form10q.htm
United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
Form
10-Q
T Quarterly
Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of
1934
For the
quarterly period ended June 30, 2008
Or
£ 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 T No £
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 T
|
Accelerated
filer £
|
Non-accelerated
filer £
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £
No T
The
number of shares outstanding of the registrant’s common stock (par value $0.01)
as of the close of business on August l, 2008 was 32,446,150.
Part
I
|
Financial
Information
|
|
|
|
|
Item
1.
|
|
3
|
|
|
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
6
|
|
|
|
|
|
7
|
|
|
|
Item
2.
|
|
20
|
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|
|
Item
3.
|
|
33
|
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|
|
Item
4.
|
|
33
|
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|
|
|
Part
II
|
Other
Information
|
|
|
|
|
Item
1.
|
|
34
|
|
|
|
Item
1A.
|
|
34
|
|
|
|
Item
2.
|
|
34
|
|
|
|
Item
4.
|
|
35
|
|
|
|
Item
5.
|
|
35
|
|
|
|
Item
6.
|
|
39
|
Part
I
|
Financial
Information
|
JONES LANG LASALLE INCORPORATED
Consolidated
Balance Sheets
June
30, 2008 and December 31, 2007
($ in
thousands, except share data)
|
|
June 30,
|
|
|
|
|
|
|
2008
|
|
|
December 31,
|
|
Assets
|
|
(unaudited)
|
|
|
2007
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
67,650 |
|
|
|
78,580 |
|
Trade
receivables, net of allowances of $26,796 and $13,300
|
|
|
665,137 |
|
|
|
834,865 |
|
Notes
and other receivables
|
|
|
65,155 |
|
|
|
52,695 |
|
Prepaid
expenses
|
|
|
39,017 |
|
|
|
26,148 |
|
Deferred
tax assets
|
|
|
89,281 |
|
|
|
64,872 |
|
Other
|
|
|
22,857 |
|
|
|
13,816 |
|
Total
current assets
|
|
|
949,097 |
|
|
|
1,070,976 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $228,751 and
$198,169
|
|
|
220,174 |
|
|
|
193,329 |
|
Goodwill,
with indefinite useful lives
|
|
|
865,184 |
|
|
|
694,004 |
|
Identified
intangibles, with finite useful lives, net of accumulated amortization of
$24,676 and $68,537
|
|
|
44,663 |
|
|
|
41,670 |
|
Investments
in real estate ventures
|
|
|
177,399 |
|
|
|
151,800 |
|
Long-term
receivables, net
|
|
|
46,927 |
|
|
|
33,219 |
|
Deferred
tax assets
|
|
|
52,578 |
|
|
|
58,584 |
|
Other, net
|
|
|
55,740 |
|
|
|
48,292 |
|
Total assets
|
|
$ |
2,411,762 |
|
|
|
2,291,874 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
254,221 |
|
|
|
302,976 |
|
Accrued
compensation
|
|
|
290,533 |
|
|
|
655,895 |
|
Short-term
borrowings
|
|
|
23,288 |
|
|
|
14,385 |
|
Deferred
tax liabilities
|
|
|
4,997 |
|
|
|
727 |
|
Deferred
income
|
|
|
30,364 |
|
|
|
29,756 |
|
Deferred
business acquisition obligations
|
|
|
45,168 |
|
|
|
45,363 |
|
Other
|
|
|
73,354 |
|
|
|
60,193 |
|
Total
current liabilities
|
|
|
721,925 |
|
|
|
1,109,295 |
|
|
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
|
|
|
Credit
facilities
|
|
|
441,529 |
|
|
|
29,205 |
|
Deferred
tax liabilities
|
|
|
1,470 |
|
|
|
6,577 |
|
Deferred
compensation
|
|
|
40,718 |
|
|
|
46,423 |
|
Pension
liabilities
|
|
|
1,101 |
|
|
|
1,096 |
|
Deferred
business acquisition obligations
|
|
|
34,384 |
|
|
|
36,679 |
|
Other
|
|
|
53,237 |
|
|
|
43,794 |
|
Total
liabilities
|
|
|
1,294,364 |
|
|
|
1,273,069 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
— |
|
|
|
— |
|
Minority
interest
|
|
|
9,939 |
|
|
|
8,272 |
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value per share, 100,000,000 shares authorized; 31,929,669
and 31,722,587 shares issued and outstanding
|
|
|
319 |
|
|
|
317 |
|
Additional
paid-in capital
|
|
|
476,312 |
|
|
|
441,951 |
|
Retained
earnings
|
|
|
495,908 |
|
|
|
484,840 |
|
Shares
held in trust
|
|
|
(1,980 |
) |
|
|
(1,930 |
) |
Accumulated other comprehensive
income
|
|
|
136,900 |
|
|
|
85,355 |
|
Total shareholders’ equity
|
|
|
1,107,459 |
|
|
|
1,010,533 |
|
Total liabilities and shareholders’
equity
|
|
$ |
2,411,762 |
|
|
|
2,291,874 |
|
See
accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
Consolidated
Statements of Earnings
For
the Three and Six Months Ended June 30, 2008 and 2007
($ 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
659,515 |
|
|
|
676,086 |
|
|
|
1,223,435 |
|
|
|
1,166,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
431,175 |
|
|
|
436,265 |
|
|
|
810,047 |
|
|
|
761,922 |
|
Operating,
administrative and other
|
|
|
171,875 |
|
|
|
126,517 |
|
|
|
332,741 |
|
|
|
242,253 |
|
Depreciation
and amortization
|
|
|
18,268 |
|
|
|
12,309 |
|
|
|
34,714 |
|
|
|
24,935 |
|
Restructuring credits
|
|
|
— |
|
|
|
— |
|
|
|
(188 |
) |
|
|
(411 |
) |
Operating
expenses
|
|
|
621,318 |
|
|
|
575,091 |
|
|
|
1,177,314 |
|
|
|
1,028,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
38,197 |
|
|
|
100,995 |
|
|
|
46,121 |
|
|
|
137,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net of interest income
|
|
|
3,560 |
|
|
|
3,830 |
|
|
|
4,736 |
|
|
|
5,668 |
|
Gain
on sale of investments
|
|
|
— |
|
|
|
3,703 |
|
|
|
— |
|
|
|
6,129 |
|
Equity in earnings (losses) from real estate
ventures
|
|
|
969 |
|
|
|
6,368 |
|
|
|
(1,244 |
) |
|
|
6,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes and minority interest
|
|
|
35,606 |
|
|
|
107,236 |
|
|
|
40,141 |
|
|
|
144,403 |
|
Provision
for income taxes
|
|
|
8,973 |
|
|
|
28,632 |
|
|
|
10,116 |
|
|
|
38,556 |
|
Minority interest, net of
tax
|
|
|
1,114 |
|
|
|
— |
|
|
|
1,666 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
25,519 |
|
|
|
78,604 |
|
|
|
28,359 |
|
|
|
105,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders (Note
9)
|
|
$ |
24,516 |
|
|
|
77,932 |
|
|
|
27,356 |
|
|
|
105,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
$ |
0.77 |
|
|
|
2.45 |
|
|
|
0.86 |
|
|
|
3.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding
|
|
|
31,876,045 |
|
|
|
31,828,364 |
|
|
|
31,824,435 |
|
|
|
31,878,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$ |
0.73 |
|
|
|
2.32 |
|
|
|
0.82 |
|
|
|
3.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
33,458,081 |
|
|
|
33,655,359 |
|
|
|
33,340,225 |
|
|
|
33,664,471 |
|
See
accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
Consolidated
Statement of Shareholders’ Equity
For
the Six Months Ended June 30, 2008
($ in
thousands, except share data) (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Shares
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Held
in
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Trust
|
|
|
Income
|
|
|
Total
|
|
Balance
at December 31, 2007
|
|
|
31,722,587 |
|
|
$ |
317 |
|
|
|
441,951 |
|
|
|
484,840 |
|
|
|
(1,930 |
) |
|
|
85,355 |
|
|
$ |
1,010,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
28,359 |
|
|
|
— |
|
|
|
— |
|
|
|
28,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued under stock compensation programs
|
|
|
207,082 |
|
|
|
2 |
|
|
|
4,479 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
benefits of vestings and exercises
|
|
|
— |
|
|
|
— |
|
|
|
2,214 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
27,668 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,291 |
) |
|
|
— |
|
|
|
— |
|
|
|
(17,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
held in trust
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(50 |
) |
|
|
— |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
51,545 |
|
|
|
51,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
31,929,669 |
|
|
$ |
319 |
|
|
|
476,312 |
|
|
|
495,908 |
|
|
|
(1,980 |
) |
|
|
136,900 |
|
|
$ |
1,107,459 |
|
See
accompanying notes to consolidated financial statements.
