentive compensation
costs related to the strong revenue and profit performance also resulted
in an
increase to operating expenses.
Interest
expense, net of interest income, decreased $0.6 million, or 14%, in the second
quarter and $2.0 million, or 26%, for the first six months of 2007. Average
debt balances were higher in the first six months of 2006 primarily due to
the financing of the Spaulding & Slye acquisition in January
2006.
In
2007,
the Company recognized gains of $3.7 million in the second quarter and $6.1
million in the first six months of 2007 for the sale of investments in LoopNet
in the first quarter and SiteStuff, Inc. in the second quarter.
The
effective tax rate for both the second quarter and first six months was 26.7%
and 25.9% for 2007 and 2006, respectively. The 26.7% effective tax rate is
consistent with our full year 2006 effective tax rate and reflects our expected
full year 2007 effective tax rate as a result of continued discipline in
managing our global tax position.
Segment
Operating Results
We
manage
and report our operations as four business segments:
|
(i)
|
Investment
Management, which offers money management services on a global
basis,
and
|
|
The
three geographic regions of Investor and Occupier Services
("IOS"):
|
|
(iii)
|
Europe,
Middle East and Africa (“EMEA”) and
|
The
Investment Management segment provides money management services to
institutional investors and high-net-worth individuals. Each geographic region
offers our full range of Investor Services, Capital Markets and Occupier
Services. The IOS business consists primarily of tenant representation and
agency leasing, capital markets, real estate investment banking and valuation
services (collectively "transaction services") and property management,
facilities management, project and development management and construction
management services (collectively "management services").
We
have
not allocated “Restructuring credits” to the business segments for segment
reporting purposes; therefore, these costs are not included in the discussions
below. Also, for segment reporting we show “Equity in earnings (losses) from
real estate ventures” within our revenue line, especially since it is a very
integral part of our Investment Management segment.
Investor
and Occupier Services
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
($
in millions)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
179.0
|
|
|
$ |
134.4
|
|
|
$ |
44.6
|
|
|
|
33 |
% |
Operating
expense
|
|
|
159.9
|
|
|
|
126.6
|
|
|
|
33.3
|
|
|
|
26 |
% |
Operating
income
|
|
$ |
19.1
|
|
|
$ |
7.8
|
|
|
$ |
11.3
|
|
|
|
|
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
327.3
|
|
|
$ |
247.5
|
|
|
$ |
79.8
|
|
|
|
32 |
% |
Operating
expense
|
|
|
301.7
|
|
|
|
240.5
|
|
|
|
61.2
|
|
|
|
25 |
% |
Operating
income
|
|
$ |
25.6
|
|
|
$ |
7.0
|
|
|
$ |
18.6
|
|
|
|
|
|
In
the
Americas region, revenue for the second quarter of 2007 was $179.0 million,
an
increase of 33% over the prior year. Year-to-date revenue was $327.3 million,
an
increase of 32% over the same period in 2006. Revenue growth in the second
quarter was driven both by management services, which grew 33%, and transaction
services, which grew 28%. On a year-to-date basis, management services and
transaction services revenue increased 24% and 37%, respectively, over the
prior
year.
The
current quarter’s revenue growth benefited from an increased number of large
transactions in both local markets and capital markets. Second-quarter capital
markets revenue increased 69% over the prior year reflecting the successful
investments made over the past two years. Higher volumes in the project and
development service business also contributed to the growth.
Total
operating expenses for the quarter and year to date increased 26% and 25%,
respectively, over the prior year due to the addition of a significant number
of
staff and higher incentive compensation expenses driven by growth in both
revenue-generating activities and profit performance.
EMEA
($
in millions)
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
in U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
197.0
|
|
|
$ |
136.0
|
|
|
$ |
61.0
|
|
|
|
45 |
% |
|
|
35 |
% |
Operating
expense
|
|
|
181.8
|
|
|
|
130.7
|
|
|
|
51.1
|
|
|
|
39 |
% |
|
|
30 |
% |
Operating
income
|
|
$ |
15.2
|
|
|
$ |
5.3
|
|
|
$ |
9.9
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
in U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
373.9
|
|
|
$ |
239.3
|
|
|
$ |
134.6
|
|
|
|
56 |
% |
|
|
44 |
% |
Operating
expense
|
|
|
344.0
|
|
|
|
238.9
|
|
|
|
105.1
|
|
|
|
44 |
% |
|
|
33 |
% |
Operating
income
|
|
$ |
29.9
|
|
|
$ |
0.4
|
|
|
$ |
29.5
|
|
|
|
|
|
|
|
|
|
EMEA’s
second-quarter revenue was $197.0 million, an increase of 45%, and $373.9
million for the first half of the year, an increase of 56% over 2006, with
robust growth across all businesses. Transaction services revenue grew 45%
for
the quarter and 59% year to date over the prior year, while management services
revenue grew approximately 55% for both the second quarter and first half
of the
year.
