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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Act of 1934
For the fiscal year
ended December 31, 1999 Commission File Number 1-13145
JONES LANG LASALLE INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland 36-4150422
(State of organization) (I.R.S. Employer Identification No.)
200 East Randolph Drive, Chicago, IL 60601
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/782-5800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock ($.01 par value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ ]
As of March 24, 2000, there were outstanding 30,342,018 shares of the
Registrant's Common Stock. The aggregate market value of the Registrant's
Common Stock held for non-affiliates on March 24, 2000 was approximately
$353,591,560 based on the closing price of $14.00 per share. The aggregate
market value of all of the Registrant's 30,342,018 shares of Common Stock
outstanding on such date was approximately $424,788,252.
Portions of the Registrant's Proxy Statement for its 2000 Annual Meeting of
Stockholders to be held on May 15, 2000 are incorporated by reference in
Part III of this report.
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . 20
Item 3. Legal Proceedings . . . . . . . . . . . . . . . 21
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . 21
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . 22
Item 6. Selected Financial Data . . . . . . . . . . . . 23
Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . 30
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . 43
Item 8. Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . 45
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . 84
PART III
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . 84
Item 11. Executive Compensation. . . . . . . . . . . . . 84
Item 12. Security Ownership of Certain
Beneficial Owners and Management. . . . . . . . 84
Item 13. Certain Relationships and
Related Transactions. . . . . . . . . . . . . . 84
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . 85
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS . . . . . . 85
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 87
i
PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Jones Lang LaSalle Incorporated ("Jones Lang LaSalle"; formerly
LaSalle Partners Incorporated) founded in 1968, is a leading full-service
real estate services firm that provides investment management, hotel
acquisition and disposition, strategic advisory and valuation, property
management, corporate property services, development services, project
management, tenant representation, agency leasing, investment disposition
and acquisition, financing and capital placement services on a local,
regional and global basis. Jones Lang LaSalle manages approximately 700
million square feet of property, provides investment management services
for $21.5 billion of assets, and operates a business with more than 7,000
employees across 100 markets on five continents. Jones Lang LaSalle has
grown by expanding both its client base and its range of services and
products in anticipation of client needs, as well as through a series of
strategic acquisitions and a merger. By offering a broad range of real
estate products and services, and through its extensive knowledge of
domestic and international real estate markets, Jones Lang LaSalle is able
to serve as a single source provider of solutions for its clients' full
range of real estate needs. The ability to provide this network of
services around the globe was solidified effective March 11, 1999 with the
merger of the businesses of the Jones Lang Wootton companies ("JLW") with
those of LaSalle Partners Incorporated ("LaSalle Partners") (see
Organization section below for discussion). In connection with this
merger, the name of the company was changed from LaSalle Partners
Incorporated to Jones Lang LaSalle Incorporated.
ORGANIZATION
Prior to its incorporation in Maryland on April 15, 1997 and its
initial public offering (the "Offering") of 4,000,000 shares of common
stock on July 22, 1997, Jones Lang LaSalle transacted business as LaSalle
Partners Limited Partnership and LaSalle Partners Management Limited
Partnership (collectively, the "Predecessor Partnerships"). Immediately
prior to the Offering, the general and limited partners of the Predecessor
Partnerships contributed all of their partnership interests in the
Predecessor Partnerships in exchange for an aggregate of 12,200,000 shares
of common stock.
On March 11, 1999, Jones Lang LaSalle (at the time known as LaSalle
Partners Incorporated) merged its businesses with those of JLW and changed
its name to Jones Lang LaSalle Incorporated. JLW was an employee owned
international real estate services firm with approximately 4,000 employees
and operations in 32 countries. It provided a wide range of real estate
advisory, transactional and asset management services to local, national
and international clients in both the private and public sectors and had
approximately 280 million square feet under management and approximately
$6.3 billion in assets under management. The operations, headquartered in
London, were managed geographically with four main regions in Europe, Asia,
Australasia and the United States. JLW had a culture, long-term strategy
and service capability which were compatible with those of LaSalle
Partners. In accordance with the purchase and sale agreements related to
the merger, Jones Lang LaSalle issued 14.3 million shares of common stock
and paid cash consideration of $6.2 million (see Management's Discussion
and Analysis of Financial Condition and Results of Operations and Notes to
Consolidated Financial Statements provided elsewhere herein for further
discussion regarding this transaction).
In October 1998, Jones Lang LaSalle acquired all of the common stock
of the following real estate service companies (collectively referred to as
"COMPASS") formerly owned by Lend Lease Corporation Limited ("Lend Lease"):
COMPASS Management and Leasing, Inc. and its wholly owned subsidiaries, The
Yarmouth Group Property Management, Inc., ERE Yarmouth Retail, Inc.
(formerly COMPASS Retail, Inc.), and COMPASS Management and Leasing
(Australia) Pty Limited. The acquisition of COMPASS elevated Jones Lang
LaSalle's position in the property management and corporate property
services industry to that of the largest management services company in the
United States and expanded its international presence into Australia and
South America.
In April 1997, Jones Lang LaSalle acquired all of the common stock of
the Galbreath Company, a property management, corporate property services
and development services company with operations in the United States. The
principal objectives for the acquisition were to expand Jones Lang
LaSalle's geographic presence, add additional client relationships and
provide for economic synergies with the leasing and management services
group. In addition, Jones Lang LaSalle acquired the project management
business of Satulah Group Inc., a project management and facilities
conversion company, in January 1998. The objective of this acquisition was
to enhance project management services and to support the long-term growth
strategy of expanding service capabilities.
BUSINESS SEGMENTS
Jones Lang LaSalle manages its business along a combination of
functional and geographic lines. In the fourth quarter of 1999, Jones Lang
LaSalle consolidated its operations in Asia and Australasia into a unified
region now known as Asia Pacific. Accordingly, operations are now
classified into five business segments: two global businesses, (i)
Investment Management and (ii) Hotel Services; and three geographic regions
of Owner and Occupier Services, (iii) the Americas, (iv) Europe and (v)
Asia Pacific. The Investment Management segment provides real estate
investment management services to institutional investors, corporations,
and high net worth individuals. The Hotel Services segment provides
strategic advisory, sales, acquisition, valuation and asset management
services related solely to hotel, conference and resort properties. The
Owner and Occupier Services business is operated on a geographical basis
and consists primarily of tenant representation and agency leasing, capital
markets and valuation services (collectively, "implementation services")
and property management, corporate property services, development services
and project management services (collectively, "management services"). For
financial information and a discussion of the operating performance of each
segment refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations and Notes to Consolidated Financial
Statements provided elsewhere herein.
OWNER AND OCCUPIER SERVICES
To effectively address the local, regional and global needs of real
estate owners and occupiers, Jones Lang LaSalle provides a full spectrum of
integrated transaction, property management and corporate property
services. These services can be grouped into two types: implementation
services and management services. Operations are managed geographically in
three regions: the Americas, Europe and Asia Pacific. In addition, the
Global Services Management unit supports the regions of Owner and Occupier
services on a global basis for marketing, consulting and delivery of best
practices to multi-national clients. The following is a discussion of the
primary services provided, as well as Global Services Management:
IMPLEMENTATION SERVICES
Implementation services consist primarily of tenant representation,
agency leasing, capital markets and valuation services. Implementation
services produced 52.1%, 40.1% and 40.8% of Jones Lang LaSalle's total
revenue for 1999, 1998 and 1997, respectively.