Consolidated
Statements of Cash Flows
For
the Six Months Ended June 30, 2008 and 2007
($ in
thousands) (unaudited)
|
|
Six
|
|
|
Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
28,359 |
|
|
|
105,847 |
|
Reconciling
net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
34,714 |
|
|
|
24,935 |
|
Equity
in losses (earnings) from real estate ventures
|
|
|
1,244 |
|
|
|
(6,502 |
) |
Gain
on sale of investments
|
|
|
— |
|
|
|
(3,703 |
) |
Operating
distributions from real estate ventures
|
|
|
59 |
|
|
|
8,147 |
|
Provision
for loss on receivables and other assets
|
|
|
14,075 |
|
|
|
6,518 |
|
Amortization
of deferred compensation
|
|
|
31,523 |
|
|
|
26,280 |
|
Minority
interest, net of tax
|
|
|
1,666 |
|
|
|
— |
|
Amortization
of debt issuance costs
|
|
|
674 |
|
|
|
296 |
|
Change
in:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
166,139 |
|
|
|
27,124 |
|
Prepaid
expenses and other assets
|
|
|
(25,429 |
) |
|
|
(7,652 |
) |
Deferred
tax assets, net
|
|
|
(20,394 |
) |
|
|
(1,064 |
) |
Excess
tax benefits from share-based payment arrangements
|
|
|
(2,214 |
) |
|
|
(3,754 |
) |
Accounts payable, accrued liabilities and accrued
compensation
|
|
|
(403,621 |
) |
|
|
(156,169 |
) |
Net cash (used in) provided by operating
activities
|
|
|
(173,205 |
) |
|
|
20,303 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Net
capital additions – property and equipment
|
|
|
(50,785 |
) |
|
|
(45,396 |
) |
Business
acquisitions
|
|
|
(168,249 |
) |
|
|
(66,697 |
) |
Capital
contributions and advances to real estate ventures
|
|
|
(23,643 |
) |
|
|
(20,663 |
) |
Distributions, repayments of advances and sale of
investments
|
|
|
6 |
|
|
|
24,075 |
|
Net cash used in investing
activities
|
|
|
(242,671 |
) |
|
|
(108,681 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings under credit facilities
|
|
|
926,032 |
|
|
|
609,629 |
|
Repayments
of borrowings under credit facilities
|
|
|
(504,806 |
) |
|
|
(509,119 |
) |
Debt
issuance costs
|
|
|
(5,683 |
) |
|
|
(450 |
) |
Shares
repurchased for payment of employee taxes on stock awards
|
|
|
(1,832 |
) |
|
|
(857 |
) |
Shares
repurchased under share repurchase program
|
|
|
— |
|
|
|
(21,815 |
) |
Excess
tax benefits from share-based payment arrangements
|
|
|
2,214 |
|
|
|
3,754 |
|
Common
stock issued under stock option plan and stock purchase
programs
|
|
|
6,312 |
|
|
|
6,193 |
|
Payment of dividends
|
|
|
(17,291 |
) |
|
|
(12,056 |
) |
Net cash provided by financing
activities
|
|
|
404,946 |
|
|
|
75,279 |
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(10,930 |
) |
|
|
(13,099 |
) |
Cash and cash equivalents, January
1
|
|
|
78,580 |
|
|
|
50,612 |
|
Cash and cash equivalents, June
30
|
|
$ |
67,650 |
|
|
|
37,513 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
3,390 |
|
|
|
8,097 |
|
Income
taxes, net of refunds
|
|
|
50,230 |
|
|
|
28,246 |
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
Deferred
business acquisition obligations
|
|
$ |
17,510 |
|
|
|
11,261 |
|
See
accompanying notes to consolidated financial statements.
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, 2007, which are included in Jones Lang LaSalle’s 2007 Annual
Report on Form 10-K, filed with the United States Securities and Exchange
Commission (“SEC”) and also available on our website (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, 2008 and for the three and six
months ended June 30, 2008 and 2007 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial statements for
these interim periods have been included.
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, 2008 and 2007 are
not indicative of the results to be obtained for the full fiscal
year.
(2)
New Accounting Standards
Fair
Value Measurements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“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. In November 2007, the FASB
deferred the implementation of SFAS 157 for non-financial assets and liabilities
for one year. On January 1, 2008 the Company adopted SFAS 157 with
respect to its financial assets and liabilities that are measured at fair value.
The adoption of these provisions did not have a material impact on our
consolidated financial statements.
SFAS 157
establishes a three-tier fair value hierarchy which prioritizes the inputs used
in measuring fair value as follows:
|
·
|
Level
1. Observable inputs such as quoted prices in active
markets;
|
|
·
|
Level
2. Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly;
and
|
|
·
|
Level
3. Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own
assumptions.
|
We
regularly use foreign currency forward contracts to manage our currency exchange
rate risk related to intercompany lending and cash management practices. We
determined the fair value of these contracts based on widely accepted valuation
techniques. The inputs for these valuation techniques are Level 2 inputs in the
hierarchy of SFAS 157. At June 30, 2008, we had forward exchange contracts in
effect with a gross notional value of $531.3 million and a net fair value gain
of $9.3 million, recorded as a current asset of $11.2 million and a current
liability of $1.9 million. This net carrying gain is offset by a carrying loss
in associated intercompany loans such that the net impact to earnings is not
significant. At June 30, 2008, the Company has no recurring fair value
measurements for financial assets and liabilities that are based on unobservable
inputs or Level 3 inputs.
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. Under SFAS 159, the Company had the
option of adopting fair value accounting for financial assets and liabilities
starting on January 1, 2008. The adoption of SFAS 159 did not have a material
effect on our consolidated financial statements since the Company did not elect
to measure any of its financial assets or liabilities using the fair value
option prescribed by SFAS 159.
Business
Combinations
In
December 2007, the FASB issued SFAS 141(revised), “Business Combinations” (“SFAS
141(R)”). SFAS 141(R) will change how identifiable assets acquired and the
liabilities assumed in a business combination will be recorded in the financial
statements. SFAS 141(R) requires the acquiring entity in a business combination
to recognize the full fair value of assets acquired and liabilities assumed in
the transaction (whether a full or partial acquisition); establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; and requires expensing of most transaction and
restructuring costs. SFAS 141(R) applies prospectively to business combinations
for which the acquisition date is after December 31, 2008. Management has not
yet determined what impact the application of SFAS 141(R) will have on our
consolidated financial statements.
Noncontrolling
Interests
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”). SFAS 160 requires reporting entities to present
noncontrolling (minority) interests as equity (as opposed to a liability or
mezzanine equity) and provides guidance on the accounting for transactions
between an entity and noncontrolling interests. SFAS 160 applies prospectively
as of January 1, 2009. Management has not yet determined what impact the
application of SFAS 160 will have on our consolidated financial
statements.
Disclosures
about Derivative Instruments and Hedging Activities
In March
2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities” (“SFAS 161”). SFAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities. SFAS 161
requires enhanced disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under Statement 133 and its related interpretations, and how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. SFAS 161 is effective for fiscal years
beginning after November 15, 2008. Management has not yet determined what impact
the application of SFAS 161 will have on our consolidated financial statement
disclosures.
(3)
Revenue Recognition
We
categorize our revenues as:
|
·
|
Transaction
commissions;
|
|
·
|
Advisory and management fees;
and
|
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 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 incentive fees
based on the performance of underlying funds and separate account investments,
and the contractual benchmarks, formulas and timing of the measurement period
with clients.
Project
and development management and construction management fees are a subset of our
revenues in the advisory and management fees category. 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 $2.9 million and $3.1 million for the three months ended
June 30, 2008 and 2007, respectively and $6.6 million and $4.9 million for the
six months ended June 30, 2008 and 2007, respectively.
Gross
construction services revenues totaled $56.8 million and $46.3 million for the
three months ended June 30, 2008 and 2007, respectively, and $113.5 million and
$84.4 million for the six months ended June 30, 2008 and 2007,
respectively.
Subcontract
costs totaled $53.9 million and $43.2 million for the three months ended June
30, 2008 and 2007, respectively, and $106.9 million and $79.5 million for the
six months ended June 30, 2008 and 2007, respectively.
We
include costs in excess of billings on uncompleted construction contracts of
$8.6 million and $4.8 million in “Trade receivables,” and billings in excess of
costs on uncompleted construction contracts of $15.8 million and $12.9 million
in “Deferred income,” respectively, in our June 30, 2008 and December 31, 2007
consolidated balance sheets.
In
certain of our businesses, primarily those involving management services, our
clients reimburse us for expenses incurred on their behalf. We base the
treatment of reimbursable expenses for financial reporting purposes 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 $296.2
million and $233.9 million for the three months ended June 30, 2008 and 2007,
respectively, and approximately $573.5 million and $473.0 million for the six
months ended June 30, 2008 and 2007, 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, energy
management and sustainability and construction management services (collectively
"management services").
Operating
income represents total revenue less direct and indirect allocable expenses.
Allocated expenses primarily consist of corporate global overhead. We allocate
these corporate global overhead expenses to the business segments based on the
relative operating income of each segment.
For
segment reporting we 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. Our measure of segment reporting results also
excludes restructuring charges. The Chief Operating Decision Maker of Jones Lang
LaSalle measures the segment results with “Equity in earnings (losses) from real
estate ventures,” and without restructuring charges. 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, 2008 and 2007 ($ 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
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
88,065 |
|
|
|
85,070 |
|
|
|
167,424 |
|
|
|
157,759 |
|
Management
services
|
|
|
94,945 |
|
|
|
86,021 |
|
|
|
183,692 |
|
|
|
156,952 |
|
Equity
earnings
|
|
|
41 |
|
|
|
270 |
|
|
|
41 |
|
|
|
420 |
|
Other services
|
|
|
6,824 |
|
|
|
7,638 |
|
|
|
12,580 |
|
|
|
12,134 |
|
|
|
|
189,875 |
|
|
|
178,999 |
|
|
|
363,737 |
|
|
|
327,265 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
171,825 |
|
|
|
153,792 |
|
|
|
338,394 |
|
|
|
289,675 |
|
Depreciation and
amortization
|
|
|
7,494 |
|
|
|
6,084 |
|
|
|
14,542 |
|
|
|
12,006 |
|
Operating income
|
|
$ |
10,556 |
|
|
|
19,123 |
|
|
|
10,801 |
|
|
|
25,584 |
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
Investor and Occupier
Services
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
174,456 |
|
|
|
157,903 |
|
|
|
306,872 |
|
|
|
300,041 |
|
Management
services
|
|
|
59,027 |
|
|
|
35,181 |
|
|
|
107,204 |
|
|
|
67,264 |
|
Equity
earnings (losses)
|
|
|
85 |
|
|
|
172 |
|
|
|
102 |
|
|
|
(195 |
) |
Other services
|
|
|
2,530 |
|
|
|
3,730 |
|
|
|
4,985 |
|
|
|
6,767 |
|
|
|
|
236,098 |
|
|
|
196,986 |
|
|
|
419,163 |
|
|
|
373,877 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
226,900 |
|
|
|
177,830 |
|
|
|
410,960 |
|
|
|
335,555 |
|
Depreciation and
amortization
|
|
|
6,866 |
|
|
|
3,931 |
|
|
|
12,886 |
|
|
|
8,447 |
|
Operating income (loss)
|
|
$ |
2,332 |
|
|
|
15,225 |
|
|
|
(4,683 |
) |
|
|
29,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
77,748 |
|
|
|
162,312 |
|
|
|
136,630 |
|
|
|
201,908 |
|
Management
services
|
|
|
61,444 |
|
|
|
47,018 |
|
|
|
118,518 |
|
|
|
92,077 |
|
Equity
(losses) earnings
|
|
|
(88 |
) |
|
|
210 |
|
|
|
(150 |
) |
|
|
231 |
|
Other services
|
|
|
2,674 |
|
|
|
1,691 |
|
|
|
4,178 |
|
|
|
3,410 |
|
|
|
|
141,778 |
|
|
|
211,231 |
|
|
|
259,176 |
|
|
|
297,626 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
133,553 |
|
|
|
165,194 |
|
|
|
255,961 |
|
|
|
252,715 |
|
Depreciation and
amortization
|
|
|
3,451 |
|
|
|
1,857 |
|
|
|
6,328 |
|
|
|
3,630 |
|
Operating income (loss)
|
|
$ |
4,774 |
|
|
|
44,180 |
|
|
|
(3,113 |
) |
|
|
41,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
and other services
|
|
$ |
6,214 |
|
|
|
5,410 |
|
|
|
10,439 |
|
|
|
7,930 |
|
Advisory
fees
|
|
|
72,552 |
|
|
|
54,295 |
|
|
|
144,683 |
|
|
|
108,214 |
|
Incentive
fees
|
|
|
13,036 |
|
|
|
29,817 |
|
|
|
26,230 |
|
|
|
51,683 |
|
Equity earnings (losses)
|
|
|
931 |
|
|
|
5,716 |
|
|
|
(1,237 |
) |
|
|
6,046 |
|
|
|
|
92,733 |
|
|
|
95,238 |
|
|
|
180,115 |
|
|
|
173,873 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
70,772 |
|
|
|
65,966 |
|
|
|
137,474 |
|
|
|
126,230 |
|
Depreciation and
amortization
|
|
|
457 |
|
|
|
437 |
|
|
|
957 |
|
|
|
852 |
|
Operating income
|
|
$ |
21,504 |
|
|
|
28,836 |
|
|
|
41,684 |
|
|
|
46,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment revenue
|
|
$ |
660,484 |
|
|
|
682,454 |
|
|
|
1,222,191 |
|
|
|
1,172,641 |
|
Reclassification of equity earnings
(losses)
|
|
|
969 |
|
|
|
6,368 |
|
|
|
(1,244 |
) |
|
|
6,502 |
|
Total revenue
|
|
|
659,515 |
|
|
|
676,086 |
|
|
|
1,223,435 |
|
|
|
1,166,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment operating expenses
|
|
|
621,318 |
|
|
|
575,091 |
|
|
|
1,177,502 |
|
|
|
1,029,110 |
|
Restructuring credits
|
|
|
— |
|
|
|
— |
|
|
|
(188 |
) |
|
|
(411 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
38,197 |
|
|
|
100,995 |
|
|
|
46,121 |
|
|
|
137,440 |
|
(5)
Business Combinations, Goodwill and Other Intangible Assets
2008
Business Combinations
In the
first six months of 2008 we completed ten new acquisitions consisting of the
following:
|
1.