Transaction
services revenue benefited from capital markets activities, for which revenues
increased 45% and 77% for the quarter and first half of the year, respectively,
driven by increased market share and continued favorable market activity.
Agency
leasing revenue increased 36% for the quarter and 30% for the first half
of the
year. Advisory services revenue, which increased 95% for the quarter and
84% for
the first half of the year over 2006, contributed to the growth in management
services.
Geographically,
England and Russia contributed to the region’s growth for both the quarter and
year-to-date. England’s revenue increased 55% and 40% for the second quarter and
first half of the year, respectively, compared with 2006, benefiting from
the
investments made in 2006 and healthy growth in management services. Russia’s
revenue nearly tripled for both the quarter and first half of the year over
the
prior year driven by the increased volume of valuations completed. Revenue
in
Germany more than doubled over the prior year on a year-to-date basis with
all
other countries providing solid year-over-year revenue growth.
Two
strategic acquisitions were completed during the second quarter of 2007.
The
firm joined forces with Troostwijk Makelaars, one of the leading and fastest
growing independent property advisors in the Netherlands, and the English
business expanded its operations with the acquisition of KHK Group, a national
54-person project and development services business.
Operating
expenses in 2007 increased by 39% for the second quarter of 2007 compared
with
the prior year, and increased 44% for the first half of the year. The increase
was primarily due to acquisitions, staff additions to service clients and
grow
market share, and increased incentive compensation resulting from improved
revenue and profit performance.
Asia
Pacific
($
in millions)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
in U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
211.2
|
|
|
$ |
76.4
|
|
|
$ |
134.8
|
|
|
|
n.m.
|
|
|
|
n.m.
|
|
Operating
expense
|
|
|
167.0
|
|
|
|
73.5
|
|
|
|
93.5
|
|
|
|
n.m.
|
|
|
|
n.m.
|
|
Operating
income
|
|
$ |
44.2
|
|
|
$ |
2.9
|
|
|
$ |
41.3
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
in U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
297.6
|
|
|
$ |
134.3
|
|
|
$ |
163.3
|
|
|
|
n.m.
|
|
|
|
n.m
|
|
Operating
expense
|
|
|
256.3
|
|
|
|
132.1
|
|
|
|
124.2
|
|
|
|
n.m.
|
|
|
|
n.m.
|
|
Operating
income
|
|
$ |
41.3
|
|
|
$ |
2.2
|
|
|
$ |
39.1
|
|
|
|
|
|
|
|
|
|
(n.m.
–
not meaningful; change greater than 100%)
Revenue
for the Asia Pacific region was $211.2 million for the second quarter, and
$297.6 million for the first half of 2007, a significant increase over the
prior
year. The growth was driven by the Asia Pacific Hotels business recognizing
a
transaction advisory fee on the sale of an All Nippon Airways (ANA) portfolio
of
13 Japanese assets. This transaction was the latest phase of a long-established
global relationship with this client and followed the Firm’s advisory role in
the innovative ANA-InterContinental Hotels Group joint venture in
2006.
The
region accelerated its momentum with healthy top-line growth in both transaction
and management services revenue. Geographically, the second-quarter revenue
contributions came equally from growth markets (India, Japan, China and Korea)
and core markets (Hong Kong, Singapore and Australia). Revenue from the growth
markets more than doubled, led by Japan and India, while revenue for the
core
markets increased 45%, led by Singapore and Australia. On a year-to-date
basis,
revenue from the growth markets was up over 100% and core markets’ revenue
increased 34% compared with the same period in 2006.
Operating
expenses for the region increased as a result of higher incentive compensation
driven by the hotel transaction advisory fee and continued expansion of the
operating platform.