TENANT REPRESENTATION SERVICES. Jones Lang LaSalle's Tenant
Representation Services units assist clients by defining space
requirements, identifying suitable alternatives, recommending appropriate
occupancy solutions and negotiating lease and ownership terms with third
parties. Jones Lang LaSalle seeks to assist its clients to lower real
estate costs, minimize real estate occupancy risks, improve occupancy
flexibility and control and create more productive office environments. A
multi-disciplined approach is used to develop occupancy strategies that are
linked to its clients' core business objectives. In 1999, Jones Lang
LaSalle completed over 1,700 tenant representation transactions involving
approximately 26.0 million square feet.
The tenant representation industry includes a large number of service
providers offering a wide range of service quality and capabilities. The
Tenant Representation Services units, particularly in the United States,
direct their marketing efforts toward developing "strategic alliances" with
clients whose real estate requirements include on-going assistance in
meeting their real estate needs and also toward clients who have the need
to consider multiple real estate options and to execute complex strategies.
In many cases, Jones Lang LaSalle develops a strategic alliance with
clients to deliver fully integrated real estate services, including
comprehensive on-going strategic planning and transaction execution
services across multiple office locations via the assignment of dedicated
client teams. Jones Lang LaSalle views its strategic alliances as a
competitive advantage since these long-term relationships lower business
development costs for Jones Lang LaSalle and create recurring revenue
sources. Through these relationships, Jones Lang LaSalle gains a better
understanding of its clients' portfolio and occupancy requirements since
the same professionals service the client's needs nationwide. Jones Lang
LaSalle believes that these relationships enable it to deliver more
consistent services and better results than single-transaction,
commissioned brokerage service providers.
In addition to its strategic alliances, Jones Lang LaSalle also
represents clients in large, complex transaction assignments that typically
involve relocations of headquarters facilities or major office
consolidations. In such assignments, Jones Lang LaSalle draws on its broad
depth of other capabilities to assist its clients with development, buy or
lease decisions and the evaluation of long-term financing options.
Jones Lang LaSalle intends to further the growth of this business by
continuing to increase its strategic alliance relationships and by
expanding the relationships to cover multinational clients that have
occupancy needs around the world and are looking for a single source
provider.
Jones Lang LaSalle is generally compensated for Tenant Representation
Services on a negotiated fee basis. Although fees are generated by lease
commissions, they are often also determined by performance related to
targets set by Jones Lang LaSalle and the client prior to Jones Lang
LaSalle's engagement and, in the case of strategic alliances, at annual
intervals thereafter. Quantitative and qualitative measurements assess
progress relative to these goals, and Jones Lang LaSalle is compensated
accordingly, with incentive fees often awarded for superior performance.
Jones Lang LaSalle's Tenant Representation Services professionals do not
earn commissions, but are compensated by means of a base salary and
performance bonus that is determined primarily by their contribution to
achieving predetermined client performance objectives.
AGENCY LEASING SERVICES. Jones Lang LaSalle's Agency Leasing
Services units create and execute marketing and leasing programs to
identify tenants and negotiate leases with terms in the best interests of
our clients. Clients are typically investors, property companies,
developers or public bodies. In 1999, Jones Lang LaSalle completed
approximately 11,000 agency leasing transactions representing approximately
90.0 million square feet of space.
Agency leasing fees are typically based on a percentage of the value
of the lease revenue commitment for leases consummated.
CAPITAL MARKETS SERVICES. Jones Lang LaSalle's Capital Markets
Services include real estate finance, private equity placements, portfolio
advisory activities, corporate finance and institutional property sales and
acquisitions. In 1999, Jones Lang LaSalle completed institutional property
sales and acquisitions, debt financings, equity placements and portfolio
advisory activities on assets and portfolios valued at over $23.0 billion.
Jones Lang LaSalle believes that its Capital Markets Services units
have a number of competitive strengths, including their broad accumulated
base of real estate investment banking knowledge and an ability to draw on
Jones Lang LaSalle's access to global capital sources. Jones Lang LaSalle's
Agency Leasing, Property Management and Investment Management units are
valuable resources for the Capital Markets Services units in providing
local market and property information and local capital markets expertise.
As a result of the merger with JLW, the Capital Markets Services units have
expanded access to international market and property information which
creates the platform necessary for these business units to offer their
expertise to multinational clients.
The Capital Markets Services units are integral to the business
development efforts of Jones Lang LaSalle's other businesses by
researching, developing and introducing innovative new financial products
and strategies. This includes the development of Jones Lang LaSalle's
hotel investment capability, which is currently performed within Jones Lang
LaSalle's Investment Management group through the management of LaSalle
Hotel Properties, a Real Estate Investment Trust ("REIT").
Jones Lang LaSalle is typically compensated for Capital Markets
Services on the basis of the value of transactions completed or securities
placed, but in certain circumstances Jones Lang LaSalle receives retainer
fees for portfolio advisory services.
VALUATION SERVICES. Jones Lang LaSalle's Valuation Services units
provide clients with professional valuation services, helping them to
determine accurate values for office, retail, industrial and mixed-use
properties. Such services may involve valuing a single property or a
worldwide portfolio of multiple property types. Valuations typically
involve commercial property, investment grade residential property and land
for purposes including acquisition, disposition, debt and equity financing,
mergers and acquisitions, securities offerings and privatization. Clients
include occupiers, investors and financing sources from the public and
private sectors. Jones Lang LaSalle has valuation specialists capable of
providing valuation advice to clients in nearly every developed country.
During 1999, Jones Lang LaSalle performed over 32,000 valuations of
properties valued in the aggregate at approximately $194.0 billion.
Compensation for valuation services is generally negotiated for each
assignment based on its scale and complexity and will typically relate in
part to the value of the underlying assets.
MANAGEMENT SERVICES
Management services include property management, corporate property
services, development and project management services. With a portfolio of
approximately 700 million square feet of property under management
worldwide, Jones Lang LaSalle is the world's largest property manager.
Revenue from management services was 30.9%, 27.3% and 21.5% of total
revenue for 1999, 1998 and 1997, respectively.
PROPERTY MANAGEMENT SERVICES. Jones Lang LaSalle's Property
Management Services units provide on-site management services for office,
industrial, retail and specialty properties, leveraging their market share
and buying power to deliver superior service for clients. Jones Lang
LaSalle's goal, as a pioneer in the development of value-creating property
management services, is to enhance its clients' property values through
aggressive day-to-day management focused on maintaining high levels of
occupancy and tenant satisfaction, while lowering the operating costs of
such properties. During 1999, Jones Lang LaSalle provided on-site Property
Management Services for office, retail, mixed-use and industrial properties
totaling approximately 450.0 million square feet.
Jones Lang LaSalle's property management services are typically
provided by an on-site general manager and staff supported through regional
supervisory teams as well as central resources in areas such as training,
technical and environmental services, accounting, marketing and human
resources. Property general managers assume full responsibility for
property management activities, client satisfaction and financial results
and are compensated, not by fees or commissions, but through a combination
of base salary and performance bonus that is directly linked to results
produced for clients.