|
The
Standard Group LLC, a Chicago-based retail transaction management
firm;
|
|
2.
|
Creevy
LLH Ltd, a Scotland-based firm that provides investment, leasing and
valuation services for leisure and hotels
properties;
|
|
3.
|
Brune
Consulting Management GmbH, a Germany-based retail management
firm;
|
|
4.
|
Creer
& Berkeley Pty Ltd., an Australian property sales, leasing,
management, valuation and consultancy
firm;
|
|
5.
|
Shore
Industrial, an Australian commercial real estate agency in Sydney's
northern suburbs;
|
|
6.
|
Sallmanns
Holdings Ltd, a valuation business based in Hong
Kong;
|
|
7.
|
The
remaining 60% of a commercial real estate firm formed by the Company and
Ray L. Davis, based in Australia;
|
|
8.
|
Kemper’s
Holding GmbH, a Germany-based retail specialist, making us the largest
property advisory business in Germany and providing us with new offices in
Leipzig, Cologne and Hannover:
|
|
9.
|
Leechiu
& Associates, an agency business in the Philippines;
and
|
|
10.
|
The
remaining 51% interest in a Finnish real estate services firm which
previously operated under the name GVA. We acquired the initial 49% in
2007.
|
In the
second quarter of 2008, we also acquired a 10% equity interest in Alkas, a
Turkish based commercial real estate firm, which is recorded within “Investments
in real estate ventures” in our consolidated balance sheet.
Terms for
these transactions included (i) net cash paid at closing and capitalized costs
totaling approximately $148.2 million, (ii) consideration subject only to the
passage of time recorded in “Deferred business acquisition obligations” on our
balance sheet at a current fair value of $14.7 million, and (iii) additional
consideration subject to earn-out provisions that will be paid only if the
related conditions are achieved. Cash paid for acquisitions in 2008 also
included $20.0 million paid in the first quarter to satisfy a deferred business
acquisition obligation from the 2006 Spaulding & Slye
acquisition.
Earn-out
payments
At June
30, 2008 we had the potential to make earn-out payments on 19 acquisitions that
are subject to the achievement of certain performance conditions. The maximum
amount of the potential earn-out payments of 17 of these acquisitions was $61.5
million at June 30, 2008. We expect these amounts will come due at various times
over the next six years. For two acquisitions, the amounts of the earn-out
payments are based on formulas and are not quantifiable at this
time.
Goodwill
and Other Intangible Assets
We have
$909.9 million of unamortized intangibles and goodwill as of June 30, 2008 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 $909.9 million of unamortized intangibles and goodwill, $865.2 million
represents goodwill with indefinite useful lives, which is not amortized. The
remaining $44.7 million of identifiable intangibles are amortized over their
remaining finite useful lives.
The
following table sets forth, by reporting segment, the current year movements in
goodwill with indefinite useful lives ($ in thousands):
|
|
Investor and Occupier
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
Investment
|
|
|
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
Pacific
|
|
|
Management
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2008
|
|
$ |
357,606 |
|
|
|
192,238 |
|
|
|
122,356 |
|
|
|
21,804 |
|
|
|
694,004 |
|
Additions
|
|
|
3,714 |
|
|
|
126,737 |
|
|
|
26,895 |
|
|
|
— |
|
|
|
157,346 |
|
Impact of exchange rate
movements
|
|
|
— |
|
|
|
9,270 |
|
|
|
4,465 |
|
|
|
99 |
|
|
|
13,834 |
|
Balance
as of June 30, 2008
|
|
$ |
361,320 |
|
|
|
328,245 |
|
|
|
153,716 |
|
|
|
21,903 |
|
|
|
865,184 |
|
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, 2008
|
|
$ |
85,986 |
|
|
|
10,508 |
|
|
|
7,701 |
|
|
|
6,012 |
|
|
|
110,207 |
|
Additions
|
|
|
410 |
|
|
|
3,878 |
|
|
|
4,880 |
|
|
|
— |
|
|
|
9,168 |
|
Adjustment
for fully amortized intangibles
|
|
|
(41,249 |
) |
|
|
(804 |
) |
|
|
(3,470 |
) |
|
|
(5,908 |
) |
|
|
(51,431 |
) |
Impact of exchange rate
movements
|
|
|
— |
|
|
|
1,188 |
|
|
|
201 |
|
|
|
6 |
|
|
|
1,395 |
|
Balance
as of June 30, 2008
|
|
$ |
45,147 |
|
|
|
14,770 |
|
|
|
9,312 |
|
|
|
110 |
|
|
|
69,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2008
|
|
$ |
(53,367 |
) |
|
|
(4,792 |
) |
|
|
(4,459 |
) |
|
|
(5,919 |
) |
|
|
(68,537 |
) |
Amortization
expense
|
|
|
(3,126 |
) |
|
|
(2,684 |
) |
|
|
(984 |
) |
|
|
(28 |
) |
|
|
(6,822 |
) |
Adjustment
for fully amortized intangibles
|
|
|
41,249 |
|
|
|
804 |
|
|
|
3,470 |
|
|
|
5,908 |
|
|
|
51,431 |
|
Impact of exchange rate
movements
|
|
|
— |
|
|
|
(652 |
) |
|
|
(98 |
) |
|
|
2 |
|
|
|
(748 |
) |
Balance
as of June 30, 2008
|
|
|
(15,244 |
) |
|
|
(7,324 |
) |
|
|
(2,071 |
) |
|
|
(37 |
) |
|
|
(24,676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as of June 30,
2008
|
|
$ |
29,903 |
|
|
|
7,446 |
|
|
|
7,241 |
|
|
|
73 |
|
|
|
44,663 |
|
Remaining
estimated future amortization expense for our intangibles with finite useful
lives ($ in millions):
2008
|
|
$ |
8.3 |
|
2009
|
|
|
10.9 |
|
2010
|
|
|
6.9 |
|
2011
|
|
|
4.8 |
|
2012
|
|
|
4.2 |
|
Thereafter
|
|
|
9.6 |
|
Total
|
|
$ |
44.7 |
|
(6)
Investments in Real Estate Ventures
As of
June 30, 2008, we had total investments in and loans to real estate ventures of
$176.0 million in approximately 40 separate property or fund co-investments.
Within this $176.0 million are loans of $3.6 million to real estate ventures
which bear an 8.0% interest rate and are to be repaid in 2009. In addition to
our co-investments, we had equity investments of $1.4 million comprised of an
investment in Sandalwood, a retail joint venture in Asia Pacific, and a 10%
equity interest in Alkas, a Turkish based commercial real estate
firm.
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, 2008, our maximum
potential unfunded commitment to LIC I was euro 23.3 million ($36.7 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, 2008, LIC II has unfunded capital
commitments for future fundings of co-investments of $445.3 million, of which
our 48.78% share is $217.2 million. The $217.2 million commitment is part of our
maximum potential unfunded commitment to LIC II at June 30, 2008 of $413.0
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. At June 30, 2008, no bridge financing
arrangements were outstanding.
As of
June 30, 2008, LIC I maintains a euro 10.0 million ($15.8 million) revolving
credit facility (the "LIC I Facility"), and LIC II maintains a $200.0 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 4.8 million ($7.5 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 23.3 million
($36.7 million) and to LIC II of $413.0 million. As of June 30, 2008, LIC I had
euro 5.4 million ($8.5 million) of outstanding borrowings on the LIC I Facility,
and LIC II had $23.2 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 $9.2 million at June 30, 2008.
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 impairment charges of
$0.6 million in the first six months of 2008 and no impairment charges in the
first six months of 2007.
(7)
Stock-based Compensation
We
adopted SFAS 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) as of
January 1, 2006, using the modified prospective approach. The adoption of SFAS
123R primarily impacts “Compensation and benefits” expense in our consolidated
statement of earnings by changing prospectively our method of measuring and
recognizing compensation expense on share-based awards from recognizing
forfeitures as incurred to estimating forfeitures, and accelerating expense
recognition for share-based awards to employees who are or will become
retirement-eligible prior to the stated vesting period of the
award.
Restricted
Stock Unit Awards
Along
with cash-based salaries and performance-based annual cash incentive awards,
restricted stock unit awards represent a primary element of our compensation
program for Company officers, managers and professionals.