Investment
Management
($
in millions)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
Decrease
in U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
89.5
|
|
|
$ |
164.7
|
|
|
$ |
(75.2 |
) |
|
|
(46 |
%) |
|
|
(46 |
%) |
Equity
earnings
|
|
|
5.7
|
|
|
|
7.9
|
|
|
|
(2.2 |
) |
|
|
(28 |
%) |
|
|
(28 |
%) |
Total
revenue
|
|
|
95.2
|
|
|
|
172.6
|
|
|
|
(77.4 |
) |
|
|
(45 |
%) |
|
|
(45 |
%) |
Operating
expense
|
|
|
66.4
|
|
|
|
94.8
|
|
|
|
(28.4 |
) |
|
|
(30 |
%) |
|
|
(31 |
%) |
Operating
income
|
|
$ |
28.8
|
|
|
$ |
77.8
|
|
|
$ |
(49.0 |
) |
|
|
|
|
|
|
|
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
Decrease
in U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
167.9
|
|
|
$ |
227.6
|
|
|
$ |
(59.7 |
) |
|
|
(26 |
%) |
|
|
(27 |
%) |
Equity
earnings
|
|
|
6.0
|
|
|
|
6.8
|
|
|
|
(0.8 |
) |
|
|
(12 |
%) |
|
|
(12 |
%) |
Total
revenue
|
|
|
173.9
|
|
|
|
234.4
|
|
|
|
(60.5 |
) |
|
|
(26 |
%) |
|
|
(27 |
%) |
Operating
expense
|
|
|
127.1
|
|
|
|
143.0
|
|
|
|
(15.9 |
) |
|
|
(11 |
%) |
|
|
(13 |
%) |
Operating
income
|
|
$ |
46.8
|
|
|
$ |
91.4
|
|
|
$ |
(44.6 |
) |
|
|
|
|
|
|
|
|
LaSalle
Investment Management’s revenue for the second quarter of 2007 was $95.2 million
and $173.9 million for the first half of 2007. Excluding the revenue impact
of
the $109.5 million incentive fee recognized in the second quarter of 2006,
revenue for the second quarter of 2007 increased 51%, while for the first
half
of the year revenue increased 39%. The growth of annuity-based revenue continues
to remain strong, with advisory fees of $54.3 million for the second quarter
of
2007, compared with $43.1 million in 2006, an increase of 26% over the prior
year and an increase of 33% percent, to $108.2 million, on a year-to-date
basis.
The growth in the annuity revenue was driven by a continued healthy increase
in
assets under management, which were nearly $46 billion at the end of the
second
quarter of 2007, an increase of 26% over the prior year.
Incentive
fees were $29.8 million for the second quarter of 2007, and $51.7 million
for
the first half of 2007. Incentive fee are usually recognized when the Firm
liquidates maturing funds which it manages. The Firm continues to build a
portfolio capable of producing incentive fees on a recurring basis. Incentive
fees vary significantly from period to period due to both the performance
of the
underlying investments and the contractual timing of the measurement periods
for
clients.
LaSalle
Investment Management raised over $2.8 billion of client equity during the
second quarter of 2007. Global securities mandates accounted for approximately
50 percent of the year-to-date capital raise of $4.2 billion. Investments
made
on behalf of clients in the second quarter of 2007 were $2.1 billion, bringing
the total investments to $3.4 billion on a year to date basis.
Consolidated
Cash Flows
Cash
Flows From Operating Activities
During
the six months ended June 30, 2007, cash flows generated from operating
activities totaled $20.3 million, a $52.3 million increase in cash flows
from
the $32.0 million used for operating activities in the first six months of
2006.
The increase in cash flows was primarily a result of the $35.1 million
increase in net income and a favorable change in working capital, primarily
due
to a decrease in accounts receivable, but largely offset by a decrease in
accounts payable, accrued liabilities, and accrued compensation. In the first
six months of 2007, accounts receivable decreased $27.1 million, a $146.9
million increase in cash flows from the $119.8 million increase in accounts
receivable in the first six months of 2006. This favorable decrease in accounts
receivable was primarily due to the timing of LaSalle Investment Management’s
second quarter 2006 $109.5 million incentive fee that was included in Trade
receivables at June 30, 2006. Accounts payable, accrued liabilities and accrued
compensation decreased $152.6 million in the first six months of 2007, a
$136.4
million decrease in cash flows from the $16.2 million decrease in the first
six
months of 2006. This decrease in cash flows was primarily due to higher bonus
payments made in the first quarter of 2007 compared to bonus payments made
in
the first quarter of 2006.
Cash
Flows From Investing Activities
We
used
$108.7 million of cash in investing activities in the first six months of
2007,
a $114.3 million decrease from the $223.0
million used in the first six months of 2006. The decrease is principally
due to
$101.7 million more cash used to facilitate business acquisitions in the
first
six months of 2006. In the first six months of 2006, we used $168.4 million
for
the acquisitions of Spaulding & Slye, Rogers Chapman and The Littman
Partnership. In the first six months of 2007, we used $66.7 million to
facilitate acquisitions, including the NSC Corporate, Hargreaves Goswell,
Troostwijk Makelaars, and KHK Group transactions which closed in the six
months
ended June 30, as well as the issuance of a note to facilitate a portion
of the
44.8% purchase of Trammell Crow Meghraj completed in July. The decrease in
cash
used for business acquisitions was partially offset by a $16.9 million increase
in cash used for net property and equipment additions in the first six months
of
2007 compared with the first six months of 2006.