Increasingly, management agreements provide for incentive compensation
relating to operating expense reductions, gross revenue or occupancy
objectives or tenant satisfaction levels. As is customary in the industry,
management contract terms typically range from one to three years, but are
cancelable at any time upon a short notice period, usually 30 to 60 days.
Jones Lang LaSalle's acquisitions of COMPASS and Galbreath and the
recent investment in a new property information system in the Americas,
provides opportunities for Jones Lang LaSalle to leverage its size to offer
high quality, low cost services over a wider geographic area. The marketing
efforts of the Property Management Services business are directed toward
pursuing new third-party management assignments, expanding Jones Lang
LaSalle's relationships with existing clients and capitalizing on new
business opportunities which may arise from Jones Lang LaSalle Investment
Management's initiatives, such as the continuation of its co-investment
strategy. Further, the merger with JLW has provided an opportunity to
combine best practices around the globe to enhance current client
satisfaction and margin objectives as well as to serve new multinational
clients.
CORPORATE PROPERTY SERVICES. Jones Lang LaSalle was a pioneer in the
corporate property services business. Jones Lang LaSalle's Corporate
Property Services units provide comprehensive portfolio and property
management services to corporations and institutions that outsource their
real estate management functions. The properties under management range
from corporate headquarters to industrial complexes. Jones Lang LaSalle's
target clients typically have large portfolios (usually over one million
square feet) with significant opportunities to reduce costs and improve
service delivery. Performance measures are generally developed to quantify
progress made toward the goals and objectives that are set mutually with
clients. At December 31, 1999, Jones Lang LaSalle had approximately 250.0
million square feet under management relating to Corporate Property
Services clients.
Jones Lang LaSalle's Corporate Property Services units also serve as
an important "port of entry" for Jones Lang LaSalle's other business units.
Depending on client needs, the Corporate Property Services units, either
alone or through Jones Lang LaSalle's other business units, provide
services such as portfolio planning, property management, leasing, tenant
representation, acquisition, finance, disposition, project management,
development management and land advisory services.
The Corporate Property Services units are compensated on the basis of
negotiated fees, which are typically structured to include a base fee and a
performance bonus. The performance bonus compensation is based on a
quantitative evaluation of progress toward performance measures and
regularly scheduled client satisfaction surveys. Corporate Property
Services agreements are typically three to five years in duration.
Jones Lang LaSalle believes that the global corporate trend of
outsourcing non-core business functions represents an important long-term
business opportunity. Jones Lang LaSalle also believes that its broad-
based service capabilities will become an increasingly valuable competitive
advantage in pursuing Corporate Property Services assignments. Jones Lang
LaSalle believes that its demonstrated experience in improving clients'
operating expense levels and client satisfaction also provide it with an
important competitive advantage. In order to efficiently provide all
services required to manage and operate large corporate property
portfolios, Jones Lang LaSalle partners with major building services and
architecture firms. The Corporate Property Services units have been
actively pursuing, and have had success with obtaining new business
opportunities with universities, health care institutions and government
agencies.
DEVELOPMENT SERVICES. Jones Lang LaSalle's Development Services units
manage all aspects of the development, redevelopment and renovation of
commercial projects, principally on a fee basis. Jones Lang LaSalle
prepares feasibility studies, negotiates contracts, develops and monitors
budgets and coordinates and manages the architects, engineers and attorneys
related to the project. Jones Lang LaSalle also undertakes entitlement,
zoning and a variety of other development-related responsibilities.
Clients are generally corporations with significant office space needs.
Jones Lang LaSalle has extensive experience in ground-up development in the
office, retail, industrial and special-purpose sectors. The Development
Services units frequently manage development initiatives for clients of
Jones Lang LaSalle's Corporate Property Services and Tenant Representation
Services units, as well as for clients of the Jones Lang LaSalle Investment
Management segment which are pursuing development-related investment
strategies.
The Development Services units generate development and advisory fees,
which are negotiated based upon the cost of the developments or
improvements. In addition, the units generate performance fees based on
investment returns generated for clients. Assignments are typically multi-
year in nature.
PROJECT MANAGEMENT SERVICES. Jones Lang LaSalle's Project Management
Services units provide facility build-out and conversion management, move
management and strategic occupancy planning services to tenants of leased
space, owners in self-occupied buildings and owners of real estate
investments. The Project Management Services units frequently manage the
relocation and build-out initiatives for clients of Jones Lang LaSalle's
Property Management Services, Corporate Property Services and Tenant
Representation Services units.
Jones Lang LaSalle is one of the largest providers of project
management services in the United States. Jones Lang LaSalle intends to
grow its Project Management Services business via expansion into additional
markets and by increasing the number of Jones Lang LaSalle's current
clients it provides services for.
The Project Management Services units are typically compensated on the
basis of negotiated fees. Contracts are typically multi-year in nature for
clients with individual projects being completed in less than one year.
GLOBAL SERVICES MANAGEMENT
The Global Services Management unit was created to support the
geographical Owner and Occupier Services segments. It is composed of three
management functions: Global Client Services, Global Services Development
and Global Consulting.
Global Client Services is a dedicated firm-wide marketing
organization, which acts as a catalyst in assisting Jones Lang LaSalle
professionals in all groups in marketing multiple services of the firm to
existing and prospective clients. Global Services Development identifies
and institutes best practices throughout Jones Lang LaSalle, making skilled
resources available to clients wherever such expertise may be needed, and
supporting the expansion of Jones Lang LaSalle's business specialties
globally. The Global Consulting team of senior real estate consultants
provides clients with specialized, value-added real estate consulting
services and strategies in seven areas: mergers and acquisitions, ports and
transit, development, public institutions, e-commerce, occupier portfolio
and organizational strategy and work process design.
The Global Services Management unit performs a global support function
for the regional Owner and Occupier Services businesses, and therefore, for
purposes of segment reporting, the revenue and expenses of this unit are
allocated back to the regions.
INVESTMENT MANAGEMENT
Jones Lang LaSalle's Investment Management business, which operates
under the name of LaSalle Investment Management, provides real estate
investment management services to institutional investors, corporations and
high net-worth individuals. As of December 31, 1999, Jones Lang LaSalle
managed approximately $21.5 billion of real estate assets, making it one of
the largest managers of institutional capital invested in real estate
assets and securities. Investment Management revenue was 11.2%, 29.0% and
34.5% of total revenue in 1999, 1998 and 1997, respectively. The reduction
in the business's contribution to total revenue was principally the result
of the fact that the businesses acquired over the period, as well as the
businesses of the JLW Companies, were primarily Owner and Occupier Services
businesses.
LaSalle Investment Management serves its clients through a broad range
of real estate investment products and services in the public and private
capital markets to meet various strategic, risk/return and liquidity
requirements, with a wide variety of equity and debt products. This
business is organized along two functional lines, private equity and debt
investments and public equity and debt investments. LaSalle Investment
Management offers its clients a range of investment alternatives, including
private direct investments in multiple real estate property types (e.g.,
office, retail, industrial, residential, land and parking) and indirect
investments, primarily in publicly traded REITs and other real estate
equities. The success of LaSalle Investment Management is built on the
foundation of fully integrated research, innovative investment strategies
and a strong client focus. LaSalle Investment Management's strategy is
focused on three fundamentals: (i) developing and executing tailored
investment strategies to meet a variety of client objectives, (ii)
providing superior performance for its clients and (iii) delivering a high
level of service.
