Jones Lang LaSalle 10-Q 03-31-2006
United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
Form
10-Q
x
Quarterly Report Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
For
the
quarterly period ended March 31, 2006
Or
o
Transition Report Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
For
the
transition period from _____ to _____
Commission
File Number 1-13145
Jones
Lang LaSalle Incorporated
(Exact
name of registrant as specified in
its
charter)
Maryland
(State
or
other jurisdiction of incorporation or organization)
36-4150422
(I.R.S.
Employer Identification No.)
|
200
East Randolph Drive, Chicago, IL
|
|
60601
|
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
Registrant’s
telephone number, including area code: 312/782-5800
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the
Exchange Act).
Large accelerated filer x Accelerated
filer o Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
The
number of shares outstanding of the registrant’s common stock (par value $0.01)
as of the close of business on April 28, 2006 was 35,786,691, which includes
4,072,651 shares held by a subsidiary of the registrant.
Part
I
|
Financial
Information
|
|
|
|
|
Item
1.
|
|
3
|
|
|
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
6
|
|
|
|
|
|
7
|
|
|
|
Item
2.
|
|
20
|
|
|
|
Item
3.
|
|
33
|
|
|
|
Item
4.
|
|
34
|
|
|
|
Part
II
|
Other
Information
|
|
|
|
|
Item
1.
|
|
35
|
|
|
|
Item
2.
|
|
35
|
|
|
|
Item
5.
|
|
36
|
|
|
|
Item
6.
|
|
39
|
Part
I
|
Financial
Information
|
JONES
LANG LASALLE INCORPORATED
Consolidated
Balance Sheets
March
31, 2006 and December 31, 2005
($
in
thousands, except share data)
|
|
March
31, 2006
|
|
December
31,
|
|
Assets
|
|
(unaudited)
|
|
2005
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
30,503
|
|
|
28,658
|
|
Trade
receivables, net of allowances of $7,665 and $5,551
|
|
|
370,435
|
|
|
415,087
|
|
Notes
and other receivables
|
|
|
20,152
|
|
|
15,231
|
|
Prepaid
expenses
|
|
|
21,141
|
|
|
22,442
|
|
Deferred
tax assets
|
|
|
23,679
|
|
|
35,816
|
|
Other
assets
|
|
|
12,240
|
|
|
13,864
|
|
Total
current assets
|
|
|
478,150
|
|
|
531,098
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $160,503 and
$158,064
|
|
|
83,834
|
|
|
82,186
|
|
Goodwill,
with indefinite useful lives, net of accumulated amortization
of
$37,869
and $37,450
|
|
|
480,486
|
|
|
335,731
|
|
Identified
intangibles, with finite useful lives, net of accumulated amortization
of
$47,763 and $45,360
|
|
|
43,185
|
|
|
4,391
|
|
Investments
in real estate ventures
|
|
|
86,545
|
|
|
88,710
|
|
Long-term
receivables, net
|
|
|
22,304
|
|
|
20,931
|
|
Deferred
tax assets
|
|
|
70,130
|
|
|
59,262
|
|
Other
assets, net
|
|
|
28,978
|
|
|
22,460
|
|
|
|
$
|
1,293,612
|
|
|
1,144,769
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
123,491
|
|
|
155,741
|
|
Accrued
compensation
|
|
|
162,264
|
|
|
300,847
|
|
Short-term
borrowings
|
|
|
14,627
|
|
|
18,011
|
|
Deferred
tax liabilities
|
|
|
3,296
|
|
|
400
|
|
Deferred
income
|
|
|
29,479
|
|
|
20,823
|
|
Other
liabilities
|
|
|
19,507
|
|
|
26,813
|
|
Total
current liabilities
|
|
|
352,664
|
|
|
522,635
|
|
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
|
|
Credit
facilities
|
|
|
267,532
|
|
|
26,697
|
|
Deferred
tax liabilities
|
|
|
3,099
|
|
|
3,079
|
|
Deferred
compensation
|
|
|
25,171
|
|
|
15,988
|
|
Minimum
pension liability
|
|
|
17,024
|
|
|
16,753
|
|
Deferred
business acquisition obligations
|
|
|
31,518
|
|
|
—
|
|
Other
|
|
|
34,474
|
|
|
23,614
|
|
Total
liabilities
|
|
|
731,482
|
|
|
608,766
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Common
stock, $.01 par value per share, 100,000,000 shares authorized; 35,756,923
and 35,199,744 shares issued and outstanding
|
|
|
358
|
|
|
352
|
|
Additional
paid-in capital
|
|
|
631,921
|
|
|
606,000
|
|
Retained
earnings
|
|
|
104,702
|
|
|
100,142
|
|
Stock
held by subsidiary
|
|
|
(141,343
|
)
|
|
(132,791
|
)
|
Stock
held in trust
|
|
|
(996
|
)
|
|
(808
|
)
|
Accumulated
other comprehensive loss
|
|
|
(32,512
|
)
|
|
(36,892
|
)
|
Total
stockholders’ equity
|
|
|
562,130
|
|
|
536,003
|
|
|
|
$
|
1,293,612
|
|
|
1,144,769
|
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Earnings
For
the Three Months Ended March 31, 2006 and 2005
($
in
thousands, except share data) (unaudited)
|
|
Three
Months Ended
|
|
Three
Months Ended
|
|
|
|
March
31, 2006
|
|
March
31, 2005
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
337,098
|
|
|
240,176
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
231,246
|
|
|
172,126
|
|
Operating,
administrative and other
|
|
|
87,663
|
|
|
70,022
|
|
Depreciation
and amortization
|
|
|
9,976
|
|
|
8,310
|
|
Restructuring
credits
|
|
|
(501
|
)
|
|
—
|
|
Operating
expenses
|
|
|
328,384
|
|
|
250,458
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
8,714
|
|
|
(10,282
|
)
|
|
|
|
|
|
|
|
|
Interest
expense, net of interest income
|
|
|
3,209
|
|
|
330
|
|
Equity
in losses from real estate ventures
|
|
|
(944
|
)
|
|
(892
|
)
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
|
|
4,561
|
|
|
(11,504
|
)
|
Provision
(benefit) for income taxes
|
|
|
1,181
|
|
|
(2,922
|
)
|
|
|
|
|
|
|
|
|
Net
income (loss) before cumulative effect of change in accounting
principle
|
|
|
3,380
|
|
|
(8,582
|
)
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
1,180
|
|
|
—
|
|
Net
income (loss)
|
|
$
|
4,560
|
|
|
(8,582
|
)
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share before cumulative effect of
change in
accounting principle
|
|
|
0.10
|
|
|
(0.27
|
)
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
0.04
|
|
|
—
|
|
Basic
earnings (loss) per common share
|
|
$
|
0.14
|
|
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
31,511,880
|
|
|
31,268,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per common share before cumulative effect of
change in
accounting principle
|
|
|
0.10
|
|
|
(0.27
|
)
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
0.04
|
|
|
—
|
|
Diluted
earnings (loss) per common share
|
|
$
|
0.14
|
|
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
33,681,263
|
|
|
31,268,640
|
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Stockholders’ Equity
For
the Three Months Ended March 31, 2006
($
in
thousands, except share data) (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held
in
|
|
Other
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Stock
|
|
Trust
|
|
Comprehensive
|
|
|
|
|
|
Common
Stock
|
|
Paid-In
|
|
Retained
|
|
Held
by
|
|
and
|
|
Income
|
|
|
|
|
|
Shares
(1)
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Subsidiary
|
|
Other
|
|
(Loss)
|
|
Total
|
|
Balances
at December 31, 2005
|
|
|
35,199,744
|
|
$
|
352
|
|
|
606,000
|
|
|
100,142
|
|
|
(132,791
|
)
|
|
(808
|
)
|
|
(36,892
|
)
|
$
|
536,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,560
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued under stock compensation programs
|
|
|
557,179
|
|
|
6
|
|
|
12,285
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,291
|
|
Tax
benefits of vestings and exercises
|
|
|
—
|
|
|
—
|
|
|
8,876
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,876
|
|
Amortization
of stock compensation
|
|
|
—
|
|
|
—
|
|
|
4,760
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
acquired by subsidiary (1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,552
|
)
|
|
—
|
|
|
—
|
|
|
(8,552
|
)
|
Stock
held in trust
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(188
|
)
|
|
—
|
|
|
(188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
translation adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,380
|
|
|
4,380
|
|
Balances
at March 31, 2006
|
|
|
35,756,923
|
|
$
|
358
|
|
|
631,921
|
|
|
104,702
|
|
|
(141,343
|
)
|
|
(996
|
)
|
|
(32,512
|
)
|
$
|
562,130
|
|
(1)
Shares repurchased under our share repurchase programs are not cancelled, but
are held by one of our subsidiaries. The 4,072,651 shares we have repurchased
through March 31, 2006 are included in the 35,756,923 shares total of our common
stock account, but are deducted from our share count for purposes of calculating
earnings (loss) per share.
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Cash Flows
For
the Three Months Ended March 31, 2006 and 2005
($
in
thousands) (unaudited)
|
|
Three
Months Ended
|
|
Three
Months Ended
|
|
|
|
March
31, 2006
|
|
March
31, 2005
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Cash
flows from earnings:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
4,560
|
|
|
(8,582
|
)
|
Reconciliation
of net income (loss) to net cash provided by earnings:
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
(1,180
|
)
|
|
—
|
|
Depreciation
and amortization
|
|
|
9,976
|
|
|
8,310
|
|
Equity
in losses from real estate ventures
|
|
|
944
|
|
|
892
|
|
Operating
distributions from real estate ventures
|
|
|
261
|
|
|
684
|
|
Provision
for loss on receivables and other assets
|
|
|
2,734
|
|
|
1,077
|
|
Amortization
of deferred compensation
|
|
|
7,842
|
|
|
5,350
|
|
Amortization
of debt issuance costs
|
|
|
217
|
|
|
202
|
|
Net
cash provided by earnings
|
|
|
25,354
|
|
|
7,933
|
|
|
|
|
|
|
|
|
|
Cash
flows from changes in working capital:
|
|
|
|
|
|
|
|
Receivables
|
|
|
35,623
|
|
|
56,124
|
|
Prepaid
expenses and other assets
|
|
|
1,894
|
|
|
(9,760
|
)
|
Deferred
tax assets, net
|
|
|
4,185
|
|
|
3,941
|
|
Excess
tax benefits from share-based payment arrangements
|
|
|
(8,876
|
)
|
|
—
|
|
Accounts
payable, accrued liabilities and accrued compensation
|
|
|
(145,166
|
)
|
|
(145,073
|
)
|
Net
cash flows from changes in working capital
|
|
|
(112,340
|
)
|
|
(94,768
|
)
|
Net
cash used in operating activities
|
|
|
(86,986
|
)
|
|
(86,835
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Net
capital additions - property and equipment
|
|
|
(8,401
|
)
|
|
(4,138
|
)
|
Business
acquisition
|
|
|
(152,350
|
)
|
|
—
|
|
Capital
contributions and advances to real estate ventures
|
|
|
(7
|
)
|
|
(3,779
|
)
|
Distributions,
repayments of advances and sale of investments
|
|
|
1,417
|
|
|
102
|
|
Net
cash used in investing activities
|
|
|
(159,341
|
)
|
|
(7,815
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from borrowings under credit facilities
|
|
|
421,672
|
|
|
217,562
|
|
Repayments
of borrowings under credit facilities
|
|
|
(185,924
|
)
|
|
(127,766
|
)
|
Shares
repurchased for payment of employee taxes on stock awards
|
|
|
(252
|
)
|
|
(706
|
)
|
Shares
repurchased under share repurchase program
|
|
|
(8,740
|
)
|
|
(15,249
|
)
|
Excess
tax benefits from share-based payment arrangements
|
|
|
8,876
|
|
|
—
|
|
Common
stock issued under stock option plan and stock
purchase programs
|
|
|
12,540
|
|
|
18,607
|
|
Net
cash provided by financing activities
|
|
|
248,172
|
|
|
92,448
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
1,845
|
|
|
(2,202
|
)
|
Cash
and cash equivalents, January 1
|
|
|
28,658
|
|
|
30,143
|
|
Cash
and cash equivalents, March 31
|
|
$
|
30,503
|
|
|
27,941
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2,548
|
|
|
258
|
|
Income
taxes, net of refunds
|
|
|
12,892
|
|
|
6,787
|
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Notes
to Consolidated Financial Statements (Unaudited)
Readers
of this quarterly report should refer to the audited financial statements of
Jones Lang LaSalle Incorporated (“Jones Lang LaSalle”, which may also be
referred to as “the Company” or as “the Firm,” “we,” “us” or “our”) for the year
ended December 31, 2005, which are included in Jones Lang LaSalle’s 2005 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)
Summary of Significant Accounting Policies
Interim
Information
Our
consolidated financial statements as of March 31, 2006 and for the three months
ended March 31, 2006 and 2005 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, operating income and net earnings in the first three calendar
quarters are substantially lower than in the fourth quarter. Other than for
the
Investment Management segment, this seasonality is due to a calendar-year-end
focus on the completion of real estate transactions, which is consistent with
the real estate industry generally. The Investment Management segment earns
performance fees on clients’ returns on their real estate investments. Such
performance fees are generally earned when assets are sold, the timing of which
is geared towards the benefit of our clients. Non-variable operating expenses,
which are treated as expenses when they are incurred during the year, are
relatively constant on a quarterly basis. As such, the results for the periods
ended March 31, 2006 and 2005 are not indicative of the results to be obtained
for the full fiscal year.
