form10-q.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 September 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 $0.01)
as of the close of business on November 5, 2008 was 34,503,401.
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3
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3
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4
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5
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6
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7
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21
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32
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33
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33
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33
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35
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35
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39
|
JONES
LANG LASALLE INCORPORATED
September
30, 2008 and December 31, 2007
($
in thousands, except share data)
|
|
September 30,
|
|
|
|
|
|
|
2008
|
|
|
December 31,
|
|
Assets
|
|
(unaudited)
|
|
|
2007
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
63,563 |
|
|
|
78,580 |
|
Trade
receivables, net of allowances of $25,199 and $13,300
|
|
|
685,639 |
|
|
|
834,865 |
|
Notes
and other receivables
|
|
|
87,906 |
|
|
|
52,695 |
|
Prepaid
expenses
|
|
|
37,734 |
|
|
|
26,148 |
|
Deferred
tax assets
|
|
|
63,576 |
|
|
|
64,872 |
|
Other
|
|
|
10,819 |
|
|
|
13,816 |
|
Total
current assets
|
|
|
949,237 |
|
|
|
1,070,976 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $224,276 and
$198,169
|
|
|
220,068 |
|
|
|
193,329 |
|
Goodwill,
with indefinite useful lives
|
|
|
1,479,596 |
|
|
|
694,004 |
|
Identified
intangibles, with finite useful lives, net of accumulated amortization of
$35,702 and $68,537
|
|
|
72,737 |
|
|
|
41,670 |
|
Investments
in real estate ventures
|
|
|
180,589 |
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|
151,800 |
|
Long-term
receivables, net
|
|
|
53,170 |
|
|
|
33,219 |
|
Deferred
tax assets
|
|
|
38,289 |
|
|
|
58,584 |
|
Other, net
|
|
|
47,979 |
|
|
|
48,292 |
|
Total assets
|
|
$ |
3,041,665 |
|
|
|
2,291,874 |
|
|
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|
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Liabilities
and Shareholders’ Equity
|
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Current
liabilities:
|
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|
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|
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Accounts
payable and accrued liabilities
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|
$ |
352,262 |
|
|
|
302,976 |
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Accrued
compensation
|
|
|
352,305 |
|
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|
655,895 |
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Short-term
borrowings
|
|
|
18,668 |
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14,385 |
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Deferred
tax liabilities
|
|
|
5,131 |
|
|
|
727 |
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Deferred
income
|
|
|
29,101 |
|
|
|
29,756 |
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Deferred
business acquisition obligations
|
|
|
43,332 |
|
|
|
45,363 |
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Other
|
|
|
78,466 |
|
|
|
60,193 |
|
Total
current liabilities
|
|
|
879,265 |
|
|
|
1,109,295 |
|
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|
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|
|
|
|
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Noncurrent
liabilities:
|
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|
|
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|
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Credit
facilities
|
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|
543,209 |
|
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29,205 |
|
Deferred
tax liabilities
|
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|
5,474 |
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6,577 |
|
Deferred
compensation
|
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39,823 |
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|
46,423 |
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Pension
liabilities
|
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1,765 |
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1,096 |
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Deferred
business acquisition obligations
|
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|
370,269 |
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36,679 |
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Minority
shareholder redemption liability
|
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|
44,080 |
|
|
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— |
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Other
|
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64,198 |
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43,794 |
|
Total
liabilities
|
|
|
1,948,083 |
|
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|
1,273,069 |
|
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Commitments
and contingencies
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— |
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— |
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Minority
interest
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|
3,970 |
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8,272 |
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Shareholders’
equity:
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Common
stock, $.01 par value per share, 100,000,000 shares authorized; 34,491,043
and 31,722,587 shares issued and outstanding
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345 |
|
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|
317 |
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Additional
paid-in capital
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572,241 |
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|
441,951 |
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Retained
earnings
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|
510,911 |
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484,840 |
|
Shares
held in trust
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(3,480 |
) |
|
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(1,930 |
) |
Accumulated other comprehensive
income
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9,595 |
|
|
|
85,355 |
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Total shareholders’ equity
|
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|
1,089,612 |
|
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|
1,010,533 |
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Total liabilities and shareholders’
equity
|
|
$ |
3,041,665 |
|
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|
2,291,874 |
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
For
the Three and Nine Months Ended September 30, 2008 and 2007
($ in
thousands, except share data) (unaudited)
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|
Three
Months
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Three Months
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Nine Months
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Nine Months
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Ended
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Ended
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Ended
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Ended
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September 30,
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September 30,
|
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September 30,
|
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September 30,
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2008
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2007
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2008
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2007
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Revenue
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$ |
677,084 |
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|
624,151 |
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1,900,519 |
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1,790,291 |
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Operating
expenses:
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Compensation
and benefits
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|
449,186 |
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|
412,920 |
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|
1,259,233 |
|
|
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1,174,842 |
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Operating,
administrative and other
|
|
|
154,767 |
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|
|
132,828 |
|
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|
487,508 |
|
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|
375,082 |
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Depreciation
and amortization
|
|
|
29,194 |
|
|
|
13,893 |
|
|
|
63,908 |
|
|
|
38,828 |
|
Restructuring charges
(credits)
|
|
|
10,461 |
|
|
|
— |
|
|
|
10,273 |
|
|
|
(411 |
) |
Operating
expenses
|
|
|
643,608 |
|
|
|
559,641 |
|
|
|
1,820,922 |
|
|
|
1,588,341 |
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|
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|
|
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Operating
income
|
|
|
33,476 |
|
|
|
64,510 |
|
|
|
79,597 |
|
|
|
201,950 |
|
|
|
|
|
|
|
|
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|
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|
|
|
|
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Interest
expense, net of interest income
|
|
|
12,496 |
|
|
|
4,378 |
|
|
|
17,232 |
|
|
|
10,046 |
|
Gain
on sale of investments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,129 |
|
Equity in earnings (losses) from real estate
ventures
|
|
|
(693 |
) |
|
|
4,979 |
|
|
|
(1,938 |
) |
|
|
11,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Income
before provision for income taxes and minority interest
|
|
|
20,287 |
|
|
|
65,111 |
|
|
|
60,427 |
|
|
|
209,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
5,112 |
|
|
|
17,384 |
|
|
|
15,228 |
|
|
|
55,940 |
|
Minority interest, net of
tax
|
|
|
171 |
|
|
|
1,197 |
|
|
|
1,838 |
|
|
|
1,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
15,004 |
|
|
|
46,530 |
|
|
|
43,361 |
|
|
|
152,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders (Note
9)
|
|
$ |
15,004 |
|
|
|
46,530 |
|
|
|
42,358 |
|
|
|
151,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
$ |
0.44 |
|
|
|
1.44 |
|
|
|
1.30 |
|
|
|
4.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding
|
|
|
34,217,379 |
|
|
|
32,416,773 |
|
|
|
32,627,905 |
|
|
|
32,060,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$ |
0.43 |
|
|
|
1.38 |
|
|
|
1.25 |
|
|
|
4.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
35,035,602 |
|
|
|
33,610,782 |
|
|
|
33,965,981 |
|
|
|
33,701,963 |
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
For
the Nine Months Ended September 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
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
43,361 |
|
|
|
— |
|
|
|
— |
|
|
|
43,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for Staubach acquisition
|
|
|
1,997,682 |
|
|
|
20 |
|
|
|
99,980 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued under stock compensation programs (1)
|
|
|
770,774 |
|
|
|
8 |
|
|
|
(5,606 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,598 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
benefits of vestings and exercises
|
|
|
— |
|
|
|
— |
|
|
|
4,013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
31,903 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
31,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,290 |
) |
|
|
— |
|
|
|
— |
|
|
|
(17,290 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
held in trust
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,550 |
) |
|
|
— |
|
|
|
(1,550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(75,760 |
) |
|
|
(75,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
September 30, 2008
|
|
|
34,491,043 |
|
|
$ |
345 |
|
|
|
572,241 |
|
|
|
510,911 |
|
|
|
(3,480 |
) |
|
|
9,595 |
|
|
$ |
1,089,612 |
|
(1)
Includes shares repurchased for payment of employee taxes on stock
awards.