The investment and capital origination activities of the
Investment Management business are becoming increasingly non-U.S. based.
As of December 31, 1999, 50% of LaSalle Investment Management's assets
under management were invested outside of the United States. Additionally,
approximately 67.4% of capital under management by LaSalle Investment
Management at December 31, 1999 originated from investors outside of the
United States. Jones Lang LaSalle expects its Investment Management
activities outside of the United States, both fund raising and investing,
to continue to increase as a proportion of total capital raised and
invested and sees a growing trend of cross border capital movement. In
1999, LaSalle Investment Management's application for Approved Fund Manager
status was approved by the Monetary Authority of Singapore. This marked
the first major step in the plan to build an investment management
operation to service clients in the Asia Pacific region.
Investment Management activities generate significant additional
business for other parts of Jones Lang LaSalle's operations, particularly
in the areas of Agency Leasing, Property Management, Development Services
and Capital Markets Services.
Jones Lang LaSalle maintains an extensive real estate research
department, which monitors real estate and capital market conditions around
the world to enhance investment decisions and identify future
opportunities. In addition to drawing on public sources for information,
the research department utilizes the extensive local presence of Jones Lang
LaSalle's professionals throughout the world to gain proprietary insight
into local market conditions.
PRIVATE EQUITY AND DEBT INVESTMENTS. On behalf of its investment
management clients, LaSalle Investment Management oversees the acquisition,
management, leasing, financing and divestiture of real estate investments
across a broad range of real estate property types. LaSalle Investment
Management introduced its first institutional investment fund in 1979 and
currently has a series of commingled investment funds, including three
funds which invest in properties in the United States and two commingled
funds that are fully invested in assets located in continental Europe.
LaSalle Investment Management also has single client account relationships
("separate accounts") with investors for whom LaSalle Investment Management
manages private real estate investments. As of December 31, 1999, Jones
Lang LaSalle had $18.1 billion in assets under management in these funds
and separate account clients.
To take advantage of the trend toward globalization of real estate
capital sources, LaSalle Investment Management strengthened and extended
its international investment activities with the acquisition, in October
1996, of CIN Property Management. This acquisition made LaSalle Investment
Management one of the largest managers of pension fund real estate
investments in the United Kingdom, and provided the basis for it to expand
its investment activities and capital raising in the United Kingdom and
continental Europe. LaSalle Investment Management currently has
approximately $10.5 billion in assets under management in Europe. LaSalle
Investment Management is leveraging its organizational strength and access
to global capital, to take advantage of the accelerating interest in
international investment, to expand investment activity to new countries
within Europe and Asia Pacific and to strengthen its position as a leading
investment manager for real estate capital in the United States.
Jones Lang LaSalle furthered its endeavors with respect to investment
management in the hotel industry with the completion of the initial public
offering of LaSalle Hotel Properties ("LHO"). LHO is a REIT which was
formed to own hotel properties and to continue and expand Jones Lang
LaSalle's hotel investment management activities by investing principally
in upscale and luxury full service hotels located primarily in major
business and urban, resort and convention markets. Jones Lang LaSalle
provides advisory, acquisition and administrative services to LHO for which
it receives a base advisory fee calculated as a percentage of net operating
income, as well as performance fees based on growth in funds from
operations on a per share basis.
In 1999, LaSalle Investment Management launched and funded two new
investment products: the Income & Growth II Fund and the Euro5 Fund. The
Income & Growth II Fund is a private equity commingled fund, which invests
in properties within the United States. This fund had its first and second
closings during 1999 and received commitments which represent more than
$220.0 million in buying power. A target has been set for the first half
of 2000 to secure additional funding of $150.0 million to $200.0 million.
The Euro5 Fund also had its first closing in 1999. This diversified
value-added investment vehicle focuses on office, business park, retail and
industrial properties in areas with above-average growth in France, Italy,
Portugal, Spain and Germany. With leverage, it is expected that the Euro5
Fund will acquire assets valued in excess of 300 million euros by mid 2000.
Currently, commitments are pending that involve the acquisition of eight
investments for this fund.
Certain investors continue to favor investment managers that co-invest
in newly formed investment vehicles in order to more closely align the
interests of the investor and the investment manager. Jones Lang LaSalle
believes that co-investment will continue to be important in certain
regions of the world as a factor in retaining and expanding its competitive
position. Jones Lang LaSalle also believes that its co-investment strategy
will greatly strengthen its ability to raise capital for new investment
funds. By increasing assets under management, Jones Lang LaSalle also
gains the opportunity to provide additional services related to the
acquisition, financing, property management, leasing and disposition of
such assets.
Jones Lang LaSalle Investment Management's operations are conducted
with teams of professionals dedicated to achieving client objectives. All
investment decisions for private market investments must be approved by
LaSalle Investment Management's five-member investment committee. The
investment committee approval process is utilized for both LaSalle
Investment Management's investment funds and for all of its separate
account clients.
LaSalle Investment Management is generally compensated for investment
management services for private equity and debt investments based on
initial capital invested, with additional fees tied to investment
performance above benchmark levels. The terms of LaSalle Investment
Management's contracts vary by the form of investment vehicle involved and
the type of service provided. LaSalle Investment Management's investment
funds have various lifespans, typically ranging between three and seven
years. Separate account advisory agreements generally have three year terms
with "at will" termination provisions.
PUBLIC EQUITY AND DEBT INVESTMENTS. LaSalle Investment Management
offers its clients the ability to invest in separate accounts focused on
public real estate equity and debt securities. LaSalle Investment
Management principally invests its clients' capital in publicly traded
securities of Real Estate Investment Trusts ("REITs") and property company
equities but is also active in private placement investments in publicly
traded real estate companies and selected investments in private real
estate companies seeking capital to ultimately gain access to the public
markets. As of December 31, 1999, LaSalle Investment Management had $3.4
billion of assets under management in these types of investments, of which
$.3 billion was invested in equities outside of the United States. LaSalle
Investment Management is typically compensated by its securities investment
clients on the basis of the market value of assets under management with
increasing use of incentive fees tied to performance of investments above
benchmark levels.
HOTEL SERVICES
Hotel Services is a new business for Jones Lang LaSalle as a result of
the merger with JLW. The segment specializes in providing global real
estate services to investors, financiers and operators of hotel, conference
and resort properties. These services include sales, acquisitions,
strategic consulting, valuation and appraisal, operator selection, debt and
equity sourcing, asset management and research. Principal clients of the
group include government agencies, institutional investors, corporations,
hotel groups and private investment companies and individuals. The group
has approximately 100 hotel professionals, based primarily in London,
Frankfurt, New York, Los Angeles, Sydney, Brisbane, Auckland, Jakarta and
Singapore.
The Asian hotel market has been negatively impacted by poor economic
conditions over the last two years, but was showing strong signs of
recovery in the latter half of 1999, due to a renewed interest in tourism
growth and a return to hotel profitability. The Australian hotel market
continues to show strong activity, due to the recent exodus of Japanese
investors from this market. The United States and European hotel markets
continue to benefit from strong global economic growth. In 1999, the Hotel
Services group completed over 600 corporate advisory transactions on
properties with a total value of approximately $17.0 billion and
approximately 100 investment sales transactions involving properties with a
total value of approximately $900.0 million. One of these investment sales
transactions was the sale of the Seoul Hilton for $230 million, which
represented one of the largest property transactions in Asia in many years.