Restricted
stock unit activity for the three months ended June 30, 2008 is as
follows:
|
|
|
|
|
Weighted Average Grant
Date Fair
Value
|
|
Weighted Average Remaining Contractual Life
|
|
Aggregate
Intrinsic
Value
($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at March 31, 2008
|
|
|
2,727.6 |
|
|
$
|
65.52 |
|
|
|
|
|
|
Granted
|
|
|
13.1 |
|
|
|
68.89 |
|
|
|
|
|
|
Vested
|
|
|
(7.2 |
) |
|
|
43.22 |
|
|
|
|
|
|
Forfeited
|
|
|
(6.2 |
) |
|
|
74.52 |
|
|
|
|
|
|
Unvested at June 30, 2008
|
|
|
2,727.3 |
|
|
$
|
65.57 |
|
1.44 years
|
|
$
|
164.2
|
|
Restricted
stock unit activity for the six months ended June 30, 2008 is as
follows:
|
|
|
|
|
Weighted Average Grant
Date Fair
Value
|
|
Weighted Average Remaining Contractual Life
|
|
Aggregate
Intrinsic
Value
($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at January 1, 2008
|
|
|
1,780.2 |
|
|
$
|
61.58 |
|
|
|
|
|
Granted
|
|
|
1,053.8 |
|
|
|
71.44 |
|
|
|
|
|
Vested
|
|
|
(73.5 |
) |
|
|
52.30 |
|
|
|
|
|
Forfeited
|
|
|
(33.2 |
) |
|
|
67.13 |
|
|
|
|
|
Unvested at June 30, 2008
|
|
|
2,727.3 |
|
|
$
|
65.57 |
|
1.44 years
|
|
$
|
164.2 |
|
Unvested shares expected to
vest
|
|
|
2,577.0 |
|
|
$
|
65.18 |
|
1.38 years
|
|
$
|
155.1 |
|
As of
June 30, 2008, there was $79.6 million of remaining unamortized deferred
compensation related to unvested restricted stock units. We expect the cost to
be recognized over the remaining weighted average contractual life of the
awards.
Approximately
73,500 restricted stock unit awards vested during the first six months of 2008,
having an aggregate fair value of $5.2 million and an intrinsic value of $1.4
million. For the same period in 2007, approximately 34,100 restricted stock unit
awards vested, having an aggregate fair value of $3.2 million and an intrinsic
value of $2.1 million. As a result of these vesting events, we
recognized tax benefits of $0.5 million and $1.1 million for the six months
ending June 30, 2008 and 2007, respectively.
Stock
Option Awards
We have
granted stock options at the market value of our common stock at the date of
grant. Our options vested at such times and conditions as the Compensation
Committee of our Board of Directors determined and set forth in the award
agreement; the most recent options, granted in 2003, vested over periods of up
to five years. As a result of a change in compensation strategy, we do not
currently use stock option grants as part of our employee compensation
program.
Stock
option activity for the three months ended June 30, 2008 is as
follows:
|
|
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
($ in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2008
|
|
|
162.5 |
|
|
$
|
19.47 |
|
|
|
|
|
|
Exercised
|
|
|
(37.5 |
) |
|
|
15.96 |
|
|
|
|
|
|
Forfeited
|
|
|
(1.0 |
) |
|
|
39.00 |
|
|
|
|
|
|
Outstanding at June 30,
2008
|
|
|
124.0 |
|
|
$
|
20.38 |
|
2.31 years
|
|
$
|
4.9
|
|
Stock
option activity for the six months ended June 30, 2008 is as
follows:
|
|
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average Remaining Contractual Life
|
|
Aggregate
Intrinsic
Value
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2008
|
|
|
183.0 |
|
|
$
|
19.18 |
|
|
|
|
|
Exercised
|
|
|
(58.0 |
) |
|
|
16.26 |
|
|
|
|
|
Forfeited
|
|
|
(1.0 |
) |
|
|
39.00 |
|
|
|
|
|
Outstanding at June 30,
2008
|
|
|
124.0 |
|
|
$
|
20.38 |
|
2.31 years
|
|
$
|
4.9 |
|
Exercisable at June 30,
2008
|
|
|
124.0 |
|
|
$
|
20.38 |
|
2.31 years
|
|
$
|
4.9 |
|
As of
June 30, 2008, we have approximately 124,000 options outstanding, all of which
have vested. We recognized less than $0.01 million in compensation expense
related to the unvested options for the first six months of 2008.
The
following table summarizes information about exercises of options occurring
during the three and six months ended June 30, 2008 and 2007 ($ in
millions):
|
|
Three Months
|
|
|
Three Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of options exercised
|
|
|
37,500 |
|
|
|
21,697 |
|
|
|
57,966 |
|
|
|
96,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic
value
|
|
$ |
1.7 |
|
|
|
2.0 |
|
|
|
2.5 |
|
|
|
8.6 |
|
Cash
received from options exercised
|
|
|
1.2 |
|
|
|
1.1 |
|
|
|
2.0 |
|
|
|
4.1 |
|
Tax benefit realized from options
exercised
|
|
|
0.8 |
|
|
|
0.7 |
|
|
|
1.2 |
|
|
|
2.9 |
|
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, we
enhance employee contributions for stock purchases 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, 1,440,573 shares have
been purchased under the program through June 30, 2008. In the first six months
of 2008, 56,091 shares having a weighted average grant date market value of
$69.07 were purchased under the program. We do not record any compensation
expense with respect to this program.
UK SAYE -
In 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, we extended the SAYE plan 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. In the first quarter of 2008,
the Company issued approximately 85,000 options at an exercise price of $60.66
under the SAYE plan. The fair values of the options are being amortized over
their respective vesting periods. At June 30, 2008, there were approximately
178,000 options outstanding under the SAYE plan.
(8)
Retirement Plans
We
maintain contributory defined benefit pension plans in the United Kingdom,
Ireland and Holland to provide retirement benefits to eligible employees. It is
our policy to fund the minimum annual contributions required by applicable
regulations. We use a December 31 measurement date for our plans.
Net
periodic pension cost consisted of the following for the three and six months
ended June 30, 2008 and 2007 ($ in thousands):
|
|
Three Months
|
|
|
Three Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer
service cost - benefits earned during the year
|
|
$ |
1,002 |
|
|
|
1,010 |
|
|
|
1,990 |
|
|
|
2,000 |
|
Interest
cost on projected benefit obligation
|
|
|
3,035 |
|
|
|
2,624 |
|
|
|
6,067 |
|
|
|
5,204 |
|
Expected
return on plan assets
|
|
|
(3,498 |
) |
|
|
(3,138 |
) |
|
|
(6,994 |
) |
|
|
(6,224 |
) |
Net
amortization/deferrals
|
|
|
55 |
|
|
|
495 |
|
|
|
110 |
|
|
|
981 |
|
Recognized actual loss
|
|
|
41 |
|
|
|
19 |
|
|
|
83 |
|
|
|
37 |
|
Net periodic pension cost
|
|
$ |
635 |
|
|
|
1,010 |
|
|
|
1,256 |
|
|
|
1,998 |
|
For the
six months ended June 30, 2008, we have made $3.6 million in payments to our
defined benefit pension plans. We expect to contribute a total of $8.5 million
to our defined benefit pension plans in 2008. We made $7.9 million of
contributions to these plans in the twelve months ended December 31,
2007.
(9)
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 $1.0 million net of tax, declared and paid in the second
quarter of 2008, and $0.7 million net of tax, declared and paid in second
quarter of 2007.
The
difference between basic weighted average shares outstanding and diluted
weighted average shares outstanding is the dilutive impact of common stock
equivalents. Common stock equivalents consist primarily of shares to be issued
under employee stock compensation programs and outstanding stock options whose
exercise price was less than the average market price of our stock during these
periods.
The
following table details the calculations of basic and diluted earnings per
common share for the three and six months ended June 30, 2008 and 2007 ($ in
thousands):
|
|
Three Months
|
|
|
Three Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
25,519 |
|
|
|
78,604 |
|
|
|
28,359 |
|
|
|
105,847 |
|
Dividends
on unvested common stock,net of tax
benefit
|
|
|
1,003 |
|
|
|
672 |
|
|
|
1,003 |
|
|
|
672 |
|
Net income available to common
shareholders
|
|
$ |
24,516 |
|
|
|
77,932 |
|
|
|
27,356 |
|
|
|
105,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
31,876,045 |
|
|
|
31,828,364 |
|
|
|
31,824,435 |
|
|
|
31,878,811 |
|
Basic
income per common share before cumulative effect of change in accounting
principle and dividends on unvested common stock
|
|
$ |
0.80 |
|
|
|
2.47 |
|
|
|
0.89 |
|
|
|
3.32 |
|
Dividends
on unvested common stock, net of tax
benefit
|
|
|
(0.03 |
) |
|
|
(0.02 |
) |
|
|
(0.03 |
) |
|
|
(0.02 |
) |
Basic earnings per common
share
|
|
$ |
0.77 |
|
|
|
2.45 |
|
|
|
0.86 |
|
|
|
3.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
33,458,081 |
|
|
|
33,655,359 |
|
|
|
33,340,225 |
|
|
|
33,664,471 |
|
Diluted
income per common share before cumulative effect of change in accounting
principle and dividends on unvested common stock
|
|
$ |
0.76 |
|
|
|
2.34 |
|
|
|
0.85 |
|
|
|
3.14 |
|
Dividends
on unvested common stock, net of tax
benefit
|
|
|
(0.03 |
) |
|
|
(0.02 |
) |
|
|
(0.03 |
) |
|
|
(0.02 |
) |
Diluted earnings per common
share
|
|
$ |
0.73 |
|
|
|
2.32 |
|
|
|
0.82 |
|
|
|
3.12 |
|
(10)
Comprehensive Income
For the
three and six months ended June 30, 2008 and 2007, 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
25,519 |
|
|
|
78,604 |
|
|
|
28,359 |
|
|
|
105,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
4,710 |
|
|
|
14,163 |
|
|
|
51,545 |
|
|
|
20,178 |
|
Reclassification
adjustment for gain on sale of available-for-sale securities realized in net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,256 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$ |
30,229 |
|
|
|
92,767 |
|
|
|
79,904 |
|
|
|
123,769 |
|
(11)
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.