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
For
the Nine Months Ended September 30, 2008 and 2007
($ in
thousands) (unaudited)
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
43,361 |
|
|
|
152,376 |
|
Reconciliation
of net income to net cash operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
63,908 |
|
|
|
38,828 |
|
Equity
in losses (earnings) from real estate ventures
|
|
|
1,938 |
|
|
|
(11,480 |
) |
Gain
on sale of investments
|
|
|
- |
|
|
|
(6,129 |
) |
Operating
distributions from real estate ventures
|
|
|
1,767 |
|
|
|
10,592 |
|
Provision
for loss on receivables
|
|
|
16,013 |
|
|
|
8,012 |
|
Minority
interest
|
|
|
1,838 |
|
|
|
1,197 |
|
Amortization
of deferred compensation
|
|
|
39,558 |
|
|
|
31,068 |
|
Amortization
of debt issuance costs
|
|
|
2,308 |
|
|
|
438 |
|
Change
in:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
124,085 |
|
|
|
(41,443 |
) |
Prepaid
expenses and other assets
|
|
|
(7,316 |
) |
|
|
(13,325 |
) |
Deferred
tax assets, net
|
|
|
2,495 |
|
|
|
(798 |
) |
Excess
tax benefits from share-based payment arrangements
|
|
|
(4,013 |
) |
|
|
(25,807 |
) |
Accounts payable, accrued compensation and other
accrued liabilities
|
|
|
(399,064 |
) |
|
|
9,889 |
|
Net cash (used in) provided by operating
activities
|
|
|
(113,122 |
) |
|
|
153,418 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Net
capital additions – property and equipment
|
|
|
(72,243 |
) |
|
|
(71,320 |
) |
Business
acquisitions
|
|
|
(282,950 |
) |
|
|
(86,984 |
) |
Capital
contributions and advances to real estate ventures
|
|
|
(36,634 |
) |
|
|
(26,841 |
) |
Distributions, repayments of advances and sale of
investments
|
|
|
29 |
|
|
|
34,523 |
|
Net cash used in investing
activities
|
|
|
(391,798 |
) |
|
|
(150,622 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings under credit facilities
|
|
|
1,278,124 |
|
|
|
764,285 |
|
Repayments
of borrowings under credit facilities
|
|
|
(759,838 |
) |
|
|
(695,329 |
) |
Debt
issuance costs
|
|
|
(9,498 |
) |
|
|
(450 |
) |
Shares
repurchased for payment of employee taxes on stock awards
|
|
|
(13,876 |
) |
|
|
(29,282 |
) |
Shares
repurchased under share repurchase program
|
|
|
- |
|
|
|
(66,160 |
) |
Excess
tax benefits from share-based payment arrangements
|
|
|
4,013 |
|
|
|
25,807 |
|
Common
stock issued under stock option plan and stock purchase
programs
|
|
|
8,268 |
|
|
|
7,949 |
|
Payment of dividends
|
|
|
(17,290 |
) |
|
|
(12,056 |
) |
Net cash provided by (used in) financing
activities
|
|
|
489,903 |
|
|
|
(5,236 |
) |
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(15,017 |
) |
|
|
(2,440 |
) |
Cash and cash equivalents, January
1
|
|
|
78,580 |
|
|
|
50,612 |
|
Cash and cash equivalents, September
30
|
|
$ |
63,563 |
|
|
|
48,172 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
10,290 |
|
|
|
11,548 |
|
Income
taxes, net of refunds
|
|
|
71,243 |
|
|
|
39,624 |
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
Deferred
business acquisition obligations
|
|
|
331,559 |
|
|
|
12,996 |
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
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 September 30, 2008 and for the three and
nine months ended September 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, the fluctuations in capital markets activities has
had 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 September 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. Management has not yet
determined what impact the application of SFAS 157 for non-financial assets and
liabilities will have on our consolidated financial statements. 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 September 30, 2008, we had forward exchange contracts
in effect with a gross notional value of $517.6 million and a net fair value
loss of $2.7 million, recorded as a current asset of $3.6 million and a current
liability of $6.3 million. This net carrying loss is offset by a carrying gain
in associated intercompany loans such that the net impact to earnings is not
significant. At September 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 $6.1 million and $2.3 million for the three months ended
September 30, 2008 and 2007, respectively and $12.7 million and $7.2 million for
the nine months ended September 30, 2008 and 2007, respectively.
Gross
construction services revenues totaled $78.7 million and $44.2 million for the
three months ended September 30, 2008 and 2007, respectively, and $192.2 million
and $128.6 million for the nine months ended September 30, 2008 and 2007,
respectively.
Subcontract
costs totaled $72.6 million and $41.9 million for the three months ended
September 30, 2008 and 2007, respectively, and $179.5 million and $121.4 million
for the nine months ended September 30, 2008 and 2007,
respectively.
We
include costs in excess of billings on uncompleted construction contracts of
$21.0 million and $4.8 million in “Trade receivables,” and billings in excess of
costs on uncompleted construction contracts of $5.7 million and $12.9 million in
“Deferred income,” respectively, in our September 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 $286.9
million and $224.6 million for the three months ended September 30, 2008 and
2007, respectively, and approximately $860.3 million and $697.6 million for the
nine months ended September 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. 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"). Each geographic region offers our full
range of IOS capabilities.
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 nine months ended September 30, 2008 and 2007 ($ in
thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
Investor and Occupier
Services
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
134,176 |
|
|
|
93,242 |
|
|
|
301,599 |
|
|
|
251,001 |
|
Management
services
|
|
|
110,802 |
|
|
|
87,436 |
|
|
|
294,495 |
|
|
|
244,388 |
|
Equity
earnings
|
|
|
— |
|
|
|
1,262 |
|
|
|
41 |
|
|
|
1,682 |
|
Other services
|
|
|
9,094 |
|
|
|
6,026 |
|
|
|
21,674 |
|
|
|
18,161 |
|
|
|
|
254,072 |
|
|
|
187,966 |
|
|
|
617,809 |
|
|
|
515,232 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
220,379 |
|
|
|
161,285 |
|
|
|
558,773 |
|
|
|
450,959 |
|
Depreciation and
amortization
|
|
|
16,820 |
|
|
|
6,501 |
|
|
|
31,363 |
|
|
|
18,507 |
|
Operating income
|
|
$ |
16,873 |
|
|
|
20,180 |
|
|
|
27,673 |
|
|
|
45,766 |
|
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
Investor and Occupier
Services
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
147,436 |
|
|
|
184,061 |
|
|
|
454,307 |
|
|
|
484,102 |
|
Management
services
|
|
|
53,655 |
|
|
|
37,836 |
|
|
|
160,859 |
|
|
|
105,100 |
|
Equity
earnings (losses)
|
|
|
(3 |
) |
|
|
174 |
|
|
|
99 |
|
|
|
(21 |
) |
Other services
|
|
|
7,473 |
|
|
|
2,774 |
|
|
|
12,458 |
|
|
|
9,542 |
|
|
|
|
208,561 |
|
|
|
224,845 |
|
|
|
627,723 |
|
|
|
598,723 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
194,693 |
|
|
|
205,892 |
|
|
|
605,652 |
|
|
|
541,448 |
|
Depreciation and
amortization
|
|
|
7,978 |
|
|
|
4,704 |
|
|
|
20,864 |
|
|
|
13,151 |
|
Operating income
|
|
$ |
5,890 |
|
|
|
14,249 |
|
|
|
1,207 |
|
|
|
44,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
70,384 |
|
|
|
74,008 |
|
|
|
207,014 |
|
|
|
275,916 |
|
Management
services
|
|
|
61,568 |
|
|
|
58,054 |
|
|
|
180,087 |
|
|
|
150,130 |
|
Equity
earnings (losses)
|
|
|
(556 |
) |
|
|
253 |
|
|
|
(705 |
) |
|
|
485 |
|
Other services
|
|
|
1,159 |
|
|
|
1,702 |
|
|
|
5,337 |
|
|
|
5,112 |
|
|
|
|
132,555 |
|
|
|
134,017 |
|
|
|
391,733 |
|
|
|
431,643 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
128,978 |
|
|
|
124,764 |
|
|
|
384,938 |
|
|
|
377,480 |
|
Depreciation and
amortization
|
|
|
3,634 |
|
|
|
2,368 |
|
|
|
9,962 |
|
|
|
5,998 |
|
Operating income (loss)
|
|
$ |
(57 |
) |
|
|
6,885 |
|
|
|
(3,167 |
) |
|
|
48,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
and other services
|
|
$ |
4,047 |
|
|
|
9,336 |
|
|
|
14,485 |
|
|
|
17,267 |
|
Advisory
fees
|
|
|
70,963 |
|
|
|
63,643 |
|
|
|
215,647 |
|
|
|
171,856 |
|
Incentive
fees
|
|
|
6,326 |
|
|
|
6,033 |
|
|
|
32,557 |
|
|
|
57,716 |
|
Equity earnings (losses)
|
|
|
(134 |
) |
|
|
3,290 |
|
|
|
(1,373 |
) |
|
|
9,334 |
|
|
|
|
81,202 |
|
|
|
82,302 |
|
|
|
261,316 |
|
|
|
256,173 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
59,903 |
|
|
|
53,808 |
|
|
|
197,378 |
|
|
|
180,038 |
|
Depreciation and
amortization
|
|
|
762 |
|
|
|
319 |
|
|
|
1,719 |
|
|
|
1,171 |
|
Operating income
|
|
$ |
20,537 |
|
|
|
28,175 |
|
|
|
62,219 |
|
|
|
74,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment revenue
|
|
$ |
676,391 |
|
|
|
629,130 |
|
|
|
1,898,581 |
|
|
|
1,801,771 |
|
Reclassification of equity earnings
(losses)
|
|
|
(693 |
) |
|
|
4,979 |
|
|
|
(1,938 |
) |
|
|
11,480 |
|
Total revenue
|
|
|
677,084 |
|
|
|
624,151 |
|
|
|
1,900,519 |
|
|
|
1,790,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment operating expenses
|
|
|
633,147 |
|
|
|
559,641 |
|
|
|
1,810,649 |
|
|
|
1,588,752 |
|
Restructuring charges
(credits)
|
|
|
10,461 |
|
|
|
— |
|
|
|
10,273 |
|
|
|
(411 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
33,476 |
|
|
|
64,510 |
|
|
|
79,597 |
|
|
|
201,950 |
|
(5) Business Combinations,
Goodwill and Other Intangible Assets
Staubach
Acquisition
On July
11, 2008, we purchased all of the outstanding shares 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 $123 million in cash, as adjusted for Staubach's net
liabilities, and $100 million in shares of our common stock. The Company issued
1,997,682 shares of its common stock, which represented approximately 6% of the
Company’s outstanding shares. As required by the Merger Agreement, we determined
the number of shares based on $100 million divided by the Adjusted Trading Price
of $50.06, the average closing price of our common stock for the five
consecutive trading days ending August 14, 2008.
The
Merger Agreement also provides for the following deferred payments payable in
cash: (i) $78 million in August 2010 (or in August 2011 if certain revenue
targets are not met); (ii) $156 million in August 2011 (or in August 2012 if
certain revenue targets are not met); and (iii) $156 million in August
2013. We discounted the deferred payments to a present value of $316
million as of July 11, 2008, based on a 6% annual discount rate and recorded
this liability as a long-term deferred business acquisition
obligation.
Staubach
shareholders also are entitled to receive an earn-out payment of up to $114
million, payable on a sliding scale, if certain thresholds are met with respect
to the performance of the Americas tenant representation business for the
earn-out periods ended December 31, 2010, 2011 and 2012. This earn-out payment
will be accounted for as purchase consideration if these performance thresholds
are met.
The
initial allocation of purchase consideration consisting of cash paid at closing,
issuance of shares of common stock, the provision for deferred business
acquisition obligations and assumption of Staubach’s net liabilities resulted in
$571 million of goodwill and $37 million of identifiable intangibles. The
Company is still evaluating the assets and liabilities acquired in the Staubach
acquisition, and anticipates completing the allocation of purchase consideration
in the fourth quarter of 2008.