COMPETITIVE ADVANTAGES
Jones Lang LaSalle believes that it has several competitive
advantages, which have established it as a leader in the real estate
services and investment management industries. These advantages include the
following:
RELATIONSHIP ORIENTATION. Jones Lang LaSalle's client-driven focus
enables Jones Lang LaSalle to develop long-term relationships with owners
and users of real estate. By developing such relationships, Jones Lang
LaSalle generates repeat business and creates recurring revenue sources.
Jones Lang LaSalle's relationship orientation is supported by an employee
compensation system, which it believes is unique in the real estate
industry. Jones Lang LaSalle compensates its professionals with a salary
and bonus plan designed to reward client relationship building, teamwork
and quality performance, rather than on a commission basis which is typical
in the industry.
FULL RANGE OF SERVICES. By offering a wide range of high quality,
complementary services, Jones Lang LaSalle can combine its services to
develop and implement real estate strategies that meet the increasingly
complex needs of its clients. In addition, business units are able to
develop revenue synergies for other units within Jones Lang LaSalle.
WORLD-CLASS RESEARCH. Jones Lang LaSalle invests in and relies on
comprehensive top-down and bottom-up research to support and guide the
development of real estate and investment strategy. The Global Research
Committee oversees and coordinates the activities of more than 150 research
professionals who cover market and economic conditions in 36 countries
around the world. Jones Lang LaSalle produces more than 100 research
publications annually. Research will also play a key role in the new,
company-wide intranet, keeping colleagues throughout Jones Lang LaSalle
attuned to important events and changing conditions in world markets.
GEOGRAPHIC REACH. With approximately 100 corporate offices on five
continents, Jones Lang LaSalle possesses in-depth knowledge of local and
regional markets and can provide its full range of real estate services
around the globe. This geographic coverage positions the firm to serve its
multinational clients.
REPUTATION. Based on its industry knowledge, commissioned marketing
surveys, industry publications and its number of long-standing client
relationships, Jones Lang LaSalle believes that it is widely recognized by
large corporations and institutional owners and users of real estate as a
provider of high quality, professional real estate services and investment
management products. Jones Lang LaSalle believes its name recognition and
reputation for quality services are significant advantages when pursuing
new business opportunities.
INDUSTRY TRENDS
INCREASING DEMAND FOR GLOBAL SERVICES; GLOBALIZATION OF CAPITAL FLOWS.
Many corporations, both those based in the United States and those based in
other countries, have pursued growth opportunities in international
markets. This has increased the demand for global real estate services,
such as corporate property services, tenant representation and leasing and
property management. Jones Lang LaSalle believes that this trend will
favor those real estate service providers with the capability to provide
services in many markets around the world. Additionally, real estate
capital flows have become more global as more investors seek real estate
investment opportunities beyond their existing borders. This trend has
created new markets for investment managers that can facilitate
international real estate capital flows and execute cross-border real
estate transactions.
CONSOLIDATION. The real estate services industry has gone through a
high degree of consolidation in recent years, although the pace of
consolidation has slowed in the last year. Many large real estate service
firms engaged in the property management business, including Jones Lang
LaSalle, believe that, as a result of substantial existing infrastructure
investments and the ability to spread fixed costs over a broader base of
business, it is possible to recognize incrementally higher margins on
property management and corporate property services assignments as the
amount of square footage under management increases.
Large users of commercial real estate services continue to demonstrate
a desire for a single source service provider across local, regional and
global markets. The ability to offer a full range of services on this
scale requires significant corporate infrastructure investment, including
information technology and personnel training. Smaller regional and local
real estate service firms, with limited resources, are less able to make
such investments.
GROWTH OF OUTSOURCING. In recent years, outsourcing of professional
real estate services on a global level has increased substantially as
corporations have focused corporate resources, including capital, on their
core competencies. In addition, public and other non-corporate users of
real estate, such as government agencies and health and educational
institutions, have begun outsourcing real estate activities as a means of
reducing costs. As a result, there are significant growth opportunities for
firms that can provide integrated real estate services across many
geographic markets.
ALIGNMENT OF INTERESTS OF INVESTORS AND INVESTMENT MANAGERS.
Institutional investors continue to allocate significant portions of their
investment capital to real estate and many investors have shown a desire to
commit their capital to investment managers willing to co-invest with them
on specific investments. In addition, investors are increasingly requiring
that the fees paid to investment managers be more closely aligned with
investment performance. As a result, Jones Lang LaSalle believes that those
investment managers with co-investment capital will have an advantage in
attracting real estate investment capital. Co-investment typically brings
with it the opportunity to provide additional services related to the
acquisition, financing, property management, leasing and disposition of
such investments.
GROWTH STRATEGY
Jones Lang LaSalle intends to capitalize on its expanded global
presence to pursue the following growth strategy:
EXPANDING CLIENT RELATIONSHIPS. Based on its ability to deliver high
quality real estate services, Jones Lang LaSalle has been able to
successfully leverage discrete client assignments into more comprehensive
relationships utilizing some or all of its business groups. Current
industry trends, particularly the globalization of corporate clients and
the increased outsourcing of real estate services on a global basis,
provide a favorable environment for Jones Lang LaSalle to increase the
scope of its current client relationships and to develop new relationships
through its broad array of services. Jones Lang LaSalle's business groups
identify new clients and markets and pursue opportunities to sell the
products and services of many of Jones Lang LaSalle's business units. Jones
Lang LaSalle's Global Services Management group, created in 1999, acts as a
catalyst in assisting Jones Lang LaSalle professionals in all groups in
marketing multiple services of the firm to existing and prospective
clients.
STRENGTHENING INTERNATIONAL PRESENCE. To take advantage of the
increasing globalization of real estate capital sources and investment
opportunities and the international business expansion of many of its
corporate clients, Jones Lang LaSalle intends to focus its near term
efforts on further developing and strengthening the global platform which
was created by the merger of the LaSalle Partners and JLW businesses. In
December, Jones Lang LaSalle combined its former Australasia and Asia
regions into the Asia Pacific region. This combination is intended, among
other things, to position the firm to use its talent and expertise in the
relatively mature market in Australia to pursue growth opportunities in
Asia. Similarly, Jones Lang LaSalle plans to leverage its talent and
expertise in the United States and Western Europe to pursue growth
opportunities in Latin America and Central and Eastern Europe,
respectively. In order to serve its clients' increasingly global real
estate needs, and to pursue new business opportunities, the firm will
pursue selective acquisitions in product categories and geographic niches.
PROVIDING CONSISTENT, HIGH QUALITY SERVICE. The firm has created a
Global Services Management Group designed to ensure the worldwide
operations work and interact at the best-in-class levels clients have grown
to expect. Through the delivery of consistent, high quality service, the
firm aims to expand its current client relationships and grow the business
organically.