(12)
Credit Facilities
As of
June 30, 2008, we had $441.5 million of borrowing outstanding under our
revolving credit facilities. On June 16, 2008, we obtained lender consent as
required under our $575 million revolving credit facility for the acquisition of
all the outstanding stock of Staubach Holdings, Inc. and amended the credit
facility to adjust the pricing, modify certain covenants and increase the
accordion feature to allow for an increase to as much as $1
billion between the revolving credit facility and a term
loan. Pricing on the facility now ranges from LIBOR plus 125 basis
points to LIBOR plus 275 basis points. As of June 30, 2008, our
pricing on the $575 million revolving credit facility was LIBOR plus 200 basis
points. We also amended our $100 million short term revolving credit
facility to adjust the pricing and modify certain covenants. In July 2008, we
terminated our $100 million short term facility and exercised the accordion
feature on our revolving credit facility to increase the facility size to $675
million. In addition, we entered into a $200 million term loan
agreement (which is fully drawn), with terms and pricing similar to our existing
revolving credit facility. Both the revolving credit facility and term loan
mature in June 2012.
(13)
Subsequent Events
Staubach
Acquisition
On July
11, 2008, we completed the acquisition of Staubach Holdings, Inc. (“Staubach”),
a leading real estate services firm specializing in tenant representation in the
United States. Staubach’s extensive tenant representation capability and deep
presence in key markets in the United States will reinforce our integrated
global platform and Corporate Solutions business.
At
closing, we paid approximately $123 million in cash, as adjusted for Staubach's
net liabilities, and $100 million in shares of our common stock. The number of
shares of our common stock payable pursuant to the Merger Agreement will be
subject to adjustment if on the trading day prior to the date that the
registration statement required to be filed by the Company after the closing of
the merger becomes effective, the average trading price of our common
stock for the five consecutive trading days ending on (and including) such date
(the "Adjustment Trading Price") is either greater than $65.91 or less than the
closing trading price of $59.92. If the Adjustment Trading Price is greater than
$65.91, the number of shares of our common stock issued pursuant to the Merger
Agreement will be equal to $110 million divided by the Adjustment Trading Price.
If the Adjustment Trading Price is less than the closing trading price, the
number of shares of our common stock issued pursuant to the Merger Agreement
will be equal to $100 million divided by the Adjustment Trading Price; provided,
however, in the event that the Adjustment Trading Price is less than 75% of the
closing trading price (the "Floor Price"), the Adjustment Trading Price will be
equal to the Floor Price.
The
Merger Agreement also provides for the following deferred payments payable in
cash: (i) on the first business day of the 25th month following the closing (or
the 37th month if certain revenue targets are not met), approximately $78
million; (ii) on the first day of the 37th month following the closing (or the
49th month if certain revenue targets are not met), approximately $156 million;
and (iii) on the first day of the 61st month following the closing,
approximately $156 million. Staubach shareholders will also be entitled to
receive an earnout payment of up to approximately $114 million, payable on a
sliding scale, if certain thresholds are met with respect to the tenant
representation business for the earnout periods ended December 31, 2010, 2011
and 2012.
Other
Acquisitions
In July
and August 2008, we completed four additional acquisitions: 1) ECD Energy and
Environment Canada, the leading environmental consulting firm in Canada and the
developer of Green Globes, a technology platform for evaluating and rating
building sustainability, 2) Churston Heard, a leading retail consultancy in the
UK that offers a full range of retail services, and 3) HIA, a Brazilian hotel
services company and 4) the remaining 90% in Alkas, a Turkish based commercial
real estate firm. Terms of these transactions included cash paid at closing
totaling approximately $29.9 million, consideration subject only to the passage
of time of approximately $13.9 million, and potential earn-out payments of $20.7
million that are subject to the achievement of certain performance
conditions. In August 2008, we also amended the earn-out provision
terms included in the 2007 acquisition of Corporate Realty Advisors to make $3.6
million of earn-out consideration subject only to the passage of
time.
Item 2. 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, 2008, included herein, and Jones Lang LaSalle’s
audited consolidated financial statements and notes thereto for the fiscal year
ended December 31, 2007, which have been filed with the SEC as part of our 2007
Annual Report on Form 10-K and are also available on our website (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.
We
present our quarterly Management’s Discussion and Analysis 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 2 of notes to
consolidated financial statements in our 2007 Annual Report of 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 we consider them 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 (1) a percentage of compensation costs and (2) 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 we accrue in the third
and fourth quarters. We adjust the incentive compensation accrual in those
unusual cases where we have paid earned incentive compensation to employees. We
exclude incentive compensation pools that are not subject to the normal
performance criteria from the standard accrual methodology and accrue for them
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 such compensation expense under the stock ownership program
in a manner consistent with the accrual of the underlying incentive
compensation.
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 restricted stock 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 year end, and the adjustment made in
the first quarter of the following year to true-up the deferral and related
amortization ($ in millions):
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
Deferral
of compensation, net of related amortization expense
|
|
$ |
24.3 |
|
|
|
24.7 |
|
Increase
(decrease) to deferred compensation in the first quarter of the following year
|
|
|
(1.0 |
) |
|
|
1.6 |
|
The table
below sets forth the amortization expense related to the stock ownership program
for the three and six months ended June 30, 2008 and 2007 ($ in
millions):
|
|
Three Months
|
|
|
Three Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
compensation expense amortization for prior year programs
|
|
$ |
6.7 |
|
|
|
6.0 |
|
|
|
14.7 |
|
|
|
13.9 |
|
Current deferral net of related
amortization
|
|
|
(4.8 |
) |
|
|
(7.8 |
) |
|
|
(8.0 |
) |
|
|
(15.1 |
) |
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 health costs 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 required 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 2008 and 2007 are
$5.5 million and $0.6 million, respectively, at June 30, 2008.
The table
below sets out certain information related to the cost of this program for the
three and six months ended June 30, 2008 and 2007 ($ in millions):
|
|
Three Months
|
|
|
Three Months
|
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
to Company
|
|
$ |
4.5 |
|
|
|
3.9 |
|
|
|
9.4 |
|
|
|
7.7 |
|
Employee
contributions
|
|
|
1.1 |
|
|
|
0.9 |
|
|
|
2.4 |
|
|
|
1.8 |
|
Adjustment to prior year
reserve
|
|
|
(0.9 |
) |
|
|
(0.8 |
) |
|
|
(1.8 |
) |
|
|
(1.5 |
) |
Total program cost
|
|
$ |
4.7 |
|
|
|
4.0 |
|
|
|
10.0 |
|
|
|
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 workers’ compensation insurance for a number of
years. We purchase stop loss coverage to limit our exposure to large, individual
claims. On a periodic basis 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 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, 2008 and
2007 were $0.8 million and $0.7 million, respectively. The credits taken to
income through the six months ended June 30, 2008 and 2007 were $1.7 million and
$1.4 million, respectively.
The
reserves, which can relate to multiple years, were $11.6 million and $9.8
million, as of June 30, 2008 and December 31, 2007, 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, which relate to
multiple years, were $9.0 million and $7.1 million, net of receivables from
third party insurers, as of June 30, 2008 and December 31, 2007,
respectively.
Income
Taxes
We
account for income taxes under the asset and liability method. We recognize
deferred tax assets and liabilities for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. We also recognize
deferred tax assets and liabilities for the future tax consequences attributable
to 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 we expect those temporary differences 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 25.2% for 2008. We believe that this is an achievable rate due to the
mix of our income and the impact of tax planning activities. For the three and
six months ended June 30, 2008, we used an effective tax rate of 25.2%; we
ultimately achieved an effective tax rate of 25.2% for the year ended December
31, 2007.
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 and separate account 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
As we
attempt to further expand our real estate investment banking activities within
our Investor and Occupier Services businesses, which will tend to increase the
revenues we receive that relate to the size and timing of our clients’
transactions, 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, but report our results in U.S.
dollars, as a result of which 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. As a result, we 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
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 generally earns investment-generated performance
fees on clients’ real estate investment returns and co-investment equity gains
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 we treat as
expenses when they are incurred during the year, are relatively constant on a
quarterly basis. Consequently, the results for the periods ended June 30, 2008
and 2007 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, 2008 Compared to Three and Six Months Ended June
30, 2007
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
|
|
|
Increase
|
|
|
%
Change
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
(decrease)
in
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
U.S. Dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
659.5 |
|
|
$ |
676.1 |
|
|
$ |
(16.6 |
) |
|
|
(2 |
%) |
|
|
(8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
431.2 |
|
|
|
436.3 |
|
|
|
(5.1 |
) |
|
|
(1 |
%) |
|
|
(5 |
%) |
Operating,
administrative and other
|
|
|
171.9 |
|
|
|
126.5 |
|
|
|
45.4 |
|
|
|
36 |
% |
|
|
29 |
% |
Depreciation and
amortization
|
|
|
18.2 |
|
|
|
12.3 |
|
|
|
5.9 |
|
|
|
48 |
% |
|
|
43 |
% |
Total operating expenses
|
|
|
621.3 |
|
|
|
575.1 |
|
|
|
46.2 |
|
|
|
8 |
% |
|
|
4 |
% |
Operating income
|
|
$ |
38.2 |
|
|
$ |
101.0 |
|
|
$ |
(62.8 |
) |
|
|
(62 |
%) |
|
|
(68 |
%) |
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Increase
|
|
|
%
Change
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
(decrease)
in
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
U.S. Dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,223.4 |
|
|
$ |
1,166.1 |
|
|
$ |
57.3 |
|
|
|
5 |
% |
|
|
(1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
810.0 |
|
|
|
761.9 |
|
|
|
48.1 |
|
|
|
6 |
% |
|
|
2 |
% |
Operating,
administrative and other
|
|
|
332.8 |
|
|
|
242.3 |
|
|
|
90.5 |
|
|
|
37 |
% |
|
|
31 |
% |
Depreciation
and amortization
|
|
|
34.7 |
|
|
|
24.9 |
|
|
|
9.8 |
|
|
|
39 |
% |
|
|
34 |
% |
Restructuring credits
|
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
|
0.2 |
|
|
n.m.
|
|
|
n.m.
|
|
Total operating expenses
|
|
|
1,177.3 |
|
|
|
1,028.7 |
|
|
|
48.6 |
|
|
|
14 |
% |
|
|
9 |
% |
Operating income
|
|
$ |
46.1 |
|
|
$ |
137.4 |
|
|
$ |
(91.3 |
) |
|
|
(66 |
%) |
|
|
(71 |
%) |
(n.m.