Unaudited
Pro Forma Condensed Combined Financial Information
We have
included Staubach’s results of operations with those of the Company since
July 11, 2008. Pro forma consolidated results of operations, assuming the
acquisition of Staubach occurred on January 1, 2007 and January 1, 2008 for the
respective years presented are as follows ($ in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
686,750 |
|
|
|
699,122 |
|
|
|
2,138,492 |
|
|
|
2,050,914 |
|
Operating expenses
|
|
|
651,907 |
|
|
|
631,504 |
|
|
|
2,023, 690 |
|
|
|
1,822,342 |
|
Operating
income
|
|
$ |
34,843 |
|
|
|
67,618 |
|
|
|
114,802 |
|
|
|
228,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$ |
15,330 |
|
|
|
44,254 |
|
|
|
53,332 |
|
|
|
154,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
|
0.45 |
|
|
|
1.29 |
|
|
|
1.57 |
|
|
|
4.52 |
|
Basic
weighted average shares outstanding
|
|
|
34,434,518 |
|
|
|
34,414,455 |
|
|
|
34,027,741 |
|
|
|
34,057,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
|
0.43 |
|
|
|
1.24 |
|
|
|
1.51 |
|
|
|
4.32 |
|
Diluted
weighted average shares outstanding
|
|
|
35,252,741 |
|
|
|
35,608,464 |
|
|
|
35,365,817 |
|
|
|
35,699,645 |
|
Pro forma
operating expense adjustments consist of adjustments to intangible amortization
to reverse amortization recorded by Staubach and to record intangible
amortization based on the Company’s current estimate of identifiable intangibles
and their associated useful lives.
Pro forma
net income also includes interest expense adjustments based on the Company’s
estimate of interest that would have been incurred on deferred payments due to
Staubach and due to an increase in borrowing under the Company’s credit facility
for cash paid at closing and various other acquisition related
items.
The
Company applied an estimated 39% tax rate to the pro forma adjustments. Pro
forma weighted average shares include an adjustment to show the impact of the
1,997,682 shares issued as if they had been outstanding as of the beginning of
all periods presented.
Additional
2008 Business Combinations
In the
first nine months of 2008 we completed fourteen acquisitions in addition to
Staubach, 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;
|
|
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;
|
|
11.
|
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;
|
|
12.
|
Churston
Heard, a leading retail consultancy in the UK that offers a full range of
retail services;
|
|
13.
|
HIA,
a Brazilian hotel services company;
and
|
|
14.
|
Alkas,
a Turkish based commercial real estate
firm.
|
Terms for
these transactions included (i) net cash paid at closing and capitalized costs
totaling approximately $177.4 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 $31.0 million, and (iii) additional
consideration subject to earn-out provisions that will be paid only if the
related conditions are achieved. In addition we paid $20.0 million in the first
quarter to satisfy a deferred business acquisition obligation from the 2006
Spaulding & Slye acquisition.
In the
third quarter of 2008, the Company received regulatory approval to legally merge
its India operations with those of the Trammell Crow Meghraj (“TCM”) entity in
which it acquired 44.8% interest in July 2007. As a result of the legal merger,
the TCM shareholders exchanged their 55.2% ownership interest in TCM for 28.1%
of the combined Indian subsidiary. The Company is required to
repurchase this 28.1% of its Indian subsidiary, held by the former TCM
shareholders, on fixed dates in 2010 and 2012. The Company recorded $44.1
million as a minority shareholder redemption liability, which represents the
current fair value of this 28.1% exchanged in the acquisition of the remaining
TCM shares and a reclassification of the TCM shareholders’ minority interest. As
part of this acquisition, the Company recorded additional goodwill of $35.4
million and additional identifiable intangibles of $2.3 million. The minority
shareholder redemption liability will ultimately be relieved through the
repurchases of the 28.1% owned by minority shareholders in 2010 and
2012.
In the
third quarter of 2008, the Company finalized the total purchase price relative
to its fourth quarter 2006 acquisition of areaAZero, an occupier fit-out
business in Spain, and its fourth quarter 2007 acquisition of Corporate Realty
Advisors, a North Carolina corporate advisory and tenant representation firm,
through the amendment of purchase agreement earn-out terms from each of those
transactions. The amendments of these earn-out terms resulted in the
reclassification of $8.6 million from other assets to goodwill, and an addition
of $3.2 million to goodwill and deferred business acquisition
obligations.
Earn-out
payments
At
September 30, 2008 we had the potential to make earn-out payments on 20
acquisitions that are subject to the achievement of certain performance
conditions. The maximum amount of the potential earn-out payments of 19 of these
acquisitions was $192 million at September 30, 2008. We expect these amounts
will come due at various times over the next six years. The TCM acquisition
earn-out payments are based on formulas and independent valuations that are
not quantifiable at this time.
Goodwill
and Other Intangible Assets
We have
$1,552.3 million of unamortized intangibles and goodwill as of September 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 $1,552.3 million of unamortized intangibles and
goodwill, $1,479.6 million represents goodwill with indefinite useful lives,
which is not amortized. The remaining $72.7 million of identifiable intangibles
that are amortized over their remaining finite useful lives.
The
following table sets forth, by reporting segment, the current year movements in
goodwill with indefinite useful lives ($ 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
|
|
|
580,359 |
|
|
|
174,976 |
|
|
|
63,149 |
|
|
|
— |
|
|
|
818,484 |
|
Impact of exchange rate
movements
|
|
|
— |
|
|
|
(25,203 |
) |
|
|
(5,861 |
) |
|
|
(1,828 |
) |
|
|
(32,892 |
) |
Balance
as of September 30, 2008
|
|
$ |
937,965 |
|
|
|
342,011 |
|
|
|
179,644 |
|
|
|
19,976 |
|
|
|
1,479,596 |
|
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
|
|
|
37,279 |
|
|
|
6,679 |
|
|
|
7,158 |
|
|
|
— |
|
|
|
51,116 |
|
Adjustment
for fully amortized intangibles
|
|
|
(41,173 |
) |
|
|
(804 |
) |
|
|
(3,470 |
) |
|
|
(5,908 |
) |
|
|
(51,355 |
) |
Impact of exchange rate
movements
|
|
|
— |
|
|
|
(1,259 |
) |
|
|
(275 |
) |
|
|
5 |
|
|
|
(1,529 |
) |
Balance
as of September 30, 2008
|
|
$ |
82,092 |
|
|
|
15,124 |
|
|
|
11,114 |
|
|
|
109 |
|
|
|
108,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2008
|
|
$ |
(53,367 |
) |
|
|
(4,792 |
) |
|
|
(4,459 |
) |
|
|
(5,919 |
) |
|
|
(68,537 |
) |
Amortization
expense
|
|
|
(12,757 |
) |
|
|
(5,237 |
) |
|
|
(1,811 |
) |
|
|
(41 |
) |
|
|
(19,846 |
) |
Adjustment
for fully amortized intangibles
|
|
|
41,173 |
|
|
|
804 |
|
|
|
3,470 |
|
|
|
5,908 |
|
|
|
51,355 |
|
Impact of exchange rate
movements
|
|
|
— |
|
|
|
1,246 |
|
|
|
78 |
|
|
|
2 |
|
|
|
1,326 |
|
Balance
as of September 30, 2008
|
|
|
(24,951 |
) |
|
|
(7,979 |
) |
|
|
(2,722 |
) |
|
|
(50 |
) |
|
|
(35,702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as of September 30,
2008
|
|
$ |
57,141 |
|
|
|
7,145 |
|
|
|
8,392 |
|
|
|
59 |
|
|
|
72,737 |
|
Remaining
estimated future amortization expense for our intangibles with finite useful
lives ($ in millions):
2008
|
|
$ |
11.5 |
|
2009
|
|
|
25.2 |
|
2010
|
|
|
9.5 |
|
2011
|
|
|
7.2 |
|
2012
|
|
|
6.1 |
|
Thereafter
|
|
|
13.2 |
|
Total
|
|
$ |
72.7 |
|
(6)
Investments in Real Estate Ventures
As of
September 30, 2008, we had total investments in and loans to real estate
ventures of $180.6 million in approximately 40 separate property or fund
co-investments. Within this $180.6 million are loans of $3.3 million to real
estate ventures which bear an 8.0% interest rate and are to be repaid in
2009.
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 September 30, 2008, our maximum
potential unfunded commitment to LIC I was euro 19.6 million ($27.6
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 September 30, 2008, LIC II has
unfunded capital commitments for future fundings of co-investments of $442.8
million, of which our 48.78% share is $216.0 million. The $216.0 million
commitment is part of our maximum potential unfunded commitment to LIC II
at September 30, 2008 of $404.8 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 September 30, 2008, no bridge
financing arrangements were outstanding.
As of
September 30, 2008, LIC I maintains a euro 10.0 million ($14.1 million)
revolving credit facility (the "LIC I Facility"), and LIC II maintains a $50.0
million revolving credit facility (the "LIC II Facility"), principally for their
working capital needs. 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 ($6.7 million); assuming
that the LIC II Facility were fully drawn, the maximum exposure to Jones Lang
LaSalle would be $24.4 million. Each exposure is included within and cannot
exceed our maximum potential unfunded commitments to LIC I of euro 19.6 million
($27.6 million) and to LIC II of $404.8. million. As of September 30, 2008, LIC
I had euro 3.7 million ($5.2 million) of outstanding borrowings on the LIC I
Facility, and LIC II had $18.2 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 $8.9 million at September 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
$0.9 million in the first nine months of 2008 and no impairment charges in the
first nine months of 2007.
(7)
Stock-based Compensation
We
adopted SFAS 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) as of
January 1, 2006, using the modified prospective approach. The adoption of SFAS
123R primarily impacts “Compensation and benefits” expense in our consolidated
statement of earnings by changing prospectively our method of measuring and
recognizing compensation expense on share-based awards from recognizing
forfeitures as incurred to estimating forfeitures, and accelerating expense
recognition for share-based awards to employees who are or will become
retirement-eligible prior to the stated vesting period of the
award.
