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 September 30, 2007
Or
o
Transition Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the
transition period from _____ to _____
Commission
File Number 1-13145
Jones
Lang LaSalle Incorporated
(Exact
name of registrant as specified in its charter)
Maryland
|
36-4150422
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
200
East Randolph Drive, Chicago,
|
IL
60601
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code:
312/782-5800
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the
Exchange Act).
Large
accelerated filer x
|
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
The
number of shares outstanding of the registrant’s common stock (par value $0.01)
as of the close of business on October 26, 2007 was 37,032,324 which includes
4,970,232 shares held by a subsidiary of the registrant.
Part
I
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|
Financial
Information
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Item
1.
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3
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3
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4
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5
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6
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7
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Item
2.
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19
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Item
3.
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30
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Item
4.
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31
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Part
II
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Other
Information
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Item
1.
|
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31
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Item
1A.
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31
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Item
2.
|
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32
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Item
5.
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33
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Item
6.
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36
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Part
I
|
Financial
Information
|
JONES
LANG LASALLE INCORPORATED
Consolidated
Balance Sheets
September
30, 2007 and December 31, 2006
($
in
thousands, except share data)
|
|
September 30, 2007
|
|
|
December 31,
|
|
Assets
|
|
(unaudited)
|
|
|
2006
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
48,172
|
|
|
|
50,612
|
|
Trade
receivables, net of allowances of $17,156 and $7,845
|
|
|
656,193
|
|
|
|
630,121
|
|
Notes
and other receivables
|
|
|
46,433
|
|
|
|
30,079
|
|
Prepaid
expenses
|
|
|
29,348
|
|
|
|
28,040
|
|
Deferred
tax assets
|
|
|
52,382
|
|
|
|
49,230
|
|
Other
assets
|
|
|
30,010
|
|
|
|
19,363
|
|
Total
current assets
|
|
|
862,538
|
|
|
|
807,445
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $193,116 and
$181,959
|
|
|
165,484
|
|
|
|
120,376
|
|
Goodwill,
with indefinite useful lives, net of accumulated amortization of
$39,649
and $38,701
|
|
|
617,748
|
|
|
|
520,478
|
|
Identified
intangibles, with finite useful lives, net of accumulated amortization
of
$66,257 and $58,594
|
|
|
40,055
|
|
|
|
37,583
|
|
Investments
in real estate ventures
|
|
|
134,076
|
|
|
|
131,789
|
|
Long-term
receivables, net
|
|
|
32,884
|
|
|
|
29,781
|
|
Deferred
tax assets
|
|
|
41,512
|
|
|
|
37,465
|
|
Other
assets, net
|
|
|
48,288
|
|
|
|
45,031
|
|
|
|
$ |
1,942,585
|
|
|
|
1,729,948
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
194,971
|
|
|
|
221,356
|
|
Accrued
compensation
|
|
|
470,731
|
|
|
|
514,586
|
|
Short-term
borrowings
|
|
|
34,520
|
|
|
|
17,738
|
|
Deferred
tax liabilities
|
|
|
2,245
|
|
|
|
1,426
|
|
Deferred
income
|
|
|
25,541
|
|
|
|
31,896
|
|
Other
current liabilities
|
|
|
44,661
|
|
|
|
43,444
|
|
Total
current liabilities
|
|
|
772,669
|
|
|
|
830,446
|
|
|
|
|
|
|
|
|
|
|
Credit
facilities
|
|
|
83,561
|
|
|
|
32,398
|
|
Deferred
tax liabilities
|
|
|
6,978
|
|
|
|
648
|
|
Deferred
compensation
|
|
|
49,937
|
|
|
|
30,668
|
|
Pension
liability
|
|
|
20,581
|
|
|
|
19,252
|
|
Deferred
business acquisition obligations
|
|
|
47,174
|
|
|
|
34,178
|
|
Other
noncurrent liabilities
|
|
|
43,254
|
|
|
|
31,978
|
|
Total
liabilities
|
|
|
1,024,154
|
|
|
|
979,568
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
10,236
|
|
|
|
—
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value per share, 100,000,000 shares authorized;
37,022,323
and 36,592,864 shares issued and outstanding
|
|
|
370
|
|
|
|
366
|
|
Additional
paid-in capital
|
|
|
664,791
|
|
|
|
676,270
|
|
Retained
earnings
|
|
|
396,234
|
|
|
|
255,914
|
|
Shares
held by subsidiary
|
|
|
(219,359 |
) |
|
|
(197,543 |
) |
Shares
held in trust
|
|
|
(1,894 |
) |
|
|
(1,427 |
) |
Accumulated
other comprehensive income
|
|
|
68,053
|
|
|
|
16,800
|
|
Total
shareholders’ equity
|
|
|
908,195
|
|
|
|
750,380
|
|
|
|
$ |
1,942,585
|
|
|
|
1,729,948
|
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Earnings
For
the Three and Nine Months Ended September 30, 2007 and
2006
($
in
thousands, except share data) (unaudited)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
624,151
|
|
|
|
462,317
|
|
|
|
1,790,291
|
|
|
|
1,309,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
412,920
|
|
|
|
313,711
|
|
|
|
1,174,842
|
|
|
|
863,326
|
|
Operating,
administrative and other
|
|
|
132,828
|
|
|
|
99,796
|
|
|
|
375,082
|
|
|
|
284,353
|
|
Depreciation
and amortization
|
|
|
13,893
|
|
|
|
11,523
|
|
|
|
38,828
|
|
|
|
31,877
|
|
Restructuring
credits
|
|
|
—
|
|
|
|
—
|
|
|
|
(411 |
) |
|
|
(670 |
) |
Operating
expenses
|
|
|
559,641
|
|
|
|
425,030
|
|
|
|
1,588,341
|
|
|
|
1,178,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
64,510
|
|
|
|
37,287
|
|
|
|
201,950
|
|
|
|
130,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net of interest income
|
|
|
4,378
|
|
|
|
4,112
|
|
|
|
10,046
|
|
|
|
11,799
|
|
Gain
on sale of investments
|
|
|
—
|
|
|
|
—
|
|
|
|
6,129
|
|
|
|
—
|
|
Equity
in earnings from real estate ventures
|
|
|
4,979
|
|
|
|
773
|
|
|
|
11,480
|
|
|
|
9,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes and minority interest
|
|
|
65,111
|
|
|
|
33,948
|
|
|
|
209,513
|
|
|
|
127,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
17,384
|
|
|
|
9,251
|
|
|
|
55,940
|
|
|
|
33,648
|
|
Minority
interest, net of tax
|
|
|
1,197
|
|
|
|
—
|
|
|
|
1,197
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before cumulative effect of change in accounting
principle
|
|
|
46,530
|
|
|
|
24,697
|
|
|
|
152,376
|
|
|
|
94,293
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
46,530
|
|
|
|
24,697
|
|
|
|
152,376
|
|
|
|
95,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders (Note 9)
|
|
$ |
46,530
|
|
|
|
24,697
|
|
|
|
151,704
|
|
|
|
94,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$ |
1.44
|
|
|
|
0.77
|
|
|
|
4.73
|
|
|
|
2.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
32,416,773
|
|
|
|
32,106,994
|
|
|
|
32,060,102
|
|
|
|
31,771,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$ |
1.38
|
|
|
|
0.73
|
|
|
|
4.50
|
|
|
|
2.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
33,610,782
|
|
|
|
33,751,054
|
|
|
|
33,701,963
|
|
|
|
33,319,566
|
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE
INCORPORATED
Consolidated
Statement of Shareholders’ Equity
For
the Nine Months Ended September 30, 2007
($
in
thousands, except share data) (unaudited)
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Retained
|
|
|
Shares
Held
by
|
|
|
Shares
Held
in
|
|
|
Accumulated
Other
Comprehensive
|
|
|
|
|
|
|
Shares
(1)
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Subsidiary
|
|
|
Trust
|
|
|
Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at
December 31, 2006
|
|
|
36,592,864
|
|
|
$ |
366
|
|
|
|
676,270
|
|
|
|
255,914
|
|
|
|
(197,543 |
) |
|
|
(1,427 |
) |
|
|
16,800
|
|
|
$ |
750,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
152,376
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
152,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued under stock compensation programs
|
|
|
857,778
|
|
|
|
8
|
|
|
|
(21,341 |
) |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
benefits of vestings and exercises
|
|
|
—
|
|
|
|
—
|
|
|
|
25,807
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of stock compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
28,395
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
of shares (1)
|
|
|
(428,319 |
) |
|
|
(4 |
) |
|
|
(44,340 |
) |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(44,344 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
acquired by subsidiary (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,816 |
) |
|
|
—
|
|
|
|
—
|
|
|
|
(21,816 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
held in trust
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(467 |
) |
|
|
—
|
|
|
|
(467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,056 |
) |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
adjustment for gain on sale of available-for-sale securities realized
in
net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,256 |
) |
|
|
(2,256 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
53,509
|
|
|
|
53,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at September 30, 2007
|
|
|
37,022,323
|
|
|
$ |
370
|
|
|
|
664,791
|
|
|
|
396,234
|
|
|
|
(219,359 |
) |
|
|
(1,894 |
) |
|
|
68,053
|
|
|
$ |
908,195
|
|
|
(1)
|
The
428,319 shares repurchased under our share repurchase programs
in the
third quarter of 2007 were canceled. The 220,581 shares repurchased
under
our share repurchase programs in the first six months of 2007 were
not
canceled, but are held by one of our subsidiaries. At September
30, 2007,
4,970,232 shares are held by one of our subsidiaries and are included
in
the 37,022,323 total shares outstanding, but are deducted from
shares
outstanding for purposes of calculating earnings per
share.
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Cash Flows
For
the Nine Months Ended September 30, 2007 and 2006
($
in
thousands) (unaudited)
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
152,376
|
|
|
|
95,473
|
|
Reconciliation
of net income to net cash operating activities:
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
—
|
|
|
|
(1,180 |
) |
Depreciation
and amortization
|
|
|
38,828
|
|
|
|
31,877
|
|
Equity
in earnings from real estate ventures
|
|
|
(11,480 |
) |
|
|
(9,422 |
) |
Gain
on sale of investments
|
|
|
(6,129 |
) |
|
|
—
|
|
Operating
distributions from real estate ventures
|
|
|
10,592
|
|
|
|
15,243
|
|
Provision
for loss on receivables and other assets
|
|
|
8,012
|
|
|
|
4,916
|
|
Minority
interest
|
|
|
1,197
|
|
|
|
—
|
|
Amortization
of deferred compensation
|
|
|
31,068
|
|
|
|
26,931
|
|
Amortization
of debt issuance costs
|
|
|
438
|
|
|
|
519
|
|
Change
in:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(41,443 |
) |
|
|
(68,752 |
) |
Prepaid
expenses and other assets
|
|
|
(13,325 |
) |
|
|
(10,878 |
) |
Deferred
tax assets, net
|
|
|
(798 |
) |
|
|
(448 |
) |
Excess
tax benefits from share-based payment arrangements
|
|
|
(25,807 |
) |
|
|
(24,475 |
) |
Accounts
payable, accrued compensation and other accrued
liabilities
|
|
|
9,889
|
|
|
|
94,380
|
|
Net
cash provided by operating activities
|
|
|
153,418
|
|
|
|
154,184
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Net
capital additions – property and equipment
|
|
|
(71,320 |
) |
|
|
(44,126 |
) |
Business
acquisitions
|
|
|
(86,984 |
) |
|
|
(182,663 |
) |
Capital
contributions and advances to real estate ventures
|
|
|
(26,841 |
) |
|
|
(58,733 |
) |
Distributions,
repayments of advances and sale of investments
|
|
|
34,523
|
|
|
|
16,551
|
|
Net
cash used in investing activities
|
|
|
(150,622 |
) |
|
|
(268,971 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings under credit facilities
|
|
|
763,835
|
|
|
|
715,277
|
|
Repayments
of borrowings under credit facilities
|
|
|
(695,329 |
) |
|
|
(584,454 |
) |
Shares
repurchased for payment of employee taxes on stock awards
|
|
|
(29,282 |
) |
|
|
(17,288 |
) |
Shares
repurchased under share repurchase program
|
|
|
(66,160 |
) |
|
|
(29,689 |
) |
Excess
tax benefits from share-based payment arrangements
|
|
|
25,807
|
|
|
|
24,475
|
|
Common
stock issued under stock option plan and stock purchase
programs
|
|
|
7,949
|
|
|
|
20,504
|
|
Payment
of dividends
|
|
|
(12,056 |
) |
|
|
(8,636 |
) |
Net
cash (used in) provided by financing activities
|
|
|
(5,236 |
) |
|
|
120,189
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(2,440 |
) |
|
|
5,402
|
|
Cash
and cash equivalents, January 1
|
|
|
50,612
|
|
|
|
28,658
|
|
Cash
and cash equivalents, September 30
|
|
$ |
48,172
|
|
|
|
34,060
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
11,548
|
|
|
|
12,751
|
|
Income
taxes, net of refunds
|
|
|
39,624
|
|
|
|
27,562
|
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
Deferred
business acquisition obligations
|
|
|
12,996
|
|
|
|
32,069
|
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Notes
to Consolidated Financial Statements (Unaudited)
Readers
of this quarterly report should refer to the audited financial statements
of
Jones Lang LaSalle Incorporated (“Jones Lang LaSalle”, which may also be
referred to as “the Company” or as “the Firm,” “we,” “us” or “our”) for the year
ended December 31, 2006, which are included in Jones Lang LaSalle’s 2006 Annual
Report on Form 10-K, filed with the United States Securities and Exchange
Commission (“SEC”) and also available on our web site
(www.joneslanglasalle.com), since we have omitted from this report
certain footnote disclosures which would substantially duplicate those contained
in such audited financial statements. You should also refer to the “Summary of
Critical Accounting Policies and Estimates” section within Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
contained herein, for further discussion of our accounting policies and
estimates.