Principles
of Consolidation
Our
financial statements include the accounts of Jones Lang LaSalle and its
majority-owned-and-controlled subsidiaries. All material intercompany balances
and transactions have been eliminated in consolidation. Investments in real
estate ventures over which we exercise significant influence, but not control,
are accounted for by the equity method. Investments in real estate ventures
over
which we are not able to exercise significant influence are accounted for under
the cost method.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current
presentation.
Revenue
Recognition
The
SEC’s
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), as amended by SAB 104, provides guidance on the application of
U.S.
GAAP to selected revenue recognition issues. Additionally, EITF Issue No. 00-21,
“Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”), provides
guidance on the application of U.S. GAAP to revenue transactions with multiple
deliverables.
We
categorize our revenues as advisory and management fees, transaction
commissions, project and development management and construction management
fees. We recognize advisory and management fees related to property management
services, valuation services, corporate property services, strategic consulting
and money management as income in the period in which we perform the related
services. We recognize transaction commissions related to agency leasing
services, capital markets services and tenant representation services as income
when we provide the related service unless future contingencies exist. If future
contingencies exist, we defer recognition of this revenue until the respective
contingencies have been satisfied. Project and development management and
construction management fees are recognized 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.
Certain
contractual arrangements for services provide for the delivery of multiple
services. We evaluate revenue recognition for each service to be rendered under
these arrangements using criteria set forth in EITF 00-21. For services that
meet the separability criteria, revenue is recognized separately. For services
that do not meet those criteria, revenue is recognized on a combined basis.
We
follow
the guidance of EITF 01-14, “Income Statement Characterization of Reimbursements
Received for ‘Out-of-Pocket’ Expenses Incurred,” when accounting for
reimbursements received. Accordingly, we have recorded these reimbursements
as
revenues in the income statement, as opposed to being shown as a reduction
of
expenses.
In
certain of our businesses, primarily those involving management services, we
are
reimbursed by our clients for expenses incurred on their behalf. The treatment
of reimbursable expenses for financial reporting purposes is based upon the
fee
structure of the underlying contracts. We follow the guidance of EITF Issue
No.
99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” (“EITF
99-19”), when accounting for reimbursable personnel and other costs. A contract
that provides a fixed fee billing, fully inclusive of all personnel or other
recoverable expenses incurred but not separately scheduled, is reported 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 a fixed management fee and 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. Such costs aggregated approximately $151.4
million and $112.5 million for the three months ended March 31, 2006 and 2005,
respectively. This treatment has no impact on operating income, net income
or
cash flows.
Investments
in Real Estate Ventures
We
invest
in certain real estate ventures that own and operate commercial real estate.
Typically, these are co-investments in funds that our Investment Management
business establishes in the ordinary course of business for its clients. These
investments include non-controlling ownership interests generally ranging from
less than 1% to 48.72% of the respective ventures. We apply the provisions
of
the following guidance when accounting for these interests:
· FASB
Interpretation No. 46 (revised), “Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51” (“FIN 46R”)
· EITF
Issue No. 04-5, “Determining Whether a General Partner, or the General Partners
as a Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights” (“EITF 04-5”)
· AICPA
Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures”
as amended by FASB Staff Position No. SOP 78-9-a (“SOP 78-9-a”)
· Accounting
Principles Board (“APB”) Opinion No. 18, “The Equity Method of Accounting for
Investments in Common Stock” (“APB 18”)
· EITF
Topic No. D-46, “Accounting for Limited Partnership Investments” (“EITF D-46”)
The
application of such guidance generally results in accounting for these interests
under the equity method in the accompanying consolidated financial statements
due to the nature of our non-controlling ownership in the ventures.
For
real
estate limited partnerships in which the Company is a general partner, we apply
the guidance set forth in FIN 46R, EITF 04-5 and SOP 78-9-a in evaluating the
control the Company has over the limited partnership. These entities are
generally well-capitalized and grant the limited partners important rights,
such
as the right to replace the general partner without cause, to dissolve or
liquidate the partnership, to approve the sale or refinancing of the principal
partnership assets, or to approve the acquisition of principal partnership
assets. Such general partner interests are accounted for under the equity
method.
For
real
estate limited partnerships in which the Company is a limited partner, the
Company is a co-investment partner, and based on applying the guidance set
forth
in FIN 46R and SOP 78-9-a, has concluded that it does not have a controlling
interest in the limited partnership. When we have an asset advisory contract
with the real estate limited partnership, the combination of our limited partner
interest and the advisory agreement provides us with significant influence
over
the real estate limited partnership venture. Accordingly, we account for such
investments under the equity method. When the Company does not have an asset
advisory contract with the limited partnership, but only has a limited partner
interest without significant influence, and our interest in the partnership
is
considered “minor” under EITF D-46 (i.e., not more than 3 to 5 percent), we
account for such investments under the cost method.
For
investments in real estate ventures accounted for under the equity method,
we
maintain an investment account, which is increased by contributions made and
by
our share of net income of the real estate ventures, and decreased by
distributions received and by our share of net losses of the real estate
ventures. Our share of each real estate venture’s net income or loss, including
gains and losses from capital transactions, is reflected in our consolidated
statement of earnings as "Equity in earnings (losses) from real estate
ventures." For investments in real estate ventures accounted for under the
cost
method, our investment account is increased by contributions made and decreased
by distributions representing return of capital.
We
apply
the provisions of APB 18, SEC Staff Accounting Bulletin Topic 5-M, “Other Than
Temporary Impairment Of Certain Investments In Debt And Equity Securities” (“SAB
59”), and Statement of Financial Accounting Standards (“SFAS”) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144")
when evaluating investments in real estate ventures for impairment, including
impairment evaluations of the individual assets underlying our investments.
We
review investments in real estate ventures on a quarterly basis for indications
of whether the carrying value of the real estate assets underlying our
investments in ventures may not be recoverable. The review of recoverability
is
based on an estimate of the future undiscounted cash flows expected to be
generated by the underlying assets. When an “other than temporary” impairment
has been identified related to a real estate asset underlying one of our
investments in ventures, a discounted cash flow approach is used to determine
the fair value of the asset in computing the amount of the impairment. We then
record the portion of the impairment loss related to our investment in the
reporting period.
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 earnings (losses)” within “Revenue.” See Note 2 for
“Equity earnings (losses)” reflected within segment revenues, as well as
discussion of how the Chief Operating Decision Maker (as defined in Note 2)
measures segment results with “Equity earnings (losses)” included in segment
revenues.
See
Note
4 for additional information on investments in real estate
ventures.
Business
Combinations, Goodwill and Other Intangible Assets
We
apply
Statement of Financial Accounting Standards No. 141, “Business Combinations”
(“SFAS 141”), when accounting for business combinations. We have historically
grown through a series of acquisitions and one substantial merger. As a result
of this activity, and consistent with the services nature of the businesses
we
acquired, the largest assets on our balance sheet are the intangibles resulting
from business acquisitions and the JLW merger. Beginning January 1, 2002,
pursuant to the issuance of SFAS No. 142, “Goodwill and Other Intangible Assets”
(“SFAS 142”), we ceased the amortization of intangibles with indefinite useful
lives. We continue to amortize intangibles with finite useful lives, which
primarily represent the value placed on customer relationships and management
contracts that are acquired as part of our acquisition of another
business.
SFAS
142
requires that goodwill and intangible assets with indefinite useful lives not
be
amortized, but instead evaluated for impairment at least annually. To accomplish
this annual evaluation, we determine the carrying value of each reporting unit
by assigning assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of evaluation. Under
SFAS 142, we define reporting units as Investment Management, Americas IOS,
Australia IOS, Asia IOS and by country groupings in Europe IOS. We then
determine the fair value of each reporting unit on the basis of a discounted
cash flow methodology and compare it to the reporting unit’s carrying value. The
result of the 2005 evaluation was that the fair value of each reporting unit
exceeded its carrying amount, and therefore we did not recognize an impairment
loss.
See
Note
5 for additional information on business combinations, goodwill and other
intangible assets.
Stock-based
Compensation
Prior
to
January 1, 2006, we accounted for our stock-based compensation plans under
the
provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS
123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation -
Transition and Disclosure” (“SFAS 148”). These provisions allowed entities to
continue to apply the intrinsic value-based method under the provisions of
APB
Opinion No. 25, "Accounting for Stock Issued to Employees," (“APB 25”), and
provide disclosure of pro forma net income and net income per share as if the
fair value-based method, defined in SFAS 123 as amended by SFAS 148, had been
applied. We elected to apply the provisions of APB 25 in accounting for stock
options and other stock awards, and accordingly, recognized no compensation
expense for stock options granted at the market value of our common stock on
the
date of grant, or for 15% discounts on stock purchases under our U.S. Employee
Stock Purchase Plan (“ESPP”). We did recognize compensation expense over the
vesting period of other stock awards (including various grants of restricted
stock units and offerings of discounted stock purchases under our Jones Lang
LaSalle Savings Related Share Option (UK) Plan) pursuant to APB
25.
Effective
January 1, 2006, we account for stock-based compensation in accordance with
SFAS
No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R
eliminates the alternative to use APB 25’s intrinsic value method of accounting
that was provided in SFAS 123 as originally issued. SFAS 123R requires us to
recognize expense for the grant-date fair value of stock options and other
equity-based compensation issued to employees over the employee’s requisite
service period. Effective January 1, 2006, we amended our ESPP to provide for
a
5% discount on stock purchases and eliminate the “look-back” feature in the
plan, which along with the other provisions of the plan allows the ESPP to
remain “noncompensatory” under the standard. 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 at the date of grant. The effect of this
change as it relates to prior periods is reflected in “Cumulative effect of
change in accounting principle, net of tax” in the consolidated statement of
earnings. In the three month period ended March 31, 2006, we recorded a $1.8
million pre-tax, $1.2 million net of tax, gain for the cumulative effect of
this
accounting change.
See
Note
6 for additional information on stock-based compensation.
Earnings
(Loss) Per Share
Earnings
(loss) per share is calculated by dividing net income (loss) by weighted average
shares outstanding. For the three months ended March 31, 2006 and 2005, we
calculated basic earnings (loss) per common share based on basic weighted
average shares outstanding of 31.5 million and 31.3 million, respectively,
and
calculated diluted earnings (loss) per common share based on diluted weighted
average shares outstanding of 33.7 million and 31.3 million, respectively.
As a
result of the net losses incurred for the first quarter of 2005, the calculation
of diluted weighted average shares outstanding does not give effect to common
stock equivalents in that period, since to do so would be anti-dilutive.
The
difference between basic weighted average shares outstanding and diluted
weighted average shares outstanding is the dilutive impact of common stock
equivalents. Common stock equivalents consist primarily of shares to be issued
under employee stock compensation programs and outstanding stock options whose
exercise price was less than the average market price of our stock during these
periods. We did not include in weighted average shares outstanding the 4,072,651
or 2,640,200 shares that had been repurchased as of March 31, 2006 and 2005,
respectively, and which are held by one of our subsidiaries. See Part II, Item
2. Share Repurchases for additional information.
Comprehensive
Income (Loss)
For
the
three months ended March 31, 2006 and 2005, comprehensive income (loss) was
as
follows ($ in thousands):
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
4,560
|
|
|
(8,582
|
)
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
4,380
|
|
|
(9,119
|
)
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
$
|
8,940
|
|
|
(17,701
|
)
|
Foreign
Currency Translation
The
financial statements of our subsidiaries located outside the United States,
except those subsidiaries located in highly inflationary economies, are measured
using the local currency as the functional currency. The assets and liabilities
of these subsidiaries are translated at the rates of exchange at the balance
sheet date with the resulting translation adjustments included in our balance
sheet as a separate component of stockholders’ equity (accumulated other
comprehensive income (loss)) and in our disclosure of comprehensive income
(loss) above. Income and expenses are translated at the average monthly rates
of
exchange. Gains and losses from foreign currency transactions are included
in
net earnings. For subsidiaries operating in highly inflationary economies,
the
associated gains and losses from balance sheet translation adjustments are
included in net earnings.