Restricted
Stock Unit Awards
Along
with cash-based salaries and performance-based annual cash incentive awards,
restricted stock unit awards represent a primary element of our compensation
program for Company officers, managers and professionals.
Restricted
stock unit activity for the three months ended September 30, 2008 is as
follows:
|
|
|
|
|
Weighted
Average
|
|
|
Weighted
Average
|
|
Aggregate |
|
|
|
Shares
|
|
|
Grant
Date
|
|
|
Remaining
|
|
Intrinsic
Value |
|
|
|
(thousands)
|
|
|
Fair
Value
|
|
|
Contractual
Life
|
|
($ in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at June 30, 2008
|
|
|
2,724.0 |
|
|
$ |
65.54 |
|
|
|
|
|
|
|
Granted
|
|
|
25.5 |
|
|
|
56.84 |
|
|
|
|
|
|
|
Vested
|
|
|
(712.5 |
) |
|
|
52.76 |
|
|
|
|
|
|
|
Forfeited
|
|
|
(18.6 |
) |
|
|
70.70 |
|
|
|
|
|
|
|
Unvested at September 30,
2008
|
|
|
2,018.4 |
|
|
$ |
69.90 |
|
|
2.08 years
|
|
$ |
87.8
|
|
Restricted
stock unit activity for the nine months ended September 30, 2008 is as
follows:
|
|
|
|
|
Weighted
Average
|
|
Weighted
Average
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Grant
Date
|
|
Remaining
|
|
Intrinsic
Value
|
|
|
|
(thousands)
|
|
|
Fair Value
|
|
Contractual Life
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at January 1, 2008
|
|
|
1,778.5 |
|
|
$ |
61.55 |
|
|
|
|
|
Granted
|
|
|
1,079.4 |
|
|
|
71.09 |
|
|
|
|
|
Vested
|
|
|
(786.0 |
) |
|
|
52.72 |
|
|
|
|
|
Forfeited
|
|
|
(53.5 |
) |
|
|
68.86 |
|
|
|
|
|
Unvested at September 30,
2008
|
|
|
2,018.4 |
|
|
$ |
69.90 |
|
2.08 years
|
|
$ |
87.8 |
|
Unvested shares expected to
vest
|
|
|
1,950.9 |
|
|
$ |
70.09 |
|
2.09 years
|
|
$ |
84.8 |
|
As of
September 30, 2008, there was $74.0 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
786,000 restricted stock unit awards vested during the first nine months of
2008, having an aggregate fair value of $41.4 million and an intrinsic value of
$34.2 million. For the same period in 2007, approximately 880,000 restricted
stock unit awards vested, having an aggregate fair value of $99.1 million and an
intrinsic value of $67 million. As a result of these vesting events, we
recognized tax benefits of $2.3 million and $22.6 million for the nine months
ending September 30, 2008 and 2007, respectively.
Stock
Option Awards
We have
granted stock options at the market value of our common stock at the date of
grant. Our options vested at such times and conditions as the Compensation
Committee of our Board of Directors determined and set forth in the award
agreement; the most recent options, granted in 2003, vested over periods of up
to five years. As a result of a change in compensation strategy, we do not
currently use stock option grants as part of our employee compensation
program.
Stock
option activity for the three months ended September 30, 2008 is as
follows:
|
|
|
|
|
|
|
Weighted Average
|
|
Aggregate |
|
|
|
Options
|
|
|
Weighted Average
|
|
Remaining
|
|
Intrinsic Value |
|
|
|
(thousands)
|
|
|
Exercise
Price
|
|
Contractual
Life
|
|
($ in
millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
124.0 |
|
|
$ |
20.38 |
|
|
|
|
|
|
Exercised
|
|
|
(6.0 |
) |
|
|
21.87 |
|
|
|
|
|
|
Forfeited
|
|
|
(0.0 |
) |
|
|
0.00 |
|
|
|
|
|
|
Outstanding at September 30,
2008
|
|
|
118.0 |
|
|
$ |
20.30 |
|
2.05 years
|
|
$ |
2.7
|
|
Stock
option activity for the nine months ended September 30, 2008 is as
follows:
|
|
|
|
|
|
|
Weighted Average
|
|
Aggregate
|
|
|
|
Options
|
|
|
Weighted Average
|
|
Remaining
|
|
Intrinsic Value
|
|
|
|
(thousands)
|
|
|
Exercise Price
|
|
Contractual Life
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2008
|
|
|
183.0 |
|
|
$ |
19.18 |
|
|
|
|
|
Exercised
|
|
|
(64.0 |
) |
|
|
16.80 |
|
|
|
|
|
Forfeited
|
|
|
(1.0 |
) |
|
|
39.00 |
|
|
|
|
|
Outstanding at September 30,
2008
|
|
|
118.0 |
|
|
$ |
20.30 |
|
2.05 years
|
|
$ |
2.7 |
|
Exercisable at September 30,
2008
|
|
|
118.0 |
|
|
$ |
20.30 |
|
2.05 years
|
|
$ |
2.7 |
|
As of
September 30, 2008, we have approximately 118,000 options outstanding, all of
which have vested. We recognized less than $0.01 million in compensation expense
related to the unvested options for the first nine months of 2008.
The
following table summarizes information about exercises of options occurring
during the three and nine months ended September 30, 2008 and 2007 ($ in
millions):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of options exercised
|
|
|
6,083 |
|
|
|
17,723 |
|
|
|
64,049 |
|
|
|
113,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic
value
|
|
$ |
0.1 |
|
|
|
1.4 |
|
|
|
1.7 |
|
|
|
9.8 |
|
Cash
received from options exercised
|
|
|
0.2 |
|
|
|
0.8 |
|
|
|
2.2 |
|
|
|
4.9 |
|
Tax benefit realized from options
exercised
|
|
|
0.0 |
|
|
|
0.6 |
|
|
|
1.3 |
|
|
|
3.5 |
|
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, 1,480,240 shares have
been purchased under the program through September 30, 2008. In the first nine
months of 2008, 95,758 shares having a weighted average grant date market value
of $58.47 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 $60.66
under the SAYE plan. The fair values of the options are being amortized over
their respective vesting periods. At September 30, 2008, there were
approximately 171,000 options outstanding under the SAYE plan.
(8)
Retirement Plans
We
maintain contributory defined benefit pension plans in the United Kingdom,
Ireland and Holland to provide retirement benefits to eligible employees. It is
our policy to fund the minimum annual contributions required by applicable
regulations. We use a December 31 measurement date for our plans.
Net
periodic pension cost consisted of the following for the three and nine months
ended September 30, 2008 and 2007 ($ in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer
service cost - benefits earned during the year
|
|
$ |
960 |
|
|
|
1,025 |
|
|
|
2,950 |
|
|
|
3,025 |
|
Interest
cost on projected benefit obligation
|
|
|
2,905 |
|
|
|
2,665 |
|
|
|
8,972 |
|
|
|
7,869 |
|
Expected
return on plan assets
|
|
|
(3,349 |
) |
|
|
(3,187 |
) |
|
|
(10,343 |
) |
|
|
(9,411 |
) |
Net
amortization/deferrals
|
|
|
52 |
|
|
|
501 |
|
|
|
162 |
|
|
|
1,482 |
|
Recognized actual loss
|
|
|
38 |
|
|
|
19 |
|
|
|
121 |
|
|
|
56 |
|
Net periodic pension cost
|
|
$ |
606 |
|
|
|
1,023 |
|
|
|
1,862 |
|
|
|
3,021 |
|
For the
nine months ended September 30, 2008, we have made $4.2 million in payments to
our defined benefit pension plans. We expect to contribute a total of $7.7
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 $0.7 million net of tax, declared and paid in second
quarter of 2007.
The
difference between basic weighted average shares outstanding and diluted
weighted average shares outstanding is the dilutive impact of common stock
equivalents. Common stock equivalents consist primarily of shares to be issued
under employee stock compensation programs and outstanding stock options whose
exercise price was less than the average market price of our stock during these
periods.
The
following table details the calculations of basic and diluted earnings per
common share for the three and nine months ended September 30, 2008 and 2007 ($
in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
15,004 |
|
|
|
46,530 |
|
|
|
43,361 |
|
|
|
152,376 |
|
Dividends
on unvested common stock, net of tax
benefit
|
|
|
— |
|
|
|
— |
|
|
|
1,003 |
|
|
|
672 |
|
Net income available to common
shareholders
|
|
$ |
15,004 |
|
|
|
46,530 |
|
|
|
42,358 |
|
|
|
151,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
34,217,379 |
|
|
|
32,416,773 |
|
|
|
32,627,905 |
|
|
|
32,060,102 |
|
Basic
income per common share before dividends on unvested common
stock
|
|
$ |
0.44 |
|
|
|
1.44 |
|
|
|
1.33 |
|
|
|
4.75 |
|
Dividends
on unvested common stock, net of tax
benefit
|
|
|
— |
|
|
|
— |
|
|
|
(0.03 |
) |
|
|
(0.02 |
) |
Basic earnings per common
share
|
|
$ |
0.44 |
|
|
|
1.44 |
|
|
|
1.30 |
|
|
|
4.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
35,035,602 |
|
|
|
33,610,782 |
|
|
|
33,965,981 |
|
|
|
33,701,963 |
|
Diluted
income per common share before dividends on unvested common
stock
|
|
$ |
0.43 |
|
|
|
1.38 |
|
|
|
1.28 |
|
|
|
4.52 |
|
Dividends
on unvested common stock, net of tax
benefit
|
|
|
— |
|
|
|
— |
|
|
|
(0.03 |
) |
|
|
(0.02 |
) |
Diluted earnings per common
share
|
|
$ |
0.43 |
|
|
|
1.38 |
|
|
|
1.25 |
|
|
|
4.50 |
|
(10)
Comprehensive Income
For the
three and nine months ended September 30, 2008 and 2007, comprehensive income
(loss) was as follows ($ in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
15,004 |
|
|
|
46,530 |
|
|
|
43,361 |
|
|
|
152,376 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(127,305 |
) |
|
|
33,331 |
|
|
|
(75,760 |
) |
|
|
53,509 |
|
Reclassification
adjustment for gain on sale of available-for-sale securities realized in net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,256 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$ |
(112,301 |
) |
|
|
79,861 |
|
|
|
(32,399 |
) |
|
|
203,629 |
|
(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
September 30, 2008, we had $543.2 million of borrowings outstanding under our
unsecured credit facilities and term loan agreement. In July 2008, we exercised
the accordion feature on our unsecured revolving credit facility to increase the
facility from $575 million to $675 million. In addition, we terminated our $100
million short term facility and entered into a $200 million term loan agreement
(which is fully drawn), with terms and pricing similar to our existing revolving
credit facility, increasing our total borrowing capacity to $875 million. As of
September 30, 2008, borrowings on these facilities were made at either LIBOR
plus 200 basis points or alternatively for the revolving credit facility Bank of
Montreal’s prime commercial rate plus 5 basis points and for the term loan
agreement Bank of Montreal’s prime commercial rate plus 50 basis points. Both
credit facilities have a maturity of June 2012.