(1)
Interim Information
Our
consolidated financial statements as of September 30, 2007 and for the three
and
nine months ended September 30, 2007 and 2006 are unaudited; however, in
the
opinion of management, we have included all adjustments (consisting solely
of
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial statements for these interim periods.
Historically,
our revenue and profits have tended to be higher in the third and fourth
quarters of each year than in the first two quarters. This is the result
of a
general focus in the real estate industry on completing or documenting
transactions by calendar-year-end and the fact that certain expenses are
constant throughout the year. Our Investment Management segment earns
investment-generated performance fees on clients’ real estate investment returns
and co-investment equity gains, generally when assets are sold, the timing
of
which is geared towards the benefit of our clients. Within our Investor and
Occupier Services segments, expansion of capital markets activities has an
increasing impact on comparability between reporting periods, as the timing
of
recognition of revenues relates to the size and timing of our clients’
transactions. Non-variable operating expenses, which are treated as expenses
when they are incurred during the year, are relatively constant on a quarterly
basis. As a result, the results for the periods ended September 30, 2007
and
2006 are not indicative of the results to be obtained for the full fiscal
year.
(2)
New Accounting Standards
Accounting
for Uncertainty in Income Taxes
Effective
January 1, 2007, we adopted FASB Interpretation No. 48 (FIN 48), “Accounting for
Uncertainty in Income Taxes.” FIN 48 clarifies and sets forth consistent rules
for accounting for uncertain income tax positions in accordance with SFAS
109,
“Accounting for Income Taxes.” The Company did not recognize any change to its
liability for unrecognized tax benefits as a result of the adoption. Therefore,
we have not adjusted our retained earnings as of January 1, 2007. As of the
adoption date, the amount of unrecognized tax benefits was $19.9 million,
all of
which would impact the effective tax rate of the Company if recognized. However,
we do not believe that there will be significant changes in the amount of
unrecognized tax benefits within the next 12 months.
The
Company recognizes interest accrued and penalties, if any, related to income
taxes as a component of income tax expense. As of January 1, 2007, $0.3 million
of interest expense and no penalties were accrued. As of September 30, 2007,
$0.4 million of interest expense and no penalties were accrued.
The
Company or one of its subsidiaries files income tax returns in the United
States, the United Kingdom including England and Scotland, Australia, Germany,
The People’s Republic of China including Hong Kong, France, Japan, and Singapore
as well as approximately 40 other jurisdictions. Generally, the Company’s open
tax years include those from 2002 to the present, although in a number of
jurisdictions reviews of taxing authorities for more recent years have been
completed or are in process. Although the ultimate outcome of tax audits
is
uncertain, we believe adequate amounts of tax and interest have been provided
for any adjustments that are expected to result related to these
years.
Fair
Value Measurements
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 applies to accounting pronouncements that require
or permit fair value measurements, except for share-based payment transactions
under SFAS 123R. The Company is required to apply the guidance of SFAS 157
beginning January 1, 2008. Management has not yet determined what impact
the
application of SFAS 157 will have on our consolidated financial
statements.
Fair
Value Option
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.” SFAS 159 permits entities to choose to
measure financial instruments and certain other items at fair value and
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes
for
similar types of assets and liabilities. The Company has the option of adopting
fair value accounting for financial assets and liabilities in accordance
with
the guidance of SFAS 159 beginning January 1, 2008. Management has not yet
determined what impact the application of SFAS 159 will have on our consolidated
financial statements.
Investment
Company Accounting
In
June
2007, the AICPA issued Statement of Position (“SOP”) 07–1, “Clarification of the
Scope of the Audit and Accounting Guide, Investment Companies and Accounting
by
Parent Companies and Equity Method Investors for Investments in Investment
Companies,” to be effective beginning January 1, 2008. Management has not yet
determined the applicability of SOP 07-1 to the Company’s investments in real
estate ventures and what impact, if any, the application of SOP 07-1 would
have
on our consolidated financial statements. In October 2007, the FASB added
a
project to its agenda to delay the effective date of SOP 07-1
indefinitely.
(3)
Revenue Recognition
We
categorize our revenues as advisory and management fees, transaction
commissions, incentive fees, project and development management and construction
management fees. We recognize advisory and management fees related to property
management services, valuation services, corporate property services, strategic
consulting and money management as income in the period in which we perform
the
related services. We recognize transaction commissions related to agency
leasing
services, capital markets services and tenant representation services as
income
when we provide the related service unless future contingencies exist. If
future
contingencies exist, we defer recognition of this revenue until the respective
contingencies have been satisfied. We recognize incentive fees based on the
performance of underlying funds’ investments and the contractual benchmarks,
formulas and timing of the measurement period with clients. We recognize
project
and development management and construction management fees by applying the
“percentage of completion” method of accounting. We use the efforts expended
method to determine the extent of progress towards completion for project
and
development management fees and costs incurred to total estimated costs for
construction management fees.
Construction
management fees, which are gross construction services revenues net of
subcontract costs, were $2.3 million and $2.5 million for the three months
ended
September 30, 2007 and 2006, respectively, and $7.2 million and $9.0 million
for
the nine months ended September 30, 2007 and 2006, respectively.
Gross
construction services revenues totaled $44.2 million and $36.9 million for
the
three months ended September 30, 2007 and 2006, respectively, and $128.6
million
and $103.7 million for the nine months ended September 30, 2007 and 2006,
respectively. Subcontract costs totaled $41.9 million and $34.4 million,
for the
three months ended September 30, 2007 and 2006, respectively, and $121.4
million
and $94.7 million for the nine months ended September 30, 2007 and 2006,
respectively.
We
include costs in excess of billings on uncompleted construction contracts
of
$9.3 million and $3.2 million in “Trade receivables,” and billings in excess of
costs on uncompleted construction contracts of $5.5 million and $6.6 million
in
“Deferred income,” respectively, in our September 30, 2007 and December 31, 2006
consolidated balance sheets.
In
certain of our businesses, primarily those involving management services,
our
clients reimburse us for expenses incurred on their behalf. We base the
treatment of reimbursable expenses for financial reporting purposes upon
the fee
structure of the underlying contracts. We follow the guidance of EITF 99-19,
“Reporting Revenue Gross as a Principal versus Net as an Agent,” when accounting
for reimbursable personnel and other costs. We report a contract that provides
a
fixed fee billing, fully inclusive of all personnel or other recoverable
expenses incurred but not separately scheduled, on a gross basis. When
accounting on a gross basis, our reported revenues include the full billing
to
our client and our reported expenses include all costs associated with the
client.
We
account for a contract on a net basis when the fee structure is comprised
of at
least two distinct elements, namely (i) a fixed management fee and (ii) a
separate component that allows for scheduled reimbursable personnel costs
or
other expenses to be billed directly to the client. When accounting on a
net
basis, we include the fixed management fee in reported revenues and net the
reimbursement against expenses. We base this accounting on the following
factors, which define us as an agent rather than a principal:
|
·
|
The
property owner, with ultimate approval rights relating to the employment
and compensation of on-site personnel, and bearing all of the economic
costs of such personnel, is determined to be the primary obligor
in the
arrangement;
|
|
·
|
Reimbursement
to Jones Lang LaSalle is generally completed simultaneously with
payment
of payroll or soon thereafter;
|
|
·
|
Because
the property owner is contractually obligated to fund all operating
costs
of the property from existing cash flow or direct funding from
its
building operating account, Jones Lang LaSalle bears little or
no credit
risk; and
|
|
·
|
Jones
Lang LaSalle generally earns no margin in the reimbursement aspect
of the
arrangement, obtaining reimbursement only for actual costs
incurred.
|
Most
of
our service contracts use the latter structure and are accounted for on a
net
basis. We have always presented the above reimbursable contract costs on
a net
basis in accordance with U.S. GAAP. These costs aggregated approximately
$174.1
million and $139.6 million for the three months ended September 30, 2007
and
2006, respectively, and approximately $537.0 million and $443.4 million for
the
nine months ended September 30, 2007 and 2006, respectively. This
treatment has no impact on operating income, net income or cash
flows.
(4)
Business Segments
We
manage
and report our operations as four business segments:
|
(i)
|
Investment
Management, which offers money management services on a global
basis,
and
|
|
The
three geographic regions of Investor and Occupier Services
("IOS"):
|
|
(iii)
|
Europe,
Middle East and Africa (“EMEA”) and
|
The
Investment Management segment provides money management services to
institutional investors and high-net-worth individuals. Each geographic region
offers our full range of Investor Services, Capital Markets and Occupier
Services. The IOS business consists primarily of tenant representation and
agency leasing, capital markets and valuation services (collectively
"transaction services") and property management, facilities management, project
and development management, energy management and sustainability 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.
We
allocate these corporate global overhead expenses to the business segments
based
on the relative operating income 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. Also, for segment reporting, we continue
to
show “Equity in earnings (losses) from real estate ventures” within our revenue
line, especially since it is an integral part of our Investment Management
segment. The Chief Operating Decision Maker of Jones Lang LaSalle measures
the
segment results without restructuring charges, but with “Equity in earnings
(losses) from real estate ventures” included in segment revenues. We define the
Chief Operating Decision Maker collectively as our Global Executive Committee,
which is comprised of our Global Chief Executive Officer, Global Chief Operating
and Financial Officer and the Chief Executive Officers of each of our four
reporting segments.
We
have
reclassified certain prior year amounts to conform to the current
presentation.
The
following table summarizes unaudited financial information by business segment
for the three and nine months ended September 30, 2007 and 2006 ($ in
thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
Investor
and Occupier Services
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
93,242
|
|
|
|
75,159
|
|
|
|
251,001
|
|
|
|
189,906
|
|
Management
services
|
|
|
87,436
|
|
|
|
71,774
|
|
|
|
244,388
|
|
|
|
198,836
|
|
Equity
earnings
|
|
|
1,262
|
|
|
|
373
|
|
|
|
1,682
|
|
|
|
657
|
|
Other
services
|
|
|
6,026
|
|
|
|
2,823
|
|
|
|
18,161
|
|
|
|
8,256
|
|
|
|
|
187,966
|
|
|
|
150,129
|
|
|
|
515,232
|
|
|
|
397,655
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
161,285
|
|
|
|
128,159
|
|
|
|
450,959
|
|
|
|
358,097
|
|
Depreciation
and amortization
|
|
|
6,501
|
|
|
|
5,852
|
|
|
|
18,507
|
|
|
|
16,435
|
|
Operating
income
|
|
$ |
20,180
|
|
|
|
16,118
|
|
|
|
45,766
|
|
|
|
23,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
184,061
|
|
|
|
138,448
|
|
|
|
484,102
|
|
|
|
326,933
|
|
Management
services
|
|
|
37,836
|
|
|
|
27,812
|
|
|
|
105,100
|
|
|
|
71,595
|
|
Equity
earnings (losses)
|
|
|
174
|
|
|
|
22
|
|
|
|
(21 |
) |
|
|
(284 |
) |
Other
services
|
|
|
2,774
|
|
|
|
3,406
|
|
|
|
9,542
|
|
|
|
10,771
|
|
|
|
|
224,845
|
|
|
|
169,688
|
|
|
|
598,723
|
|
|
|
409,015
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
205,892
|
|
|
|
152,518
|
|
|
|
541,448
|
|
|
|
386,113
|
|
Depreciation
and amortization
|
|
|
4,704
|
|
|
|
3,518
|
|
|
|
13,151
|
|
|
|
8,867
|
|
Operating
income
|
|
$ |
14,249
|
|
|
|
13,652
|
|
|
|
44,124
|
|
|
|
14,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
74,008
|
|
|
|
45,019
|
|
|
|
275,916
|
|
|
|
118,856
|
|
Management
services
|
|
|
58,054
|
|
|
|
32,769
|
|
|
|
150,130
|
|
|
|
88,650
|
|
Equity
earnings (losses)
|
|
|
253
|
|
|
|
(135 |
) |
|
|
485
|
|
|
|
1,714
|
|
Other
services
|
|
|
1,702
|
|
|
|
622
|
|
|
|
5,112
|
|
|
|
3,319
|
|
|
|
|
134,017
|
|
|
|
78,275
|
|
|
|
431,643
|
|
|
|
212,539
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
124,764
|
|
|
|
78,339
|
|
|
|
377,480
|
|
|
|
206,639
|
|
Depreciation
and amortization
|
|
|
2,368
|
|
|
|
1,819
|
|
|
|
5,998
|
|
|
|
5,579
|
|
Operating
income (loss)
|
|
$ |
6,885
|
|
|
|
(1,883 |
) |
|
|
48,165
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
and other services
|
|
$ |
9,336
|
|
|
|
4,218
|
|
|
|
17,267
|
|
|
|
19,153
|
|
Advisory
fees
|
|
|
63,643
|
|
|
|
45,595
|
|
|
|
171,856
|
|
|
|
126,947
|
|
Incentive
fees
|
|
|
6,033
|
|
|
|
14,672
|
|
|
|
57,716
|
|
|
|
145,982
|
|
Equity
earnings
|
|
|
3,290
|
|
|
|
513
|
|
|
|
9,334
|
|
|
|
7,335
|
|
|
|
|
82,302
|
|
|
|
64,998
|
|
|
|
256,173
|
|
|
|
299,417
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative services
|
|
|
53,808
|
|
|
|
54,491
|
|
|
|
180,038
|
|
|
|
196,830
|
|
Depreciation
and amortization
|
|
|
319
|
|
|
|
334
|
|
|
|
1,171
|
|
|
|
996
|
|
Operating
income
|
|
$ |
28,175
|
|
|
|
10,173
|
|
|
|
74,964
|
|
|
|
101,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment revenue
|
|
$ |
629,130
|
|
|
|
463,090
|
|
|
|
1,801,771
|
|
|
|
1,318,626
|
|
Reclassification
of equity earnings
|
|
|
(4,979 |
) |
|
|
(773 |
) |
|
|
(11,480 |
) |
|
|
(9,422 |
) |
Total
revenue
|
|
|
624,151
|
|
|
|
462,317
|
|
|
|
1,790,291
|
|
|
|
1,309,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment operating expenses
|
|
|
559,641
|
|
|
|
425,030
|
|
|
|
1,588,752
|
|
|
|
1,179,556
|
|
Restructuring
credits
|
|
|
—
|
|
|
|
—
|
|
|
|
(411 |
) |
|
|
(670 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
64,510
|
|
|
|
37,287
|
|
|
|
201,950
|
|
|
|
130,318
|
|
(5)
Investments in Real Estate Ventures
As
of
September 30, 2007, we had total investments and loans of $134.1 million
in
approximately 35 separate property or fund co-investments. Within this $134.1
million are loans of $3.1 million to real estate ventures which bear an 8.0%
interest rate and are to be repaid by 2008.