Cash
Flows From Financing Activities
Financing
activities provided $75.3 million of net cash in the first six months of
2007
compared with $250.3 million in the first six months of 2006. The $175.0
million
decrease in cash provided by financing activities from 2006 was primarily
the
result of a net $153.7 million decrease in borrowing under the Company’s credit
facilities. This decrease in borrowing was primarily due to use of the Company’s
credit facilities in 2006 to finance the acquisition of Spaulding & Slye.
Also, proceeds from stock issued under employee stock option and stock purchase
programs decreased by $11.5 million over the comparable six-month periods,
as
more stock options were exercised by employees in the six months ended June
30,
2006 when compared with the six months ended June 30, 2007. Activities under
our
Board-approved share repurchase (purchases of $21.8 million and $20.4 million
of
shares in the first six months of 2007 and 2006, respectively) and dividend
programs (payments of $12.1 million and $8.6 million in the first six months
of
2007 and 2006, respectively) were relatively comparable between
years.
Liquidity
and Capital Resources
Historically,
we have financed our operations, acquisitions and co-investment activities
with
internally generated funds, issuances of our common stock and borrowings
under
our credit facilities.
Credit
Facility
On
June
6, 2007, we amended our unsecured revolving credit facility to increase the
facility to $575 million, improve the pricing, extend the term to June 2012
and
modify other terms of the agreement. Pricing on the $575 million facility
now
ranges from LIBOR plus 47.5 basis points to LIBOR plus 80 basis points. As
of
June 30, 2007, our pricing on the revolving credit facility was LIBOR plus
47.5
basis points. This facility will continue to be utilized for working capital
needs (including payment of accrued bonus compensation during the first quarter
of each year), co-investment activity, share repurchases and dividend payments,
capital expenditures and acquisitions. Interest and principal payments on
outstanding borrowings against the facility will fluctuate based on our level
of
borrowing needs. We also have capacity to borrow up to an additional $46.3
million under local overdraft facilities.
As
of
June 30, 2007, we had $117.7 million outstanding under the revolving credit
facility. The average borrowing rate on the revolving credit agreement was
5.6%
in the second quarter of 2007, as compared with an average borrowing rate
of
5.2% in the second quarter of 2006. We also had short-term borrowings (including
capital lease obligations) of $30.2 million outstanding at June 30, 2007,
with
$17.3 million of those borrowings attributable to local overdraft
facilities.
With
respect to the revolving credit facility, we must maintain a consolidated
net
worth of at least $600 million, a leverage ratio not exceeding 3.5 to 1,
and a
minimum interest coverage ratio of 2.5 to 1. Additionally, we are restricted
from, among other things, incurring certain levels of indebtedness to lenders
outside of the facility and disposing of a significant portion of our assets.
Lender approval or waiver is required for certain levels of co-investment
and
acquisition. We are in compliance with all covenants as of June 30,
2007.
The
revolving credit facility bears variable rates of interest based on market
rates. We are authorized to use interest rate swaps to convert a portion
of the
floating rate indebtedness to a fixed rate; however, none were used during
2006
or the first six months of 2007, and none were outstanding as of June 30,
2007.
We
believe that the revolving credit facility, together with local borrowing
facilities and cash flow generated from operations, will provide adequate
liquidity and financial flexibility to meet our needs to fund working capital,
co-investment activity, share repurchases and dividend payments, capital
expenditures and acquisitions.
Co-investment
Activity
With
respect to our co-investment activity, we had total investments and loans
of
$130.7 million as of June 30, 2007 in approximately 30 separate property
or fund
co-investments. Within this $130.7 million are loans of $3.5 million to real
estate ventures which bear an 8.0% interest rate and are to be repaid by
2008.
We
utilize two investment vehicles to facilitate the majority of our co-investment
activity. LaSalle Investment Company I (“LIC I”) is a series of four parallel
limited partnerships which serve as our investment vehicle for substantially
all
co-investment commitments made through December 31, 2005. LIC I is fully
committed to underlying real estate ventures. At June 30, 2007, our maximum
potential unfunded commitment to LIC I is euro 33.4 million ($45.3
million). LaSalle Investment Company II (“LIC II”), formed in January 2006,
is comprised of two parallel limited partnerships which serve as our investment
vehicle for most new co-investments. At June 30, 2007, LIC II has
unfunded capital commitments for future fundings of co-investments of $308.2
million, of which our 48.78% share is $150.3 million. The $150.3 million
commitment is part of our maximum potential unfunded commitment to LIC II
at June 30, 2007 of $454.0 million.