PURSUING CO-INVESTMENT OPPORTUNITIES. Jones Lang LaSalle intends to
continue its strategy of co-investing with its investment management
clients. As of December 31, 1999, Jones Lang LaSalle had a total net
investment of $67.3 million in 34 separate property or fund co-investments
with additional capital commitments of $28.7 million for future fundings of
co-investments. The acquisition cost of the properties acquired through
these co-investments exceeds $2.0 billion. Existing co-investments consist
primarily of office properties, land, development properties and commingled
fund investments purchased within the last five years and the investment in
LaSalle Hotel Properties, the public real estate investment trust advised
by Jones Lang LaSalle.
Jones Lang LaSalle's co-investment strategy is supported by its broad
fundamental real estate research capabilities, which include identifying
trends in geographic regions and property types. Jones Lang LaSalle's
extensive knowledge of local markets drawn from its presence and work in
these markets facilitates the identification and evaluation of specific
investment opportunities. Co-investments provide Jones Lang LaSalle with
the opportunity to participate in returns generated by such investments and
provide services related to the acquisition, financing, property
management, leasing and disposition of such investments. As a result of
the merger, the combined firm has an increased access to international
market knowledge, positioning the firm to take advantage of recovering
markets in various regions throughout the world.
DEVELOPING A TECHNOLOGY AND E-BUSINESS STRATEGY. Jones Lang LaSalle's
technology strategy is to create an open, advanced technology platform that
enables clients to achieve their real estate and broader business
objectives. This includes utilizing the internet to enhance existing
services provided to clients and to develop entirely new services via e-
commerce. Jones Lang LaSalle is in the final stages of implementing a
global data network, a reliable, high-speed system that will enable clients
and employees around the world to communicate with each other efficiently.
In addition, Jones Lang LaSalle plans to utilize the internet to aggregate
purchases in its managed property portfolio; to invest in software
applications for the Project Management and Development Management
businesses; to expand the use of electronic auction sites and to offer
clients online access to portfolio performance data.
Jones Lang LaSalle is also working with many pre-IPO "dot-com"
companies. The strategy is to make real investments in relevant companies
to shape the products and services they deliver. The transactions include
entering into consulting and advisory agreements, in addition to making
cash equity investments.
EMPLOYEES
Jones Lang LaSalle employs approximately 7,200 people, including 5,400
professional staff members and 1,900 support personnel. None of Jones
Lang LaSalle's employees are members of any labor union. Satisfactory
relations have generally prevailed between Jones Lang LaSalle and its
employees.
Jones Lang LaSalle has entered into an agreement with LPI Service
Corporation ("LPISC"), a company controlled by a former employee of Jones
Lang LaSalle, pursuant to which LPISC provides the services of
approximately 3,000 janitorial, engineering and property maintenance
workers for certain properties managed by Jones Lang LaSalle. Jones Lang
LaSalle has an option to purchase LPISC. Approximately 550 of the
employees of LPISC are members of labor unions.
OTHER MATTERS IMPACTING JONES LANG LASALLE'S BUSINESS
The following matters represent risks that Jones Lang LaSalle faces as
a result of the merger with JLW.
OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION ARE SUBJECT TO
NEW RISKS RESULTING FROM INCREASED INTERNATIONAL OPERATIONS. As a result
of the merger with JLW, we have significantly greater international
exposure. After giving pro forma effect to the merger with JLW and the
acquisition of the COMPASS businesses, we would have derived approximately
57.8% and 53.7% of our total revenue from sales outside the United States
in the fiscal years ended December 31, 1999 and 1998, respectively. The
combined businesses have operations in 32 countries, and employ 2,500
employees in the United States and 4,700 employees in other countries
(excluding, in both cases, on-site personnel responsible for the
maintenance of properties on behalf of clients). The increased scope of
our international operations may lead to more volatile financial results
and difficulties in managing the combined businesses because of, but not
limited to, the following:
. political instability;
. greater difficulty in collecting accounts receivable in certain
geographic regions;
. unexpected changes in regulatory requirements;
. currency restrictions;
. delays and tariffs;
. difficulties and costs of staffing and managing international
operations;
. potentially adverse tax consequences;
. foreign ownership restrictions with respect to operations in
certain countries;
. currency fluctuations;
. the burden of complying with multiple and potentially conflict-
ing laws;
. the impact of business cycles and economic instability; and
. the geographic, time zone, language and cultural differences
between personnel in different areas of the world.
We have committed additional resources to expand our worldwide sales
and marketing activities, to globalize our service offerings and products
in selected markets and to develop local sales and support channels. If we
are unable to successfully implement these plans, to maintain adequate
long-term strategies which successfully manage the risks associated with
our global business or to adequately manage operational fluctuations, our
business, operating results and financial condition could be materially and
adversely affected.
OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION ARE SUBJECT TO
PARTICULAR RISKS IN CERTAIN REGIONS OF THE WORLD. We may experience an
operating loss in one or more regions of the world for one or more periods,
which could have a material adverse effect on our business, operating
results and financial condition. Our ability to manage such operational
fluctuations and to maintain adequate long-term strategies in the face of
such developments will be critical to our continued growth and
profitability. After giving pro forma effect to the merger with JLW and
the acquisition of the COMPASS businesses, we would have generated 43.3% of
our revenue in the United States, 40.0% in Europe and 16.7% in Asia Pacific
for the year ended December 31, 1999 compared to 46.3% in the United
States, 37.3% in Europe and 16.4% in Asia Pacific for the year ended
December 31, 1998. See the Notes to Consolidated Financial Statements
included herein for further geographical financial information.
During 1998 and 1997, Southeast and East Asia were impacted by
financial turmoil which was initially reflected in rapidly falling exchange
rates relative to the U.S. dollar. This led to falling stock market
indices and asset values and reduced economic growth prospects.
Additionally, some property markets were affected by speculative
developments resulting in an oversupply of completed or partially completed
space. Property prices fell along with prices of other investments and
asset values. Although there is evidence of recovery in economic
conditions in many Asian markets, the pace of recovery has been generally
slow and uneven between various countries. The recovery of property
markets in various countries will depend upon both economic conditions as
well as the level of oversupply in the particular market. Although current
evidence suggests that most markets in Asia have bottomed out and are
recovering, there can be no assurance that conditions will not again
worsen. Additionally, although sound conditions currently prevail in most
of the significant markets in which we operate, there can be no assurance
that this will continue. A worsening of conditions in Asia or in other
markets in which we operate could have a material adverse effect on the
business, operating results and financial condition of Jones Lang LaSalle.
WE ARE EXPOSED TO CURRENCY LOSSES FROM CURRENCY FLUCTUATIONS. Due to
the constantly changing currency exposures to which we are now subject
after the expansion of our operations outside of the United States, and the
volatility of currency exchange rates, we cannot be sure that we will not
experience currency losses in the future. We also cannot predict the
effect of exchange rate fluctuations upon future operating results. JLW
historically generated revenues, incurred expenses and made distributions
and dividends to partners and shareholders in the local currency where the
associated revenue was earned, thus limiting fluctuations in revenues and
earnings due to corresponding fluctuations in foreign currency exchange
rates. With the integration of the operations of JLW, our exposure to
currency rate fluctuations has significantly increased. For the year ended
December 31, 1999, on a pro forma basis (excluding the effect of stock
compensation expense related to the merger with JLW), 142% of our net loss
was attributable to operations with U.S. dollars as their functional
currency and (42%) was attributable to operations having other functional
currencies. Fluctuations in the value of the US dollar relative to the
other currencies in which we generate earnings could materially adversely
affect our business, operating results and financial condition.