We
utilize two investment vehicles to facilitate the majority of our co-investment
activity. LaSalle Investment Company I (“LIC I”) is a series of four parallel
limited partnerships which serve as our investment vehicle for substantially
all
co-investment commitments made through December 31, 2005. LIC I is fully
committed to underlying real estate ventures. At September 30, 2007, our
maximum
potential unfunded commitment to LIC I is euro 35.5 million ($50.7
million). LaSalle Investment Company II (“LIC II”), formed in January 2006,
consists of two parallel limited partnerships which serve as our investment
vehicle for most new co-investments. At September 30, 2007, LIC II has
unfunded capital commitments for future funding of co-investments of $325.0
million, of which our 48.78% share is $158.5 million. The $158.5 million
commitment is part of our maximum potential unfunded commitment to LIC II
at September 30, 2007 of $450.3 million.
LIC
I and
LIC II invest in certain real estate ventures that own and operate commercial
real estate. We have an effective 47.85% ownership interest in LIC I, and
an effective 48.78% ownership interest in LIC II; primarily institutional
investors hold the remaining 52.15% and 51.22% interests in LIC I and LIC
II,
respectively. Additionally, a non-executive Director of Jones Lang LaSalle
is an
investor in LIC I on equivalent terms to other investors. We account for
our
investments in LIC I and LIC II under the equity method of accounting in
the
accompanying consolidated financial statements.
LIC
I’s
and LIC II’s exposures to liabilities and losses of the ventures in which they
have invested are limited to their existing capital contributions and remaining
capital commitments. We expect that LIC I will draw down on our commitment
over
the next three to five years to satisfy its existing commitments to underlying
funds, and we expect that LIC II will draw down on our commitment over the
next four to eight years as it enters into new commitments. Our Board of
Directors has endorsed the use of our co-investment capital in particular
situations to control or bridge finance existing real estate assets or
portfolios to seed future investments within LIC II. The purpose is to
accelerate capital raising and growth in assets under management. Approvals
for
such activity are handled consistently with those of the Firm’s co-investment
capital.
As
of
September 30, 2007, LIC I maintains a euro 25 million ($35.7 million) revolving
credit facility (the "LIC I Facility"), and LIC II maintains a $200 million
revolving credit facility (the "LIC II Facility"), principally for their
working
capital needs. The capacity in the LIC II Facility contemplates potential
bridge
financing opportunities. Each facility contains a credit rating trigger and
a
material adverse condition clause. If either of the credit rating trigger
or the
material adverse condition clauses becomes triggered, the facility to which
that
condition relates would be in default and outstanding borrowings would need
to
be repaid. Such a condition would require us to fund our pro-rata share of
the
then outstanding balance on the related facility, which is the limit of our
liability. The maximum exposure to Jones Lang LaSalle, assuming that the
LIC I
Facility were fully drawn, would be euro 12.0 million ($17.1 million); assuming
that the LIC II Facility were fully drawn, the maximum exposure to Jones
Lang
LaSalle would be $97.6 million. Each exposure is included within and cannot
exceed our maximum potential unfunded commitments to LIC I of euro 35.5 million
($50.7 million) and to LIC II of $450.3 million. As of September 30, 2007,
LIC I
had euro 0.9 million ($1.2 million) of outstanding borrowings on the LIC
I
Facility, and LIC II had $38.1 million of outstanding borrowings on the LIC
II
Facility.
Exclusive
of our LIC I and LIC II commitment structures, we have potential obligations
related to unfunded commitments to other real estate ventures, the maximum
of
which is $11.5 million at September 30, 2007.
During
the first quarter of 2007, we sold our investment in LoopNet, an investment
in
available-for-sale securities under SFAS 115, “Accounting for Certain
Investments in Debt and Equity Securities,” and recognized a “Gain on sale of
investments” of $2.4 million. During the second quarter of 2007, we recognized a
$3.7 million gain on sale of SiteStuff, Inc., a company in which we had a
cost
method investment.
We
apply
the provisions of APB 18, SAB 59, and SFAS 144 when evaluating investments
in
real estate ventures for impairment, including impairment evaluations of
the
individual assets underlying our investments. We recorded no impairment charges
in the first nine months of 2007 or 2006.
(6)
Business Combinations, Goodwill, and Other Intangible
Assets
We
have
$657.8 million of unamortized identified intangibles and goodwill as of
September 30, 2007 that are subject to the provisions of SFAS 142, “Goodwill and
Other Intangible Assets.” A significant portion of these unamortized intangibles
and goodwill are denominated in currencies other than U.S. dollars, which
means
that a portion of the movements in the reported book value of these balances
are
attributable to movements in foreign currency exchange rates. The tables
below
set forth further details on the foreign exchange impact on intangible and
goodwill balances. Of the $657.8 million of unamortized intangibles and
goodwill, $617.7 million represents goodwill with indefinite useful lives,
which
we ceased amortizing beginning January 1, 2002. We will amortize the remaining
$40.1 million of identifiable intangibles (principally representing customer
relationships and management contracts acquired) over their remaining finite
useful lives.
In
the
first quarter of 2007, we acquired 100% interests in each of NSC Corporate,
a
leading Western Australian agency business, and Hargreaves Goswell, a London
agency business. In addition to cash paid at closing, the terms of each
transaction included provisions for future consideration subject to certain
provisions. We recorded the fair value of future consideration which is subject
only to the passage of time as “Deferred business acquisition obligations” on
our consolidated balance sheet. We have recorded the fair value of the contract
pipeline acquired and certain restrictive agreements as identifiable intangibles
with finite useful lives; we attributed the remaining direct costs of
acquisition to goodwill. Payment of an earn-out provision in the NSC Corporate
acquisition is subject to the achievement of certain performance conditions,
which we will record to goodwill at the time those conditions are met; we
will
not record the earn-out if the related conditions are not achieved. We record
additional future consideration subject to employment-related provisions
in the
Hargreaves Goswell acquisition as compensation expense over the term of those
provisions. Also, in the first quarter of 2007, we finalized the purchase
accounting allocations for the 2006 Spaulding & Slye acquisition, which
included additions to goodwill in the Americas segment.
In
the
second quarter of 2007, we acquired 100% interests in each of Troostwijk
Makelaars, an independent property advisor firm based in the Netherlands
that
specializes in leasing, capital markets, and advisory and research services,
and
KHK Group, an English project and development services business. Terms for
the
two transactions included cash paid at closing totaling approximately $45.6
million, with provisions for additional consideration and earn-outs subject
to
certain contract provisions and performance. Additional consideration subject
only to the passage of time and scheduled to be paid in 2010 is recorded
in
“Deferred business acquisition obligations” on our consolidated balance sheet at
a current fair value of $3.5 million. Earn-out payments are subject to the
achievement of certain performance conditions, and will be recorded at the
time
those conditions are met; we will record each earn-out only if the related
conditions are achieved. Intangible assets with finite useful lives, including
the value of contract pipeline and certain restrictive agreements, were
attributed a total value of $2.7 million, and will be amortized over lives
of up
to three years. We attributed the remaining direct costs of acquisition to
goodwill. Each acquisition also includes provisions for future consideration
subject to employment-related conditions, the total of which is up to $9.4
million to be recorded as compensation expense over the next three
years.
In
the
third quarter of 2007, we acquired a 44.8% interest in a firm formerly known
as
Trammell Crow Meghraj (“TCM”), one of the largest privately held real estate
services companies in India, for approximately $28.1 million. We intend to
legally merge TCM into our preexisting India business upon local regulatory
approval, which is expected in the coming months, and have agreed to acquire
the
remaining shareholder interests in 2010 and 2012 based on the values of those
shares, as defined, at the end of 2009 and 2011, respectively. The
acquisition of TCM significantly expands our presence in the growing Indian
market; the combined business will operate under the name Jones Lang LaSalle
Meghraj, with approximately 2,800 employees in offices in ten cities in India,
and 44 million square feet under management across India. Based on the
contractual terms of the transaction, the financial results of the former
TCM
were consolidated in our consolidated financial statements upon acquisition
in
the beginning of the third quarter of 2007. Intangible assets with finite
useful
lives, including the value of the contract pipeline, certain restrictive
agreements and brand name, were attributed a total value of $2.4 million,
and
will be amortized over lives of up to six years. The TCM acquisition
resulted in the addition of approximately $23.7 million of
goodwill.
Also
in
the third quarter of 2007, we acquired a 100% interest in Camilli
& Veiel, a German-based commercial investment and leasing firm, a 49%
interest in a Finnish real estate services firm which previously operated
under
the licensed name GVA, and a 100% interest in Zietsman Realty Partners, a
California-based real estate services and money management firm. Terms of
these
transactions included cash paid at closing totaling approximately $10.2 million,
with provisions for additional consideration and earn-outs subject to certain
contract provisions and performance. Earn-out payments are subject to the
achievement of certain performance conditions, which we will record at the
time
those conditions are met; we will record each earn-out only if the related
conditions are achieved. Under the terms of the GVA purchase agreement, we
expect to acquire the remaining 51% in 2008. Intangible assets with finite
useful lives, including the value of the contract pipeline and certain
restrictive agreements, were attributed a total value of $0.8 million, and
will
be amortized over lives of up to four years. These transactions resulted
in
approximately $7.7 million of goodwill.
We
have
completed the acquisitions of 13 businesses since January 1, 2006. Eleven
of the
acquisitions have provided for potential earn-out payments subject to the
achievement of certain performance conditions. For nine of those acquisitions,
the maximum amount of the potential earn-out payments to be recorded
to goodwill in future periods is $79.5 million. We expect those
amounts will come due at various times over the next seven years. For
the other two of those acquisitions, the amounts of the earn-out payments
are
based on formulas and are not quantifiable at this time.