LIC
I and
LIC II invest in certain real estate ventures that own and operate commercial
real estate. We have an effective 47.85% ownership interest in LIC I, and
an effective 48.78% ownership interest in LIC II; primarily institutional
investors hold the remaining 52.15% and 51.22% interests in LIC I and LIC
II,
respectively. We account for our investments in LIC I and LIC II under the
equity method of accounting in the accompanying consolidated financial
statements. Additionally, a non-executive Director of Jones Lang LaSalle
is an
investor in LIC I on equivalent terms to other investors.
LIC
I’s
and LIC II’s exposures to liabilities and losses of the ventures are limited to
their existing capital contributions and remaining capital commitments. We
expect that LIC I will draw down on our commitment over the next three to
five
years to satisfy its existing commitments to underlying funds, and we expect
that LIC II will draw down on our commitment over the next four to eight
years as it enters into new commitments. Our Board of Directors has endorsed
the
use of our co-investment capital in particular situations to control or bridge
finance existing real estate assets or portfolios to seed future investments
within LIC II. The purpose is to accelerate capital raising and growth in
assets
under management. Approvals for such activity are handled consistently with
those of the Firm’s co-investment capital.
As
of
June 30, 2007, LIC I maintains a euro 25 million ($33.9 million) revolving
credit facility (the "LIC I Facility"), and LIC II maintains a $200 million
revolving credit facility (the "LIC II Facility"), principally for their
working
capital needs. The capacity in the LIC II Facility contemplates potential
bridge
financing opportunities. Each facility contains a credit rating trigger and
a
material adverse condition clause. If either of the credit rating trigger
or the
material adverse condition clauses become triggered, the facility to which
that
condition relates would be in default and outstanding borrowings would need
to
be repaid. Such a condition would require us to fund our pro-rata share of
the
then outstanding balance on the related facility, which is the limit of our
liability. The maximum exposure to Jones Lang LaSalle, assuming that the
LIC I
Facility were fully drawn, would be euro 12.0 million ($16.2 million); assuming
that the LIC II Facility were fully drawn, the maximum exposure to Jones
Lang
LaSalle would be $97.6 million. Each exposure is included within and cannot
exceed our maximum potential unfunded commitments to LIC I of euro 33.4 million
($45.3 million) and to LIC II of $454 million. As of June 30, 2007, LIC I
had
euro 5.4 million ($7.3 million) of outstanding borrowings on the LIC I Facility,
and LIC II had $7.5 million of outstanding borrowings on the LIC II
Facility.
Exclusive
of our LIC I and LIC II commitment structures, we have potential obligations
related to unfunded commitments to other real estate ventures, the maximum
of
which is $12.9 million at June 30, 2007.
We
expect
to continue to pursue co-investment opportunities with our real estate money
management clients in the Americas, EMEA and Asia Pacific, as co-investment
remains very important to the continued growth of Investment Management.
The net
co-investment funding for 2007 is anticipated to be between $50 and $60 million
(planned co-investment less return of capital from liquidated
co-investments).
Share
Repurchase and Dividend Programs
We
repurchased 220,581 shares in the first six months of 2007 at an average
price
of $98.90 per share under a share repurchase program approved by our Board
of
Directors on September 15, 2005. Board approval allows for purchase of our
outstanding common stock in the open market and in privately negotiated
transactions. Under our current share repurchase program, we are authorized
to
repurchase up to 2,000,000 shares, of which 1,641,681 total shares have been
repurchased through June 30, 2007. The repurchase of shares is primarily
intended to offset dilution resulting from both stock and stock option grants
made under our existing stock plans. Given that shares repurchased under
each of
the programs are not cancelled, but are held by one of our subsidiaries,
we
include them in our equity account. However, these shares are excluded from
our
share count for purposes of calculating earnings per share. We have repurchased
a total of 4,970,232 shares since the first repurchase program approved by
our
Board of Directors on October 30, 2002. See Part II, Item 2, for additional
details regarding our share repurchase activity in the first six months of
2007.
In
May
2007, the Company’s Board of Directors declared a semi-annual cash dividend of
$0.35 per common share. Dividend payments totaling $12.1 million were made
on
June 15, 2007 to holders of record at the close of business on May 15, 2007.
This includes a dividend-equivalent of $0.35 per share paid simultaneously
on
outstanding but unvested shares of restricted stock units granted under the
Company’s Stock Award and Incentive Plan, resulting in $0.9 million of
dividend-equivalent payments. The current dividend plan approved by the Board
anticipates a total annual dividend of $0.70 per common share, however there
can
be no assurance that future dividends will be declared since the actual
declaration of future dividends and the establishment of record and payment
dates remains subject to final determination by the Company's Board of
Directors.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Market
and Other Risk Factors
Market
Risk
The
principal market risks (namely, the risk of loss arising from adverse changes
in
market rates and prices) to which we are exposed are:
•
|
Interest
rates on our multi-currency credit facility;
and
|
In
the
normal course of business, we manage these risks through a variety of
strategies, including the use of hedging transactions using various derivative
financial instruments such as foreign currency forward contracts. We enter
into
derivative instruments with high credit quality counterparties and diversify
our
positions across such counterparties in order to reduce our exposure to credit
losses. We do not enter into derivative transactions for trading or speculative
purposes.