New
Accounting Standards
Accounting
for “Share-Based” Compensation
Effective
January 1, 2006, we account for share-based compensation in accordance with
SFAS
No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). See further
discussion of the new standard under “Stock-based Compensation” above and in
Note 6.
Accounting
for General Partner Interests in a Limited Partnership
In
June
2005, the FASB ratified EITF 04-5, “Determining Whether a General Partner, or
the General Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights.” EITF 04-5 presumes that a
general partner controls a limited partnership, and therefore should consolidate
the limited partnership in its financial statements. To overcome the presumption
of control, and thereby account for a general partner investment in a limited
partnership on the equity method, EITF 04-5 requires the general partner to
grant certain rights to the limited partners. EITF 04-5 also applies to entities
similar to limited partnerships, such as limited liability companies with
governing provisions that are the functional equivalent of a limited
partnership.
Consolidation
of existing limited partnerships (or similar entities) in which we have a
general partner (or similar) interest would result in a material increase in
the
amount of assets and liabilities reported in our balance sheet. However,
management has amended partnership agreements, where applicable, to grant
limited partner rights sufficient to overcome the EITF 04-5 control presumption
and retain equity method accounting for such interests.
Determining
Variability in the Application of FIN 46R
In
April
2006, the FASB issued FASB Staff Position (FSP) FIN 46R-6, “Determining the
Variability to Be Considered in Applying FASB Interpretation No. 46(R).” The
variability that is considered in applying FIN 46R affects the determination
of
(a) whether an entity is a variable interest entity (VIE), (b) which interests
are “variable interests” in the entity, and (c) which party, if any, is the
primary beneficiary of the VIE. That variability affects any calculation of
expected losses and expected residual returns, if such a calculation is
necessary. The Company is required to apply the guidance in this FSP
prospectively to all entities (including newly created entities) with which
it
first becomes involved and to all entities previously required to be analyzed
under FIN 46R when a “reconsideration event” has occurred, beginning July 1,
2006. Management has not yet determined what impact, if any, the application
of
FSP FIN46R-6 will have on our consolidated financial statements.
(2)
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"):
The
Investment Management segment provides money management services to
institutional investors and high-net-worth individuals. Each geographic region
offers our full range of Investor Services, Capital Markets and Occupier
Services. The IOS business consists primarily of tenant representation and
agency leasing, capital markets and valuation services (collectively
"transaction services") and property management, facilities management, project
and development management and construction management services (collectively
"management services").
Total
revenue by industry segment includes revenue derived from services provided
to
other segments. Operating income represents total revenue less direct and
indirect allocable expenses. We allocate all expenses, other than interest
and
income taxes, as nearly all expenses incurred benefit one or more of the
segments. Allocated expenses primarily consist of corporate global overhead,
including certain globally managed stock programs. These corporate global
overhead expenses are allocated to the business segments based on the relative
revenue of each segment.
Our
measure of segment operating results excludes “Restructuring charges (credits),”
as we have determined that it is not meaningful to investors to allocate
such
charges (credits) to our segments. See Note 3 for discussion of “Restructuring
charges (credits).” Also, for segment reporting we continue to show “Equity in
earnings (losses) from real estate ventures” within our revenue line, especially
since it is an integral part of our Investment Management segment. The Chief
Operating Decision Maker of Jones Lang LaSalle measures the segment results
without restructuring charges, but with “Equity in earnings (losses) from real
estate ventures” included in segment revenues. We define the Chief Operating
Decision Maker collectively as our Global Executive Committee, which is
comprised of our Global Chief Executive Officer, Global Chief Operating and
Financial Officer and the Chief Executive Officers of each of our reporting
segments.
We
have
reclassified certain prior year amounts to conform to the current
presentation.
Summarized
unaudited financial information by business segment for the three months ended
March 31, 2006 and 2005 is as follows ($ in thousands):
Investor
and Occupier Services
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Americas
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
Transaction
services
|
|
$
|
48,212
|
|
|
27,099
|
|
Management
services
|
|
|
62,261
|
|
|
44,983
|
|
Equity
earnings (losses)
|
|
|
149
|
|
|
(1
|
)
|
Other
services
|
|
|
2,542
|
|
|
1,577
|
|
Intersegment
revenue
|
|
|
165
|
|
|
289
|
|
|
|
|
113,329
|
|
|
73,947
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
108,770
|
|
|
75,337
|
|
Depreciation
and amortization
|
|
|
5,302
|
|
|
3,612
|
|
Operating
loss
|
|
$
|
(743
|
)
|
|
(5,002
|
)
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Transaction
services
|
|
$
|
79,375
|
|
|
59,017
|
|
Management
services
|
|
|
21,221
|
|
|
23,464
|
|
Equity
losses
|
|
|
(220
|
)
|
|
—
|
|
Other
services
|
|
|
2,969
|
|
|
2,573
|
|
|
|
|
103,345
|
|
|
85,054
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
105,719
|
|
|
90,472
|
|
Depreciation
and amortization
|
|
|
2,508
|
|
|
2,551
|
|
Operating
loss
|
|
$
|
(4,882
|
)
|
|
(7,969
|
)
|
|
|
|
|
|
|
|
|
Asia
Pacific
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Transaction
services
|
|
$
|
28,648
|
|
|
24,900
|
|
Management
services
|
|
|
27,840
|
|
|
23,443
|
|
Equity
earnings
|
|
|
217
|
|
|
—
|
|
Other
services
|
|
|
1,197
|
|
|
592
|
|
|
|
|
57,902
|
|
|
48,935
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
56,773
|
|
|
48,978
|
|
Depreciation
and amortization
|
|
|
1,822
|
|
|
1,805
|
|
Operating
loss
|
|
$
|
(693
|
)
|
|
(1,848
|
)
|
|
|
|
|
|
|
|
|
Investment
Management
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Transaction
and other services
|
|
$
|
11,020
|
|
|
1,902
|
|
Advisory
fees
|
|
|
38,269
|
|
|
28,250
|
|
Incentive
fees
|
|
|
13,544
|
|
|
2,376
|
|
Equity
losses
|
|
|
(1,090
|
)
|
|
(891
|
)
|
|
|
|
61,743
|
|
|
31,637
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
47,812
|
|
|
27,649
|
|
Depreciation
and amortization
|
|
|
344
|
|
|
343
|
|
Operating
income
|
|
$
|
13,587
|
|
|
3,645
|
|
|
|
|
|
|
|
|
|
Segment
Reconciling Items:
|
|
|
|
|
|
|
|
Total
segment revenue
|
|
$
|
336,319
|
|
|
239,573
|
|
Intersegment
revenue eliminations
|
|
|
(165
|
)
|
|
(289
|
)
|
Reclassification
of equity (earnings) losses
|
|
|
944
|
|
|
892
|
|
Total
revenue
|
|
|
337,098
|
|
|
240,176
|
|
|
|
|
|
|
|
|
|
Total
segment operating expenses
|
|
|
329,050
|
|
|
250,747
|
|
Intersegment
operating expense eliminations
|
|
|
(165
|
)
|
|
(289
|
)
|
Total
operating expenses before restructuring credits
|
|
|
328,885
|
|
|
250,458
|
|
Restructuring
credits
|
|
|
(501
|
)
|
|
—
|
|
Operating
income (loss)
|
|
$
|
8,714
|
|
|
(10,282
|
)
|
(3)
Restructuring Charges (Credits)
In
2001,
we closed our non-strategic residential land business in the Americas region
of
the Investment Management segment. In the three months ended March 31, 2006,
we
sold an asset from this business that resulted in a gain of $0.5
million.
(4)
Investments in Real Estate Ventures
As
of
March 31, 2006 we had total investments and loans of $86.5 million in
approximately 25 separate property or fund co-investments. Within this $86.5
million, loans of $3.4 million to real estate ventures bear interest rates
ranging from 7.25% to 8.0% and are to be repaid by 2008.
Following
is a table summarizing our investments in real estate ventures ($ in
millions):
Type
of Interest
|
|
Percent
Ownership of Real Estate Limited Partnership
Venture
|
|
Accounting
Method
|
|
Carrying
Value
|
|
|
|
|
|
|
|
|
|
General
partner
|
|
|
0%
to 1
|
%
|
|
Equity
|
|
$
|
0.2
|
|
Limited
partner with advisory agreements
|
|
|
<1%
to 48.72
|
%
|
|
Equity
|
|
|
85.8
|
|
Equity
method
|
|
|
|
|
|
|
|
$
|
86.0
|
|
Limited
partner without advisory agreements
|
|
|
<1%
to 5
|
%
|
|
Cost
|
|
|
0.5
|
|
Total
|
|
|
|
|
|
|
|
$
|
86.5
|
|
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. LaSalle Investment Company II (“LIC
II”), formed in January 2006, is comprised of two parallel limited partnerships
which serve as our investment vehicle for substantially all new co-investments.
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 48.72% ownership interest in LIC II; primarily institutional
investors hold the remaining 52.15% and 51.28% interests in LIC I and LIC II,
respectively. Our investments in LIC I and LIC II are accounted for 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.
At
March
31, 2006, LIC I and LIC II have unfunded capital commitments of $170.2 million
and $49.0 million, respectively, of which our 47.85% and 48.72% shares are
$81.4
million and $23.9 million, respectively, for future fundings of co-investments.
These $81.4 million and $23.9 million commitments are part of our maximum
potential unfunded commitments to LIC I and LIC II at March 31, 2006, which
are
euro 88.5 million ($107.2 million) and $285.0 million,
respectively.
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 that LIC
II
will draw down on our commitment over the next six 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 investment products
in
LIC II. The purpose is to accelerate capital raising and growth in assets under
management. Approvals for such activity are handled consistently with those
of
the Firm’s co-investment capital.
As
of
March 31, 2006, LIC I maintains a euro 35 million ($42.4 million) revolving
credit facility (the "LIC I Facility"), and LIC II maintains a $200 million
revolving credit facility (the "LIC II Facility"), principally for their working
capital needs. The capacity in the LIC II Facility contemplates potential bridge
financing opportunities. Each facility contains a credit rating trigger (related
to the credit ratings of one of LIC I’s investors and one of LIC II’s investors,
who are unaffiliated with Jones Lang LaSalle) and a material adverse condition
clause. If either of the credit rating trigger or the material adverse condition
clause becomes triggered, the facility to which that condition relates would
be
in default and 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 16.7 million
($20.3 million); assuming that the LIC II Facility were fully drawn, the maximum
exposure to Jones Lang LaSalle would be $97.4 million. Each exposure is included
within and cannot exceed our maximum potential unfunded commitments to LIC
I of
euro 88.5 million ($107.2 million) and to LIC II of $285.0 million discussed
above. As of March 31, 2006, LIC I had euro 7.4 million ($9.0 million) of
outstanding borrowings on the LIC I Facility, and LIC II had $58.7 million
of
outstanding borrowings on the LIC II Facility.
Exclusive
of our LIC I and LIC II commitment structures, we have unfunded commitments
to
other real estate ventures of $3.3 million at March 31, 2006.
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 2006 is anticipated to be between $50 and $60 million
(planned co-investment less return of capital from liquidated co-investments).
We
apply
the provisions of APB 18, SAB 59, and SFAS 144 when evaluating investments
in
real estate ventures for impairment, including impairment evaluations of the
individual assets underlying our investments. We recorded no impairment charges
in the first three months of 2006, compared with $1.2 million of such charges
to
“Equity in earnings (losses) from real estate ventures” in the first quarter of
2005, representing our equity share of the impairment charges against individual
assets held by these ventures.
(5)
Business Combinations, Goodwill and Other Intangible
Assets
We
have
$523.7 million of unamortized identified intangibles and goodwill as of March
31, 2006 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 $523.7 million of unamortized intangibles and
goodwill, $480.5 million represents goodwill with indefinite useful lives,
which
we ceased amortizing beginning January 1, 2002. The remaining $43.2 million
of
identifiable intangibles (principally representing management contracts
acquired) are amortized over their remaining finite useful lives.
On
January 3, 2006, we acquired a 100% interest in Spaulding & Slye, a
privately held real estate services and investment company with offices in
Boston and Washington, D.C. Spaulding & Slye delivers full-scale
development, leasing, management, investment sales, construction and structured
finance services to corporate, institutional and investor clients. Terms for
the
transaction, which was financed with Jones Lang LaSalle’s existing revolving
credit facility, were $150 million cash paid at closing with provisions for
additional consideration and an earn-out that are subject to certain contract
provisions and performance. The fair value of the additional consideration
is
recorded as “Deferred business acquisition obligations” on our consolidated
balance sheet, and consists of $20 million and $15 million to be paid in January
2008 and December 2008, respectively. Payment of the earn-out is subject to
the
achievement of certain performance conditions, and will be recorded at the
time
those conditions are met; the earn-out will not be recorded if the related
conditions are not achieved.