The
following table sets forth, by reporting segment, the current year movements
in
the gross carrying amount and accumulated amortization of our goodwill with
indefinite useful lives ($ in thousands):
|
|
Investor
and Occupier Services
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
Investment
|
|
|
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
Pacific
|
|
|
Management
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
$ |
328,628
|
|
|
|
104,494
|
|
|
|
95,563
|
|
|
|
30,494
|
|
|
|
559,179
|
|
Additions
|
|
|
1,037
|
|
|
|
58,037
|
|
|
|
26,971
|
|
|
|
—
|
|
|
|
86,045
|
|
Impact
of exchange rate movements
|
|
|
—
|
|
|
|
5,272
|
|
|
|
5,895
|
|
|
|
1,006
|
|
|
|
12,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2007
|
|
|
329,665
|
|
|
|
167,803
|
|
|
|
128,429
|
|
|
|
31,500
|
|
|
|
657,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
$ |
(15,457 |
) |
|
|
(6,429 |
) |
|
|
(7,038 |
) |
|
|
(9,777 |
) |
|
|
(38,701 |
) |
Impact
of exchange rate movements
|
|
|
—
|
|
|
|
(377 |
) |
|
|
(413 |
) |
|
|
(158 |
) |
|
|
(948 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2007
|
|
|
(15,457 |
) |
|
|
(6,806 |
) |
|
|
(7,451 |
) |
|
|
(9,935 |
) |
|
|
(39,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value as of September 30, 2007
|
|
$ |
314,208
|
|
|
|
160,997
|
|
|
|
120,978
|
|
|
|
21,565
|
|
|
|
617,748
|
|
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 Service
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
Investment
|
|
|
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
Pacific
|
|
|
Management
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
$ |
82,929
|
|
|
|
4,449
|
|
|
|
2,965
|
|
|
|
5,834
|
|
|
|
96,177
|
|
Additions
|
|
|
—
|
|
|
|
3,994
|
|
|
|
4,205
|
|
|
|
—
|
|
|
|
8,199
|
|
Impact
of exchange rate movements
|
|
|
—
|
|
|
|
1,070
|
|
|
|
603
|
|
|
|
263
|
|
|
|
1,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2007
|
|
|
82,929
|
|
|
|
9,513
|
|
|
|
7,773
|
|
|
|
6,097
|
|
|
|
106,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
$ |
(47,127 |
) |
|
|
(2,668 |
) |
|
|
(2,965 |
) |
|
|
(5,834 |
) |
|
|
(58,594 |
) |
Amortization
expense
|
|
|
(4,913 |
) |
|
|
(1,187 |
) |
|
|
(688 |
) |
|
|
—
|
|
|
|
(6,788 |
) |
Impact
of exchange rate movements
|
|
|
—
|
|
|
|
(182 |
) |
|
|
(430 |
) |
|
|
(263 |
) |
|
|
(875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2007
|
|
|
(52,040 |
) |
|
|
(4,037 |
) |
|
|
(4,083 |
) |
|
|
(6,097 |
) |
|
|
(66,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value as of September 30, 2007
|
|
$ |
30,889
|
|
|
|
5,476
|
|
|
|
3,690
|
|
|
|
—
|
|
|
|
40,055
|
|
Remaining
estimated future amortization expense for our intangibles with finite useful
lives ($ in millions):
2007
(remaining three months)
|
|
$ |
3.0
|
|
2008
|
|
|
9.6
|
|
2009
|
|
|
6.0
|
|
2010
|
|
|
4.6
|
|
2011
|
|
|
4.0
|
|
2012
|
|
|
3.5
|
|
Thereafter
|
|
|
9.4
|
|
Total
|
|
$ |
40.1
|
|
(7)
Stock-based Compensation
We
adopted SFAS 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) as of
January 1, 2006 using the modified prospective approach. The adoption of
SFAS
123R primarily impacts “Compensation and benefits” expense in our consolidated
statement of earnings by changing prospectively our method of measuring and
recognizing compensation expense on share-based awards. We previously recognized
forfeitures as incurred; we now estimate forfeitures at the date of grant
and
accelerate expense recognition for share-based awards to employees who are
or
will become retirement-eligible prior to the stated vesting period of the
award.
The effect of the change to estimating forfeitures as it relates to periods
prior to 2006 is reflected in “Cumulative effect of change in accounting
principle, net of tax” in the consolidated statement of earnings. In the three
month period ended March 31, 2006, we recorded a $1.8 million pre-tax, $1.2
million net of tax, gain for the cumulative effect of this accounting
change.
Restricted
Stock Unit Awards
Along
with cash-based salaries and performance-based annual cash incentive awards,
restricted stock unit awards represent a primary element of our compensation
program for Company officers, managers and professionals.
Restricted
stock unit activity for the three months ended September 30, 2007 is as
follows:
|
|
Shares
(thousands)
|
|
|
Weighted
Average Grant Date Fair Value
|
|
|
Weighted
Average Remaining Contractual Life
|
|
|
Aggregate
Intrinsic Value ($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at June 30, 2007
|
|
|
2,648.3
|
|
|
$ |
52.97
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
19.0
|
|
|
|
109.51
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(845.9 |
) |
|
|
36.81
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(26.2 |
) |
|
|
56.53
|
|
|
|
|
|
|
|
|
|
Unvested
at September 30, 2007
|
|
|
1,795.2
|
|
|
$ |
61.13
|
|
|
1.65 years
|
|
|
$ |
74.7
|
|
Restricted
stock unit activity for the nine months ended September 30, 2007 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, 2007
|
|
|
2,116.5
|
|
|
$ |
40.29
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
617.2
|
|
|
|
96.40
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(880.0 |
) |
|
|
36.54
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(58.5 |
) |
|
|
48.86
|
|
|
|
|
|
|
|
|
|
Unvested
at September 30, 2007
|
|
|
1,795.2
|
|
|
$ |
61.13
|
|
|
1.65 years
|
|
|
$ |
74.7
|
|
Unvested
shares expected to vest
|
|
|
1,685.2
|
|
|
$ |
60.45
|
|
|
1.60 years
|
|
|
$ |
71.3
|
|
Compensation
expense for restricted stock units included in the “Compensation and benefits”
line of the consolidated statement of earnings was $7.9 million and $11.3
million for the three months ended September 30, 2007 and 2006, respectively,
and was $28.5 million and $28.6 million for the nine months ended September
30,
2007 and 2006, respectively.
As
of
September 30, 2007, there was $57.7 million of remaining unamortized deferred
compensation related to unvested restricted stock units. This cost will be
recognized over the remaining contractual lives of the awards.
Approximately
880,000 restricted stock unit awards vested during the first nine months
of
2007, having an aggregate fair value of $99.1 million and intrinsic value
of
$67.0 million. For the same period in 2006, approximately 746,100 restricted
stock unit awards vested having an aggregate fair value of $64.1 million
and
intrinsic value of $45.4 million. As a result of these vesting events, we
recognized tax benefits of $22.6 million and $14.7 million for the nine months
ended September 30, 2007 and 2006, respectively.
Stock
Option Awards
We
have
generally granted stock options at the market value of our common stock at
the
date of grant. Our options vest at such times and conditions as the Compensation
Committee of our Board of Directors determined and set forth in the award
agreement; the most recent options granted (in 2003) vest over periods of
up to
five years. As a result of a change in compensation strategy, we do not
currently use stock option grants as part of our employee compensation programs.
We have not granted stock options since 2003.
Stock
option activity for the three months ending September 30, 2007 is as
follows:
|
|
Options
(thousands)
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life
|
|
|
Aggregate
Intrinsic Value ($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2007
|
|
|
214.1
|
|
|
$ |
19.52
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(17.7 |
) |
|
|
23.22
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5.0 |
) |
|
|
23.00
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2007
|
|
|
191.4
|
|
|
$ |
19.08
|
|
|
2.44 years
|
|
|
$ |
16.0
|
|
Stock
option activity for the nine months ending September 30, 2007 is as
follows:
|
|
Options
(thousands)
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life
|
|
|
Aggregate
Intrinsic Value ($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2007
|
|
|
311.3
|
|
|
$ |
18.28
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(113.9 |
) |
|
|
16.77
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(6.0 |
) |
|
|
21.21
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2007
|
|
|
191.4
|
|
|
$ |
19.08
|
|
|
2.44 years
|
|
|
$ |
16.0
|
|
Exercisable
at September 30, 2007
|
|
|
189.1
|
|
|
$ |
19.12
|
|
|
2.40 years
|
|
|
$ |
15.8
|
|
As
of
September 30, 2007, we have approximately 191,400 options outstanding, of
which
approximately 2,300 options were unvested. We recognized less than $0.02
million
in compensation expense related to the unvested options for the first nine
months of 2007. Less than $0.01 million of compensation cost remains to be
recognized on unvested options through 2008.
The
following table summarizes option exercises during the three and nine months
ended September 30, 2007 and 2006 ($ in millions):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of options exercised
|
|
|
17,723
|
|
|
|
100,451
|
|
|
|
113,920
|
|
|
|
689,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic
value
|
|
$ |
1.4
|
|
|
|
6.4
|
|
|
|
9.8
|
|
|
|
33.6
|
|
Cash
received from options exercised
|
|
|
0.8
|
|
|
|
1.9
|
|
|
|
4.9
|
|
|
|
14.2
|
|
Tax
benefit realized from option exercises
|
|
|
0.6
|
|
|
|
2.4
|
|
|
|
3.5
|
|
|
|
12.7
|
|
Other
Stock Compensation Programs
U.S.
Employee Stock Purchase Plan - In 1998, we adopted an Employee Stock Purchase
Plan ("ESPP") for eligible U.S.-based employees. Under the current plan,
we
enhance employee contributions for stock purchases through an additional
contribution of a 5% discount on the purchase price as of the end of a program
period. Program periods are now three months each. Employee contributions
and
our contributions vest immediately. Since its inception, 1,365,499 shares
have
been purchased under the program through September 30, 2007. In the third
quarter of 2007, 12,477 shares having a grant date market value of $102.76
were
purchased under the program. For the nine months ended September 30, 2007,
42,443 shares having a weighted average grant date market value of $106.32
were
issued under the program. We do not record any compensation expense with
respect
to this program.
UK
SAYE -
In November 2001, we adopted the Jones Lang LaSalle Savings Related Share
Option
(UK) Plan (“Save As You Earn” or “SAYE”) for eligible employees of our UK based
operations. In November 2006, the SAYE plan was extended to employees in
our
Ireland operations. Under this plan, employees make an election to contribute
to
the plan in order that their savings might be used to purchase stock at a
15%
discount provided by the Company. The options to purchase stock with such
savings vest over a period of three or five years. Employees have had the
opportunity to contribute to the plan in 2002, 2005, 2006, and 2007. In the
first quarter of 2007, the Company issued approximately 40,000 options at
an
exercise price of $90.02 under the SAYE plan. The fair values of the options
are
being amortized over their respective vesting periods. The first vesting
of the
2007 options will occur in 2010 with the remaining to vest in 2012.
(8)
Retirement Plans
We
maintain contributory defined benefit pension plans in the United Kingdom,
Ireland and Holland to provide retirement benefits to eligible employees.
It is
our policy to fund the minimum annual contributions required by applicable
regulations. We use a December 31 measurement date for our plans.
Net
periodic pension cost consisted of the following for the three and nine months
ended September 30, 2007 and 2006 ($ in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer
service cost - benefits earned during the year
|
|
$ |
1,025
|
|
|
|
910
|
|
|
|
3,025
|
|
|
|
2,655
|
|
Interest
cost on projected benefit obligation
|
|
|
2,665
|
|
|
|
2,313
|
|
|
|
7,869
|
|
|
|
6,740
|
|
Expected
return on plan assets
|
|
|
(3,187 |
) |
|
|
(2,670 |
) |
|
|
(9,411 |
) |
|
|
(7,779 |
) |
Net
amortization/deferrals
|
|
|
501
|
|
|
|
538
|
|
|
|
1,482
|
|
|
|
1,566
|
|
Recognized
actual loss
|
|
|
19
|
|
|
|
57
|
|
|
|
56
|
|
|
|
168
|
|
Net
periodic pension cost
|
|
$ |
1,023
|
|
|
|
1,148
|
|
|
|
3,021
|
|
|
|
3,350
|
|
We
have
made $4.3 million of payments to our defined benefit pension plans in the
nine
month period ending September 30, 2007. We expect to contribute
a total of $6.0 million to our defined benefit pension plans in 2007. We
made
$6.4 million of contributions to these plans in the twelve months ended December
31, 2006.
(9)
Earnings Per Share and Net Income Available to Common
Shareholders
We
calculate earnings per share by dividing net income available to common
shareholders by weighted average shares outstanding. To calculate net income
available to common shareholders, we subtract dividend-equivalents (net of
tax)
to be paid on outstanding but unvested shares of restricted stock units from
net
income in the period the dividend is declared. We
include in the calculations of net income available to common shareholders
the
dividend-equivalents of $0.7 million net of tax that we declared and paid
in the
second quarter of 2007, and $0.5 million net of tax that we declared and
paid in
second quarter of 2006.
The
difference between basic weighted average shares outstanding and diluted
weighted average shares outstanding is the dilutive impact of common stock
equivalents. Common stock equivalents consist primarily of shares to be issued
under employee stock compensation programs and outstanding stock options
whose
exercise price was less than the average market price of our stock during
these
periods. We did not include in weighted average shares outstanding the 4,970,232
or 4,349,651 shares that were held by one of our subsidiaries as of September
30, 2007 and 2006, respectively. See Part II, Item 2. Share Repurchases for
additional information.
The
following table details the calculations of basic and diluted earnings per
common share for the three and nine months ended September 30, 2007 and 2006
($
in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income before cumulative effect of change in accounting
principle
|
|
$ |
46,530
|
|
|
|
24,697
|
|
|
|
152,376
|
|
|
|
94,293
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,180
|
|
Net
income
|
|
$ |
46,530
|
|
|
|
24,697
|
|
|
|
152,376
|
|
|
|
95,473
|
|
Dividends
on unvested common stock, net of tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
672
|
|
|
|
522
|
|
Net
income available to common shareholders
|
|
$ |
46,530
|
|
|
|
24,697
|
|
|
|
151,704
|
|
|
|
94,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
32,416,773
|
|
|
|
32,106,994
|
|
|
|
32,060,102
|
|
|
|
31,771,247
|
|
Basic
income per common share before cumulative effect of change in accounting
principle and dividends on unvested common stock
|
|
$ |
1.44
|
|
|
|
0.77
|
|
|
|
4.75
|
|
|
|
2.97
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.04
|
|
Dividends
on unvested common stock, net of tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.02 |
) |
|
|
(0.02 |
) |
Basic
earnings per common share
|
|
$ |
1.44
|
|
|
|
0.77
|
|
|
|
4.73
|
|
|
|
2.99
|
|
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
33,610,782
|
|
|
|
33,751,054
|
|
|
|
33,701,963
|
|
|
|
33,319,566
|
|
Diluted
income per common share before cumulative effect of change in accounting
principle and dividends on unvested common stock
|
|
$ |
1.38
|
|
|
|
0.73
|
|
|
|
4.52
|
|
|
|
2.83
|
|
Cumulative
effect of change in accounting principle, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.04
|
|
Dividends
on unvested common stock, net of tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.02 |
) |
|
|
(0.02 |
) |
Diluted
earnings per common share
|
|
$ |
1.38
|
|
|
|
0.73
|
|
|
|
4.50
|
|
|
|
2.85
|
|
(10)
Comprehensive Income
For
the
three and nine months ended September 30, 2007 and 2006, comprehensive income
was as follows ($ in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
46,530
|
|
|
|
24,697
|
|
|
|
152,376
|
|
|
|
95,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
33,331
|
|
|
|
2,662
|
|
|
|
53,509
|
|
|
|
29,804
|
|
Unrealized
holding (loss) gain on investments
|
|
|
—
|
|
|
|
(900 |
) |
|
|
—
|
|
|
|
1,905
|
|
Reclassification
adjustment for gain on sale of available-for-sale securities realized
in
net income
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,256 |
) |
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
79,861
|
|
|
|
26,459
|
|
|
|
203,629
|
|
|
|
127,182
|
|
(11)
Commitments and Contingencies
We
are a
defendant in various litigation matters arising in the ordinary course of
business, some of which involve claims for damages that are substantial in
amount. Many of these litigation matters are covered by insurance (including
insurance provided through a captive insurance company), although they may
nevertheless be subject to large deductibles or retentions and the amounts
being
claimed may exceed the available insurance. Although the ultimate liability
for
these matters cannot be determined, based upon information currently available,
we believe the ultimate resolution of such claims and litigation will not
have a
material adverse effect on our financial position, results of operations
or
liquidity.