Interest
Rates
We
centrally manage our debt, considering investment opportunities and risks,
tax
consequences and overall financing strategies. We are primarily exposed to
interest rate risk on our revolving multi-currency credit facility that is
available for working capital, investments, capital expenditures and
acquisitions. Our average outstanding borrowings under the revolving credit
facility were $275.1 million during the three months ended June 30, 2007,
and
the effective interest rate on that facility was 5.6%. As of June 30, 2007,
we
had $117.7 million outstanding under the revolving credit facility. This
facility bears a variable rate of interest based on market rates. The interest
rate risk management objective is to limit the impact of interest rate changes
on earnings and cash flows and to lower overall borrowing costs. To achieve
this
objective, in the past we have entered into derivative financial instruments
such as interest rate swap agreements when appropriate and may do so in the
future. We entered into no such agreements in 2006 or the first six months
of
2007, and we had no such agreements outstanding at June 30, 2007.
Foreign
Exchange
Foreign
exchange risk is the risk that we will incur economic losses due to adverse
changes in foreign currency exchange rates. Our revenues outside of the United
States totaled 64% and 49% of our total revenues for the six months of 2007
and
2006, respectively. Operating in international markets means that we are
exposed
to movements in foreign exchange rates, primarily the British pound (17%
of
revenues for the six months of 2007) and the euro (16% of revenues for the
first
six months of 2007).
We
mitigate our foreign currency exchange risk principally by establishing local
operations in the markets we serve and invoicing customers in the same currency
as the source of the costs. The British pound expenses incurred as a result
of
our European region headquarters being located in London act as a partial
operational hedge against our translation exposure to British
pounds.
We
enter
into forward foreign currency exchange contracts to manage currency risks
associated with intercompany loan balances. At June 30, 2007, we had forward
exchange contracts in effect with a gross notional value of $596.6 million
($572.5 million on a net basis) with a market and carrying gain of $5.6 million.
This carrying gain is offset by a carrying loss in associated intercompany
loans
such that the net impact to earnings is not significant.
Disclosure
of Limitations
As
the
information presented above includes only those exposures that exist as of
June
30, 2007, it does not consider those exposures or positions which could arise
after that date. The information represented herein has limited predictive
value. As a result, the ultimate realized gain or loss with respect to interest
rate and foreign currency fluctuations will depend on the exposures that
arise
during the period, the hedging strategies at the time and interest and foreign
currency rates.
For
other
risk factors inherent in our business, see Item 1A. Risk Factors in our 2006
Annual Report on Form 10-K.
Jones
Lang LaSalle (the Company) has established disclosure controls and procedures
to
ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to the officers who certify the
Company’s financial reports and to the members of senior management and the
Board of Directors.
Under
the
supervision and with the participation of the Company’s management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).
Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of
the
end of the period covered by this report. There were no changes in the Company’s
internal control over financial reporting during the quarter ended June 30,
2007
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.
Part
II
See
Note
12 of the notes to consolidated financial statements for discussion of the
Company’s legal proceedings.
There
have been no material changes to our risk factors as previously disclosed
in our
Form 10-K for the year ended December 31, 2006.
The
following table provides information with respect to approved share repurchase
programs for Jones Lang LaSalle:
|
|
Total
number
of
shares
purchased
|
|
|
Average
price
paid
per
share
(1)
|
|
|
Cumulative
number
of shares
purchased
as
part
of publicly
announced
plan
|
|
|
Shares
remaining
to
be
purchased
under
plan (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
January
31, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
1,421,100
|
|
|
|
578,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
28, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
1,421,100
|
|
|
|
578,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
|
220,581
|
|
|
$ |
98.90
|
|
|
|
1,641,681
|
|
|
|
358,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
30, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
1,641,681
|
|
|
|
358,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
31, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
1,641,681
|
|
|
|
358,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
1,641,681
|
|
|
|
358,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
220,581
|
|
|
$ |
98.90
|
|
|
|
|
|
|
|
|
|
(1) Total
average price paid per share is a weighted average for the six month
period.