(13)
Restructuring
In the
third quarter of 2008, we recognized $10.5 million of restructuring charges,
consisting of acquisition integration and staff reduction costs. Included in
this total are $8.1 million of employee termination costs and $2.4 million of
integration-related costs for events specifically associated with the
acquisitions of Kemper’s and Staubach. The employee termination costs were
incurred as a result of staff reductions, principally in Europe, in response to
the credit markets’ impact on transaction levels. Employee termination costs of
$3.1 million were paid in the third quarter. Integration-related costs included
certain office moving costs, employee retention payments, training, re-branding
and other transition events.
(14)
Subsequent Events
On
October 28, 2008, the Company announced that its Board of Directors has declared
a semi-annual cash dividend of $0.25 per share of its Common Stock. The dividend
payment will be made on December 15, 2008 to holders of record at the close of
business on November 14, 2008. A dividend-equivalent in the same
amount also will be paid simultaneously on outstanding but unvested shares of
restricted stock units granted under the Company’s Stock Award and Incentive
Plan.
The
following discussion and analysis should be read in conjunction with the
consolidated financial statements, including the notes thereto, for the three
and nine months ended September 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 nine months ended September 30, 2008 and 2007 ($ in
millions):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
compensation expense amortization for prior year programs
|
|
$ |
2.5 |
|
|
|
4.0 |
|
|
|
17.1 |
|
|
|
17.9 |
|
Current deferral net of related
amortization
|
|
|
(3.0 |
) |
|
|
(4.4 |
) |
|
|
(12.9 |
) |
|
|
(19.5 |
) |
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
$4.3 million and $0.3 million, respectively, at September 30, 2008.
The table
below sets out certain information related to the cost of this program for the
three and nine months ended September 30, 2008 and 2007 ($ in
millions):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
to Company
|
|
$ |
4.6 |
|
|
|
4.1 |
|
|
|
14.0 |
|
|
|
11.8 |
|
Employee
contributions
|
|
|
1.2 |
|
|
|
1.0 |
|
|
|
3.5 |
|
|
|
2.8 |
|
Adjustment to prior year
reserve
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
(2.0 |
) |
|
|
(1.5 |
) |
Total program cost
|
|
$ |
5.6 |
|
|
|
5.1 |
|
|
|
15.5 |
|
|
|
13.1 |
|
• 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 September 30, 2008
and 2007 were $0.9 million and $3.4 million, respectively. The credits taken to
income through the nine months ended September 30, 2008 and 2007 were $2.6
million and $4.9 million, respectively.
The
reserves, which can relate to multiple years, were $11.6 million and $9.8
million, as of September 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 $6.9 million and $7.1 million, net of receivables from
third party insurers, as of September 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
nine months ended September 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, the fluctuations in capital markets
activities has had 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 September 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 Nine Months Ended September 30, 2008 Compared to Three and Nine Months Ended
September 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
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase
(Decrease)
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
in U.S. Dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
677.1 |
|
|
$ |
624.1 |
|
|
$ |
53.0 |
|
|
|
8 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
449.2 |
|
|
|
412.9 |
|
|
|
36.3 |
|
|
|
9 |
% |
|
|
7 |
% |
Operating,
administrative and other
|
|
|
154.8 |
|
|
|
132.8 |
|
|
|
22.0 |
|
|
|
17 |
% |
|
|
15 |
% |
Depreciation
and amortization
|
|
|
29.2 |
|
|
|
13.9 |
|
|
|
15.3 |
|
|
n.m.
|
|
|
n.m.
|
|
Restructuring charges
|
|
|
10.4 |
|
|
|
- |
|
|
|
10.4 |
|
|
n.m.
|
|
|
n.m.
|
|
Total operating expenses
|
|
|
643.6 |
|
|
|
559.6 |
|
|
|
84.0 |
|
|
|
15 |
% |
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
33.5 |
|
|
$ |
64.5 |
|
|
$ |
(31.0 |
) |
|
|
(48 |
%) |
|
|
(50 |
%) |
(n.m.
– not meaningful)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase
(Decrease)
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
in U.S. Dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,900.5 |
|
|
$ |
1,790.3 |
|
|
|
110.2 |
|
|
|
6 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
1,259.2 |
|
|
|
1,174.8 |
|
|
|
84.4 |
|
|
|
7 |
% |
|
|
4 |
% |
Operating,
administrative and other
|
|
|
487.5 |
|
|
|
375.1 |
|
|
|
112.4 |
|
|
|
30 |
% |
|
|
25 |
% |
Depreciation
and amortization
|
|
|
63.9 |
|
|
|
38.8 |
|
|
|
25.1 |
|
|
|
65 |
% |
|
|
60 |
% |
Restructuring charges
(credits)
|
|
|
10.3 |
|
|
|
(0.4 |
) |
|
|
10.7 |
|
|
n.m.
|
|
|
n.m.
|
|
Total operating expenses
|
|
|
1,820.9 |
|
|
|
1,588.3 |
|
|
|
232.6 |
|
|
|
15 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
79.6 |
|
|
$ |
202.0 |
|
|
$ |
(122.4 |
) |
|
|
(61 |
%) |
|
|
(65 |
%) |
(n.m.
– not meaningful)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
for the third quarter of 2008 was $677 million, an increase of 8% in U.S.
dollars and 7% in local currencies from the prior year, despite significant
revenue decreases in Capital Markets and Hotels for the period. Transaction
Services revenue growth was driven by Leasing, which increased 45% to $192
million. The strong growth in Leasing resulted from the purchase of Staubach
Holdings, Inc. (“Staubach”) in the third quarter, as well as organic growth; all
regions reported Leasing revenue growth compared with a year ago. Excluding
Capital Markets and Hotels, Transaction Services revenue increased by 28% over
2007, to $276 million, for the third quarter. Management Services revenue
increased 23% to $226 million for the third quarter, with all operating regions
achieving revenue growth. LaSalle Investment Management’s Advisory fees
increased 12% over the prior year to $71 million while Incentive fees increased
5% to $6 million.
For the
first nine months of 2008, revenue increased to $1.9 billion, 6% over the prior
year, despite a year-over-year revenue decrease in Capital Markets and Hotels of
$154 million and the additional effect of a significant transaction advisory fee
earned in the Asia Pacific Hotels business. Factors driving year-to-date
performance were similar to those experienced in the third quarter of this year.
The current revenue contribution from acquisitions completed in the last 12
months was $85 million and $155 million for the 2008 third quarter and year to
date, respectively. Strong performance in the Americas region and LaSalle
Investment Management, together with the revenue from our recent Staubach and
Kemper’s acquisitions, combined to mitigate the effects of the ongoing
crisis in worldwide capital markets.
Operating
expenses increased 15% for the quarter and year to date, to $644 million and
$1.8 billion, respectively. Operating costs in the first nine months increased
across all segments, principally due to costs of acquisitions closed in the last
12 months. Specifically, Kemper’s and Staubach, which closed in quarters two and
three, respectively, added to the firm’s cost structure. Year-to-date 2008
operating expenses, including integration and intangible amortization, from the
16 acquisitions completed in the last 12 months were $96 million for the third
quarter and $162 million year to date, which were not reflected in the firm’s
2007 results.
Restructuring
charges of $10 million for the quarter ended September 30, 2008, include $8
million of severance across the business, but principally in EMEA, to align the
size of the firm’s platform to current and expected market conditions, and $2
million of integration costs incurred in connection with the Kemper’s and
Staubach acquisitions. These costs are excluded from segment
operating results, however, are included for consolidated
reporting.
Net
interest expense was $12.5 million for the third quarter and $17.2 million year
to date. Increases in interest expense in 2008 were due to higher borrowing, and
an interest charge of $1.2 million for one-time costs due to bank fees related
to the Staubach acquisition, and $4 million of non-cash interest expense related
to Staubach deferred business acquisition obligations. The Company’s
co-investment equity in earnings decreased in the third quarter of 2008 to a
loss of $0.7 million from income of $5.0 million in the prior year, and was a
loss of $1.9 million compared to income of $11.5 million for the first nine
months of 2008 and 2007, respectively.
The tax
provision for the third quarter and first nine months of 2008 was $5.1 million
and $15.2 million, respectively, reflecting a 25.2% effective tax rate, compared
with an effective tax rate of 26.7% for the third quarter and first nine 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 $15.0 million or $0.43 per diluted share for the third quarter of
2008, compared with net income of $46.5 million or $1.38 per diluted share for
the third quarter of 2007. For the first nine months of 2008, net income was
$42.4 million or $1.25 per diluted share, compared with net income of $151.7
million or $4.50 per diluted share for the first nine months of 2007. Included
in the year-to-date 2007 results was the effect of the significant
second-quarter 2007 Asia Pacific Hotels advisory fee.