Fluctuations in currencies relative to the US dollar may make it more
difficult to perform period-to-period comparisons of our reported results
of operations.
We have in the past undertaken hedging transactions only on a limited
basis. The management of Jones Lang LaSalle may decide to use currency
hedging instruments, including foreign currency forward contracts,
purchased currency options and borrowings in foreign currency. Economic
risks associated with these hedging instruments include: (i) unexpected
fluctuations in interest rates impacting Jones Lang LaSalle's future buying
power for purchasing foreign currencies; and (ii) unexpected changes in the
timing and collection of funds related to the hedging instruments, both of
which can cause hedging instruments to be ineffective. An ineffective
hedging instrument may expose Jones Lang LaSalle to currency losses, which
could have an adverse effect on Jones Lang LaSalle's business, financial
condition and results of operations. There can be no assurance that such
hedging will be effective.
OPERATING LOSSES REFLECTING NON-CASH CHARGES FOR ACQUISITION-RELATED
COMPENSATION EXPENSE COULD AFFECT TRADING PRICE. Jones Lang LaSalle
incurred compensation expense totaling approximately $101.6 million in the
year ended December 31, 1999 and expects to incur $72.3 million in the year
ended December 31, 2000, as a result of the accounting treatment applied to
the issuance of shares in connection with the merger with JLW. The
estimated 2000 compensation expense of $72.3 million includes expense of
$11.0 million, which is subject to fluctuation based on quarterly changes
in the price of Jones Lang LaSalle common stock. We anticipate that this
compensation expense will cause Jones Lang LaSalle to report a net operat-
ing loss for the year ended December 31, 2000.
THE STOCKHOLDER AGREEMENTS, THE DEL STOCKHOLDER AGREEMENTS, THE
CHARTER AND THE AMENDED BYLAWS OF JONES LANG LASALLE AND THE MARYLAND
GENERAL CORPORATE LAW COULD DELAY, DEFER OR PREVENT A CHANGE OF CONTROL.
The Stockholder Agreements and the DEL Stockholder Agreements entered into
in connection with the merger and the charter and bylaws of Jones Lang
LaSalle include provisions that may discourage, delay, defer or prevent a
takeover attempt that may be in the best interest of stockholders of Jones
Lang LaSalle and may adversely affect the market price of its common stock.
The Stockholder Agreements and the DEL Stockholder Agreements require each
of the parties thereto to vote all shares of Jones Lang LaSalle common
stock owned or controlled by such stockholder:
. for persons nominated by the Jones Lang LaSalle board of
directors pursuant to the amended bylaws; and
. in accordance with the recommendations of a majority of the
Jones Lang LaSalle board of directors on all matters (1) submitted to the
vote of the stockholders of Jones Lang LaSalle which have been proposed by
any stockholder as to which the Jones Lang LaSalle board of directors has
recommended against approving and (2) relating to any merger, sale of all
or substantially all of Jones Lang LaSalle's assets, or any similar
transactions as to which the Jones Lang LaSalle board of directors has
recommended against approving.
Additionally, the Stockholder Agreements and DEL Stockholder
Agreements require the persons bound by them to take reasonable actions to
assure that they do not transfer shares to a person which is, or would as a
result of the transfer become, the owner of 5% or more of the outstanding
Jones Lang LaSalle common stock. This requirement does not apply to the
extent shares are sold in accordance with certain securities regulations.
As a result, during the term of the Stockholder Agreements and the DEL
Stockholder Agreements, as long as persons who hold a majority of the
issued and outstanding common stock of Jones Lang LaSalle continue to be
bound by these agreements, the Jones Lang LaSalle board of directors will
be composed of individuals nominated in accordance with the procedures set
forth in the amended bylaws, and stockholders of Jones Lang LaSalle will
have a limited influence on the outcome of votes of the stockholders of
Jones Lang LaSalle on the matters covered by such agreements. The persons
bound by the Stockholder Agreements and DEL Stockholder Agreements hold, as
of March 29, 2000, approximately 65% of the issued and outstanding shares
of Jones Lang LaSalle common stock.
In addition, pursuant to the charter of Jones Lang LaSalle, Jones Lang
LaSalle has a classified board of directors, pursuant to which directors
are divided into three classes, with three-year staggered terms. The
classified board provision could increase the likelihood that, in the event
an outside party acquired a controlling block of Jones Lang LaSalle's
capital stock or initiated a proxy contest, incumbent directors
nevertheless would retain their positions for a substantial period, which
may have the effect of discouraging, delaying or preventing a change in
control of Jones Lang LaSalle. In addition, the charter and bylaws provide
for:
. the ability of the Jones Lang LaSalle board of directors to
establish one or more classes and series of capital stock including the
ability to issue up to 10,000,000 shares of preferred stock, and to
determine the price, rights, preferences and privileges of such capital
stock without any further stockholder approval;
. a requirement that any stockholder action taken without a
meeting be pursuant to unanimous written consent; and
. certain advance notice procedures for Jones Lang LaSalle stock-
holders nominating candidates for election to the Jones Lang
LaSalle board of directors.
Under the Maryland General Corporate Law (the "MGCL"), certain
"Business Combinations" (including a merger, consolidation, share exchange
or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland corporation and
any person who beneficially owns 10% or more of the voting power of the
corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Stockholder") or an
affiliate of the Interested Stockholder are prohibited for five years after
the most recent date on which the Interested Stockholder became an
Interested Stockholder. Thereafter, any such Business Combination must be
recommended by the board of directors of such corporation and approved by
the affirmative vote of at least (1) 80% of the votes entitled to be cast
by holders of outstanding voting shares of the corporation and (2) 66-2/3%
of the votes entitled to be cast by holders of outstanding voting shares of
the corporation other than shares held by the Interested Stockholder with
whom the Business Combination is to be effected, unless, among other
things, the corporation's stockholders receive a minimum price (as defined
in the MGCL) for their shares and the consideration is received in cash or
in the same form as previously paid by the Interested Stockholder for its
shares. Pursuant to the MGCL, these provisions also do not apply to
Business Combinations which are approved or exempted by the board of
directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder.
The provisions of the agreements described above, as well as our
charter and bylaws, and the MGCL, could discourage bids for common stock as
well as adversely affect the market price of common stock.
RISKS INHERENT IN THE INDUSTRY OR PARTICULAR TO JONES LANG LASALLE
GENERAL ECONOMIC CONDITIONS AND THE REAL ESTATE ECONOMIC CLIMATE POSE
RISKS FOR OUR BUSINESS. Our business is negatively impacted by periods of
economic slowdown or recession, rising interest rates or declining demand
for real estate. These economic conditions could have a number of effects
which could have a material adverse impact on certain segments of our
business, including the following:
. a decline in leasing activity;
. a decline in the supply of capital invested in commercial real
estate;
. a decline in the value of real estate and in rental rates
(which would cause us to realize lower revenue from (1) investment manage-
ment fees (typically based upon the value of the managed investments), (2)
property management fees (which in certain cases are calculated as a
percentage of the revenue of the property under management) and (3)
commissions or fees derived from property valuation, sales and leasing
(which are typically based on the value, sale price or lease revenue
commitment, respectively); and
. a general decline in sales prices and the supply of capital
invested in commercial real estate and related assets.