With
the
exception of $0.2 million recorded to property and equipment, the direct costs
of the Spaulding & Slye acquisition are reflected in the current period
“Additions” lines below. Intangible assets with finite useful lives, including
the value of customer relationships acquired, certain restrictive agreements,
and use of the Spaulding & Slye Investments name were attributed a total
value of $41.6 million, and will be amortized over lives ranging from 3 to
10
years. The remaining direct costs of acquisition were attributed to
goodwill.
The
following table sets forth, by reporting segment, the current year movements
in
the gross carrying amount and accumulated amortization of our goodwill with
indefinite useful lives ($ in thousands):
|
|
Investor
and Occupier Services
|
|
|
|
|
|
|
|
Americas
|
|
Europe
|
|
Asia
Pacific
|
|
Investment
Management
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2006
|
|
$
|
185,339
|
|
|
67,291
|
|
|
92,552
|
|
|
27,999
|
|
|
373,181
|
|
Additions
|
|
|
144,764
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
144,764
|
|
Impact
of exchange rate movements
|
|
|
—
|
|
|
818
|
|
|
(952
|
)
|
|
157
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2006
|
|
|
330,103
|
|
|
68,109
|
|
|
91,600
|
|
|
28,156
|
|
|
517,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2006
|
|
$
|
(15,457
|
)
|
|
(5,755
|
)
|
|
(6,825
|
)
|
|
(9,413
|
)
|
|
(37,450
|
)
|
Impact
of exchange rate movements
|
|
|
—
|
|
|
(77
|
)
|
|
67
|
|
|
(22
|
)
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2006
|
|
|
(15,457
|
)
|
|
(5,832
|
)
|
|
(6,758
|
)
|
|
(9,435
|
)
|
|
(37,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value as of March 31, 2006
|
|
$
|
314,646
|
|
|
62,277
|
|
|
84,842
|
|
|
18,721
|
|
|
480,486
|
|
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
|
|
|
|
|
|
|
|
Americas
|
|
Europe
|
|
Asia
Pacific
|
|
Investment
Management
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2006
|
|
$
|
41,310
|
|
|
571
|
|
|
2,739
|
|
|
5,131
|
|
|
49,751
|
|
Additions
|
|
|
41,600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41,600
|
|
Impact
of exchange rate movements
|
|
|
(1
|
)
|
|
7
|
|
|
(67
|
)
|
|
45
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2006
|
|
|
82,909
|
|
|
578
|
|
|
2,672
|
|
|
5,176
|
|
|
91,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2006
|
|
$
|
(37,237
|
)
|
|
(571
|
)
|
|
(2,421
|
)
|
|
(5,131
|
)
|
|
(45,360
|
)
|
Amortization
expense
|
|
|
(2,710
|
)
|
|
—
|
|
|
(94
|
)
|
|
—
|
|
|
(2,804
|
)
|
Impact
of exchange rate movements
|
|
|
—
|
|
|
(7
|
)
|
|
66
|
|
|
(45
|
)
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2006
|
|
$
|
(39,947
|
)
|
|
(578
|
)
|
|
(2,449
|
)
|
|
(5,176
|
)
|
|
(48,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value as of March 31, 2006
|
|
$
|
42,962
|
|
|
—
|
|
|
223
|
|
|
—
|
|
|
43,185
|
|
Remaining
estimated future amortization expense for our intangibles with finite useful
lives ($ in millions):
2006
|
|
$
|
7.3
|
|
2007
|
|
|
6.5
|
|
2008
|
|
|
6.1
|
|
2009
|
|
|
3.5
|
|
2010
|
|
|
3.5
|
|
Thereafter
|
|
|
16.3
|
|
Total
|
|
$
|
43.2
|
|
(6)
Stock-based Compensation
The
Jones
Lang LaSalle Amended and Restated Stock Award and Incentive Plan (“SAIP”)
provides for the granting of various stock awards to eligible employees of
Jones
Lang LaSalle. Such awards include restricted stock units and options to purchase
a specified number of shares of common stock. Under the plan, the total number
of shares available to be issued is 12,110,000. There were approximately 2.9
million shares available for grant under the SAIP at March 31, 2006.
We
adopted SFAS No. 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 at the date of grant. The
effect of this change as it relates to prior periods is reflected in “Cumulative
effect of change in accounting principle, net of tax” in the consolidated
statement of earnings. In the three month period ended March 31, 2006, we
recorded a $1.8 million pre-tax, $1.2 million net of tax, gain for the
cumulative effect of this accounting change. The cumulative effect gain
increased both basic and diluted earnings per share by $0.04.
In
prior
periods, we did not recognize compensation cost on stock option awards in
accordance with SFAS 123, as amended by SFAS 148. These provisions allowed
entities to continue to apply the intrinsic value-based method under the
provisions of APB 25. Accordingly, we provided disclosure of pro forma net
income and net income per share as if the fair value-based method, defined
in
SFAS 123, as amended by SFAS 148, had been applied.
We
have
recognized other stock awards (including various grants of restricted stock
units and offerings of discounted stock purchases under employee stock purchase
plans) as compensation expense over the vesting period of those awards pursuant
to APB 25 prior to January 1, 2006, and subsequently in accordance with SFAS
123R.
Share-based
compensation expense is included within the “Compensation and benefits” line of
our consolidated statement of earnings. Share-based compensation expense for
the
three months ended March 31, 2006 and 2005, respectively, consisted of the
following ($ in thousands):
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Stock
option awards
|
|
$
|
17
|
|
$
|
—
|
|
Restricted
stock unit awards
|
|
|
6,490
|
|
|
4,535
|
|
ESPP
|
|
|
—
|
|
|
—
|
|
UK
SAYE
|
|
|
50
|
|
|
(141
|
)
|
|
|
$
|
6,557
|
|
$
|
4,394
|
|
The
following table provides net loss and pro forma net loss per common share as
if
the fair value-based method had been applied to all awards for the three months
ended March 31, 2005 ($ in thousands, except per share data):
|
|
2005
|
|
|
|
|
|
Net
loss, as reported
|
|
$
|
(8,582
|
)
|
Add:
Stock-based employee compensation expense included in reported
net income,
net of related tax effects
|
|
|
4,045
|
|
Deduct:
Total stock-based employee compensation expense determined under
fair-value-based method for all awards,net
of related tax effects
|
|
|
(4,343
|
)
|
Pro
forma net loss
|
|
$
|
(8,880
|
)
|
Net
earnings per share:
|
|
|
|
|
Basic—as
reported
|
|
$
|
(0.27
|
)
|
Basic—pro
forma
|
|
$
|
(0.28
|
)
|
Diluted—as
reported
|
|
$
|
(0.27
|
)
|
Diluted—pro
forma
|
|
$
|
(0.28
|
)
|
Stock
Option Awards
We
have
generally granted stock options at the market value of common stock at the
date
of grant. Our options vest at such times and conditions as the Compensation
Committee of our Board of Directors determines and sets forth in the award
agreement; the most recent options granted (in 2003) vest over periods of up
to
five years. As a result of a change in compensation strategy, we do not
currently use stock option grants as part of our employee compensation program;
no options were granted in 2004 or 2005, and none have been granted through
March 31, 2006.
The
per
share weighted average fair value of options granted during 2003 was $7.85
on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
Expected
dividend yield
|
|
|
0.00%
|
|
Risk-free
interest rate
|
|
|
3.56%
|
|
Expected
life
|
|
|
6
to 9 years
|
|
Expected
volatility
|
|
|
42.85%
|
|
Contractual
terms
|
|
|
7
to 10 years
|
|
Stock
option activity for the first three months of 2006 is as follows:
|
|
Options (thousands)
|
|
Weighted
Average Exercise
Price
|
|
Weighted
Average Remaining Contractual
Life
|
|
Aggregate
Intrinsic Value ($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2006
|
|
|
1,110.1
|
|
$
|
19.86
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Exercised
|
|
|
(518.2
|
)
|
|
21.43
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(23.9
|
)
|
|
30.72
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2006
|
|
|
568.0
|
|
$
|
18.07
|
|
|
2.87
years
|
|
$
|
33.2
|
|
Exercisable
at March 31, 2006
|
|
|
521.4
|
|
$
|
18.11
|
|
|
2.59
years
|
|
$
|
30.5
|
|
Until
the
adoption of SFAS 123R on January 1, 2006, we had not recognized any compensation
expense for stock options granted at the market value of our common stock on
the
date of grant. As of March 31, 2006, we have approximately 568,000 options
outstanding, of which approximately 46,600 options were unvested. We recognized
$0.02 million in compensation expense related to the unvested options for the
first three months of 2006. Approximately $0.1 million of compensation cost
remains to be recognized on unvested options through 2008.
For
the
three months ended March 31, 2006 and 2005, the fair value of options vested
was
$0.3 million and $0.6 million, respectively.
The
following table summarizes information about options exercises occurring during
the three months ended March 31, 2006 and 2005 ($ in millions):
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Number
of options exercised
|
|
|
518,183
|
|
|
565,926
|
|
|
|
|
|
|
|
|
|
Aggregate
fair value
|
|
$
|
33.7
|
|
$
|
23.9
|
|
Intrinsic
value
|
|
|
22.6
|
|
|
10.1
|
|
Amount
of cash received
|
|
$
|
11.1
|
|
$
|
13.8
|
|
|
|
|
|
|
|
|
|
Tax
benefit recognized
|
|
$
|
8.6
|
|
$
|
3.7
|
|
Restricted
Stock Unit Awards
Restricted
stock activity for the three months ended March 31, 2006 is as
follows:
|
|
Shares (thousands)
|
|
Weighted
Average Grant Date Fair
Value
|
|
Weighted
Average Remaining Contractual
Life
|
|
Aggregate
Intrinsic Value ($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at January 1, 2006
|
|
|
2,076.0
|
|
$
|
28.18
|
|
|
|
|
|
|
|
Granted
|
|
|
681.5
|
|
|
55.96
|
|
|
|
|
|
|
|
Vested
|
|
|
(13.5
|
)
|
|
20.89
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(6.6
|
)
|
|
23.79
|
|
|
|
|
|
|
|
Unvested
at March 31, 2006
|
|
|
2,737.4
|
|
$
|
35.15
|
|
|
1.59
years
|
|
$
|
113.3
|
|
Unvested
shares expected to vest
|
|
|
2,604.0
|
|
$
|
34.51
|
|
|
1.52
years
|
|
|
109.4
|
|
As
of
March 31, 2006, there was $42.9 million of remaining unamortized deferred
compensation related to unvested restricted stock units. The cost is expected
to
be recognized over the remaining weighted average contractual life of the
awards.
Approximately
13,500 restricted stock unit awards vested during the first quarter of 2006.
The
vested shares had an aggregate fair value of $0.7 million and intrinsic value
of
$0.3 million, resulting in $0.4 million of cash received. As a result of the
vesting, we recognized a tax benefit of $0.2 million on the vested shares.
No
restricted stock unit awards vested during the first quarter of
2005.
Other
Stock Compensation Programs
U.S.
Employee Stock Purchase Plan - In 1998, we adopted an Employee Stock Purchase
Plan ("ESPP") for eligible U.S. based employees. Under the current plan,
employee contributions for stock purchases are enhanced by us through an
additional contribution of a 5% discount on the purchase price as of the end
of
a program period; program periods are now three months each. Employee
contributions and our contributions vest immediately. Since its inception,
1,285,801 shares have been purchased under the program through March 31, 2006.
During the first quarter of 2006, 20,685 shares having a grant date market
value
of $76.54 were purchased under the program. No compensation expense is recorded
with respect to this program.
UK
SAYE -
In November 2001, we adopted the Jones Lang LaSalle Savings Related Share Option
(UK) Plan (“Save As You Earn” or “SAYE”) for eligible employees of our UK based
operations. Our Compensation Committee approved the reservation of 500,000
shares for the SAYE on May 14, 2001. Under this plan, employee contributions
for
stock purchases are enhanced by us through an additional contribution of a
15%
discount on the purchase price. Both employee and employer contributions vest
over a period of three to five years. Employees have had the opportunity to
contribute to the plan in 2002 and 2005. In 2002, employee and employer
contributions resulted in the issuance of approximately 220,000 options at
an
exercise price of $13.63. Our contribution of $0.5 million is recorded as
compensation expense over the vesting period. The first vesting of these options
occurred in 2005 with the remaining to vest in 2007. In 2005, employee and
employer contributions resulted in the issuance of approximately 106,000 options
at an exercise price of $35.33. Our contribution of $0.7 million is recorded
as
compensation expense over the vesting period. The first vesting of these options
will occur in 2008 with the remaining to vest in 2010. In 2006, employee and
employer contributions resulted in the issuance of approximately 36,000 options
at an exercise price of $58.96. Our contribution of $0.3 million will be
recorded as compensation expense over the vesting period. The first vesting
of
these options will occur in 2009 with the remaining to vest in
2011.