While we
have seen growth in total revenue for the first nine months of 2008, our Capital
Markets and Hotels businesses have been significantly impacted by the global
credit crisis. Although we believe we have continued to gain market share in
many of the markets in which we compete, the additional transaction volumes from
an increase in market share have not fully offset the overall declines in these
markets in 2007 and so far in 2008. We now expect this situation to continue for
some time into 2009 before it begins to improve, although it is inherently
difficult to make accurate predictions in this regard particularly because macro
movements of the financial markets, the real estate markets and the stock, bond
and derivatives markets, all of which can affect our business significantly, are
beyond our control. We believe we will have business opportunities that arise
out of assisting clients with transactional services and strategic consulting
related to distressed assets and the other disruptions that have occurred within
the global real estate markets, but there can be no assurance as to the timing
of these engagements or that their volume will be sufficient to make up for the
generally reduced transaction volumes within the overall marketplace. If the
current economic conditions continue for an extended period or significantly
worsen, they could have a material adverse effect on our business, results of
operations and/or financial condition.
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. 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"). Each geographic region offers our full range of IOS
capabilities.
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 report “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
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase (Decrease)
|
|
Revenue
|
|
$ |
254.1 |
|
|
$ |
188.0 |
|
|
$ |
66.1 |
|
|
|
35 |
% |
Operating expense
|
|
|
237.2 |
|
|
|
167.8 |
|
|
|
69.4 |
|
|
|
41 |
% |
Operating
income
|
|
$ |
16.9 |
|
|
$ |
20.2 |
|
|
$ |
(3.3 |
) |
|
|
(16 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase (Decrease)
|
|
Revenue
|
|
$ |
617.8 |
|
|
$ |
515.2 |
|
|
$ |
102.6 |
|
|
|
20 |
% |
Operating expense
|
|
|
590.1 |
|
|
|
469.5 |
|
|
|
120.6 |
|
|
|
26 |
% |
Operating
income
|
|
$ |
27.7 |
|
|
$ |
45.7 |
|
|
$ |
(18.0 |
) |
|
|
(39 |
%) |
In the
Americas region, revenue for the third quarter of 2008 was $254 million, an
increase of 35% over the same period last year. For the first nine months of
2008, revenue was $618 million, an increase of 20%. Excluding the impact of
lower revenue from Capital Markets and Hotels, which decreased from 2007 by $8
million or 28% for the quarter, and by $31 million or 42% year to date, as well
as the Staubach acquisition, Americas third-quarter and year-to-date revenues
were $187 million and $528 million, representing increases of 17% and 20% over
the prior year, respectively.
Management
Services revenue increased 27% over the prior year third quarter to $111
million, and 21% year to date to $294 million. Transaction Services revenue
increased 44% for the quarter to $134 million, and 20% year to date to $302
million. Transaction Services revenue excluding Capital Markets and Hotels
increased 75% in the third quarter, primarily from the impact of Staubach, and
for the first nine months of 2008 grew 46% primarily as a result of increased
leasing activity developed organically and through the Staubach acquisition. The
region’s total Leasing revenue in the third quarter, including both Tenant
Representation and Agency Leasing, increased 80%, to $98 million, up from $54
million in the same period last year. On a year-to-date basis, Leasing revenue
increased 46% to $215 million, compared with 2007. Excluding Staubach’s
contribution, Leasing revenue increased 10% and 21% in the quarter and year to
date, respectively, from the comparable periods last year. Additionally, the
firm’s Mexico and South America businesses contributed strong revenue increases
in the quarter.
The
Corporate Solutions business in the Americas, which provides comprehensive
outsourcing services including transactions, project development and integrated
facility management, grew 26% in the quarter and 30% year to date as compared
with the same periods in 2007. The trend toward corporate outsourcing of real
estate services continues to build as clients assess their operating costs and
look for potential savings.
Operating
expenses were $237 million for the third quarter of 2008, an increase of 41%,
and $590 million year to date, an increase of 26% over the prior year. Excluding
the impact of Staubach, operating expenses increased 8% for the quarter and 14%
year to date.
EMEA
($ in
millions)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase
(Decrease)
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
in U.S. dollars
|
|
|
Currency
|
|
Revenue
|
|
$ |
208.6 |
|
|
$ |
224.8 |
|
|
$ |
(16.2 |
) |
|
|
(7 |
%) |
|
|
(9 |
%) |
Operating expense
|
|
|
202.7 |
|
|
|
210.6 |
|
|
|
(7.9 |
) |
|
|
(4 |
%) |
|
|
(5 |
%) |
Operating
income
|
|
$ |
5.9 |
|
|
$ |
14.2 |
|
|
$ |
(8.3 |
) |
|
|
(58 |
%) |
|
|
(63 |
%) |
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase
(Decrease)
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
in U.S. dollars
|
|
|
Currency
|
|
Revenue
|
|
$ |
627.7 |
|
|
$ |
598.7 |
|
|
$ |
29.0 |
|
|
|
5 |
% |
|
|
(1 |
%) |
Operating expense
|
|
|
626.5 |
|
|
|
554.6 |
|
|
|
71.9 |
|
|
|
13 |
% |
|
|
7 |
% |
Operating
income
|
|
$ |
1.2 |
|
|
$ |
44.1 |
|
|
$ |
(42.9 |
) |
|
|
(97 |
%) |
|
|
(98 |
%) |
EMEA’s third-quarter revenue
was $209 million, a decrease of 7% from the prior year, while year-to-date
revenue was $628 million, an increase of 5% over 2007. Excluding the impact of
Capital Markets and Hotels, third-quarter revenue grew 18% and year-to-date
revenue increased 34% compared with 2007. The current revenue contribution from
seven acquisitions closed in the last 12 months was $28 million and $63 million
for the 2008 third quarter and year to date, respectively.
Management
Services revenue grew 42% for the third quarter and 53% for the first nine
months of 2008. The acquisition of a French project development services firm in
the fourth quarter of 2007 largely contributed to this increase. Transaction
Services revenue excluding Capital Markets and Hotels increased 5% for the third
quarter and 26% for the first nine months of 2008. Leasing revenue increased
over the prior year for both the third quarter and year to date by 26% and 25%,
respectively. Advisory Services revenue, which is included in Transaction
Services, decreased 10% for the third quarter yet remains up 22% year to date
over the prior year.
Operating
expenses for the third quarter decreased 4% to $203 million, and increased 13%
to $627 million for the first nine months of 2008 compared with 2007, primarily
due to the impact of acquisitions. The seven acquisitions completed in the last
12 months added $30 million of incremental operating expenses, including
integration and amortization, in the third-quarter results, and $64 million year
to date.
Asia
Pacific
($ in
millions)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase
(Decrease)
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
in U.S. dollars
|
|
|
Currency
|
|
Revenue
|
|
$ |
132.6 |
|
|
$ |
134.0 |
|
|
$ |
(1.4 |
) |
|
|
(1 |
%) |
|
|
(4 |
%) |
Operating expense
|
|
|
132.6 |
|
|
|
127.1 |
|
|
|
5.5 |
|
|
|
4 |
% |
|
|
1 |
% |
Operating
income
|
|
$ |
- |
|
|
$ |
6.9 |
|
|
$ |
(6.9 |
) |
|
n.m.
|
|
|
n.m
|
|
(n.m.
– not meaningful)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase
(Decrease)
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
in U.S. dollars
|
|
|
Currency
|
|
Revenue
|
|
$ |
391.7 |
|
|
$ |
431.6 |
|
|
$ |
(39.9 |
) |
|
|
(9 |
%) |
|
|
(17 |
%) |
Operating expense
|
|
|
394.9 |
|
|
|
383.4 |
|
|
|
11.5 |
|
|
|
3 |
% |
|
|
(3 |
%) |
Operating
income (loss)
|
|
$ |
(3.2 |
) |
|
$ |
48.2 |
|
|
$ |
(51.4 |
) |
|
n.m.
|
|
|
|
n.m. |
|
(n.m.
– not meaningful)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
for the Asia Pacific region was $133 million for the third quarter of 2008,
compared with $134 million in 2007, and $392 million for the first nine months
of 2008, compared with $432 million in 2007. Included in the region’s
year-to-date 2007 results was the significant transaction advisory fee earned in
the Hotels business. The current revenue contribution from five acquisitions
closed in the last 12 months was $6 million and $14 million for the 2008 third
quarter and year to date, respectively.
Management
Services revenue in the region was $62 million for the third quarter, an
increase of 6%, and $180 million for the first nine months of 2008, an increase
of 20% over the prior year. Transaction Services revenue was $70 million for the
third quarter, a decrease of 5% from the prior year, and $207 million year to
date, a decrease of 25%. Capital Markets and Hotels revenue, excluding the 2007
Hotels advisory fee, decreased for the first nine months of 2008 by $28 million
or 43%. Leasing revenue increased by 11% for the third quarter and 26% for the
first nine months of 2008, compared with 2007.
Geographically,
the region’s most significant third-quarter revenue increases came from Hong
Kong, which increased 19%, and China, which was up 39%. On a year-to-date basis,
the growth markets of India and China were the strongest contributors to revenue
increases. India increased 41% as a result of local market growth and the
acquisition that closed in the third quarter of 2007. China increased 37% over
last year and the core market of Hong Kong grew 15%.
Operating
expenses for the region were $133 million for the third quarter of 2008 and $395
million for the first nine months of 2008. With an aggressive focus on costs,
operating expenses increased only 4% year over year for the quarter in the face
of higher occupancy costs from business expansion in growth markets, as well as
additional amortization on intangibles from businesses purchased in the last 12
months. The impact of the five acquisitions included in 2008 operating expenses
added $6 million to the third quarter and $14 million to the first nine months
of 2008.