(12) Subsequent
Events
The
Company announced in October 2007 that its Board of Directors has declared
a
semi-annual cash dividend of $0.50 per share of its Common Stock. The dividend
payment will be made on December 14, 2007 to holders of record at the close
of
business on November 15, 2007. A dividend-equivalent in the same
amount also will be paid simultaneously on outstanding but unvested shares
of
restricted stock units granted under the Company’s Stock Award and Incentive
Plan.
In
October 2007, we acquired a 100% interest in Corporate Realty Advisors (CRA),
one of North Carolina’s leading corporate advisory services and tenant
representation firms co-headquartered in Charlotte and Raleigh. CRA will
expand
our Carolinas team that currently offers a broad platform of transaction,
facility management, project management and hotel investment services. In
November 2007, we acquired a 100% interest in the New Jersey operations of
the
former Lee & Klatskin Associates, the premier provider of integrated
industrial real estate services in New Jersey. The acquisition bolsters our
presence in New Jersey and in the industrial services sector by establishing
integrated industrial services capabilities with the state’s leading industrial
real estate services provider. New Jersey is the fourth largest
industrial market in the United States and the premier industrial market
in the
Northeast region. Terms for the two transactions included cash paid at closing
totaling approximately $13.6 million, with provisions for additional
consideration and earn-outs subject to certain contract provisions and
performance.
Item
2. Management’s Discussion and Analysis of Financial Condition
and
Results of Operations
The
following discussion and analysis should be read in conjunction with the
consolidated financial statements, including the notes thereto, for the three
and nine months ended September 30, 2007, included herein, and Jones Lang
LaSalle’s audited consolidated financial statements and notes thereto for the
fiscal year ended December 31, 2006, which have been filed with the SEC as
part
of our 2006 Annual Report on Form 10-K and are also available on our web
site
(www.joneslanglasalle.com).
The
following discussion and analysis contains certain forward-looking statements
which are generally identified by the words anticipates, believes, estimates,
expects, plans, intends and other similar expressions. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause Jones Lang LaSalle’s actual results, performance, achievements,
plans and objectives to be materially different from any future results,
performance, achievements, plans and objectives expressed or implied by such
forward-looking statements. See the Cautionary Note Regarding Forward-Looking
Statements in Part II, Item 5. Other Information.
Our
quarterly Management’s Discussion and Analysis is presented in five sections, as
follows:
(1)
A
summary of our critical accounting policies and estimates,
(2)
Certain items affecting the comparability of results and certain market and
other risks that we face,
(3)
The
results of our operations, first on a consolidated basis and then for each
of
our business segments,
(4)
Consolidated cash flows, and
(5)
Liquidity and capital resources.
Summary
of Critical Accounting Policies and Estimates
An
understanding of our accounting policies is necessary for a complete analysis
of
our results, financial position, liquidity and trends. See Note 1 of the
notes
to consolidated financial statements in our 2006 Annual Report on Form 10-K
for
a summary of our significant accounting policies.
The
preparation of our financial statements requires management to make certain
critical accounting estimates that impact the stated amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date
of the
financial statements, and the reported amount of revenues and expenses during
the reporting periods. These accounting estimates are based on management’s
judgment and are considered to be critical because of their significance
to the
financial statements and the possibility that future events may differ from
current judgments, or that the use of different assumptions could result
in
materially different estimates. We review these estimates on a periodic basis
to
ensure reasonableness. Although actual amounts likely differ from such estimated
amounts, we believe such differences are not likely to be material.
Interim
Period Accounting for Incentive Compensation
An
important part of our overall compensation package is incentive compensation,
which we typically pay to our employees in the first quarter of the year
after
it is earned. In our interim financial statements, we accrue for most incentive
compensation based on a percentage of compensation costs and an adjusted
operating income recorded to date relative to forecasted compensation costs
and
adjusted operating income for the full year, as substantially all incentive
compensation pools are based upon full year results. As noted in “Interim
Information” of Note 1 of the notes to consolidated financial statements,
quarterly revenues and profits have historically tended to be higher in the
third and fourth quarters of each year than in the first two quarters. The
impact of this incentive compensation accrual methodology is that we accrue
smaller percentages of incentive compensation in the first half of the year,
compared to the percentage of our incentive compensation we accrue in the
third
and fourth quarters. We adjust the incentive compensation accrual in those
unusual cases where we have paid earned incentive compensation to employees.
We
exclude incentive compensation pools that are not subject to the normal
performance criteria from the standard accrual methodology and accrue for
them
on a straight-line basis.
Certain
employees receive a portion of their incentive compensation in the form of
restricted stock units of our common stock. We recognize this compensation
over
the vesting period of these restricted stock units, which has the effect
of
deferring a portion of incentive compensation to later years. We recognize
the
benefit of deferring certain compensation under the stock ownership program
in a
manner consistent with the accrual of the underlying incentive compensation
expense.
Given
that we do not finalize individual incentive compensation awards until after
year-end, we must estimate the portion of the overall incentive compensation
pool that will qualify for this program. This estimation factors in the
performance of the Company and individual business units, together with the
target bonuses for qualified individuals. Then, when we determine, announce
and
pay incentive compensation in the first quarter of the year following that
to
which the incentive compensation relates, we true-up the estimated stock
ownership program deferral and related amortization.
The
table
below sets forth the deferral estimated at December 31, 2006 and 2005, and
the
adjustment made in the first quarter of the following year to true-up the
deferral and related amortization ($ in millions):
|
|
December 31,
2006
|
|
|
December 31,
2005
|
|
|
|
|
|
|
|
|
Deferral
of compensation, net of related amortization expense
|
|
$ |
24.7
|
|
|
|
15.8
|
|
Increase
(decrease) to deferred compensation in the first quarter of the
following
year
|
|
|
1.6
|
|
|
|
(0.3 |
) |
The
table
below sets forth the amortization expense related to the stock ownership
program
for the three and nine months ended September 30, 2007 and 2006 ($ in
millions):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
compensation expense amortization for prior year programs
|
|
$ |
4.0
|
|
|
|
4.8
|
|
|
|
17.9
|
|
|
|
14.3
|
|
Current
deferral net of related amortization
|
|
|
(4.4 |
) |
|
|
(0.7 |
) |
|
|
(19.5 |
) |
|
|
(13.6 |
) |
Accounting
for Self-insurance Programs
In
our
Americas business, and in common with many other American companies, we have
chosen to retain certain risks regarding health insurance and workers’
compensation rather than purchase third-party insurance. Estimating our exposure
to such risks involves subjective judgments about future developments. We
supplement our traditional global insurance program by the use of a captive
insurance company to provide professional indemnity and employment practices
insurance on a “claims made” basis. As professional indemnity claims can be
complex and take a number of years to resolve, we are required to estimate
the
ultimate cost of claims.
• Health
Insurance – We self-insure our health benefits for all U.S.-based employees,
although we purchase stop loss coverage on an annual basis to limit our
exposure. We self-insure because we believe that on the basis of our historic
claims experience, the demographics of our workforce and trends in the health
insurance industry, we incur reduced expense by self-insuring our health
benefits as opposed to purchasing health insurance through a third party.
We
estimate our likely full-year cost at the beginning of the year and expense
this
cost on a straight-line basis throughout the year. In the fourth quarter,
we
estimate the required reserve for unpaid health costs we would need at
year-end.
Given
the
nature of medical claims, it may take up to 24 months for claims to be processed
and recorded. The reserve balances for the programs related to 2007 and 2006
are
$10.1 million and $0.9 million, respectively, at September 30,
2007.
The
table
below sets out certain information related to the cost of this program for
the
three and nine months ended September 30, 2007 and 2006 ($ in
millions):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
to Company
|
|
$ |
4.1
|
|
|
|
3.5
|
|
|
|
11.8
|
|
|
|
10.0
|
|
Employee
contributions
|
|
|
1.0
|
|
|
|
0.9
|
|
|
|
2.8
|
|
|
|
2.7
|
|
Adjustment
to prior year reserve
|
|
|
—
|
|
|
|
0.1
|
|
|
|
(1.5 |
) |
|
|
(0.2 |
) |
Total
program cost
|
|
$ |
5.1
|
|
|
|
4.5
|
|
|
|
13.1
|
|
|
|
12.5
|
|
• Workers’
Compensation Insurance – Given our belief, based on historical experience, that
our workforce has experienced lower costs than is normal for our industry,
we
have been self-insured for worker’s compensation insurance for a number of
years. We purchase stop loss coverage to limit our exposure to large, individual
claims. We accrue using various state rates based on job classifications.
On an
annual basis in the third quarter, we engage in a comprehensive analysis
to
develop a range of potential exposure, and considering actual experience,
we
reserve within that range. We accrue for the estimated adjustment to income
for
the differences between this estimate and our reserve. The credits taken to
income through the three months ended September 30, 2007 and 2006 were $3.4
million and $0.6 million, respectively. The credits taken to income through
the
nine months ended September 30, 2007 and 2006 were $4.9 million and $2.1
million, respectively.
The
reserves, which can relate to multiple years, were $8.0 million and $8.4
million, as of September 30, 2007 and December 31, 2006,
respectively.
• Captive
Insurance Company – In order to better manage our global insurance program and
support our risk management efforts, we supplement our traditional insurance
program by the use of a wholly-owned captive insurance company to provide
professional indemnity and employment practices liability insurance coverage
on
a “claims made” basis. The level of risk retained by our captive is up to $2.5
million per claim (depending upon the location of the claim) and up to $12.5
million in the aggregate.
Professional
indemnity insurance claims can be complex and take a number of years to resolve.
Within our captive insurance company, we estimate the ultimate cost of these
claims by way of specific claim reserves developed through periodic reviews
of
the circumstances of individual claims, as well as reserves against current
year
exposures on the basis of our historic loss ratio. The increase in the level
of
risk retained by the captive means we would expect that the amount and the
volatility of our estimate of reserves will be increased over time. With
respect
to the consolidated financial statements, when a potential loss event occurs,
management estimates the ultimate cost of the claims and accrues the related
cost in accordance with SFAS 5, “Accounting for Contingencies.”
The
reserves estimated and accrued in accordance with SFAS 5 for self-insurance
facilitated through our captive insurance company, which relate to multiple
years, were $7.8 million and $9.3 million, net of receivables from third
party
insurers, as of September 30, 2007 and December 31, 2006,
respectively.
Income
Taxes
We
account for income taxes under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases and of operating
loss and tax credit carryforwards. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable income in
the
years in which those temporary differences are expected to be recovered or
settled. We recognize the effect on deferred tax assets and liabilities of
a
change in tax rates in income in the period that includes the enactment
date.
Because
of the global and cross border nature of our business, our corporate tax
position is complex. We generally provide for taxes in each tax jurisdiction
in
which we operate based on local tax regulations and rules. Such taxes are
provided on net earnings and include the provision of taxes on substantively
all
differences between financial statement amounts and amounts used in tax returns,
excluding certain non-deductible items and permanent differences.
Our
global effective tax rate is sensitive to the complexity of our operations
as
well as to changes in the mix of our geographic profitability, as local
statutory tax rates range from 10% to 42% in the countries in which we have
significant operations. We evaluate our estimated effective tax rate
on a quarterly basis to reflect forecasted changes in:
|
(i)
|
Our
geographic mix of income,
|
|
(ii)
|
Legislative
actions on statutory tax rates,
|
|
(iii)
|
The
impact of tax planning to reduce losses in jurisdictions where
we cannot
recognize the tax benefit of those losses,
and
|
|
(iv)
|
Tax
planning for jurisdictions affected by double
taxation.
|
We
continuously seek to develop and implement potential strategies and/or actions
that would reduce our overall effective tax rate. We reflect the benefit
from
tax planning actions when we believe that they meet the recognition criteria
under FIN 48, which usually requires that certain actions have been initiated.
We provide for the effects of income taxes on interim financial statements
based
on our estimate of the effective tax rate for the full year.