(7)
Retirement Plans
We
maintain contributory defined benefit pension plans in the United Kingdom,
Ireland and Holland to provide retirement benefits to eligible employees. It
is
our policy to fund the minimum annual contributions required by applicable
regulations. We use a December 31 measurement date for our
plans.
Net
periodic pension cost consisted of the following for the three months ended
March 31, 2006 and 2005 ($ in thousands):
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Employer
service cost - benefits earned during the year
|
|
$
|
749
|
|
|
839
|
|
Interest
cost on projected benefit obligation
|
|
|
2,169
|
|
|
2,083
|
|
Expected
return on plan assets
|
|
|
(2,503
|
)
|
|
(2,424
|
)
|
Net
amortization/deferrals
|
|
|
504
|
|
|
100
|
|
Recognized
actual loss
|
|
|
54
|
|
|
46
|
|
Net
periodic pension cost
|
|
$
|
973
|
|
|
644
|
|
In
the
three months ended March 31, 2006, we have made $0.8 million in payments to
our
defined benefit pension plans. We expect to contribute a total of $3.3 million
to our defined benefit pension plans in 2006. We made $9.1 million of
contributions to these plans in the twelve months ended December 31,
2005.
(8)
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.
(9)
Subsequent Event - Dividends Declared
The
Company announced on April 19, 2006 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 June 15, 2006 to holders of record at the close of
business on May 15, 2006. The current dividend plan approved by the Board
anticipates a total annual dividend of $0.50 per common share, however there
can
be no assurance that future dividends will be declared since the actual
declaration of future dividends, and the establishment of record and payment
dates, remains subject to final determination by the Company's Board of
Directors.
Item
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
The
following discussion and analysis should be read in conjunction with the
consolidated financial statements, including the notes thereto, for the three
months ended March 31, 2006, included herein, and Jones Lang LaSalle’s audited
consolidated financial statements and notes thereto for the fiscal year ended
December 31, 2005, which have been filed with the SEC as part of our 2005 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.
Our
Management’s Discussion and Analysis is presented in six sections, as follows:
(1)
An
executive summary, including how we create value for our stakeholders,
(2)
A
summary of our critical accounting policies and estimates,
(3)
Certain items affecting the comparability of results and certain market and
other risks that we face,
(4)
The
results of our operations, first on a consolidated basis and then for each
of
our business segments,
(5)
Consolidated cash flows, and
(6)
Liquidity and capital resources.
Executive
Summary
Business
Objectives and Strategies
We
define
our stakeholders as:
•
|
The
people we employ, and
|
•
|
The
shareholders who invest in our
Company.
|
We
create
value for these stakeholders by enabling and motivating our employees to apply
their expertise to deliver services that our clients acknowledge as adding
value
to their real estate and business operations. We believe that this ability
to
add value is demonstrated by our clients’ repeat or expanded service requests
and by the strategic alliances we have formed with them.
The
services we provide require "on the ground" expertise in local real estate
markets. Such expertise is the product of research into market conditions and
trends, expertise in buildings and locations, and expertise in competitive
conditions. This real estate expertise is at the heart of the history and
strength of the Jones Lang LaSalle brand. One of our key differentiating
factors, as a result, is our global reach and service imprint in local markets
around the world.
We
enhance our local market expertise with a global team of research professionals,
with the best practice processes we have developed and delivered repeatedly
for
our clients, and with the technology investments that support these best
practices.
Our
principal asset is the talent and the expertise of our people. We seek to
support our service-based culture through a compensation system that rewards
superior client service performance, not just transaction activity, and that
includes a meaningful long-term compensation component. We invest in training
and believe in optimizing our talent base through internal advancement. We
believe that our people deliver our services with the experience and expertise
to maintain a balance of strong profit margins for the Firm and competitive
value-added pricing for our clients, while achieving competitive compensation
levels.
Because
we are a services business, we are not capital intensive. As a result, our
profits also produce strong cash returns. Over the past four years, we have
used
this cash strategically to:
•
|
Significantly
pay down our debt, resulting in significantly reduced interest expense
and
allowing us the opportunity to purchase Spaulding & Slye within our
desired leverage ratio;
|
•
|
Purchase
shares under our share repurchase programs and initiate a dividend
program;
|
•
|
Invest
for growth in important markets throughout the world; and
|
•
|
Co-invest
in LaSalle Investment Management sponsored and managed
funds.
|
We
believe value is enhanced by investing appropriately in growth opportunities,
maintaining our market position in developed markets and keeping our balance
sheet strong.
The
services we deliver are managed as business strategies to enhance the synergies
and expertise of our people. The principal businesses in which we are involved
are:
The
market knowledge we develop in our services and capital markets businesses
helps
us identify investment opportunities and capital sources for our money
management clients. Consistent with our fiduciary responsibilities, the
investments we make or structure on behalf of our money management clients
help
us identify new business opportunities for our services and capital markets
businesses.
To
prioritize our strategic investments, in early 2005 we identified five strategic
priorities for continued growth which, collectively, we refer to as the Global
Five Priorities, or the “G5.” We have initiated a five-year program designed to
invest capital and resources that will maintain and extend our global leadership
positions in the G5, which we define as follows:
G1:
Local
and regional service operations. Our strength in local and regional markets
determines the strength of our global service capabilities. Our financial
performance also depends, in great part, on the business we source and execute
locally in more than 100 markets around the world.
G2:
Global Corporate Solutions. The accelerating trends of globalization and the
outsourcing of real estate services by corporate occupiers support our decision
to emphasize a truly global Corporate Solutions business to serve their needs
comprehensively. This service delivery capability helps us create new client
relationships. In addition, current corporate clients are demanding
multi-regional capabilities.
G3:
Global Capital Markets. Our focus on the further development of our global
Capital Markets service delivery capability reflects increasing international
cross-border money flows to real estate, and by the accelerated global marketing
of assets that has resulted.
G4:
LaSalle Investment Management. With a truly integrated global platform, our
LaSalle Investment Management business is already well positioned to serve
institutional real estate investors looking for attractive opportunities around
the world. Our continued investment in LaSalle’s ability to develop and offer
new products quickly, and to extend its portfolio capabilities into promising
new markets, is intended to enhance that position.
G5:
World-standard business operations. To gain maximum benefit from our other
priorities, we must have superior operating and support procedures and processes
to serve our clients and support our people. Our goal is to equip our people
with the knowledge and risk management tools and other infrastructure resources
they need to create sustainable value for our clients.
We
committed resources to all G5 priorities during 2005, and intend to continue
to
do so throughout 2006, as well. By continuing to invest in our future based
on
our view of how our strengths can support the needs of our clients, we intend
to
further grow our business and to maintain and expand our position as an industry
leader in the process.
Businesses
Local
Market Services
The
services we offer to real estate investors in local markets around the world
range from client-critical best practice process services (such as property
management) to sophisticated and complex transactional services (such as
leasing) that maximize real estate values. The skill set required to succeed
in
this environment includes financial knowledge coupled with the delivery of
market and property operating organizations, ongoing technology investment
and
strong cash controls as the business is a fiduciary for client funds. The
revenue streams associated with process services have annuity characteristics
and tend to be less impacted by underlying economic conditions. The revenue
stream associated with the sophisticated and complex transactional services
is
generally transaction-specific and conditioned upon the successful completion
of
the transaction. We compete in this area with traditional real estate and
property firms. We differentiate ourselves on the basis of qualities such as
our
local presence aligned with our global platform, our research capability, our
technology platform and our ability to innovate by way of new products and
services.
Occupier
Services
Our
occupier services product offerings have leveraged our local market real estate
services into best practice operations and process capabilities that we offer
to
corporate clients. The value added for these clients is the transformation
of
their real estate assets into an integral part of their core business
strategies, delivered at more effective cost. The Firm’s client relationship
focus drives our business success, as delivery of one product successfully
sells
the next and subsequent services. The skill set required to succeed in this
environment includes financial and project management, and for some products,
more technical skills such as engineering. We compete in this area with
traditional real estate and property firms.
We
differentiate ourselves on the basis of qualities that include our integrated
global platform, our research capability, our technology platform and our
ability to innovate through best practice products and services. Our strong
strategic focus also provides a highly effective point of differentiation from
our competitors. We have seen the demand for coordinated multi-national occupier
services by global corporations increase, and we expect this trend to continue
as these businesses refocus on core competencies. Consequently, we are focused
on continuing to enhance our ability to deliver our services across all
geographies globally in a seamless and coordinated fashion that best leverages
our expertise for our clients’ benefit.
Capital
Markets
Our
capital markets product offerings include institutional property sales and
acquisitions, real estate financings, private equity placements, portfolio
advisory activities, and corporate finance advice and execution. The skill
set
required to succeed in this environment includes knowledge of real estate value
and financial knowledge coupled with delivery of local market expertise as
well
as connections across geographic borders. Our investment banking services
require client relationship skills and consulting capabilities as we act as
our
client’s trusted advisor. The level of demand for these services is impacted by
general economic conditions. Our fee structure is generally transaction-specific
and conditioned upon the successful completion of the transaction. We compete
with consulting and investment banking firms for corporate finance and capital
markets transactions. We differentiate ourselves on the basis of qualities
such
as our global platform, our research capability, our technology platform and
our
ability to innovate as demonstrated through the creation of new products and
services.
Because
of the success we have had with our capital markets business, particularly
in
Europe and also with our global Hotels business, and because we expect the
trans-border flow of real estate investments to remain strong, we are focused
on
enhancing our ability to provide capital markets services in an increasingly
global fashion. This success leverages our regional market knowledge for clients
who seek to benefit from a truly global capital markets platform.
Money
Management
LaSalle
Investment Management provides money management services for large institutions,
both in specialized funds and separate account vehicles, as well as for managers
of institutional and, increasingly, retail real estate funds. Investing money
on
behalf of clients requires not just asset selection, but also asset value
activities that enhance the asset’s performance. The skill set required to
succeed in this environment includes knowledge of real estate values, such
as
opportunity identification (research), individual asset selection
(acquisitions), asset value creation (portfolio management) and investor
relations. Our competitors in this area tend to be investment banks, fund
managers and other financial services firms. They commonly lack the
"on-the-ground" real estate expertise that our global market presence provides.
We
are
compensated for our services through a combination of recurring advisory fees
that are asset-based, together with incentive fees based on underlying
investment return to our clients, which are generally recognized when agreed
upon events or milestones are reached, and equity earnings realized at the
exit
of individual investments within funds. We have been successful in transitioning
the mix of our fees for this business to advisory fee revenue which acts more
like an annuity. We also have increasingly been seeking to form alliances with
distributors of real estate investment funds to retail clients where we provide
the real estate investment expertise. As a result of such efforts, we have
been
successful in attracting approximately $2.0 billion to these funds, which exist
in all three global regions. Additionally, our strengthened balance sheet and
continued cash generation position us for expansion in co-investment activity,
which we believe will accelerate our growth in assets under
management.
Summary
of Critical Accounting Policies and Estimates
An
understanding of our accounting policies is necessary for a complete analysis
of
our results, financial position, liquidity and trends. See Note 1 of notes
to
consolidated financial statements for a summary of our significant accounting
policies.
The
preparation of our financial statements requires management to make certain
critical accounting estimates that impact the stated amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the
financial statements, and the reported amount of revenues and expenses during
the reporting periods. These accounting estimates are based on management’s
judgment and are considered to be critical because of their significance to
the
financial statements and the possibility that future events may differ from
current judgments, or that the use of different assumptions could result in
materially different estimates. We review these estimates on a periodic basis
to
ensure reasonableness. Although actual amounts likely differ from such estimated
amounts, we believe such differences are not likely to be
material.
Interim
Period Accounting for Incentive Compensation
An
important part of our overall compensation package is incentive compensation,
which is typically paid out to 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 the percentage of revenue and compensation costs recorded
to date relative to forecasted revenue and compensation costs for the full
year,
as substantially all incentive compensation pools are based upon full year
revenues and profits. As noted in “Interim Information” of Note 1 of the notes
to the consolidated financial statements, quarterly revenues and profits for
the
first three quarters of the year are substantially lower than in the fourth
quarter of the year. The impact of this incentive compensation accrual
methodology is that we accrue smaller percentages of incentive compensation
in
each of the first three quarters of the year, compared to the percentage of
our
incentive compensation accrued in the fourth quarter. We adjust the incentive
compensation accrual in those unusual cases where earned incentive compensation
has been paid to employees. Incentive compensation pools that are not subject
to
the normal performance criteria are excluded from the standard accrual
methodology and accrued for on a straight-line basis.