Investment
Management
($ in
millions)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase
(Decrease)
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
in U.S. dollars
|
|
|
Currency
|
|
Revenue
|
|
$ |
81.2 |
|
|
$ |
79.0 |
|
|
$ |
2.2 |
|
|
|
3 |
% |
|
|
1 |
% |
Equity earnings
|
|
-
|
|
|
|
3.3 |
|
|
|
(3.3 |
) |
|
n.m.
|
|
|
n.m.
|
|
Total
revenue
|
|
|
81.2 |
|
|
|
82.3 |
|
|
|
(1.1 |
) |
|
|
(1 |
%) |
|
|
(3 |
%) |
Operating expense
|
|
|
60.7 |
|
|
|
54.1 |
|
|
|
6.6 |
|
|
|
12 |
% |
|
|
11 |
% |
Operating
income
|
|
$ |
20.5 |
|
|
$ |
28.2 |
|
|
$ |
(7.7 |
) |
|
|
(27 |
%) |
|
|
(30 |
%) |
(n.m.
– not meaningful)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase
(Decrease)
|
|
|
in
Local
|
|
|
|
2008
|
|
|
2007
|
|
|
in U.S. dollars
|
|
|
Currency
|
|
Revenue
|
|
$ |
262.7 |
|
|
$ |
246.9 |
|
|
$ |
15.8 |
|
|
|
6 |
% |
|
|
3 |
% |
Equity earnings (losses)
|
|
|
(1.4 |
) |
|
|
9.3 |
|
|
|
(10.7 |
) |
|
n.m.
|
|
|
n.m.
|
|
Total
revenue
|
|
|
261.3 |
|
|
|
256.2 |
|
|
|
5.1 |
|
|
|
2 |
% |
|
|
(1 |
%) |
Operating expense
|
|
|
199.1 |
|
|
|
181.2 |
|
|
|
17.9 |
|
|
|
10 |
% |
|
|
7 |
% |
Operating
income
|
|
$ |
62.2 |
|
|
$ |
75.0 |
|
|
$ |
(12.8 |
) |
|
|
(17 |
%) |
|
|
(21 |
%) |
LaSalle
Investment Management’s 2008 third-quarter revenue was $81 million, compared
with $82 million in 2007, and 2008 year-to-date revenue was $261 million,
compared with $256 million in 2007. Core revenue growth has continued into the
third quarter, marked by a 12% increase in Advisory fees to $71 million which
largely offset declines in transaction services and equity earnings.
Year-to-date Advisory fees increased 25% for the first nine months of 2008. This
growth in LaSalle Investment Management’s annuity business was principally due
to a 12% increase in assets under management over the prior year, to $52.7
billion, together with Advisory fees generated from committed capital,
principally raised in the third and fourth quarters of 2007.
During
the third quarter of 2008, Incentive fees reached $6 million, increasing 5% over
the same period in 2007. Year-to-date Incentive fees were down 44% as compared
with the first nine months of 2007, reflecting varied timing of asset sales in
prior periods. Incentive fees vary significantly from period to period due to
asset sales, the performance of the underlying investments and the contractual
timing of the measurement periods for different clients. Currently, asset sales
are being impacted by the limited availability of financing.
LaSalle
Investment Management raised $1.1 billion of equity year to date, nearly all
completed in the first half of the year, compared with $7.9 billion for the
first nine months of 2007. Investments made on behalf of clients in the first
nine months of 2008 were $3.6 billion, compared with $7.3 billion in
2007.
Consolidated
Cash Flows
Cash
Flows Used For Operating Activities
During
the first nine months of 2008, cash used in operating activities was $113
million, a decrease of $266 million from the $153 million generated from
operating activities in the first nine months of 2007. The increase in cash used
in the first nine 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 nine months
of 2008, $399 million was used relative to changes in accounts payable, accrued
liabilities, and accrued compensation, an increase of $409 million over the $10
million generated in the first nine months of 2007, driven primarily by
increased incentive compensation payments made in the first quarter of 2008
compared to 2007, 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
$392 million of cash for investing activities in the first nine months of 2008,
a $241 million increase over the $151 million used in the first nine months of
2007. This increase was primarily due to an increase of $196 million in cash
used for acquisitions, a decrease of $34 million in distributions from our
co-investments, and an increase of $10 million in capital contributions and
advances to our co-investments. In the first nine months of 2008 we used $283
million for acquisitions, consisting of $263 million for 2008 acquisitions and
$20 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 $490 million of net cash in the first nine months of 2008
compared with $5 million used for financing activities in the first nine months
of 2007. The increase in cash from financing activities was primarily due to
$449 million of increased borrowing; net borrowings were $518 million in the
first nine months of 2008, compared with $69 million in the first nine months of
2007. Also contributing to this increase in cash provided by financing
activities was a reduction in cash used for share repurchases under our
Board-approved share repurchase program, as no shares were purchased in the
first nine months of 2008 while $66 million was used for share repurchases in
the first nine months of 2007. These increases in cash flow were partially
offset by a $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
In July
2008, we exercised the accordion feature on our unsecured revolving credit
facility to increase the facility from $575 million to $675 million. In
addition, we terminated our $100 million short term facility and entered into a
$200 million term loan agreement (which is fully drawn), with terms and pricing
similar to our existing revolving credit facility. Both credit facilities have a
maturity of June 2012. As of September 30, 2008, borrowings on these facilities
were made at either LIBOR plus 200 basis points, or alternatively for the
revolving credit facility Bank of Montreal’s prime commercial rate plus 5 basis
points and for the term loan agreement Bank of Montreal’s prime commercial rate
plus 50 basis points. These credit facilities, totaling $875 million of
borrowing capacity, will continue to be utilized for working capital needs
(including payment of accrued bonus compensation during the first half 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 $55.1 million under local
overdraft facilities.
As of
September 30, 2008, we had $543.2 million outstanding on our credit facilities.
The average borrowing rate on these facilities was 4.7% in the third quarter of
2008, as compared with an average borrowing rate of 5.5% in the third quarter of
2007. We also had short-term borrowings (including capital lease obligations and
local overdraft facilities) of $18.7 million outstanding at September 30,
2008.
With
respect to the revolving credit facility and term loan agreement, we must
maintain a consolidated net worth of at least $829 million, a leverage ratio not
exceeding 3.25 to 1, and a minimum cash interest coverage ratio of 2.0 to 1.
Included in debt for the calculation of the leverage ratio is the present value
of deferred business acquisition obligations and included in Adjusted EBITDA (as
defined in the credit agreements) are an add back for stock compensation expense
and the EBITDA of acquired companies, including Staubach, earned prior to
acquisition. 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 September 30, 2008. The deferred business acquisition
obligation provisions of the Staubach Merger Agreement also contain certain
conditions which are considerably less restrictive than those we have under our
revolving credit facility and term loan agreement.
Both the
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
nine months of 2008, and none were outstanding as of September 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
September 30, 2008, we had total investments in and loans to real estate
ventures of $180.6 million in approximately 40 separate property or fund
co-investments. Within this $180.6 million are loans of $3.3 million to real
estate ventures which bear an 8.0% interest rate and are to be repaid in
2009.
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 September 30, 2008, our maximum
potential unfunded commitment to LIC I was euro 19.6 million ($27.6
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 September 30, 2008, LIC II has
unfunded capital commitments for future fundings of co-investments of $442.8
million, of which our 48.78% share is $216.0 million. The $216.0 million
commitment is part of our maximum potential unfunded commitment to LIC II
at September 30, 2008 of $404.8 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 September 30, 2008, no bridge
financing arrangements were outstanding.
As of
September 30, 2008, LIC I maintains a euro 10.0 million ($14.1 million)
revolving credit facility (the "LIC I Facility"), and LIC II maintains a $50.0
million revolving credit facility (the "LIC II Facility"), principally for their
working capital needs. 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 ($6.7 million); assuming
that the LIC II Facility were fully drawn, the maximum exposure to Jones Lang
LaSalle would be $24.4 million. Each exposure is included within and cannot
exceed our maximum potential unfunded commitments to LIC I of euro 19.6 million
($27.6 million) and to LIC II of $404.8 million. As of September 30, 2008, LIC I
had euro 3.7 million ($5.2 million) of outstanding borrowings on the LIC I
Facility, and LIC II had $18.2 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 $8.9 million at September 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 $40 and $50 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 September 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 nine months of 2008. 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 October 28, 2008 that its Board of Directors has declared a
semi-annual cash dividend of $0.25 per share of its Common
Stock. This represents a 50% reduction form the $0.50 dividend paid
on June 13, 2008. The new dividend level reflects the firm’s desire to prudently
manage its balance sheet given the overall uncertainty in the global markets.
The dividend payment will be made on Monday, December 15, 2008, to holders of
record at the close of business on Friday, November 14, 2008. A
dividend-equivalent will also be paid on unvested shares of restricted stock
units.
Capital
Expenditures and Business Acquisitions
Capital
expenditures for the first nine months of 2008 were $72.2 million, net, compared
to $71.3 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 nine months of 2008 was $283.0
million, an increase of $196.0 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. At September 30, 2008, the
maximum amount of these potential earn-out payments is $192.3 million. We expect
those amounts will come due at various times over the next six years. See Note 5
of the notes to consolidated financial statements for additional discussion of
the Company’s business acquisition activity in the first nine months of
2008.
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:
•
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Interest
rates on our credit facilities; and
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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 credit facilities, including our revolving
multi-currency credit facility and our term loan facility, which are available
for working capital, investments, capital expenditures and acquisitions. Our
average outstanding borrowings under these credit facilities were $562.4 million
during the three months ended September 30, 2008, and the effective interest
rate was 4.7%. As of September 30, 2008, we had $543.2 million outstanding under
these credit facilities. These facilities bear 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 nine months of 2008, and we had no such agreements outstanding
at September 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 59% and 64% of our total revenues for the nine months ended
September 30, 2008 and 2007, respectively. Operating in international markets
means that we are exposed to movements in foreign exchange rates, primarily the
British pound (18% of revenues for the nine months ended September 30, 2008) and
the euro (13% of revenues for the nine months ended September 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 September 30, 2008, we had
forward exchange contracts in effect with a gross notional value of $517.6
million ($458.3 million on a net basis) with a net fair value loss of $2.7
million. This net carrying loss is offset by a carrying gain 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
September 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 Part II Other Information, Item 1A.
Risk Factors.