Based
on
our forecasted results for the full year, we have estimated an effective
tax
rate of 26.7% for 2007. We believe that this is an achievable rate due to
the
mix of our income and the impact of tax planning activities. For the nine
months
ended September 30, 2006, we used an effective tax rate of 26.3%. The Company’s
effective tax rate for 2006 was 26.7%.
Items
Affecting Comparability
LaSalle
Investment Management Revenues
Our
money
management business is in part compensated through the receipt of incentive
fees
where performance of underlying funds’ investments exceeds agreed-to benchmark
levels. Depending upon performance and the contractual timing of measurement
periods with clients, these fees can be significant and may vary substantially
from period to period.
“Equity
in earnings (losses) from real estate ventures” may also vary substantially from
period to period for a variety of reasons, including as a result of: (i)
impairment charges, (ii) realized gains on asset dispositions, or (iii)
incentive fees recorded as equity earnings. The timing of recognition of
these
items may impact comparability between quarters, in any one year, or compared
to
a prior year.
The
comparability of these items can be seen in Note 4 of the notes to consolidated
financial statements and is discussed further in Segment Operating Results
included herein.
IOS
Revenues
Expansion
of our real estate investment banking and other capital markets activities
within our Investor and Occupier Services businesses will tend to increase
the
revenues we receive that relate to the size and timing of our clients’
transactions. As we attempt to continue to expand these services, we would
also
expect the timing of recognition of these items to increasingly impact
comparability between quarters, in any one year, or compared to a prior year.
Fees from these services can be significant and may vary substantially from
period to period.
Foreign
Currency
We
conduct business using a variety of currencies, and most of our revenue is
from
currencies other than U.S. dollars, but we report our results in U.S. dollars.
As a result, our reported results may be positively or negatively impacted
by
the volatility of currencies against the U.S. dollar. This volatility can
make
it more difficult to perform period-to-period comparisons of the reported
U.S.
dollar results of operations, as such results demonstrate a growth rate that
might not have been consistent with the real underlying growth rate in the
local
operations. We therefore provide information about the impact of foreign
currencies in the period-to-period comparisons of the reported results of
operations in our discussion and analysis of financial condition in the Results
of Operations section below.
Seasonality
Our
revenue and profits tend to be significantly higher in the third and fourth
quarters of each year than in the first two quarters. This is the result
of a
general focus in the real estate industry on completing or documenting
transactions by calendar-year-end and the fact that certain expenses are
constant throughout the year. Our Investment Management segment earns
investment-generated performance fees on clients’ real estate investment returns
and co-investment equity gains, generally when assets are sold, the timing
of
which is geared towards the benefit of our clients. Within our IOS segments,
expansion of capital markets activities has an increasing impact on
comparability between reporting periods, as the timing of recognition of
revenues relates to the size and timing of our clients’ transactions.
Non-variable operating expenses, which are treated as expenses when they
are
incurred during the year, are relatively constant on a quarterly basis. As
a
result, the results for the periods ended September 30, 2007 and 2006 are
not
indicative of the results to be obtained for the full fiscal year.
Results
of Operations
Reclassifications
We
report
“Equity in earnings (losses) from real estate ventures” in the consolidated
statement of earnings after “Operating income (loss).” However, for segment
reporting we reflect “Equity in earnings (losses) from real estate ventures”
within “Total revenue.” See Note 4 of the notes to consolidated financial
statements for “Equity in earnings (losses) from real estate ventures” reflected
within segment revenues, as well as discussion of how the Chief Operating
Decision Maker (as defined in Note 4) measures segment results with “Equity in
earnings (losses) from real estate ventures” included in segment
revenues.
Three
and Nine Months Ended September 30, 2007 Compared to Three and Nine Months
Ended
September 30, 2006
In
order
to provide more meaningful year-to-year comparisons of the reported results,
we
have included in the table below the U.S. dollar and local currency movements
in
the consolidated statements of earnings ($ in millions).
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
624.1
|
|
|
|
462.3
|
|
|
|
161.8
|
|
|
|
35 |
% |
|
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
412.9
|
|
|
|
313.7
|
|
|
|
99.2
|
|
|
|
32 |
% |
|
|
26 |
% |
Operating,
administrative and other
|
|
|
132.8
|
|
|
|
99.8
|
|
|
|
33.0
|
|
|
|
33 |
% |
|
|
28 |
% |
Depreciation
and amortization
|
|
|
13.9
|
|
|
|
11.5
|
|
|
|
2.4
|
|
|
|
21 |
% |
|
|
17 |
% |
Total
operating expenses
|
|
|
559.6
|
|
|
|
425.0
|
|
|
|
134.6
|
|
|
|
32 |
% |
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
64.5
|
|
|
|
37.3
|
|
|
|
27.2
|
|
|
|
73 |
% |
|
|
68 |
% |
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,790.3
|
|
|
$ |
1,309.2
|
|
|
$ |
481.1
|
|
|
|
37 |
% |
|
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
1,174.8
|
|
|
|
863.3
|
|
|
|
311.5
|
|
|
|
36 |
% |
|
|
31 |
% |
Operating,
administrative and other
|
|
|
375.1
|
|
|
|
284.4
|
|
|
|
90.7
|
|
|
|
32 |
% |
|
|
27 |
% |
Depreciation
and amortization
|
|
|
38.8
|
|
|
|
31.9
|
|
|
|
6.9
|
|
|
|
22 |
% |
|
|
18 |
% |
Restructuring
credits
|
|
|
(0.4 |
) |
|
|
(0.7 |
) |
|
|
0.3
|
|
|
|
n.m.
|
|
|
|
n.m.
|
|
Total
operating expenses
|
|
|
1,588.3
|
|
|
|
1,178.9
|
|
|
|
409.4
|
|
|
|
35 |
% |
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
202.0
|
|
|
$ |
130.3
|
|
|
$ |
71.7
|
|
|
|
55 |
% |
|
|
53 |
% |
(n.m.
– not meaningful)
Revenue
for the third quarter of 2007 was $624.1 million, an increase of $161.8 million,
or 35% in U.S. dollars and 29% in local currencies. For the first nine months
of
2007, revenue was $1,790.3 million, an increase of $481.1 million, or 37%
in
U.S. dollars and 32% in local currencies. All investor and occupier
service segments achieved robust revenue growth for both the third quarter
and
year-to-date 2007 compared with the same periods in the prior year. Revenue
and
operating income growth were particularly strong in the LaSalle Investment
Management and Asia Pacific business segments during the third quarter of
2007.
Operating
expenses were $559.6 million for the third quarter of 2007, an increase of
32%
in U.S. dollars and 26% in local currencies. Operating expenses for the first
nine months of 2007 were $1,588.3 million, an increase of 35% in U.S. dollars
and 31% in local currencies. Continued additions to client-service staff,
both through hiring and acquisitions, and the expansion of offices globally,
contributed to increased operating expenses. Higher incentive compensation
costs
related to the strong revenue and profit performance also resulted in an
increase to operating expenses.
Net
interest expense was essentially unchanged from the third quarter of 2007
compared to the third quarter of 2006, and decreased $1.8 million, or 15%,
in
the first nine months of 2007 due to a decrease in average debt
balances compared to 2006, which included the debt used to finance the
Spaulding & Slye acquisition in January 2006. In 2007, the Company
recognized gains of $6.1 million in the first nine months of 2007 for the
sale
of investments in LoopNet in the first quarter and SiteStuff, Inc. in the
second
quarter.
Minority
interest expense for the third quarter of 2007 reflects the portion of earnings
of consolidated subsidiaries which is allocable to third-party investors.
The
year-to-date effective tax rate the first nine months of 2007 was 26.7%,
compared to 26.3% for the comparable period in 2006. The 26.7% effective
tax
rate is consistent with our full year 2006 effective tax rate and reflects
our
expected full year 2007 effective tax rate as a result of continued discipline
in managing our global tax position.
Segment
Operating Results
We
manage
and report our operations as four business segments:
|
(i)
|
Investment
Management, which offers money management services on a global
basis,
and
|
|
The
three geographic regions of Investor and Occupier Services
("IOS"):
|
|
(iii)
|
Europe,
Middle East and Africa (“EMEA”) and
|
The
Investment Management segment provides money management services to
institutional investors and high-net-worth individuals. Each geographic region
offers our full range of Investor Services, Capital Markets and Occupier
Services. The IOS business consists primarily of tenant representation and
agency leasing, capital markets, real estate investment banking and valuation
services (collectively "transaction services") and property management,
facilities management, project and development management, energy management
and
sustainability and construction management services (collectively "management
services").
We
have
not allocated “Restructuring credits” to the business segments for segment
reporting purposes; therefore, these costs are not included in the discussions
below. Also, for segment reporting we show “Equity in earnings (losses) from
real estate ventures” within our revenue line, especially since it is a very
integral part of our Investment Management segment.
Investor
and Occupier Services
Americas
($
in
millions)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
188.0
|
|
|
$ |
150.1
|
|
|
$ |
37.9
|
|
|
|
25 |
% |
Operating
expense
|
|
|
167.8
|
|
|
|
134.0
|
|
|
|
33.8
|
|
|
|
25 |
% |
Operating
income
|
|
$ |
20.2
|
|
|
$ |
16.1
|
|
|
$ |
4.1
|
|
|
|
|
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
515.2
|
|
|
$ |
397.7
|
|
|
$ |
117.5
|
|
|
|
30 |
% |
Operating
expense
|
|
|
469.4
|
|
|
|
374.6
|
|
|
|
94.8
|
|
|
|
25 |
% |
Operating
income
|
|
$ |
45.8
|
|
|
$ |
23.1
|
|
|
$ |
22.7
|
|
|
|
|
|
In
the
Americas region, revenue for the third quarter of 2007 was $188.0 million,
an
increase of 25% over the prior year. Year-to-date revenue was $515.2 million,
an
increase of 30% over the same period in 2006. Revenue growth in the third
quarter and year to date over the prior year was driven equally by Transaction
Services and Management Services. The current quarter’s revenue growth benefited
from an expanded list of corporate clients that resulted in account management
revenue growth of 40% over the prior year. Capital Markets also continued
its
momentum from earlier in the year as revenue in the third quarter increased
41%
over the prior year. The Public Institutions business had healthy growth
over
2006, as revenue increased 80% for the third quarter and 40% year to
date.
Total
operating expenses for both the quarter and year to date increased 25% over
the
prior year due to the addition of a significant number of staff and higher
incentive compensation expenses driven by growth in both revenue-generating
activities and profit performance.
EMEA
($
in
millions)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
224.8
|
|
|
$ |
169.7
|
|
|
$ |
55.1
|
|
|
|
32 |
% |
|
|
23 |
% |
Operating
expense
|
|
|
210.6
|
|
|
|
156.0
|
|
|
|
54.6
|
|
|
|
35 |
% |
|
|
26 |
% |
Operating
income
|
|
$ |
14.2
|
|
|
$ |
13.7
|
|
|
$ |
0.5
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
598.7
|
|
|
$ |
409.0
|
|
|
$ |
189.7
|
|
|
|
46 |
% |
|
|
35 |
% |
Operating
expense
|
|
|
554.6
|
|
|
|
395.0
|
|
|
|
159.6
|
|
|
|
40 |
% |
|
|
30 |
% |
Operating
income
|
|
$ |
44.1
|
|
|
$ |
14.0
|
|
|
$ |
30.1
|
|
|
|
|
|
|
|
|
|
EMEA’s
third quarter revenue was $224.8 million, an increase of 32%, and $598.7
million
year to date, an increase of 46% over 2006, with robust growth across
all businesses. Transaction Services revenue grew 33% for the quarter and
48%
year to date over the prior year, while Management Services revenue grew
36% for
the quarter and 47% year to date.
Transaction
Services revenue benefited from growth in Agency Leasing, Advisory Services
and
Capital Markets. Agency Leasing revenue increased 55% for the quarter and
38%
year to date over 2006. The growth was driven by increased market share and
strong underlying market conditions. Advisory Services revenue increased
68% and
77% for the third quarter and year to date, respectively. Capital
Markets revenue increased 11% for the quarter and 46% on a year-to-date basis.
The Firm’s Capital Markets transaction volumes were up slightly during the
quarter even though total transaction volumes for the European capital markets
as a whole were down 11%. This performance reflects the growth in market
share
from both acquisitions and the hiring of new transactors. During the quarter,
both the euro and pound sterling were approximately 8% stronger than the
previous year, which contributed to the U.S. dollar revenue growth.
Geographically,
all countries provided year-over-year revenue growth for both the quarter
and
year-to-date, led by England, Germany and Russia. England’s revenue increased
23% and 33% for the third quarter and year to date, respectively, compared
with
2006, benefiting from investments made in 2006 and healthy growth in Management
Services. Russia’s revenue more than doubled for both the quarter and year to
date over the prior year, driven by the increased volume of completed
valuations. Germany continued its momentum from earlier in the year as revenue
increased 44% for the third quarter and 85% year to date. Included in EMEA’s
prior year operating income results was the impact of a significant portfolio
sale recorded in the Hotels business.
Operating
expenses increased by 35% for the third quarter of 2007 compared with the
prior
year, and increased 40% on a year-to-date basis. The increase was due in
part to
acquisition and integration costs, additional operating costs of acquired
companies, and staff additions to service clients and grow market
share.