Certain
employees receive a portion of their incentive compensation in the form of
restricted stock units of our common stock. We recognize this compensation
over
the vesting period of these restricted stock units, which has the effect of
deferring a portion of incentive compensation to later years. We recognize
the
benefit of deferring certain compensation under the stock ownership program
in a
manner consistent with the accrual of the underlying incentive compensation
expense.
Given
that individual incentive compensation awards are not finalized until after
year-end, we must estimate the portion of the overall incentive compensation
pool that will qualify for this program. This estimation factors in the
performance of the Company and individual business units, together with the
target bonuses for qualified individuals. Then, when we determine, announce
and
pay incentive compensation in the first quarter of the year following that
to
which the incentive compensation relates, we true-up the estimated stock
ownership program deferral and related amortization.
The
table
below sets forth the deferral estimated at 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, 2005
|
|
December
31, 2004
|
|
|
|
|
|
|
|
Deferral
of compensation, net of related amortization expense
|
|
$
|
15.8
|
|
|
10.2
|
|
Decrease
to deferred compensation in the first quarter
of
the following year
|
|
|
(0.3
|
)
|
|
(0.9
|
)
|
The
table
below sets forth the amortization expense related to the stock ownership program
for the three months ended March 31, 2006 and 2005 ($ in millions):
|
|
Three
Months Ended
|
|
Three
Months Ended
|
|
|
|
March
31, 2006
|
|
March
31, 2005
|
|
|
|
|
|
|
|
Current
compensation expense amortization for prior year programs
|
|
$
|
4.6
|
|
|
3.2
|
|
Current
deferral net of related amortization
|
|
|
(3.6
|
)
|
|
(1.0
|
)
|
Accounting
for Self-insurance Programs
In
our
Americas business, and in common with many other American companies, we have
chosen to retain certain risks regarding health insurance and workers’
compensation rather than purchase third-party insurance. Estimating our exposure
to such risks involves subjective judgments about future developments. We engage
the services of an independent actuary on an annual basis to assist us in
quantifying our potential exposure. Additionally, we supplement our traditional
global insurance program by the use of a captive insurance company to provide
professional indemnity 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
engage an actuary who specializes in health insurance to estimate our likely
full-year cost at the beginning of the year and expense this cost on a
straight-line basis throughout the year. In the fourth quarter, we employ the
same actuary to estimate the required reserve for unpaid health costs we would
need at year-end.
Given
the
nature of medical claims, it may take up to 24 months for claims to be processed
and recorded. The reserve balances for the programs related to 2006 and 2005
are
$5.6 million and $0.7 million, respectively, at March 31, 2006.
The
table
below sets out certain information related to the cost of this program for
the
three months ended March 31, 2006 and 2005 ($ in millions):
|
|
Three
Months Ended
|
|
Three
Months Ended
|
|
|
|
March
31, 2006
|
|
March
31, 2005
|
|
|
|
|
|
|
|
Expense
to company
|
|
$
|
3.3
|
|
|
2.6
|
|
Employee
contributions
|
|
|
0.9
|
|
|
0.6
|
|
Total
program cost
|
|
$
|
4.2
|
|
|
3.2
|
|
•
Workers’
Compensation Insurance - Given our belief, based on historical experience,
that
our workforce has experienced lower costs than is normal for our industry,
we
have been self-insured for worker’s compensation insurance for a number of
years. We purchase stop loss coverage to limit our exposure to large, individual
claims. On a periodic basis we accrue using various state rates based on job
classifications. On an annual basis in the third quarter, we engage an
independent actuary who specializes in workers’ compensation to estimate our
exposure based on actual experience. Given the significant judgmental issues
involved in this evaluation, the actuary provides us a range of potential
exposure and we reserve within that range. We accrue for the estimated
adjustment to revenues for the differences between the actuarial estimate and
our reserve on a periodic basis. The credit taken to revenue through the three
months ended March 31, 2006 and 2005 was $0.7 million and $0.5 million,
respectively.
The
reserves, which can relate to multiple years, were $7.5 million and $7.3
million, as of March 31, 2006 and March 31, 2005 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 insurance coverage on a “claims made” basis. The level of
risk retained by our captive is up to $2.5 million per claim (dependent upon
location) 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 No. 5, “Accounting for Contingencies” (“SFAS
5”).
The
reserves estimated and accrued in accordance with SFAS 5, which relate to
multiple years, were $13.2 million and $10.9 million, as of March 31, 2006
and
December 31, 2005, respectively.
Income
Taxes
We
account for income taxes under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences of
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and of operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
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 it is probable that they will be
successful, 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 25.9% for 2006. 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
months ended March 31, 2005, we used an effective tax rate of 25.4%; we
ultimately achieved an effective tax rate of 25.9% for the year ended December
31, 2005.
Items
Affecting Comparability
Restructuring
Charges
See
Note
3 to notes to consolidated financial statements for a discussion of
restructuring charges (credits).
LaSalle
Investment Management Revenues
Our
money
management business is in part compensated through the receipt of incentive
fees
where performance of underlying funds’ investments exceeds agreed-to benchmark
levels. Depending upon performance and the contractual timing of measurement
periods with clients, these fees can be significant and vary substantially
from
period to period. In the second quarter of 2006, the Firm is contractually
due a
significant gross incentive fee of approximately $60 million from a single
client, which will contribute a net operating margin, after the deduction of
all
related expenses including compensation, of approximately 40 percent. The fee
is
larger than usual due to the eight-year contractual measurement period, as
well
as outstanding performance execution by the Firm. The actual amount of the
fee
will not be finalized until after the end of the second quarter and may increase
or decrease based on required external valuations.
“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 2 to notes to consolidated
financial statements and is discussed further in Segment Operating Results
included herein.
Foreign
Currency
We
operate in a variety of currencies, but report our results in U.S. dollars,
which means that our reported results may be positively or negatively impacted
by the volatility of currencies against the U.S. dollar. This volatility makes
it more difficult to perform period-to-period comparisons of the reported U.S.
dollar results of operations, as such results would demonstrate an apparent
growth rate that would not have been consistent with the real underlying growth
rate in the local operations.
In
order
to provide more meaningful period-to-period comparisons of the reported results
of operations in our discussion and analysis of financial condition and results
of operations, we have provided information about the impact of foreign
currencies where we believe that it is necessary. In addition, we set out below
information as to the key currencies in which the Company does business and
their significance to reported revenues and operating results. The operating
results sourced in U.S. dollars and pounds sterling understate the profitability
of the businesses in the United States and the United Kingdom because they
include the locally incurred expenses of our global office in Chicago and the
European regional office in London. The revenues and operating income of the
global investment management business are allocated to their underlying
currency, which means that this analysis may not be consistent with the
performance of the geographic IOS segments. In particular, as incentive fees
are
earned by this business, there may be significant shifts in the geographic
mix
of revenues and operating income.
The
following table sets forth revenues and operating income (loss) derived from
our
most significant currencies ($ in millions, except for exchange
rates).
|
|
Pounds
Sterling
|
|
Euro
|
|
Australian
Dollar
|
|
U.S.
Dollar
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1,
2006
|
|
$
|
57.7
|
|
|
52.1
|
|
|
21.3
|
|
|
152.7
|
|
|
53.3
|
|
|
337.1
|
|
Q1,
2005
|
|
|
52.1
|
|
|
37.4
|
|
|
19.9
|
|
|
81.9
|
|
|
48.9
|
|
|
240.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1,
2006
|
|
$
|
(8.4
|
)
|
|
6.9
|
|
|
(0.6
|
)
|
|
8.2
|
|
|
2.6
|
|
|
8.7
|
|
Q1,
2005
|
|
|
0.4
|
|
|
(3.3
|
)
|
|
(0.7
|
)
|
|
(8.9
|
)
|
|
2.2
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
exchange rates (U.S. dollar equivalent of one foreign currency
unit)
|
|
Q1,
2006
|
|
|
1.753
|
|
|
1.203
|
|
|
0.739
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Q1,
2005
|
|
|
1.890
|
|
|
1.311
|
|
|
0.777
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Seasonality
Historically,
our revenue, operating income and net earnings in the first three calendar
quarters are substantially lower than in the fourth quarter. Other than for
our
Investment Management segment, this seasonality is due to a calendar-year-end
focus on the completion of real estate transactions, which is consistent with
the real estate industry generally. Our Investment Management segment earns
performance fees on clients’ returns on their real estate investments. Such
performance fees are generally earned when assets are sold, the timing of which
is geared towards the benefit of our clients. 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 March 31, 2006 and 2005 are not indicative of the results to
be
obtained for the full fiscal year.
Results
of Operations
Reclassifications
During
the third quarter of 2005, we reclassified certain charges (credits) presented
within “Restructuring charges (credits)” in prior quarters for inclusion within
“Compensation and benefits” or “Operating, administrative and other” expenses.
Such reclassifications had no impact on consolidated total operating expenses
or
operating income (loss).
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 2 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 2) measures segment results with “Equity in
earnings (losses) from real estate ventures” included in segment
revenues.
Three
Months Ended March 31, 2006 Compared to Three Months Ended March 31,
2005
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).
|
|
2006
|
|
2005
|
|
Increase
(Decrease) in
U.S. Dollars
|
|
%
Change in Local Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
337.1
|
|
$
|
240.2
|
|
$
|
96.9
|
|
|
40
|
%
|
|
46
|
%
|
Compensation
and benefits
|
|
|
231.2
|
|
|
172.2
|
|
|
59.0
|
|
|
34
|
%
|
|
40
|
%
|
Operating,
administrative and other
|
|
|
87.7
|
|
|
70.0
|
|
|
17.7
|
|
|
25
|
%
|
|
31
|
%
|
Depreciation
and amortization
|
|
|
10.0
|
|
|
8.3
|
|
|
1.7
|
|
|
20
|
%
|
|
24
|
%
|
Restructuring
credits
|
|
|
(0.5
|
)
|
|
—
|
|
|
(0.5
|
)
|
|
n.m.
|
|
|
n.m.
|
|
Total
operating expenses
|
|
|
328.4
|
|
|
250.5
|
|
|
77.9
|
|
|
31
|
%
|
|
37
|
%
|
Operating
income (loss)
|
|
$
|
8.7
|
|
|
($
10.3
|
)
|
$
|
19.0
|
|
|
n.m.
|
|
|
n.m.
|
|
(n.m.
-
not meaningful)
Revenue
All
operating segments achieved strong increases in revenue in the first quarter
of
2006 compared with the same period of the prior year. Revenues for the first
quarter of 2006 were $337.1 million, an increase of $96.9 million, or 40 percent
in U.S. dollars and 46 percent in local currencies. Spaulding & Slye,
acquired January 3, 2006, contributed approximately eight percent to the
year-over-year increase.
Operating
Expenses
Operating
expenses were $328.4 million for the first quarter of 2006 compared with $250.5
million for the same period in 2005, an increase of 31 percent in U.S. dollars
and 37 percent in local currencies. The increase was driven in part by the
January 2006 acquisition of Spaulding & Slye, as well as increased
compensation costs related to revenue generation activities.
Interest
Expense
Interest
expense of $3.2 million for the first quarter of 2006 was significantly higher
than the $0.3 million incurred for the same period in 2005, as the debt balance
was higher in 2006 to finance the Spaulding & Slye acquisition and interest
rates were higher compared with a year ago.
Provision
for Income Taxes
The
current-quarter tax provision of $1.2 million reflects a 25.9% effective tax
rate, which is consistent with our full year 2005 effective tax rate and
reflects our expected full year 2006 effective tax rate as a result of the
continued discipline of management of the global tax position. The prior-year
tax benefit of $2.9 million reflected a 25.4% effective tax rate.
Net
Income (Loss)
Net
income of $4.6 million for the first quarter of 2006 represents significant
improvement over the $8.6 million net loss for the same period last year.
Included
in the 2006 first quarter results was a $1.2 million, or $0.04 earnings per
share, benefit from a cumulative effect adjustment for a change in accounting
for stock-based compensation, which was triggered by the adoption of SFAS 123R,
"Share-Based Payment," effective January 1, 2006. The
adjustment represents the after-tax difference between compensation cost
recognized through December 31, 2005 using actual forfeitures and the cost
that
would have been recognized using estimated forfeitures as required pursuant
to
SFAS 123R.
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"):
The
Investment Management segment provides money management services to
institutional investors and high-net-worth individuals. Each geographic region
offers our full range of Investor Services, Capital Markets and Occupier
Services. The IOS business consists primarily of tenant representation and
agency leasing, capital markets and valuation services (collectively
"transaction services") and property management, facilities management, and
project and development management services (collectively "management
services").