(2) Since
October 2002, our Board of Directors has approved four share repurchase
programs. Each succeeding program has replaced the prior repurchase program,
such that the program approved on September 15, 2005 is the only repurchase
program in effect as of June 30, 2007. Board approval allows for purchase
of our
outstanding common stock in the open market and in privately negotiated
transactions. The repurchase of shares is primarily intended to offset dilution
resulting from both stock and stock option grants made under our existing
stock
plans. Given that shares repurchased under each of the programs are not
cancelled, but are held by one of our subsidiaries, we include them in our
equity account. However, these shares are excluded from our share count for
purposes of calculating earnings per share. The following table details the
activities for each of our approved share repurchase programs:
Repurchase
Plan Approval Date
|
|
Shares
Approved
for
Repurchase
|
|
|
Shares
Repurchased
through
June
30, 2007
|
|
|
|
|
|
|
|
|
October
30, 2002
|
|
|
1,000,000
|
|
|
|
700,000
|
|
February
27, 2004
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
November
29, 2004
|
|
|
1,500,000
|
|
|
|
1,128,551
|
|
September
15, 2005
|
|
|
2,000,000
|
|
|
|
1,641,681
|
|
|
|
|
|
|
|
|
4,970,232
|
|
|
Submission
of Matters to a Vote of Security
Holders
|
At
the
annual meeting of shareholders held on May 30, 2007, the following business
was
conducted:
|
A.
|
Shareholders
elected six directors as follows for a one year term expiring at
the 2008
Annual Meeting of Shareholders:
|
|
|
Votes
For
|
|
Votes
Against
|
|
Henri-Claude
de Bettignies
|
|
30,550,661 |
|
914,192 |
|
Darryl
Hartley-Leonard
|
|
31,001,825 |
|
463,028 |
|
Sir
Derek Higgs
|
|
28,487,313 |
|
2,977,540 |
|
Lauralee
E. Martin
|
|
28,930,587 |
|
2,534,266 |
|
Alain
Monié
|
|
31,012,492 |
|
452,361 |
|
Thomas
C. Theobald
|
|
30,927,154 |
|
537,699 |
|
|
B.
|
Shareholders
ratified the appointment of KPMG LLP as the Company's independent
registered public accounting firm for the year ending December
31, 2007 as
follows:
|
Votes
For: 30,749,906
|
|
(83.63%
of outstanding shares)
|
Votes
Against: 688,306
|
|
|
Votes
Abstained: 26,644
|
|
|
|
C.
|
Shareholders
approved amendments of the performance-based award provisions used
to
determine executive compensation under our Stock Award and Incentive
Plan.
|
Votes
For: 25,070,380
|
|
(68.18%
of outstanding shares)
|
Votes
Against: 2,112,110
|
|
|
Votes
Abstained: 39,604
|
|
|
Broker
Non-vote: 4,242,760
|
|
|
Corporate
Governance
Our
policies and practices reflect corporate governance initiatives that we believe
comply with the listing requirements of the New York Stock Exchange, on which
our common stock is traded, the corporate governance requirements of the
Sarbanes-Oxley Act of 2002 as currently in effect, various regulations issued
by
the United States Securities and Exchange Commission and certain provisions
of
the General Corporation Law in the State of Maryland, where Jones Lang LaSalle
is incorporated.
We
maintain a corporate governance section on our public web site which includes
key information about our corporate governance initiatives, such as our
Corporate Governance Guidelines, Charters for the three Committees of our
Board
of Directors, a Statement of Qualifications of Members of the Board of Directors
and our Code of Business Ethics. The Board of Directors regularly reviews
corporate governance developments and modifies our Guidelines and Charters
as
warranted. The corporate governance section can be found on our web site
at
www.joneslanglasalle.com by clicking “Investor Relations” and then “Board
of Directors and Corporate Governance.”
Election
of New Board Member; Board Committee Memberships
On
July
11, 2007, David B. Rickard was elected as an independent, non-executive member
of the Company’s Board of Directors. He will also serve on each of the Audit
Committee and the Nominating and Governance Committee of the
Board. The Board has determined that Mr. Rickard qualifies as an
“audit committee financial expert” under the rules of the United States
Securities and Exchange Commission. Mr. Rickard has served as the Executive
Vice
President, Chief Financial Officer and Chief Administrative Officer of CVS
Caremark Corporation since 1999. Prior to joining CVS Caremark, Mr. Rickard
was
the Senior Vice President and Chief Financial Officer of RJR Nabisco Holdings
Corporation. His appointment brings the Jones Lang LaSalle Board to a total
of
nine Directors.
In
addition to Mr. Rickard, the current members of our Board are Henri-Claude
de
Bettignies, Colin Dyer (President and Chief Executive Officer), Darryl
Hartley-Leonard, Sir Derek Higgs, Lauralee E. Martin (Chief Operating and
Financial Officer), Alain Monié, Sheila A. Penrose (non-executive Chairman) and
Thomas C. Theobald.