– not meaningful)
Revenue
for the second quarter of 2008 was $659.5 million, a decrease of 2% in U.S.
dollars and 8% in local currencies from the prior year. Included in the firm’s
2007 results was a significant second-quarter transaction advisory fee earned in
the Asia Pacific Hotels business. Capital Markets and Hotels revenue,
excluding the Asia Pacific Hotels fee, for the second quarter decreased $34.3
million, or 30%, from 2007. The decline in Capital Markets and Hotels was offset
by increased revenue in the quarter across other business lines, led by LaSalle
Investment Management’s Advisory fees, which increased 34%, to $72.6 million,
over the prior year. The solid second-quarter performance in Transaction
Services revenue included a significant contribution from Leasing, which
increased 23% to $163 million. Excluding Capital Markets and Hotels, Transaction
Services revenue increased by 33% over 2007, to $266 million, for the second
quarter of 2008, with increases across all regions. Management Services revenue
increased 28% to $215 million for the second quarter, with all operating regions
achieving revenue growth.
For the
first half of 2008, revenue increased to $1.2 billion, 5% over the prior year,
despite a year-over-year revenue decrease in Capital Markets and Hotels of $88.5
million and the 2007 Asia Pacific Hotels advisory fee. Factors driving
year-to-date performance were similar to those we experienced in the second
quarter. The current revenue contribution from 2007 and 2008 acquisitions was
approximately $57 million and $96 million for the 2008 second quarter and year
to date, respectively. Solid revenue performance from LaSalle Investment
Management and our diverse business lines offset the continued impact of
illiquid credit markets on revenue generated by our Capital Markets
businesses.
Operating
expenses were $621.3 million for the second quarter of 2008, an increase of 8%
over 2007, and $1.2 billion year to date, a 14% increase. First-half operating
costs increased across all investor and occupier services, principally due to
costs associated with the 13 acquisitions that closed in 2007, nine of which
were completed in the second half of the year, including larger transactions in
India and France. 2008 operating expenses also include costs associated with 10
acquisitions completed this year, seven in the first quarter and three in the
second. As a result, year-to-date 2008 operating expenses include
costs from these acquired businesses, including integration and intangible
amortization, of approximately $53 million for the second quarter and $92
million year to date, which were not reflected in the firm’s 2007
results.
In the
first six months of 2007, we recognized a gain of $6.1 million on the sale of
two investments, comprised of a gain on the sale of an investment in SiteStuff
Inc. of $3.7 million in the second quarter and a gain of $2.4 million for the
sale of an investment in LoopNet in the first quarter of 2007. The Company’s
co-investment equity income decreased in the second quarter of 2008 to $1.0
million from $6.4 million in the prior year and was a loss of $1.2 million and
income of $6.5 million for the first six months of 2008 and 2007,
respectively.
The tax
provision for the second quarter and first six months of 2008 was $9.0 million
and $10.1 million, respectively, reflecting a 25.2% effective tax rate, compared
with an effective tax rate of 26.7% for the second quarter and first six months
of 2007. The 25.2% effective tax rate is consistent with our full
year 2007 effective tax rate and reflects our expected full year 2008 effective
tax rate.
Net
income was $24.5 million or $0.73 per diluted share for the second quarter of
2008, compared with net income of $77.9 million or $2.32 per diluted share for
the second quarter of 2007. For the first six months of 2008 net income was
$27.4 million or $0.82 per diluted share, compared with net income of $105.2
million or $3.12 per diluted share for the first six months of
2007.
Segment
Operating Results
We manage
and report our operations as four business segments:
|
(i)
|
Investment Management,
which offers money management services on a global basis,
and
|
The three
geographic regions of Investor
and Occupier Services ("IOS"):
|
(iii)
|
Europe,
Middle East and Africa (“EMEA”) and
|
The Investment Management segment
provides money management services to institutional investors and high-net-worth
individuals. Each geographic region offers our full range of Investor Services,
Capital Markets and Occupier Services. The IOS business consists
primarily of tenant representation and agency leasing, capital markets, real
estate investment banking and valuation services (collectively "transaction
services") and property management, facilities management, project and
development management and construction management services (collectively
"management services").
We have
not allocated “Restructuring charges (credits)” to the business segments for
segment reporting purposes; therefore, these costs are not included in the
discussions below. Also, for segment reporting we continue to show “Equity in
earnings (losses) from real estate ventures” within our revenue line, especially
since it is a very integral part of our Investment Management
segment.
Investor
and Occupier Services
Americas
($
in millions)
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase (decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
189.9 |
|
|
$ |
179.0 |
|
|
$ |
10.9 |
|
|
|
6 |
% |
Operating expense
|
|
|
179.3 |
|
|
|
159.9 |
|
|
|
19.4 |
|
|
|
12 |
% |
Operating
income
|
|
$ |
10.6 |
|
|
$ |
19.1 |
|
|
$ |
(8.5 |
) |
|
|
(45 |
%) |
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase (decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
363.7 |
|
|
$ |
327.3 |
|
|
$ |
36.4 |
|
|
|
11 |
% |
Operating expense
|
|
|
352.9 |
|
|
|
301.7 |
|
|
|
51.2 |
|
|
|
17 |
% |
Operating
income
|
|
$ |
10.8 |
|
|
$ |
25.6 |
|
|
$ |
(14.8 |
) |
|
|
(58 |
%) |
In the
Americas region, revenue for the second quarter of 2008 was $189.9 million, an
increase of 6% over the same period last year. For the first half of 2008,
revenue was $363.7 million, an increase of 11%. Excluding the impact of reduced
revenue from Capital Markets and Hotels, which decreased from 2007 by $10.0
million or 40% for the second quarter, and by $23.1 million or 50% year to date,
revenue increased 14% for the quarter and 21% for the first half of
2008.
Second-quarter
revenue benefited from higher Management Services revenue, which increased 10%
over the prior year to $94.9 million, while Transaction Services revenue
excluding Capital Markets and Hotels grew 22%. The year-over-year revenue
increase for the first half of 2008 was driven mainly by Management Services,
which increased 17% to $184 million, and Transaction Services excluding Capital
Markets and Hotels, which grew 29% primarily as a result of increased leasing
activity. The region’s total Leasing revenue in the second quarter, including
both Tenant Representation and Agency Leasing, increased 17% to $59.8 million,
and on a year-to-date basis increased 27% to $117 million, compared with 2007.
The growth in Leasing was driven by activity from recruited transactors and
acquisitions completed during 2007. Additionally, revenue in the firm’s Mexico
and South America businesses more than doubled for both the second quarter and
first half of the year compared with 2007.
Operating
expenses were $179.3 million for the second quarter of 2008, an increase of 12%,
and $352.9 million for the first half of the year, an increase of 17% over the
prior year. Costs associated with the hiring of revenue generators in key
markets and completion of acquisitions contributed to the increase in operating
expenses.
On July
11, 2008, the firm completed the previously announced transaction to merge
operations with The Staubach Company, adding significant strength to the firm’s
tenant representation business.
EMEA
($
in millions)
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Increase
|
|
|
%
Change
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
(decrease)
in
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
236.1 |
|
|
$ |
197.0 |
|
|
$ |
39.1 |
|
|
|
20 |
% |
|
|
12 |
% |
Operating expense
|
|
|
233.8 |
|
|
|
181.8 |
|
|
|
52.0 |
|
|
|
29 |
% |
|
|
20 |
% |
Operating
income
|
|
$ |
2.3 |
|
|
$ |
15.2 |
|
|
$ |
(12.9 |
) |
|
|
(85 |
%) |
|
|
(86 |
%) |
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Increase
|
|
|
%
Change
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
(decrease)
in
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
419.1 |
|
|
$ |
373.9 |
|
|
$ |
45.2 |
|
|
|
12 |
% |
|
|
3 |
% |
Operating expense
|
|
|
423.8 |
|
|
|
344.0 |
|
|
|
79.8 |
|
|
|
23 |
% |
|
|
15 |
% |
Operating
(loss) income
|
|
$ |
(4.7 |
) |
|
$ |
29.9 |
|
|
$ |
(34.6 |
) |
|
n.m.
|
|
|
n.m.
|
|
(n.m. –
not meaningful)
EMEA’s
second-quarter revenue was $236.1 million, an increase of 20% over the prior
year, while revenue in the first half of 2008 was $419.1 million, an increase of
12% over 2007. The growth in total revenue occurred despite lower revenue from
Capital Markets and Hotels, which decreased in the second quarter by $17.7
million, or 26%, and decreased for the first half of the year by $54.1 million,
or 37%, compared with the prior year. Excluding Capital Markets and Hotels,
revenue for both the second quarter and year to date increased by 44% over 2007.
The current revenue contribution from 2007 and 2008 acquisitions was
approximately $33 million and $57 million for the second quarter of 2008 and
year to date, respectively.
Management
Services revenue grew 68% to $59.0 million for the second quarter and 59% to
$107 million for the first half of 2008. Transaction Services revenue excluding
Capital Markets and Hotels increased 38% for the second quarter and 40% for the
first half of 2008. While the firm experienced a lower volume of Capital Markets
transactions compared with the prior year, demand and market share for other
services increased. Leasing revenue, included in Transaction Services revenue,
increased over the prior year for both the second quarter and year to date by
23% and 25%, respectively. Advisory Services revenue, which is also included in
Transaction Services, increased 45% for second quarter and 42% year to date over
the prior year.
Geographically,
the slowdown in Capital Markets activity during the first half of 2008
significantly impacted the UK, Germany and France, while Capital Markets
activity and revenue increased in Dubai, Russia and Holland, driving healthy
year-to-date revenue growth over 2007 in these markets.
Operating
expenses for the second quarter increased 29% to $233.8 million, and increased
23% to $423.8 million, for the first half of 2008 compared with 2007, primarily
due to the impact of acquisitions. Of the ten acquisitions completed in EMEA
since the beginning of 2007, seven were completed during or after the third
quarter of 2007. Acquired businesses added approximately $33 million of
incremental operating expenses, including integration and amortization, in the
second quarter results, and approximately $56 million year to date. Acquisitions
in the second quarter of 2008 included Kemper’s, a 150-person, market-leading
retail specialist business in Germany, and the acquisition of the remaining 51%
interest in a Finnish Leasing and Capital Markets business.