We
have
not allocated “Restructuring charges (credits)” to the business segments for
segment reporting purposes; therefore, these costs are not included in the
discussions below. Also, we continue to show “Equity in earnings (losses) from
real estate ventures” within our revenue line for segment reporting, especially
since it is a very integral part of our Investment Management
segment.
Investor
and Occupier Services
Americas
|
|
2006
|
|
2005
|
|
Increase
(Decrease)
|
|
Revenue
|
|
$
|
113.3
|
|
$
|
73.9
|
|
$
|
39.4
|
|
|
53
|
%
|
Operating
expense
|
|
|
114.1
|
|
|
78.9
|
|
|
35.2
|
|
|
44
|
%
|
Operating
loss
|
|
|
($
0.8
|
)
|
|
($
5.0
|
)
|
$
|
4.2
|
|
|
(86
|
%)
|
In
the
Americas, revenues for the first quarter of 2006 were $113.3 million, an
increase of 53 percent over the same period in 2005. The growth is the result
of
the acquisition of Spaulding & Slye, as well as effective execution within
an improving market. Revenues excluding the Spaulding & Slye acquisition
were up 29 percent.
In
the
fourth quarter of 2005, the region reorganized part of its operations to focus
on “Markets” and “Accounts.” The goal of the Markets organization is to maximize
the Firm’s local competitive position in its targeted markets. The Accounts
organization focus is on service delivery and strategic advice to
multi-geographic corporate clients. Capital Markets, Public Institutions, Retail
and Regional Operations (Canada and Latin America) remain separate Americas
product lines.
Revenues
were strong in both the Markets and Accounts organizations, which include
Spaulding & Slye, and in aggregate increased 53 percent in the first quarter
of 2006 compared with the prior year. Transaction revenues were up 78 percent
due to a significant number of large transactions that closed in the first
quarter as compared with the prior year, while Management services were up
38
percent due to the growth of project and development management services.
Regional Operations also had a strong first quarter in 2006 compared with the
prior year, where revenues increased 50 percent in total primarily driven by
Latin America.
Capital
Markets, recorded as transaction services revenues, continued its strong
performance compared with the prior year, as 2006 first-quarter revenues
increased 42 percent over 2005. Revenues in the Americas Hotels business more
than doubled, resulting from several large transactions closed in the quarter
and the impact of the acquisition of a select service hotel real estate broker
and advisory firm completed in the second quarter of 2005.
Total
operating expenses increased 44 percent over the prior year as the result of
the
Spaulding & Slye acquisition and higher compensation costs associated with
revenue-generating activities.
Europe
|
|
2006
|
|
2005
|
|
Increase(Decrease)
in
U.S. dollars
|
|
%
Change in Local Currencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
103.3
|
|
$
|
85.1
|
|
$
|
18.2
|
|
|
22
|
%
|
|
32
|
%
|
Operating
expense
|
|
|
108.2
|
|
|
93.1
|
|
|
15.1
|
|
|
16
|
%
|
|
26
|
%
|
Operating
loss
|
|
|
($
4.9
|
)
|
|
($
8.0
|
)
|
$
|
3.1
|
|
|
39
|
%
|
|
37
|
%
|
Europe’s
revenues for the first quarter of 2006 were $103.3 million, an increase of
22
percent in U.S. dollars and 32 percent in local currencies over the same period
in 2005. Transaction services revenue was up 34 percent over the prior year,
driven by Capital Markets, agency leasing and advisory services.
Geographic
contributions to this revenue growth were primarily from Germany, France and
the
United Kingdom. Germany’s real estate investment market continued to improve
with an increase in international capital flowing into the country. Revenues
in
Germany for the first quarter of 2006 grew 43 percent in U.S. dollars and 55
percent in local currencies compared with the same period of the prior year.
The
French business was up significantly as revenues increased over 100 percent
in
both U.S. dollars and local currencies. The English business continued its
momentum, with revenues up 14 percent in U.S. dollars and 24 percent in local
currencies.
Operating
expenses increased by 16 percent in U.S. dollars for the first quarter year
over
year and 26 percent in local currencies. The increase was primarily due to
higher incentive compensation resulting from improved revenue
performance.
Asia
Pacific
|
|
2006
|
|
2005
|
|
Increase(Decrease)
in
U.S. dollars
|
|
%
Change in Local Currencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
57.9
|
|
$
|
48.9
|
|
$
|
9.0
|
|
|
18
|
%
|
|
22
|
%
|
Operating
expense
|
|
|
58.6
|
|
|
50.7
|
|
|
7.9
|
|
|
15
|
%
|
|
19
|
%
|
Operating
loss
|
|
|
($
0.7
|
)
|
|
($
1.8
|
)
|
$
|
1.1
|
|
|
61
|
%
|
|
60
|
%
|
Revenues
for the Asia Pacific region were $57.9 million for the first quarter of 2006,
an
increase of 18 percent in U.S. dollars and 22 percent in local currencies over
the prior year. The growth in revenue in U.S. dollars came from both transaction
services revenues, which grew 15 percent, and from management services revenues,
which grew 19 percent due to the expansion of property and facility management
services. The growth markets of China, Japan, Korea and India experienced
healthy increases in revenue in the first quarter of 2006 compared with the
prior year. Revenues in total for these markets increased 38 percent in local
currencies, and 33 percent in U.S. dollars, led by China. The core markets
of
Hong Kong and Australia continued their momentum from 2005 with strong
performance across all business lines, with first quarter 2006 revenues
increasing 21 percent in U.S. dollars and 24 percent in local currencies over
the prior year.
Year-over-year
operating expenses for the Asia Pacific region for the first quarter of 2006
increased 15 percent in U.S. dollars, 19 percent in local currencies, primarily
as a result of the Firm’s investment in people and technology infrastructure in
the region. Market expansion with the opening of new offices across the region
also contributed to the increase in operating expenses.
Operating
income in the first quarter improved by $2.7 million on a comparable basis
with
the prior year, as the 2005 operating loss included a benefit of $1.6 million
received from a litigation settlement.
Investment
Management
|
|
2006
|
|
2005
|
|
Increase(Decrease)
in
U.S. dollars
|
|
%
Change in Local Currencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
62.8
|
|
$
|
32.5
|
|
$
|
30.3
|
|
|
93
|
%
|
|
101
|
%
|
Equity
losses
|
|
|
(1.1
|
)
|
|
(0.9
|
)
|
|
(0.2
|
)
|
|
(22
|
%)
|
|
(23
|
%)
|
Total
revenue
|
|
|
61.7
|
|
|
31.6
|
|
|
30.1
|
|
|
95
|
%
|
|
104
|
%
|
Operating
expense
|
|
|
48.2
|
|
|
28.0
|
|
|
20.2
|
|
|
72
|
%
|
|
80
|
%
|
Operating
income
|
|
$
|
13.5
|
|
$
|
3.6
|
|
$
|
9.9
|
|
|
n.m.
|
|
|
n.m.
|
|
(n.m.
-
not meaningful)
LaSalle
Investment Management’s first quarter revenues in 2006 were $61.7 million, an
increase of 95 percent over the 2005 first quarter. During the first quarter
of
2006, the Firm completed the acquisition of CenterPoint Properties Trust on
behalf of a joint venture in which the Firm has a minority interest with a
key
client. The acquisition resulted in both a large one-time fee recorded as
transaction revenue, as well as ongoing advisory fees.
Advisory
fees, which provide annuity-like revenue, were $38 million for the first quarter
of 2006, compared with $28 million in 2005, an increase of 35 percent over
the
prior year. The growth in advisory fees is driven by the continued strong growth
in assets under management.
For
the
first quarter of 2006, incentive fees were $13.5 million, an increase of $11.2
million over the prior year. These fees were earned on the final disposition
of
assets, completing the liquidation of two funds. Incentive fees vary
significantly from period to period and are determined by both the performance
of the underlying funds’ investments and the contractual timing of the
measurement period with clients. In the second quarter of 2006, the firm is
contractually due a significant gross incentive fee of approximately $60 million
from a single client, which will contribute a net operating margin, after the
deduction of all related expenses including compensation, of approximately
40
percent. The fee is larger than usual due to the eight-year contractual
measurement period, as well as outstanding performance execution by the firm.
The actual amount of the fee will not be finalized until after the end of the
second quarter and may increase or decrease based on required external
valuations.
LaSalle
Investment Management’s assets under management grew to $34 billion at the end
of the first quarter of 2006, including the CenterPoint acquisition. Total
investments made during the first quarter of 2006 on behalf of clients,
including the CenterPoint acquisition, were $4.9 billion.
Performance
Outlook
The
Firm
experienced strong growth across all segments in the first quarter as a result
of effective execution, favorable market conditions, and performance on the
Firm’s strategic initiatives. These initiatives include the completion of
acquisitions in the Americas and LaSalle Investment Management, the
organizational change in the Americas and strategic investments made in 2005.
As
the Firm also continues to benefit from its globally diverse business platform
and the continued strength of the real estate markets, we believe it is
well-positioned for the remainder of the year.
Consolidated
Cash Flows
Cash
Flows From Operating Activities
During
the three months ended March 31, 2006, cash flows used in operating activities
totaled $87.0 million compared to $86.8 million in the first quarter of 2005.
The cash flows from operating activities can be further divided into $25.3
million of cash generated from earnings (compared to $7.9 million in 2005)
and
$112.3 million of cash flows from changes in working capital (compared to $94.7
million in 2005). The $17.6 million increase in cash flows from changes in
working capital in the current year is primarily due the change in receivables
balances from December 2005 to March 2006 being $20.5 million lower than the
change in receivables balances from December 2004 to March 2005. The relative
increase in receivables as of March 31, 2006 is a result of increased revenue
activity across all segments in the first quarter of 2006 compared to the first
quarter of 2005.
Cash
Flows From Investing Activities
We
used
$159.3 million of cash in investing activities in the first quarter of 2006,
which was an increase in cash used of $151.5 million from the $7.8 million
used
in investing activities in the first three months of 2005. The increase in
cash
used is principally due to the Spaulding & Slye acquisition.
Cash
Flows From Financing Activities
Financing
activities provided $248.2 million of net cash in the first three months of
2006
compared with $92.4 million in the same period of 2005. The significant increase
in cash provided by financing activities from 2005 was driven by $204.1 million
more in borrowings in the current year, largely to pay for the Spaulding &
Slye acquisition and for incentive compensation in 2006 relative to 2005
performance in excess of what was borrowed to pay such compensation in 2005
relative to 2004 activity. The additional borrowings were partially offset
by
$58.1 million more of debt repayments in the first three months of 2006 compared
to the same period in 2005.
Liquidity
and Capital Resources
Historically,
we have financed our operations, acquisitions and co-investment activities
with
internally generated funds, our common stock and borrowings under our credit
facilities. On March 1, 2006, we renegotiated our unsecured revolving credit
facility, increasing the facility to $450 million and extending the term to
March 2011. We also have capacity to borrow up to an additional $37.2 million
under local overdraft facilities. Pricing on the $450 million facility ranges
from LIBOR plus 55 basis points to LIBOR plus 130 basis points. As of March
31,
2006, our pricing on the revolving credit facility was LIBOR plus 55 basis
points. This facility will continue to be utilized for working capital needs,
investments, capital expenditures, and acquisitions. Interest and principal
payments on outstanding borrowings against the facility will fluctuate based
on
our level of borrowing needs.
As
of
March 31, 2006, we had $267.5 million outstanding under the revolving credit
facility. The average borrowing rate on the revolving credit agreement was
5.0%
in the first quarter of 2006, as compared with an average borrowing rate of
4.1%
in the first quarter of 2005. We also had short-term borrowings (including
capital lease obligations) of $14.6 million outstanding at March 31, 2006,
with
$14.5 million of those borrowings attributable to local overdraft
facilities.
With
respect to the revolving credit facility, we must maintain a consolidated net
worth of at least $450 million, a leverage ratio not exceeding 3.25 to 1, and
a
minimum interest coverage ratio of 2.5 to 1. Additionally, we are restricted
from, among other things, incurring certain levels of indebtedness to lenders
outside of the facility and disposing of a significant portion of our assets.
Lender approval or waiver is required for certain levels of co-investment and
acquisition. We are in compliance with all covenants as of March 31, 2006.
The
revolving credit facility bears variable rates of interest based on market
rates. We are authorized to use interest rate swaps to convert a portion of
the
floating rate indebtedness to a fixed rate; however, none were used during
2005
or the first three months of 2006, and none were outstanding as of March 31,
2006.
We
believe that the revolving credit facility, together with local borrowing
facilities and cash flow generated from operations will provide adequate
liquidity and financial flexibility to meet our needs to fund working capital,
capital expenditures, co-investment activity, share repurchases and dividend
payments.