Effective
July 24, 2007, the current membership of each Committee of the Board of
Directors is as follows:
Audit
Committee
Sir
Derek
Higgs, Chair
Darryl
Hartley-Leonard
Sheila
A.
Penrose
David
B.
Rickard
Compensation
Committee
Thomas
C.
Theobald, Chair
Henri-Claude
de Bettignies
Sir
Derek
Higgs
Alain
Monié
Sheila
A.
Penrose
Nominating
and Governance Committee
Sheila
A.
Penrose, Chair
Henri-Claude
de Bettignies
Darryl
Hartley-Leonard
Sir
Derek
Higgs
Alain
Monié
David
B.
Rickard
Thomas
C.
Theobald
Corporate
Officers
The
names
and titles of our corporate executive officers are as follows:
Global
Executive Committee
Colin
Dyer
Chief
Executive Officer and President
Lauralee
E. Martin
Executive
Vice President, Chief Operating and Financial Officer
Peter
A.
Barge
Chief
Executive Officer, Asia Pacific
Alastair
Hughes
Chief
Executive Officer, EMEA
Jeff
A.
Jacobson
Chief
Executive Officer, LaSalle Investment Management
Peter
C.
Roberts
Chief
Executive Officer, Americas
Additional
Global Corporate Officers
Brian
P.
Hake
Treasurer
James
S.
Jasionowski
Chief
Tax
Officer
David
A.
Johnson
Chief
Information Officer
Molly
A.
Kelly
Chief
Marketing and Communications Officer
Mark
J.
Ohringer
General
Counsel and Corporate Secretary
Marissa
R. Prizant
Director
of Internal Audit
Nazneen
Razi
Chief
Human Resources Officer
Stanley
Stec
Controller
Cautionary
Note Regarding Forward-Looking Statements
Certain
statements in this filing and elsewhere (such as in reports, other filings
with
the United States Securities and Exchange Commission, press releases,
presentations and communications by Jones Lang LaSalle or its management
and
written and oral statements) regarding, among other things, future financial
results and performance, achievements, plans and objectives, dividend payments
and share repurchases may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties
and
other factors that may cause Jones Lang LaSalle’s actual results, performance,
achievements, plans and objectives to be materially different from any of
the
future results, performance, achievements, plans and objectives expressed
or
implied by such forward-looking statements.
We
discuss those risks, uncertainties and other factors in (i) our Annual Report
on
Form 10-K for the year ended December 31, 2006 in Item 1A. Risk Factors;
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations; Item 7A. Quantitative and Qualitative Disclosures About Market
Risk;
Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements; and elsewhere, (ii) in this Quarterly Report on Form
10-Q
in Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations; Item 3. Quantitative and Qualitative Disclosures About
Market Risk; and elsewhere, and (iii) the other reports we file with the
United
States Securities and Exchange Commission. Important factors that could cause
actual results to differ from those in our forward-looking statements include
(without limitation):
|
•
|
The
effect of political, economic and market conditions and geopolitical
events;
|
|
•
|
The
logistical and other challenges inherent in operating in numerous
different countries;
|
|
•
|
The
actions and initiatives of current and potential
competitors;
|
|
•
|
The
level and volatility of real estate prices, interest rates, currency
values and other market indices;
|
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•
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The
outcome of pending litigation; and
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•
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The
impact of current, pending and future legislation and
regulation.
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Moreover,
there can be no assurance that future dividends will be declared since the
actual declaration of future dividends, and the establishment of record and
payment dates, remain subject to final determination by the Company’s Board of
Directors.
Accordingly,
we caution our readers not to place undue reliance on forward-looking
statements, which speak only as of the date on which they are made. Jones
Lang
LaSalle expressly disclaims any obligation or undertaking to update or revise
any forward-looking statements to reflect any changes in events or circumstances
or in its expectations or results.
Signature
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized, on the 2nd day of August,
2007.
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JONES
LANG LASALLE INCORPORATED
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/s/
Lauralee E. Martin
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By:
Lauralee E. Martin
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Executive
Vice President and
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Chief
Operating and Financial Officer
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(Authorized
Officer and Principal Financial Officer)
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Exhibit
Number
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Description
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10.1
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Amended
and Restated Multicurrency Credit Agreement, dated June 6, 2007
among
Jones Lang LaSalle Finance B.V., a subsidiary of the Company, the
Company
and certain of its other subsidiaries, as guarantors, the banks
party
thereto, and Bank of Montreal, as Administrative Agent. Incorporated
by
reference to Exhibit 99.1 to the Form 8-K filed by the company
on June 8,
2006 (SEC File No. 001-13145)
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Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant
to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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*
Filed
herewith.
36