Asia
Pacific
($
in millions)
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
%
Change
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Decrease
in
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
141.8 |
|
|
$ |
211.2 |
|
|
$ |
(69.4 |
) |
|
|
(33 |
%) |
|
|
(40 |
%) |
Operating expense
|
|
|
137.0 |
|
|
|
167.0 |
|
|
|
(30.0 |
) |
|
|
(18 |
%) |
|
|
(22 |
%) |
Operating
income
|
|
$ |
4.8 |
|
|
$ |
44.2 |
|
|
$ |
(39.4 |
) |
|
|
(89 |
%) |
|
|
(92 |
%) |
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Increase
|
|
|
%
Change
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
(decrease)
in
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
259.2 |
|
|
$ |
297.6 |
|
|
$ |
(38.4 |
) |
|
|
(13 |
%) |
|
|
(22 |
%) |
Operating expense
|
|
|
262.3 |
|
|
|
256.3 |
|
|
|
6.0 |
|
|
|
2 |
% |
|
|
(5 |
%) |
Operating
income
|
|
$ |
(3.1 |
) |
|
$ |
41.3 |
|
|
$ |
(44.4 |
) |
|
n.m.
|
|
|
n.m.
|
|
(n.m.
– not meaningful)
Revenue
for the Asia Pacific region was $141.8 million for the second quarter of 2008,
compared with $211.2 million in 2007, and $259.2 million for the first half of
2008, compared with $297.6 million in 2007. Included in the firm’s second
quarter 2007 results was a significant transaction advisory fee earned in the
Asia Pacific Hotels business. Management Services revenue for the second quarter
of 2008 was $61.4 million, an increase of 31%, and $119 million for the first
half of 2008, an increase of 29% over the prior year. The current revenue
contribution from 2007 and 2008 acquisitions was approximately $20 million and
$32 million for the 2008 second quarter and year to date,
respectively.
Capital
Markets and Hotels revenue, excluding the 2007 advisory fee in Hotels, decreased
in the second quarter of 2008 by $6.6 million or 30%, and decreased for the
first half of 2008 by $11.3 million or 33%. Leasing activity momentum continued
from the first quarter of 2008 and, as a result, Leasing revenue increased by
32% for the second quarter and 42% for the first half of 2008, compared with
2007.
The
strongest contributors to the year-over-year revenue growth were the growth
markets of China, Japan and India. Revenue for these markets increased 40% for
both the second quarter and first half of the year over the prior year, as they
benefited from both growing local economic markets and the acquisition in India
at the beginning of the third quarter of 2007. The core market of
Australia had second-quarter revenue growth of 23% over the prior year, while
Hong Kong grew by 18%.
Operating
expenses for the region were $137.0 million for the second quarter of 2008 and
$262.3 million for the first half of 2008. The operating expenses decreased year
over year for the quarter as a result of incentive compensation recognized in
2007 related to the transaction advisory fee in the Hotels business. The impact
of acquisitions completed since the beginning of 2007 is included in 2008
operating expenses, adding approximately $15 million to the second quarter and
approximately $28 million to the first half of 2008. During the second quarter
of 2008, the firm completed the acquisition of a market-leading agency business
in the Philippines.
Investment
Management
Investment
Management
($
in millions)
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Increase
|
|
|
%
Change
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
(decrease)
in
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
91.8 |
|
|
$ |
89.5 |
|
|
$ |
2.3 |
|
|
|
3 |
% |
|
|
(1 |
%) |
Equity earnings
|
|
|
0.9 |
|
|
|
5.7 |
|
|
|
(4.8 |
) |
|
|
(84 |
%) |
|
|
(84 |
%) |
Total
revenue
|
|
|
92.7 |
|
|
|
95.2 |
|
|
|
(2.5 |
) |
|
|
(3 |
%) |
|
|
(6 |
%) |
Operating expense
|
|
|
71.2 |
|
|
|
66.4 |
|
|
|
4.8 |
|
|
|
7 |
% |
|
|
(4 |
%) |
Operating
income
|
|
$ |
21.5 |
|
|
$ |
28.8 |
|
|
$ |
(7.3 |
) |
|
|
(25 |
%) |
|
|
(28 |
%) |
|
|
Six
Months
|
|
|
Six
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Increase
|
|
|
%
Change
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
(decrease)
in
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
181.3 |
|
|
$ |
167.9 |
|
|
$ |
13.4 |
|
|
|
8 |
% |
|
|
4 |
% |
Equity (loss) earnings
|
|
|
(1.2 |
) |
|
|
6.0 |
|
|
|
(7.2 |
) |
|
n.m.
|
|
|
n.m.
|
|
Total
revenue
|
|
|
180.1 |
|
|
|
173.9 |
|
|
|
6.2 |
|
|
|
4 |
% |
|
|
0 |
% |
Operating expense
|
|
|
138.4 |
|
|
|
127.1 |
|
|
|
11.3 |
|
|
|
9 |
% |
|
|
6 |
% |
Operating
income
|
|
$ |
41.7 |
|
|
$ |
46.8 |
|
|
$ |
(5.1 |
) |
|
|
(11 |
%) |
|
|
(16 |
%) |
(n.m. – not
meaningful)
LaSalle
Investment Management continues to benefit from the growth of its annuity-based
business, which generated a year-over-year increase in Advisory fees of 34% for
both the second quarter and first half of 2008. This growth in LaSalle
Investment Management’s annuity business was principally due to an 18% increase
in assets under management over the prior year, to $54.1 billion, together with
Advisory fees generated from committed capital. Supporting this growth, the
firm’s co-investment capital grew to $177 million at the end of the first
quarter of 2008, a 36% increase over the prior year.
During
the second quarter of 2008, Incentive fees were $13.0 million, compared with
$29.8 million in 2007, reflecting varied timing in asset sales compared with a
year ago. 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 different clients.
LaSalle
Investment Management raised $1.0 billion of equity in the first half of 2008,
compared with $2.8 billion for the first half of 2007. Investments made on
behalf of clients in the first half of the year 2008 were $2.2 billion, compared
with $3.4 billion in 2007.
Consolidated
Cash Flows
Cash
Flows Used For Operating Activities
During
the first six months of 2008, cash used in operating activities was $173.2
million, a decrease of $193.5 million from the $20.3 million generated from
operating activities in the first six months of 2007. The increase in cash used
in the first six months of 2008 was primarily due to a decrease in net income
and increase in net cash required for changes in working capital. The most
significant change in working capital was a result of changes in accounts
payable, accrued liabilities, and accrued compensation. In the first six months
of 2008, $403.6 million was used relative to changes in accounts payable,
accrued liabilities, and accrued compensation, an increase of $247.4 million
over the $156.2 million used in the first six months of 2007, driven primarily
by increased incentive compensation payments made in the first quarter of the
year, as well as a decrease in year-to-date accrued compensation in 2008
compared with 2007 as a result of a year-over-year decrease in operating
income.
Cash
Flows Used For Investing Activities
We used
$242.7 million of cash for investing activities in the first six months of 2008,
a $134.0 million increase over the $108.7 million used in the first six months
of 2007. This increase was primarily due to an increase of $101.6 million in
cash used for acquisitions, a decrease of $24.1 million in distributions from
our co-investments, and an increase of $5.4 million in capital expenditures. In
the first six months of 2008 we used $168.2 million for acquisitions, consisting
of $148.2 million for acquisitions and $20.0 million for a deferred payment made
in the first quarter of 2008 as part of the 2006 Spaulding & Slye
acquisition.
Cash
Flows From Financing Activities
Financing
activities provided $404.9 million of net cash in the first six months of 2008
compared with $75.3 million in the first six months of 2007, this increase was
primarily due to increased borrowing and a decrease in cash used for share
repurchases. In the first six months of 2008 net borrowings were $421.2 million,
an increase of $320.7 million over net borrowing of $100.5 million in the first
six months of 2007. Also contributing to this increase in cash provided by
financing activities was a reduction in cash used for shares repurchased under
our Board-approved share repurchase program, as no shares were purchased in the
first six months of 2008 while $21.8 million was used for share repurchases in
the first six months of 2007. These increases in cash flow were partially
off-set by $5.2 million increase in dividends paid. In the second quarter of
2008 we paid dividends $17.3 million or $0.50 per share compared to the $12.1
million or $0.35 per share paid in the second quarter of 2007.
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
Facilities
On June
16, 2008, we obtained lender consent as required under our $575 million
revolving credit facility for the acquisition of all the outstanding stock of
Staubach Holdings, Inc. and amended the credit facility to adjust the pricing,
modify certain covenants and increase the accordion feature to allow for an
increase to as much as $1 billion between the revolving credit
facility and a term loan. Pricing on the facility now ranges
from LIBOR plus 125 basis points to LIBOR plus 275 basis points. As
of June 30, 2008, our pricing on the $575 million revolving credit facility was
LIBOR plus 200 basis points. We also amended our $100 million short
term revolving credit facility to adjust the pricing and modify certain
covenants. In July 2008, we terminated the $100 million short term
facility and exercised the accordion feature on our revolving credit facility to
increase the facility size to $675 million. In addition, we entered
into a $200 million term loan agreement (which is fully drawn), with terms and
pricing similar to our existing revolving credit facility. Both the revolving
credit facility and term loan mature in June 2012. The revolving credit 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 an additional $52.6 million under local overdraft
facilities.
As of
June 30, 2008, we had $441.5 million outstanding under the $575 million
revolving credit facility. The average borrowing rate on this revolving credit
agreement was 3.4% in the second quarter of 2008, as compared with an average
borrowing rate of 5.6% in the second quarter of 2007. We also had short-term
borrowings (including capital lease obligations and local overdraft facilities)
of $23.3 million outstanding at June 30, 2008.
With
respect to the revolving credit facility and term loan agreement, we must
maintain a consolidated net worth of at least $729 million, a leverage ratio not
exceeding 3.25 to 1, and a minimum cash interest coverage ratio of 2.0 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, 2008.
Both the
revolving credit facilities bear 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 2007
or the first six months of 2008, and none were outstanding as of June 30,
2008.
We
believe that our credit facilities, together with our 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
As of
June 30, 2008, we had total investments in and loans to real estate ventures of
$176.0 million in approximately 40 separate property or fund co-investments.
Within this $176.0 million are loans of $3.6 million to real estate ventures
which bear an 8.0% interest rate and are to be repaid in 2009. In addition to
our co-investments, we had equity investments of $1.4 million comprised of an
investment in Sandalwood, a retail joint venture in Asia Pacific, and a 10%
equity interest in Alkas, a Turkish based commercial real estate
firm.
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, 2008, our maximum
potential unfunded commitment to LIC I was euro 23.3 million ($36.7 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, 2008, LIC II has unfunded capital
commitments for future fundings of co-investments of $445.3 million, of which
our 48.78% share is $217.2 million. The $217.2 million commitment is part of our
maximum potential unfunded commitment to LIC II at June 30, 2008 of $413.0
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. At June 30, 2008, no bridge financing
arrangements were outstanding.