With
respect to our co-investment activity, we had total investments and loans of
$86.5 million as of March 31, 2006 in approximately 25 separate property or
fund
co-investments. Within this $86.5 million, loans of $3.4 million to real estate
ventures bear interest rates ranging from 7.25% to 8.0% and are to be repaid
by
2008.
LaSalle
Investment Company I (“LIC I”), formerly referred to as LaSalle Investment
Limited Partnership, 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. LaSalle Investment Company II (“LIC II”), formed
in January 2006, is comprised of two parallel limited partnerships which serve
as our investment vehicle for substantially all new co-investments. 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 48.72% ownership interest in LIC II; primarily institutional investors
hold the remaining 52.15% and 51.28% interests in LIC I and LIC II,
respectively. Our investments in LIC I and LIC II are accounted for 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.
At
March
31, 2006, LIC I and LIC II have unfunded capital commitments of $170.2 million
and $49.0 million, respectively, of which our 47.85% and 48.72% shares are
$81.4
million and $23.9 million, respectively, for future fundings of co-investments.
These $81.4 million and $23.9 million commitments are part of our maximum
potential unfunded commitments to LIC I and LIC II at March 31, 2006, which
are
euro 88.5 million ($107.2 million) and $285.0 million,
respectively.
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 that LIC
II
will draw down on our commitment over the next six 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 investment products
in
LIC II. The purpose is to accelerate capital raising and growth in assets under
management. Approvals for such activity are handled consistently with those
of
the firm’s co-investment capital.
As
of
March 31, 2006, LIC I maintains a euro 35 million ($42.4 million) revolving
credit facility (the "LIC I Facility"), and LIC II maintains a $200 million
revolving credit facility (the "LIC II Facility"), principally for their working
capital needs. The capacity in the LIC II Facility contemplates potential bridge
financing opportunities. Each facility contains a credit rating trigger (related
to the credit ratings of one of LIC I’s investors and one of LIC II’s investors,
who are unaffiliated with Jones Lang LaSalle) and a material adverse condition
clause. If either of the credit rating trigger or the material adverse condition
clause becomes triggered, the facility to which that condition relates would
be
in default and 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 16.7 million
($20.3 million); assuming that the LIC II Facility were fully drawn, the maximum
exposure to Jones Lang LaSalle would be $97.4 million. Each exposure is included
within and cannot exceed our maximum potential unfunded commitments to LIC
I of
euro 88.5 million ($107.2 million) and to LIC II of $285.0 million discussed
above. As of March 31, 2006, LIC I had euro 7.4 million ($9.0 million) of
outstanding borrowings on the LIC I Facility, and LIC II had $58.7 million
of
outstanding borrowings on the LIC II Facility.
Exclusive
of our LIC I and LIC II commitment structures, we have unfunded commitments
to
other real estate ventures of $3.3 million at March 31, 2006.
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 2006 is anticipated to be between $50 and $60 million
(planned co-investment less return of capital from liquidated co-investments).
We
repurchased 124,900 shares in the first three months of 2006 at an average
price
of $68.47 per share under a share repurchase program approved by our Board
of
Directors on September 15, 2005. Under our current share repurchase program,
we
are authorized to repurchase up to 2,000,000 shares, of which 744,100 total
shares have been repurchased through March 31, 2006. The repurchase of shares
is
primarily intended to offset dilution resulting from both stock and stock option
grants made under our existing stock plans. Given that shares repurchased under
each of the programs are not cancelled, but are held by one of our subsidiaries,
we include them in our equity account. However, these shares are excluded from
our share count for purposes of calculating earnings per share. We have
repurchased a total of 4,072,651 shares since the first repurchase program
approved by our Board of Directors on October 30, 2002.
The
Company announced on April 19, 2006 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 June 15, 2006 to holders of record at the close of
business on May 15, 2006. The current dividend plan approved by the Board
anticipates a total annual dividend of $0.50 per common share, however there
can
be no assurance that future dividends will be declared since the actual
declaration of future dividends, and the establishment of record and payment
dates, remains subject to final determination by the Company's Board of
Directors.
Item
3.
Quantitative and Qualitative Disclosures About Market
Risk
Market
and Other Risk Factors
Market
Risk
The
principal market risks (namely, the risk of loss arising from adverse changes
in
market rates and prices) to which we are exposed are:
•
|
Interest
rates on our multi-currency credit facility;
and
|
In
the
normal course of business, we manage these risks through a variety of
strategies, including the use of hedging transactions using various derivative
financial instruments such as foreign currency forward contracts. We enter
into
derivative instruments with high credit quality counterparties and diversify
our
positions across such counterparties in order to reduce our exposure to credit
losses. We do not enter into derivative transactions for trading or speculative
purposes.
Interest
Rates
We
centrally manage our debt, considering investment opportunities and risks,
tax
consequences and overall financing strategies. We are primarily exposed to
interest rate risk on our revolving multi-currency credit facility that is
available for working capital, investments, capital expenditures and
acquisitions. Our average outstanding borrowings under the revolving credit
facility were $195.6 million during the three months ended March 31, 2006,
and
the effective interest rate on that facility was 5.0%. As of March 31, 2006,
we
had $267.5 million outstanding under the revolving credit facility. This
facility bears a variable rate of interest based on market rates. The interest
rate risk management objective is to limit the impact of interest rate changes
on earnings and cash flows and to lower the overall borrowing costs. To achieve
this objective, in the past we have entered into derivative financial
instruments such as interest rate swap agreements when appropriate and may
do so
in the future. We entered into no such agreements in 2005 or the first three
months of 2006, and we had no such agreements outstanding at March 31,
2006.
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 55% and 66% of our total revenues for the three months ended
March 31, 2006 and 2005, respectively. Operating in international markets means
that we are exposed to movements in foreign exchange rates, primarily the
British pound (17% of revenues for the three months ended March 31, 2006) and
the euro (15% of revenues for the three months ended March 31, 2006).
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 March 31, 2006, we had forward
exchange contracts in effect with a gross notional value of $301.4 million
($289.1 million on a net basis) with a market and carrying gain of $0.8 million.
The carrying gain is offset by a carrying loss in associated intercompany loans
such that the net impact to earnings is not significant.
Disclosure
of Limitations
As
the
information presented above includes only those exposures that exist as of
March
31, 2006, it does not consider those exposures or positions which could arise
after that date. The information represented herein has limited predictive
value. As a result, the ultimate realized gain or loss with respect to interest
rate and foreign currency fluctuations will depend on the exposures that arise
during the period, the hedging strategies at the time and interest and foreign
currency rates.
For
other
risk factors inherent in our business, see Item 1A. Risk Factors in our 2005
Annual Report on Form 10-K.
Jones
Lang LaSalle (the Company) has established disclosure controls and procedures
to
ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to the officers who certify the
Company’s financial reports and to the members of senior management and the
Board of Directors.
Under
the
supervision and with the participation of the Company’s management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of
the
end of the period covered by this report. There were no changes in the Company’s
internal control over financial reporting during the quarter ended March 31,
2006 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
Part
II
Item
1. Legal Proceedings
See
Note
8 of the notes to consolidated financial statements for discussion of the
Company’s legal proceedings.
Item
2. Share Repurchases
The
following table provides information with respect to approved share repurchase
programs for Jones Lang LaSalle:
|
|
Total
number of shares purchased
|
|
Average
price paid per share
(1)
|
|
Cumulative
number of shares purchased as part of publicly announced
plan
|
|
Shares
remaining to be purchased under
plan (2)
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2006 -January 31, 2006
|
|
|
1,186
|
|
$
|
49.63
|
|
|
620,386
|
|
|
1,379,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1, 2006 -February 28, 2006
|
|
|
50,000
|
|
$
|
68.08
|
|
|
670,386
|
|
|
1,329,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
1, 2006 -March
31, 2006
|
|
|
73,714
|
|
$
|
69.04
|
|
|
744,100
|
|
|
1,255,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
124,900
|
|
$
|
68.47
|
|
|
|
|
|
|
|
(1)
Total
average price paid per share is a weighted average for the three month
period.
(2)
Since
October 2002, our Board of Directors has approved four share repurchase
programs. Each succeeding program has replaced the prior repurchase program,
such that the program approved on September 15, 2005 is the only repurchase
program in effect as of March 31, 2006. Board approval allows for purchase
of
our outstanding common stock in the open market and in privately negotiated
transactions. The repurchase of shares is primarily intended to offset dilution
resulting from both stock and stock option grants made under our existing stock
plans. Given that shares repurchased under each of the programs are not
cancelled, but are held by one of our subsidiaries, we include them in our
equity account. However, these shares are excluded from our share count for
purposes of calculating earnings per share. The following table details the
activities for each of our approved share repurchase programs:
Repurchase
Plan Approval Date
|
|
Shares
Approved for
Repurchase
|
|
Shares
Repurchased through March 31, 2006
|
|
|
|
|
|
|
|
October
30, 2002
|
|
|
1,000,000
|
|
|
700,000
|
|
February
27, 2004
|
|
|
1,500,000
|
|
|
1,500,000
|
|
November
29, 2004
|
|
|
1,500,000
|
|
|
1,128,551
|
|
September
15, 2005
|
|
|
2,000,000
|
|
|
744,100
|
|
|
|
|
|
|
|
4,072,651
|
|
Item
5. Other Information
Corporate
Governance
Our
policies and practices reflect corporate governance initiatives that we believe
comply with the listing requirements of the New York Stock Exchange (NYSE),
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 (SEC) 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.”
Corporate
Officers
The
names
and titles of our corporate executive officers are as follows:
Global
Executive Committee
Colin
Dyer
Chief
Executive Officer and President
Lauralee
E. Martin
Executive
Vice President, Chief Operating and Financial Officer
Peter
A.
Barge
Chief
Executive Officer, Asia Pacific
Alastair
Hughes
Chief
Executive Officer, Europe
Peter
C.
Roberts
Chief
Executive Officer, Americas
Lynn
C.
Thurber
Chief
Executive Officer, LaSalle Investment Management
Additional
Global Corporate Officers
Brian
P.
Hake
Treasurer
James
S.
Jasionowski
Director
of Tax
David
A.
Johnson
Chief
Information Officer
Molly
A.
Kelly
Chief
Marketing and Communications Officer
Mark
J.
Ohringer
General
Counsel and Corporate Secretary
Marissa
R. Prizant
Director
of Internal Audit
Nazneen
Razi
Chief
Human Resources Officer
Stanley
Stec
Controller
Cautionary
Note Regarding Forward-Looking Statements
Certain
statements in this filing and elsewhere (such as in reports, other filings
with
the United States Securities and Exchange Commission, press releases,
presentations and communications by Jones Lang LaSalle or its management and
written and oral statements) regarding, among other things, future financial
results and performance, achievements, plans and objectives, dividend payments
and share repurchases may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which 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, 2005 in Item 1A. Risk Factors; Item
7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations; Item 7A. Quantitative and Qualitative Disclosures About Market
Risk;
Item 8. Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements; and elsewhere, (ii) in this Quarterly Report on Form
10-Q
in Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations; Item 3. Quantitative and Qualitative Disclosures About
Market Risk; and elsewhere, and (iii) the other reports we file with the United
States Securities and Exchange Commission. Important factors that could cause
actual results to differ from those in our forward-looking statements include
(without limitation):
|
•
|
The
effect of political, economic and market conditions and geopolitical
events;
|
|
•
|
The
logistical and other challenges inherent in operating in numerous
different countries;
|
|
•
|
The
actions and initiatives of current and potential
competitors;
|
|
•
|
The
level and volatility of real estate prices, interest rates, currency
values and other market indices;
|
|
•
|
The
outcome of pending litigation; and
|
|
•
|
The
impact of current, pending and future legislation and
regulation.
|
Moreover,
there can be no assurance that future dividends will be declared since the
actual declaration of future dividends, and the establishment of record and
payment dates, remain subject to final determination by the Company’s Board of
Directors.
Accordingly,
we caution our readers not to place undue reliance on forward-looking
statements, which speak only as of the date on which they are made. Jones Lang
LaSalle expressly disclaims any obligation or undertaking to update or revise
any forward-looking statements to reflect any changes in events or circumstances
or in its expectations or results.
Signature
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act
of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized, on the 9th day of May,
2006.
|
JONES
LANG LASALLE INCORPORATED
|
|
|
|
/s/
Lauralee E. Martin
|
|
By:
Lauralee
E. Martin
|
|
Executive
Vice President andChief
Operating and Financial Officer
|
|
(Authorized
Officer and Principal Financial
Officer)
|
|
|
Description
|
|
|
|
|
|
|
|
|
First
Amendment to the Jones Lang LaSalle Incorporated Deferred Compensation
Plan
|
|
|
|
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
*
Filed
herewith.
39