Asia
Pacific
($
in
millions)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
134.0
|
|
|
$ |
78.3
|
|
|
$ |
55.7
|
|
|
|
71 |
% |
|
|
60 |
% |
Operating
expense
|
|
|
127.1
|
|
|
|
80.2
|
|
|
|
46.9
|
|
|
|
58 |
% |
|
|
49 |
% |
Operating
income (loss)
|
|
$ |
6.9
|
|
|
$ |
(1.9 |
) |
|
$ |
8.8
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase
in
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
U.S.
dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
431.6
|
|
|
$ |
212.5
|
|
|
$ |
219.1
|
|
|
|
103 |
% |
|
|
94 |
% |
Operating
expense
|
|
|
383.4
|
|
|
|
212.2
|
|
|
|
171.2
|
|
|
|
81 |
% |
|
|
72 |
% |
Operating
income
|
|
$ |
48.2
|
|
|
$ |
0.3
|
|
|
$ |
47.9
|
|
|
|
|
|
|
|
|
|
In
Asia
Pacific, revenue for the third quarter of 2007 was $134.0 million, an increase
of 71% over the prior year. Year-to-date revenue was $431.6 million, an increase
of 103% compared with the same period in 2006. This growth is the result
of
effective execution within improving markets and the acquisition closed in
India
early in the third quarter of 2007. The strong growth in both Transaction
and
Management Services revenue resulted from strategic investments made in the
region’s healthy real estate markets.
Geographically,
the most significant third quarter revenue contributions came both from growth
markets (India, Japan, China and Korea) and core markets (Hong Kong, Singapore
and Australia). Revenue from the growth markets more than doubled, led by
Japan
and India, while revenue for the core markets increased 48%, led by Australia.
On a year-to-date basis, revenue from the growth markets was up over 100%
and
core markets’ revenue increased 39% compared with the same period in 2006. The
third quarter results generated by the entire India business operating as
Jones
Lang LaSalle Meghraj are included in the region’s revenue and operating expenses
from the date of acquisition in early July. However, because the acquisition
was
for an ownership share of less than 100%, the portion not belonging to the
Firm
is classified as a minority interest, net of tax, constituting an offset
to net
income in the consolidated statement of earnings.
Operating
expenses for the region increased as a result of acquisition-related expenses
and higher incentive compensation associated with revenue-generating
activities.
Investment
Management
($
in
millions)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase
(Decrease)
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
in
U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
79.0
|
|
|
$ |
64.5
|
|
|
$ |
14.5
|
|
|
|
22 |
% |
|
|
18 |
% |
Equity
earnings
|
|
|
3.3
|
|
|
|
0.5
|
|
|
|
2.8
|
|
|
|
n.m.
|
|
|
|
n.m.
|
|
Total
revenue
|
|
|
82.3
|
|
|
|
65.0
|
|
|
|
17.3
|
|
|
|
27 |
% |
|
|
22 |
% |
Operating
expense
|
|
|
54.1
|
|
|
|
54.8
|
|
|
|
(0.7 |
) |
|
|
(1 |
%) |
|
|
(3 |
%) |
Operating
income
|
|
$ |
28.2
|
|
|
$ |
10.2
|
|
|
$ |
18.0
|
|
|
|
|
|
|
|
|
|
(n.m.
–
not meaningful)
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Increase
(Decrease)
|
|
|
in
Local
|
|
|
|
2007
|
|
|
2006
|
|
|
in
U.S. dollars
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
246.9
|
|
|
$ |
292.1
|
|
|
$ |
(45.2 |
) |
|
|
(15 |
%) |
|
|
(17 |
%) |
Equity
earnings
|
|
|
9.3
|
|
|
|
7.3
|
|
|
|
2.0
|
|
|
|
27 |
% |
|
|
27 |
% |
Total
revenue
|
|
|
256.2
|
|
|
|
299.4
|
|
|
|
(43.2 |
) |
|
|
(14 |
%) |
|
|
(16 |
%) |
Operating
expense
|
|
|
181.2
|
|
|
|
197.8
|
|
|
|
(16.6 |
) |
|
|
(8 |
%) |
|
|
(10 |
%) |
Operating
income
|
|
$ |
75.0
|
|
|
$ |
101.6
|
|
|
$ |
(26.6 |
) |
|
|
|
|
|
|
|
|
LaSalle
Investment Management’s revenue was $82.3 million for the third quarter of 2007
and $256.2 million for year-to-date 2007. Revenue for the third quarter of
2007
increased 27%, while it decreased year to date as a result of the $112.5
million
incentive fee generated in the second quarter of 2006. The revenue increase
in
the third quarter was driven mainly by the annuity-based business. Advisory
fees
were $63.6 million for the third quarter, compared with $45.6 million in
2006,
an increase of 40% over the prior year and an increase of 35%, to $171.9
million, on a year-to-date basis. The growth in the annuity revenue was driven
by a continued healthy increase in assets under management as well as new
capital commitments in certain funds that generate advisory fees on committed
amounts effective from the establishment of the funds. Assets under management
were $46.9 billion at the end of the third quarter of 2007, an increase of
19%
over the prior year.
Incentive
fees for the third quarter of 2007 decreased to $6.0 million compared with
$14.7
million in the prior year. While the Firm continues to build a portfolio
capable
of producing incentive fees on a recurring basis, incentive fees vary
significantly from period to period due to both the performance of the
underlying investments and the contractual timing of the measurement periods
for
clients.
LaSalle
Investment Management raised more than $3.7 billion of equity during the
third
quarter of 2007, bringing the year-to-date total to $7.9 billion. Global
securities mandates accounted for nearly $3.4 billion of the total capital
raise
for the year, resulting in a net portfolio increase for global securities
of
$1.8 billion. Investments made on behalf of clients in the third quarter
of 2007
were $3.9 billion, bringing total investments to $7.3 billion on a year-to-date
basis.
Consolidated
Cash Flows
Cash
Flows From Operating Activities
During
the nine months ended September 30, 2007, cash flow generated from operating
activities totaled $153.4 million, essentially unchanged from the $154.2
million
generated in the first nine months of 2006. In 2007, we generated more cash
flow
from earnings as the result of the $56.9 million, or 60%, increase in net
income, offset by increased cash required for changes in working capital.
The
increased cash required for working capital was primarily the result of
significantly higher bonus payments made in the first quarter of 2007 compared
to bonus payments made in the first quarter of 2006.
Cash
Flows From Investing Activities
We
used
$150.6 million of cash in investing activities during the nine months ended
September 30, 2007, a decrease of $118.4 million, or 44%, from the $269.0
million used in the first nine months of 2006. This decrease is primarily
due to
a $95.7 million decrease in cash used to facilitate business acquisitions
and a
decrease of $49.9 million in net fundings of co-investment activity compared
to
the same period in the prior year. In the first nine months of 2006, we used
$182.7 million for the acquisitions of Spaulding & Slye, Rogers Chapman, The
Littman Partnership and RSP Group. In the first nine months of 2007, we used
$87.0 million to facilitate seven acquisitions, the most significant being
Troostwijk Makelaars, KHK Group, Trammell Crow Meghraj and Camilli & Veiel.
These decreases were partially offset by a $27.2 million or 62% increase
in cash
used for capital additions for office expansions and technology
improvements.
Cash
Flows From Financing Activities
We
used
$5.2 million for financing activities in the first nine months of 2007, compared
to $120.2 million generated from financing activities in the first nine months
of 2006. The $125.4 million decrease in cash provided by financing activities
from 2006 was primarily the result of a net $62.3 million decrease in borrowing
under the Company’s credit facilities and a $36.5 million increase in cash used
for share repurchases. This decrease in borrowing was primarily due to use
of
the Company’s credit facilities in 2006 to finance the $150.0 million
acquisition of Spaulding & Slye. Share repurchases under our Board-approved
share repurchase programs were $66.2 million in the first nine months of
2007, a
$36.5 million increase from the $29.7 million for share repurchases in the
first
nine months of 2006. Proceeds from stock issued under employee stock option
and
stock purchase programs decreased by $12.6 million primarily due to more
employee stock options being exercised in the first nine months of 2006 compared
to the first nine months of 2007. Also, shares repurchased for payment of
employee taxes on stock awards increased by $12.0 million, primarily due
to the
vesting of approximately 134,000 more restricted stock unit awards at higher
average fair values in the nine months ended September 30, 2007 than in the
comparable period in 2006.
Liquidity
and Capital Resources
Historically,
we have financed our operations, co-investment activity, share repurchases
and
dividend payments, capital expenditures and business acquisitions with
internally generated funds, issuances of our common stock and borrowings
under
our credit facilities.
Credit
Facility
On
June
6, 2007, we amended our unsecured revolving credit facility to increase the
facility to $575 million, improve the pricing, extend the term to June 2012
and
modify other terms of the agreement. Pricing on the $575 million facility
now
ranges from LIBOR plus 47.5 basis points to LIBOR plus 80 basis points. As
of
September 30, 2007, our pricing on the revolving credit facility was LIBOR
plus
47.5 basis points. This facility will continue to be utilized for working
capital needs (including payment of accrued bonus compensation during the
first
quarter of each year), co-investment activity, share repurchases and dividend
payments, capital expenditures and acquisitions. Interest and principal payments
on outstanding borrowings against the facility will fluctuate based on our
level
of borrowing needs. We also have capacity to borrow up to an additional $46.1
million under local overdraft facilities.
As
of
September 30, 2007, we had $83.6 million outstanding under the revolving
credit
facility. The average borrowing rate on the revolving credit agreement was
5.5%
in the third quarter of 2007, as compared with an average borrowing rate
of 5.2%
in the third quarter of 2006. We also had short-term borrowings (including
capital lease obligations) of $34.5 million outstanding at September 30,
2007,
with $21.0 million of those borrowings attributable to local overdraft
facilities.
With
respect to the revolving credit facility, we must maintain a consolidated
net
worth of at least $600 million, a leverage ratio not exceeding 3.5 to 1,
and a
minimum interest coverage ratio of 2.5 to 1. Additionally, we are restricted
from, among other things, incurring certain levels of indebtedness to lenders
outside of the facility and disposing of a significant portion of our assets.
Lender approval or waiver is required for certain levels of co-investment
and
acquisitions. We are in compliance with all covenants as of September 30,
2007.
The
revolving credit facility bears variable rates of interest based on market
rates. We are authorized to use interest rate swaps to convert a portion
of the
floating rate indebtedness to a fixed rate; however, none were used during
2006
or the first nine months of 2007, and none were outstanding as of September
30,
2007.
We
believe that the revolving credit facility, together with local borrowing
facilities and cash flow generated from operations, will provide adequate
liquidity and financial flexibility to meet our needs to fund working capital,
co-investment activity, share repurchases and dividend payments, capital
expenditures and business acquisitions.
Co-investment
Activity
With
respect to our co-investment activity, we had total investments and loans
of
$134.1 million as of September 30, 2007 in approximately 35 separate property
or
fund co-investments. Within this $134.1 million are loans of $3.1 million
to
real estate ventures which bear an 8.0% interest rate and are to be repaid
by
2008.
We
utilize two investment vehicles to facilitate the majority of our co-investment
activity. LaSalle Investment Company I (“LIC I”) is a series of four parallel
limited partnerships which serve as our investment vehicle for substantially
all
co-investment commitments made through December 31, 2005. LIC I is fully
committed to underlying real estate ventures. At September 30, 2007, our
maximum
potential unfunded commitment to LIC I is euro 35.5 million ($50.7
million). LaSalle Investment Company II (“LIC II”), formed in January 2006,
consists of two parallel limited partnerships which serve as our investment
vehicle for most new co-investments. At September 30, 2007, LIC II
has unfunded capital commitments for future funding of co-investments of
$325.0
million, of which our 48.78% share is $158.5 million. The $158.5 million
commitment is part of our maximum potential unfunded commitment to LIC II
at September 30, 2007 of $450.3 million.
LIC
I and
LIC II invest in certain real estate ventures that own and operate commercial
real estate. We have an effective 47.85% ownership interest in LIC I, and
an effective 48.78% ownership interest in LIC II; primarily institutional
investors hold the remaining 52.15% and 51.22% interests in LIC I and LIC
II,
respectively. Additionally, a non-executive Director of Jones Lang LaSalle
is an
investor in LIC I on equivalent terms to other investors. We account for
our
investments in LIC I and LIC II under the equity method of accounting in
the
accompanying consolidated financial statements.
LIC
I’s
and LIC II’s exposures to liabilities and losses of the ventures in which they
have invested are limited to their existing capital contributions and remaining
capital commitments. We expect that LIC I will draw down on our commitment
over
the next three to five years to satisfy its existing commitments to underlying
funds, and we expect that LIC II will draw down on our commitment over the
next four to eight years as it enters into new commitments. Our Board of
Directors has endorsed the use of our co-investment capital in particular
situations to control or bridge finance existing real estate assets or
portfolios to seed future investments within LIC II. The purpose is to
accelerate capital raising and growth in assets under management. Approvals
for
such activity are handled consistently with those of the Firm’s co-investment
capital.