As of
June 30, 2008, LIC I maintains a euro 10.0 million ($15.8 million) revolving
credit facility (the "LIC I Facility"), and LIC II maintains a $200.0 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 4.8 million ($7.5 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 23.3 million
($36.7 million) and to LIC II of $413.0 million. As of June 30, 2008, LIC I had
euro 5.4 million ($8.5 million) of outstanding borrowings on the LIC I Facility,
and LIC II had $23.2 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 $9.2 million at June 30, 2008.
We expect
to continue to pursue co-investment opportunities with our real estate money
management clients in the Americas, Europe and Asia Pacific, as co-investment
remains very important to the continued growth of Investment Management. The net
co-investment funding for 2008 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
Since
October 2002, our Board of Directors has approved five share repurchase
programs. At June 30, 2008, we have 1,563,100 shares that we are authorized to
repurchase under the current share repurchase program. We made no share
repurchases in the first six months of 2008. In 2007, we repurchased 1,015,800
shares at a cost of $95.8 million. Our current share repurchase program allows
the Company to purchase our 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.
The
Company announced on April 29, 2008 that its Board of Directors has declared a
semi-annual cash dividend of $0.50 per share of its Common Stock. We made a
dividend payment on June 13, 2008 to holders of record at the close of business
on May 15, 2008. Simultaneously, we paid a dividend-equivalent in the same
amount on outstanding but unvested shares of restricted stock units granted
under the Company’s Stock Award and Incentive Plan. The current dividend plan
approved by the Board anticipates a total annual dividend for 2008 of $1.00 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.
Capital
Expenditures and Business Acquisitions
Capital
expenditures for the first six months of 2008 were $50.8 million, net, compared
to $45.4 million for the same period in 2007. Our capital expenditures are
primarily for ongoing improvements to computer hardware and information systems
and improvements to leased space.
Cash used
to facilitate business acquisitions in the first six months of 2008 was $168.2
million, an increase of $101.6 million from the same period in 2007. Terms for
our acquisitions typically include cash paid at closing, with provisions for
additional consideration and earn-outs subject to certain contract provisions
and performance. Deferred business acquisition obligations on our consolidated
balance sheet represent the current discounted values of payments to sellers of
businesses for which our acquisition has closed as of the balance sheet date and
for which the only remaining condition on those payments is the passage of time.
Nineteen of the acquisitions we have completed since January 1, 2006 have
provided for potential earn-out payments subject to the achievement of certain
performance conditions. For seventeen of those acquisitions, the maximum amount
of the potential earn-out payments is $61.5 million. We expect those amounts
will come due at various times over the next six years. For the other two of
those acquisitions, the amounts of the earn-out payments are based on formulas
tied to operations of the businesses which are not quantifiable at this time.
See Note 5 of the notes to consolidated financial statements for additional
discussion of the Company’s business acquisition activity in the first six
months of 2008.
Item 3. 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 $470.5 million during the three months ended June 30, 2008, and
the effective interest rate on that facility was 3.4%. As of June 30, 2008, we
had $441.5 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 the 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 2007 or the first six
months of 2008, and we had no such agreements outstanding at June 30,
2008.
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 61% and 64% of our total revenues for the six months ended June
30, 2008 and 2007, respectively. Operating in international markets means that
we are exposed to movements in foreign exchange rates, primarily the British
pound (14% of revenues for the six months ended June 30, 2008) and the euro (19%
of revenues for the six months ended June 30, 2008).
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, 2008, we had forward
exchange contracts in effect with a gross notional value of $531.3 million
($473.1 million on a net basis) with a net fair value gain of $9.3 million. This
net 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, 2008, 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.
Item 4. Controls and Procedures
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, 2008
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.
Part
II
Item 1. Legal Proceedings
See Note
11 of the notes to consolidated financial statements for discussion of the
Company’s legal proceedings.
Information
regarding risk factors appears in “Item 1A. Risk Factors,” in our Annual Report
on Form 10-K for the year ended December 31, 2007. Except as described below,
there have been no material changes from the risk factors previously disclosed
in our Annual Report on Form 10-K for the year ended December 31,
2007.
Risks
Related to the Staubach Acquisition
Although
we expect that the merger with Staubach will result in benefits to us, we may
not realize those benefits because of integration and other
challenges.
We may
not successfully integrate the operations of Jones Lang LaSalle and Staubach in
a timely or complete manner, and we may not realize the anticipated benefits or
synergies of the merger. The anticipated benefits and synergies are based on
projections and assumptions, not actual experience, and assume a successful
integration. Our
failure to meet the challenges involved in integrating our operations and
Staubach successfully or otherwise to realize any of the anticipated benefits of
the merger with Staubach could harm our business, results of operations and
financial condition. Realizing the benefits of the merger with Staubach will
depend in part on the integration of operations and personnel. The integration
of companies is a complex and time-consuming process that could significantly
disrupt the businesses of Jones Lang LaSalle and Staubach. The challenges
involved in integration and realizing the benefits of an acquisition
include:
|
·
|
difficulties
in integrating cultures, compensation structures, operations, existing
contracts, accounting processes and employees and realizing the
anticipated synergies of the combined
businesses;
|
|
·
|
diversion
of financial and management resources from existing
operations;
|
|
·
|
the
price we pay or other resources that we devote may exceed the value we
realize, or the value we could have realized if we had allocated the
consideration payable pursuant to the Merger Agreement or other
resources to another opportunity;
|
|
·
|
potential
loss of employees, clients and strategic alliances from either
our current business or the business of Staubach;
and
|
|
·
|
assumption
of unanticipated problems or latent
liabilities.
|
Risks
related to our common stock
Unregistered
shareholders upon receiving registration may sell their shares of our common
stock in amounts and at such times and prices as they may desire.
In
conjunction with the completion of the acquisition of Staubach on July 11, 2008,
we issued $100 million in shares of our common stock to Staubach shareholders.
The exact number of shares of our common stock payable pursuant to the Merger
Agreement cannot be calculated until the date before the registration statement
required to be filed by the Company after the closing of the merger becomes
effective. Sales of a substantial number of these shares in the
public market could cause the market price of our common stock to
decline.
Item 2. Share Repurchases
The
Company made no share repurchases in the six months ending June 30,
2008.
Item 4. Submission of Matters to a Vote of Security
Holders
At the
annual meeting of shareholders held on May 29, 2008, the following business was
conducted:
|
A.
|
Shareholders
elected eight directors as follows for a one year term expiring at the
2009 Annual Meeting of
Shareholders:
|
|
Votes
For
|
Votes
Withheld
|
Henri-Claude
de Bettignies
|
26,860,180
|
191,840
|
Colin
Dyer
|
26,739,494
|
312,527
|
Darryl
Hartley-Leonard
|
26,071,875
|
980,146
|
Lauralee
E. Martin
|
25,124,420
|
1,927,601
|
Alain
Monié
|
26,860,630
|
191,390
|
Sheila
A. Penrose
|
26,191,800
|
860,221
|
David
B. Rickard
|
26,193,033
|
858,987
|
Thomas
C. Theobald
|
26,687,549
|
364,471
|
|
B.
|
Shareholders
ratified the appointment of KPMG LLP as the Company's independent
registered public accounting firm for the year ending December 31, 2008 as
follows:
|
Votes
For: 25,791,481
Votes
Against: 1,256,042
Votes
Abstained: 4,496
|
C.
|
Shareholders
approved an amendment to the company's stock award and incentive plan to
increase the number of shares of common stock reserved for issuance under
that plan by 3,000,000.
|
Votes
For: 13,310,076
Votes
Against: 10,185,966
Votes
Abstained: 55,993
Item 5. Other Information
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 website 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 website at www.joneslanglasalle.com
by clicking “Investor Relations” and then “Board of Directors and Corporate
Governance.”
Roger
T. Staubach Elected to the Board of Directors
As
previously disclosed on a Current Report on Form 8-K dated July 23, 2008, the
Company’s Board of Directors has elected Roger T. Staubach to serve as a member
of the Board, effective July 21, 2008. Mr. Staubach is the Executive
Chairman of the firm’s Americas region, having assumed that role on July 11,
2008, when Jones Lang LaSalle completed the previously announced transaction to
merge its operations with The Staubach Company.
Since Mr.
Staubach is employed by Jones Lang LaSalle, he will be serving on the Board as a
member of management and therefore will not qualify as an independent member of
the Board or serve on any of its Committees.
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, and Chairman, Jones Lang LaSalle
Hotels
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
Charles
J. Doyle
Chief
Marketing and Communications Officer
James S.
Jasionowski
Chief Tax
Officer
David A.
Johnson
Chief
Information Officer
Mark J.
Ohringer
General
Counsel and Corporate Secretary
Marissa
R. Prizant
Director
of Internal Audit
Nazneen
Razi
Chief
Human Resources Officer
Joseph J.
Romenesko
Treasurer
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, 2007 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;
|
|
•
|
The
outcome of pending litigation; and
|
|
•
|
The
impact of current, pending and future legislation and
regulation.
|
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 6th day of August,
2008.
|
JONES
LANG LASALLE INCORPORATED
|
|
|
|
/s/
Lauralee E. Martin
|
|
_______________________________
|
|
|
|
By:
Lauralee E.
Martin
|
|
Executive
Vice President and
|
|
Chief
Operating and Financial Officer
|
|
(Authorized
Officer and
|
|
Principal
Financial Officer)
|
Exhibit
10.1
|
Agreement
and Plan of Merger, dated June 16, 2008, by and among Jones
Lang LaSalle Incorporated, Jones Lang LaSalle Tenant Representation, Inc.
and Staubach Holdings, Inc., Incorporated by reference to Exhibit 2.1 to
the registrant’s Current Report on Form 8-K filed with the SEC on June 20,
2008 (File Number 001-13145)
|
10.2
|
First
Amendment to Credit Agreement, dated as of June 16, 2008, Incorporated by
reference to Exhibit 99.1 to the registrant’s Current Report on Form 8-K
filed with the SEC on June 20, 2008 (File Number
001-13145)
|
10.3
|
First
Amendment to Amended and Restated Multicurrency Credit Agreement, dated as
of June 16, 2008, Incorporated by reference to Exhibit 99.2 to the
registrant’s Current Report on Form 8-K filed with the SEC on June 20,
2008 (File Number 001-13145)
|
10.4
|
Term
Loan Agreement 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 registrant’s Current
Report on Form 8-K filed with the SEC on July 2, 2008 (File Number
001-13145)
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
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
|
*Filed
herewith
39