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 September 30,
2008 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
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. Given the
significant and well-publicized events that have occurred generally in the world
financial markets during 2008 to date, we have updated certain of the risk
factors by amending and restating them in their entirety as we set forth
below. Except as we present 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 and in our Quarterly Report on Form
10-Q for the Quarter ended June 30, 2008 (which related principally to the
Staubach acquisition), all of which are incorporated herein by this
reference.
External Market Risk
Factors
• Decline in Acquisition and
Disposition Activity
A general
decline in acquisition and disposition activity can lead to a reduction in fees
and commissions for arranging such transactions, as well as in fees and
commissions for arranging financing for acquirers. Beginning in the second half
of 2007, the well-publicized and severe restriction in the availability of
credit in the global financial markets has significantly reduced the volume and
pace of commercial real estate transactions compared with 2006, and has also
negatively impacted real estate pricing as a general matter in many countries.
While we have seen growth in total revenue for the first nine months of 2008,
our Capital Markets and Hotels businesses have been significantly impacted by
the global credit crisis. Revenues from Capital Markets and Hotels
declined $154 million in for the first nine months of 2008, excluding the impact
of a significant second quarter 2007 Asia Pacific Hotels advisory fee. Although
we believe we have continued to gain market share in many of the markets in
which we compete, the additional transaction volumes from an increase in market
share have not fully offset the overall declines in these markets in 2007 and so
far in 2008. We now expect this situation to continue for some time into 2009
before it begins to improve, although it is inherently difficult to make
accurate predictions in this regard particularly because macro movements of the
financial markets, the real estate markets and the stock, bond and derivatives
markets, all of which can affect our business significantly, are beyond our
control. We believe we will have business opportunities that arise
out of assisting clients with transactional services and strategic consulting
related to distressed assets and the other disruptions that have occurred within
the global real estate markets, but there can be no assurance as to the timing
of these engagements or that their volume will be sufficient to make up for the
generally reduced transaction volumes within the overall marketplace. If the
current economic conditions continue for an extended period or significantly
worsen, they could have a material adverse effect on our business, results of
operations and/or financial condition.
• Decline in Leasing
Activity
A general
decline in the value and performance of real estate and in rental rates can lead
to a reduction in investment management fees (a significant portion of which is
generally based upon the performance of investments) and the value of the
co-investments we make with our investment management clients or merchant
banking investments we have made for our own account. Additionally, such
declines can lead to a reduction in fees and commissions that are based upon the
value of, or revenues produced by, the properties with respect to which services
are provided, including fees and commissions for property management and
valuations, and for arranging acquisitions, dispositions, leasing and
financings. They can also lead to an unwillingness or inability of clients
to make capital commitments to funds sponsored by our investment management
business, which can result in a decline of both investment management fees and
incentive fees, and can also restrict our ability to employ capital in new
investments in current funds or establish new funds. Historically, a significant
decline in real estate values in a given market has also tended to result in
increases in litigation regarding advisory and valuation work done prior to the
decline. Many of the markets in which we compete have been
experiencing sometimes significant declines in real estate prices and rental
rates and we are unable to predict accurately the extent to which those declines
will continue or how long they will continue to occur.
• Decline in the Value and Performance
of Real Estate and Rental Rates
A general
decline in the value and performance of real estate and in rental rates can lead
to a reduction in investment management fees (a significant portion of which is
generally based upon the performance of investments) and the value of the
co-investments we make with our investment management clients or merchant
banking investments we have made for our own account. Additionally, such
declines can lead to a reduction in fees and commissions that are based upon the
value of, or revenues produced by, the properties with respect to which services
are provided, including fees and commissions for property management and
valuations, and for arranging acquisitions, dispositions, leasing and
financings. They can also lead to an unwillingness or inability of clients
to make capital commitments to funds sponsored by our investment management
business, which can result in a decline of both investment management fees and
incentive fees, and can also restrict our ability to employ capital in new
investments in current funds or establish new funds. Historically, a significant
decline in real estate values in a given market has also tended to result in
increases in litigation regarding advisory and valuation work done prior to the
decline. Many of the markets in which we compete have been
experiencing sometimes significant declines in real estate prices and rental
rates and we are unable to predict accurately the extent to which those declines
will continue or how long they will continue to occur.
Financial Risk
Factors
GREATER DIFFICULTY IN COLLECTING
ACCOUNTS RECEIVABLE IN CERTAIN COUNTRIES AND REGIONS. We face challenges
to our ability to efficiently and/or effectively collect accounts receivable in
certain countries and regions. For example, in Asia, many countries have
underdeveloped insolvency laws, and clients often are slow to pay. In Europe,
clients in some countries, particularly Spain, Italy and France, also tend to
delay payments, reflecting a different business culture over which we do not
necessarily have any control. A number of countries, such as India
and Russia, can have very lengthy or less than fully transparent judicial
processes that can make collections through the court system more problematic
than they would otherwise be. Additionally, we expect that the
increasing weakness in the global economy will put additional financial stress
on clients, which may in turn negatively impact our ability to collect our
receivables fully or in a timely manner. We have put various additional
procedures in place designed to identify and rectify slowly paid receivables, to
protect ourselves against insolvency and bankruptcy of clients and other parties
with which we do business (which appears to have become increasingly difficult
to predict) and to promptly assert our rights, but we cannot give assurance that
those procedures will be effective in all cases.
INCREASING
FINANCIAL RISK OF COUNTERPARTIES, INCLUDING REFINANCING RISK
The
unprecedented disruptions and dynamic changes in the financial markets, and
particularly insofar as they have led to major changes in the status and
creditworthiness of some of the world’s largest banks, investment banks and
insurance companies, among others, have generally increased the counterparty
risk to us from a financial standpoint of (i) obtaining new credit
commitments from lenders, (ii) refinancing credit commitments or loans
which have terminated or matured according to their terms (including at funds
sponsored by our investment management subsidiary which use leverage in the
ordinary course of their investment activities), (iii) placing
insurance, (iv) engaging in hedging transactions and (v) otherwise
conducting business with third parties. We generally attempt to conduct business
with only the highest quality and most well-known counterparties, but there can
be no assurance (i) that our efforts to evaluate their creditworthiness
will be effective in all cases (particularly as the quality of credit ratings
provided by the nationally recognized rating agencies has been called into
question due to their own conflicts of interest in certain
circumstances), (ii) that we will always be able to obtain the full benefit
of the financial commitments made to us by lenders, insurance companies, hedging
counterparties or other organizations with which we do business or (iii) that we
will always be able to refinance existing indebtedness (or commitments to
provide indebtedness) which has matured by its terms, including at funds
sponsored by our investment management subsidiary.
The
Company made no share repurchases in the nine months ending September 30,
2008.
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.”
DeAnne
Julius Elected to the Board of Directors
As
previously disclosed on a Current Report on Form 8-K dated October 21, 2008, the
Company’s Board of Directors has elected DeAnne Julius to serve as an
independent, non-executive member of the Board, to become effective November 17,
2008. She will also serve on the Board’s Audit Committee and its
Nominating and Governance Committee. Dr. Julius has been the Chairman of the
Royal Institute of International Affairs, also known as Chatham House, since
2003. Dr. Julius currently serves as a non-executive member of the
board of directors at BP PLC, one of the world’s largest energy companies, and
at Roche Holding AG, the global healthcare and pharmaceutical firm.
Senior
Leadership Changes in EMEA and Asia-Pacific
During
the third quarter, the Company announced certain changes in the senior
leadership of its Europe, Middle East and Africa (“EMEA”) and Asia-Pacific
regions, all of which will become effective January, 2009. Peter A.
Barge, who is currently the Chief Executive Officer of Asia-Pacific, will become
Chairman of Asia-Pacific until his planned retirement in 2010. He
will continue as Chairman of Jones Lang LaSalle Hotels and will remain a member
of the Global Executive Committee. Alastair Hughes, who is currently the Chief
Executive Officer of EMEA, will become the Chief Executive Officer of
Asia-Pacific, relocating to Singapore. Christian Ulbrich, who
currently is the Managing Director of our business in Germany, will become the
Chief Executive Officer for EMEA.
Mark
K. Engel Appointed as Global Controller
As
previously disclosed on a Current Report on Form 8-K dated August 14, 2008 the
Company has appointed Mark K. Engel to the position of Global
Controller. Mr. Engel was previously the Company’s Assistant Global
Controller. He reports to Chief Operating and Financial Officer
Lauralee E. Martin and is based in Chicago. In his position, Mr. Engel serves as
the firm’s chief accounting officer, responsible for the firm’s financial
reporting. Mr. Engel replaces Stan Stec, who left the Global
Controller position to take on the new role of Manager of the firm’s Global
Finance Operations.
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
Mark K.
Engel
Controller
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
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):
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The
effect of political, economic and market conditions and geopolitical
events;
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The
logistical and other challenges inherent in operating in numerous
different countries;
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•
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The
actions and initiatives of current and potential
competitors;
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The
level and volatility of real estate prices, interest rates, currency
values and other market indices;
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The
outcome of pending litigation; and
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The
impact of current, pending and future legislation and
regulation.
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Moreover,
there can be no assurance that future dividends will be declared since the
actual declaration of future dividends, and the establishment of record and
payment dates, remain subject to final determination by the Company’s Board of
Directors.
Accordingly,
we caution our readers not to place undue reliance on forward-looking
statements, which speak only as of the date on which they are made. Jones Lang
LaSalle expressly disclaims any obligation or undertaking to update or revise
any forward-looking statements to reflect any changes in events or circumstances
or in its expectations or results.
Signature
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on the 7th day of November,
2008.
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JONES
LANG LASALLE INCORPORATED
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/s/
Lauralee E. Martin
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_______________________________
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By:
Lauralee E.
Martin
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Executive
Vice President and
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Chief
Operating and Financial Officer
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(Authorized
Officer and
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Principal
Financial Officer)
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Amended
and Restated By-Laws of Jones Lang LaSalle Incorporated, effective as of
November 1, 2008 (reflecting the addition of new Article VIII, Section 12,
as approved by the Board of
Directors).
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Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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*Filed
herewith