As
of
September 30, 2007, LIC I maintains a euro 25 million ($35.7 million) revolving
credit facility (the "LIC I Facility"), and LIC II maintains a $200 million
revolving credit facility (the "LIC II Facility"), principally for their
working
capital needs. The capacity in the LIC II Facility contemplates potential
bridge
financing opportunities. Each facility contains a credit rating trigger and
a
material adverse condition clause. If either of the credit rating trigger
or the
material adverse condition clauses becomes triggered, the facility to which
that
condition relates would be in default and outstanding borrowings would need
to
be repaid. Such a condition would require us to fund our pro-rata share of
the
then outstanding balance on the related facility, which is the limit of our
liability. The maximum exposure to Jones Lang LaSalle, assuming that the
LIC I
Facility were fully drawn, would be euro 12.0 million ($17.1 million); assuming
that the LIC II Facility were fully drawn, the maximum exposure to Jones
Lang
LaSalle would be $97.6 million. Each exposure is included within and cannot
exceed our maximum potential unfunded commitments to LIC I of euro 35.5 million
($50.7 million) and to LIC II of $450.3 million. As of September 30, 2007,
LIC I
had euro 0.9 million ($1.2 million) of outstanding borrowings on the LIC
I
Facility, and LIC II had $38.1 million of outstanding borrowings on the LIC
II
Facility.
Exclusive
of our LIC I and LIC II commitment structures, we have potential obligations
related to unfunded commitments to other real estate ventures, the maximum
of
which is $11.5 million at September 30, 2007.
We
expect
to continue to pursue co-investment opportunities with our real estate money
management clients in the Americas, EMEA and Asia Pacific, as co-investment
remains very important to the continued growth of Investment Management.
The net
co-investment funding for 2007 is anticipated to be between $20 and $30 million
(planned co-investment less return of capital from liquidated
co-investments).
Share
Repurchase and Dividend Programs
In
the
first nine months of 2007, we have repurchased 648,900 shares at an average
price of $101.97 per share. On August 15, 2007, our board of directors approved
a new share repurchase program under which the Company may repurchase up
to
2,000,000 shares of its common stock. This was in addition to the 208,000
shares
that remained authorized to be repurchased as of August 15, 2007 under a
program
that was established in September 2005. These share repurchase programs allow
the Company to purchase our common stock in the open market and in privately
negotiated transactions. The repurchase of shares is primarily intended to
offset dilution resulting from both restricted stock and stock option grants
made under our existing employee compensation plans. In the third quarter
of
2007, we repurchased and canceled 428,319 shares under these
programs. Shares repurchased prior to July 1, 2007 under these
programs were not canceled, but are held by one of our subsidiaries, and
are
included in total shares outstanding. However, these shares are excluded
from
the weighted average shares outstanding for purposes of calculating earnings
per
share. We have repurchased a total of 5,398,551 shares since the first
repurchase program approved by our Board of Directors on October 30, 2002.
See
Part II, Item 2, for additional details regarding our share repurchase activity
in the first nine months of 2007.
In
May
2007, the Company’s Board of Directors declared a cash dividend of $0.35 per
common share. Dividend payments totaling $12.1 million were made on June
15,
2007 to holders of record at the close of business on May 15, 2007. This
includes a dividend-equivalent of $0.35 per share paid simultaneously on
outstanding but unvested shares of restricted stock units granted under the
Company’s Stock Award and Incentive Plan, resulting in $0.9 million of
dividend-equivalent payments. In October 2007, the Company’s Board of Directors
declared a cash dividend of $0.50 per common share. Dividend payments will
be
made on December 14, 2007 to holders of record at the close of business on
November 15, 2007. On December 14, 2007 the Company will also pay a
dividend-equivalent of $0.50 per share on outstanding but unvested shares
of
restricted stock units granted under the Company’s Stock Award and Incentive
Plan.
Capital
Expenditures and Business Acquisitions
Capital
expenditures for the first nine months of 2007 were $71.3 million, net, up
from
$44.1 million for the same period in 2006, primarily for ongoing improvements
to
computer hardware and information systems and improvements to leased
space.
Cash
used
to facilitate business acquisitions in the first nine months of 2007 was
$87.0
million, down from $182.7 million for the same period in 2006. Terms for
our
acquisitions typically include cash paid at closing, with provisions for
additional consideration and earn-outs subject to certain contract provisions
and performance. Deferred business acquisition obligations on our consolidated
balance sheet represent the current fair values of payments to sellers of
businesses for which our acquisition has closed as of the balance sheet date
and
for which the only remaining condition on those payments is the passage of
time.
Eleven of the acquisitions we have completed since January 1, 2006 have provided
for potential earn-out payments subject to the achievement of certain
performance conditions. For nine of those acquisitions, the maximum amount
of
the potential earn-out payments to be recorded to goodwill in future periods
is
$79.5 million. We expect those amounts will come due at various times
over the next seven years. For the other two of those acquisitions, the
amounts of the earn-out payments are based on formulas and are not quantifiable
at this time. See Note 6 of the notes to consolidated financial statements
for
additional discussion of the Company’s business acquisition activity in the
first nine months of 2007.
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 $130.7 million during the three months ended September 30,
2007,
and the effective interest rate on that facility was 5.5%. As of September
30,
2007, we had $83.6 million outstanding under the revolving credit facility.
This
facility bears a variable rate of interest based on market rates. The interest
rate risk management objective is to limit the impact of interest rate changes
on earnings and cash flows and to lower overall borrowing costs. To achieve
this
objective, in the past we have entered into derivative financial instruments
such as interest rate swap agreements when appropriate and may do so in the
future. We entered into no such agreements in 2006 or the first nine months
of
2007, and we had no such agreements outstanding at September 30,
2007.
Foreign
Exchange
Foreign
exchange risk is the risk that we will incur economic losses due to adverse
changes in foreign currency exchange rates. Our revenues outside of the United
States totaled 64% and 53% of our total revenues for the nine months of 2007
and
2006, respectively. Operating in international markets means that we are
exposed
to movements in foreign exchange rates, primarily the British pound sterling
(17% of revenues for the first nine months of 2007) and the euro (17% of
revenues for the first nine months of 2007).
We
mitigate our foreign currency exchange risk principally by establishing local
operations in the markets we serve and invoicing customers in the same currency
as the source of the costs. For example, the British pound sterling 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 sterling.
We
enter
into forward foreign currency exchange contracts to manage currency risks
associated with intercompany loan balances. At September 30, 2007, we had
forward exchange contracts in effect with a gross notional value of $567.8
million ($548.3 million on a net basis) with a market and carrying gain of
$8.3
million. This carrying gain is offset by a carrying loss in associated
intercompany loans such that the net impact to earnings is not
significant.
Disclosure
of Limitations
As
the
information presented above includes only those exposures that exist as of
September 30, 2007, it does not consider those exposures or positions which
could arise after that date. The information represented herein has limited
predictive value. As a result, the ultimate realized gain or loss with respect
to interest rate and foreign currency fluctuations will depend on the exposures
that arise during the period, the hedging strategies at the time and interest
and foreign currency rates.
For
other
risk factors inherent in our business, see Item 1A. Risk Factors in our 2006
Annual Report on Form 10-K.
Item
4. Controls and Procedures
Jones
Lang LaSalle (the Company) has established disclosure controls and procedures
to
ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to the officers who certify the
Company’s financial reports and to the members of senior management and the
Board of Directors.
Under
the
supervision and with the participation of the Company’s management, including
our Chief Executive Officer and Chief Operating and 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 Operating
and Financial Officer concluded that our disclosure controls and procedures
were
effective as of the end of the period covered by this report. There were
no
changes in the Company’s internal control over financial reporting during the
quarter ended September 30, 2007 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Part
II
Item
1. Legal Proceedings
See
Note
11 of the notes to consolidated financial statements for discussion of the
Company’s legal proceedings.
There
have been no material changes to our risk factors as previously disclosed
in our
Form 10-K for the year ended December 31, 2006.
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, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
January
31, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
1,421,100
|
|
|
|
578,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
28, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
1,421,100
|
|
|
|
578,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2007
|
|
|
220,581
|
|
|
$ |
98.90
|
|
|
|
1,641,681
|
|
|
|
358,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
30, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
1,641,681
|
|
|
|
358,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
31, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
1,641,681
|
|
|
|
358,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
1,641,681
|
|
|
|
358,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
31, 2007
|
|
|
20,000
|
|
|
$ |
114.32
|
|
|
|
1,661,681
|
|
|
|
338,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31, 2007
|
|
|
258,200
|
|
|
$ |
104.20
|
|
|
|
1,919,881
|
|
|
|
80,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
1, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
12, 2007
|
|
|
80,119
|
|
|
$ |
100.83
|
|
|
|
2,000,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
13, 2007 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2007
|
|
|
70,000
|
|
|
$ |
101.20
|
|
|
|
70,000
|
|
|
|
1,930,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
648,900
|
|
|
$ |
101.97
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Total
average price paid per share is a weighted average for the nine
month
period.
|
|
(2)
|
Since
October 2002, our Board of Directors has approved five share
repurchase
programs. At September 30, 2007 the Company is authorized to
purchase
1,930,000 shares under the repurchase program approved on August
15, 2007.
Share repurchases through September 12, 2007 were made under
the share
repurchase program approved on September 15, 2005; the program
approved
September 15, 2005 was allowed to be fully utilized before the
program
approved August 15, 2007 came into use on September 13, 2007.
These share
repurchase programs allow the Company to purchase our common
stock in the
open market and in privately negotiated transactions. The repurchase
of
shares is primarily intended to offset dilution resulting from
both
restricted stock and stock option grants made under our existing
employee
compensation plans. 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 September
30,
2007
|
|
|
|
|
|
|
|
|
October
30, 2002
|
|
|
1,000,000
|
|
|
|
700,000
|
|
February
27, 2004
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
November
29, 2004
|
|
|
1,500,000
|
|
|
|
1,128,551
|
|
September
15, 2005
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
August
15, 2007
|
|
|
2,000,000
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
5,398,551
|
|
Item
5. Other Information
Corporate
Governance
Our
policies and practices reflect corporate governance initiatives that we believe
comply with the listing requirements of the New York Stock Exchange, on which
our common stock is traded, the corporate governance requirements of the
Sarbanes-Oxley Act of 2002 as currently in effect, various regulations issued
by
the United States Securities and Exchange Commission and certain provisions
of
the General Corporation Law in the State of Maryland, where Jones Lang LaSalle
is incorporated.
We
maintain a corporate governance section on our public web site which includes
key information about our corporate governance initiatives, such as our
Corporate Governance Guidelines, Charters for the three Committees of our
Board
of Directors, a Statement of Qualifications of Members of the Board of Directors
and our Code of Business Ethics. The Board of Directors regularly reviews
corporate governance developments and modifies our Guidelines and Charters
as
warranted. The corporate governance section can be found on our web site
at
www.joneslanglasalle.com by clicking “Investor Relations” and then “Board
of Directors and Corporate Governance.”
Corporate
Officers
The
names
and titles of our corporate executive officers are as follows:
Global
Executive Committee
Colin
Dyer
Chief
Executive Officer and President
Lauralee
E. Martin
Executive
Vice President, Chief Operating and Financial Officer
Peter
A.
Barge
Chief
Executive Officer, Asia Pacific
Alastair
Hughes
Chief
Executive Officer, EMEA
Jeff
A.
Jacobson
Chief
Executive Officer, LaSalle Investment Management
Peter
C.
Roberts
Chief
Executive Officer, Americas
Additional
Global Corporate Officers
Charles
J. Doyle
Chief
Marketing Officer
Brian
P.
Hake
Treasurer
James
S.
Jasionowski
Chief
Tax
Officer
David
A.
Johnson
Chief
Information Officer
Mark
J.
Ohringer
General
Counsel and Corporate Secretary
Marissa
R. Prizant
Director
of Internal Audit
Nazneen
Razi
Chief
Human Resources Officer
Stanley
Stec
Controller
Effective
September 17, 2007, Charles J. Doyle succeeded Molly A. Kelly as our global
Chief Marketing Officer. Ms. Kelly remains the Chief Marketing Officer for
our
Americas business segment.
Cautionary
Note Regarding Forward-Looking Statements
Certain
statements in this filing and elsewhere (such as in reports, other filings
with
the United States Securities and Exchange Commission, press releases,
presentations and communications by Jones Lang LaSalle or its management
and
written and oral statements) regarding, among other things, future financial
results and performance, achievements, plans and objectives, dividend payments
and share repurchases may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties
and
other factors that may cause Jones Lang LaSalle’s actual results, performance,
achievements, plans and objectives to be materially different from any of
the
future results, performance, achievements, plans and objectives expressed
or
implied by such forward-looking statements.
We
discuss those risks, uncertainties and other factors in (i) our Annual Report
on
Form 10-K for the year ended December 31, 2006 in Item 1A. Risk Factors;
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations; Item 7A. Quantitative and Qualitative Disclosures About Market
Risk;
Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements; and elsewhere, (ii) in this Quarterly Report on Form
10-Q
in Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations; Item 3. Quantitative and Qualitative Disclosures About
Market Risk; and elsewhere, and (iii) the other reports we file with the
United
States Securities and Exchange Commission. Important factors that could cause
actual results to differ from those in our forward-looking statements include
(without limitation):
|
•
|
The
effect of political, economic and market conditions and geopolitical
events;
|
|
•
|
The
logistical and other challenges inherent in operating in numerous
different countries;
|
|
•
|
The
actions and initiatives of current and potential
competitors;
|
|
•
|
The
level and volatility of real estate prices, interest rates, currency
values, liquidity in the capital markets 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 5th day of
November,
2007.
|
|
JONES
LANG LASALLE INCORPORATED
|
|
|
|
|
|
/s/
Lauralee E. Martin
|
|
|
|
|
|
|
|
|
By:
Lauralee E. Martin
|
|
|
Executive
Vice President and Chief Operating and Financial
Officer
|
|
|
(Authorized
Officer and Principal Financial
Officer)
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
|
|
|
|
|
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.