The real estate market tends to by cyclical and related to the
condition of the economy as a whole or, at least, to the perceptions of
investors and users as to the economic outlook. For example, if property
owners believe that an economic downturn is likely to occur in the near
future, some may sell their properties in anticipation. This could result
in the new owners changing property and investment management firms which
could cause us to lose some clients or assignments or to make the clients
or assignments we retain less profitable. Jones Lang LaSalle operates in
markets throughout the world. An economic downturn in several of them or
in significant markets could have a material adverse effect on our
business, results of operations and financial condition.
REAL ESTATE SERVICES MARKETS ARE HIGHLY COMPETITIVE. Jones Lang
LaSalle competes across a variety of business disciplines within the
commercial real estate industry, including investment management, tenant
representation, corporate property services, construction and development
management, property management, agency leasing, valuation and capital
markets. In general, with respect to each of our business disciplines,
Jones Lang LaSalle cannot assure that we will be able to continue to
compete effectively, will be able to maintain current fee arrangement or
margin levels or will not encounter increased competition. Each of the
business disciplines in which we compete is highly competitive on an
international, regional and local level. Depending on the industry
segment, we face competition from other real estate service providers,
institutional lenders, insurance companies, investment banking firms,
investment managers and accounting firms. Many of our competitors are
local or regional firms, which are substantially smaller than us. However,
they may be substantially larger on a local or regional basis. Jones Lang
LaSalle is also subject to competition from other large global firms.
The advent of the internet has introduced new ways of providing real
estate services, as well as new competitors to the industry. We cannot
currently predict who these competitors will be nor can we predict what our
response to them will be. This response could require significant capital
resources, changes in Jones Lang LaSalle's organization or technological
changes. Although, we cannot predict what the impact on our business will
be, Jones Lang LaSalle is currently developing a strategy to address the
risks and to capture the related opportunities (see Developing a Technology
and E-business Strategy in the Growth Strategy section).
WE MAY LOSE SERVICE AGREEMENTS OR CLIENT RELATIONSHIPS. As a result
of our strong, long-term client relationships, many of our clients use our
services consistently for new assignments and many also use a variety of
different services. If we fail to maintain existing relationships or fail
to develop and maintain new client relationships, we could experience a
material adverse effect on our business, financial condition or results of
operations. We are substantially dependent on long-term client
relationships and on revenue received for services under various service
agreements. Many of these agreements are cancelable by the client for any
reason on as little as 30 to 60 days' notice. These contracts may be
cancelled prior to their expiration or not renewed when their respective
terms expire.
We provide related services such as property management and leasing
services to our investment management clients and earn substantial fees for
providing these services. If our investment management clients terminate
or do not renew our services or if a property which is part of an
investment management portfolio is sold, other related services provided to
the investment management clients may also be terminated or not renewed.
The loss of a substantial number of service agreements or client
relationships could have a material adverse effect on our business,
operating results and financial condition.
WE DEPEND ON PROPERTY PERFORMANCE FOR REVENUE GENERATION. Our revenue
will be adversely affected by decreases in the performance of the
properties we manage. This is because our revenue from property management
services will generally be based upon percentages of the revenue generated
by the properties that we manage and our leasing commissions typically will
be based on the value of the lease revenue commitments. Property perfor-
mance typically depends upon our ability to attract and retain creditworthy
tenants, our ability to control operating expenses (some of which are
beyond our control), financial conditions generally and in the specific
areas where properties are located and the real estate market generally.
OUR CO-INVESTMENT ACTIVITIES SUBJECT US TO REAL ESTATE INVESTMENT
RISKS. An important part of our investment strategy includes investing our
capital in real estate investments with our investment management clients.
Our participation in real estate transactions through co-investment
activity could increase fluctuations in our earnings and cash flow. Other
risks associated with such activities include:
. loss of our investments;
. difficulties associated with international co-investment
described in "Our Business, Operating Results and Financial Condition Are
Subject to New Risks Resulting from Increased International Operations;"
and "We Are Exposed to Currency Losses from Currency Fluctuations;" and
. our potential loss of control over the timing of the recogni-
tion of gains, losses or potential incentive participation
fees.
YEAR 2000 ISSUES MAY ADVERSELY AFFECT OUR OPERATIONS. Many computer
systems and software products were coded to accept only two digit entries
in the date code field. As a result, such computer programs and systems
had the potential to recognize a date using "00" as the year 1900 rather
than the year 2000. This could have resulted in system failure or
miscalculations causing disruption of operations, including, among other
things, a temporary inability to process transactions, pay invoices or
engage in similar normal business activities. We successfully modified our
software and hardware to meet Year 2000 requirements and experienced no
significant disruption of our operations. Although we are not aware of any
threatened claims related to the Year 2000, we may be subject to litigation
from such claims. Adverse outcomes of any such litigation could also have
a material adverse effect on our business, operating results and financial
condition. It is not clear whether insurance coverage would be adequate to
offset these and other business risks related to the Year 2000.
THE CONCENTRATION OF OUR INCOME IN THE FOURTH QUARTER MAY CAUSE A LOSS
IN OTHER QUARTERS. Our operating income and earnings have historically
been substantially lower during the first three calendar quarters than in
the fourth quarter. The reasons for the concentration of income and
earnings in the fourth quarter include a general, industry-wide focus on
completing transactions by calendar year end, as well as the constant
nature of our non-variable expenses throughout the year versus the
seasonality of our revenues. This has historically resulted in a small
loss in the first quarter, a small profit or loss in the second and third
quarters and a larger profit in the fourth quarter, excluding the
recognition of investment generated performance fees.
WE MAY INCUR LIABILITIES RELATED TO OUR SUBSIDIARIES BEING GENERAL
PARTNERS OF NUMEROUS GENERAL AND LIMITED PARTNERSHIPS. We have
subsidiaries which are general partners in numerous general and limited
partnerships which invest in or manage real estate assets. Any subsidiary
which is a general partner is potentially liable to its partners and for
obligations of its partnership. If our exposure as a general partner is
not limited, or if our exposure as a general partner is expanded in the
future, any resulting losses may have a material adverse effect on our
business, results of operations and financial condition. We own our
general partnership interests through special purpose subsidiaries. We
believe this structure will limit our exposure to the total amount we have
invested in and the amount of notes from or advances and commitments to,
such special purpose subsidiaries. However, this limited exposure may be
expanded in the future based upon, among other things, changes in our
operating practices, changes in applicable laws or the application of
additional laws to our business.
WE MAY INCUR ENVIRONMENTAL LIABILITY IN OUR ROLE AS ON-SITE PROPERTY
MANAGER. Various national, state and local laws and regulations impose
liability on current or previous real property owners or operators for the
cost of investigating, cleaning up or removing contamination caused by
hazardous or toxic substances at the property. We may be held liable as an
operator for such costs in our role as an on-site property manager. In
addition, we could be held liable for liability incurred at the properties
managed by JLW prior to the merger. The liability may be imposed even if
the original actions were legal and we did not know of, or were not
responsible for, the presence of such hazardous or toxic substances. We
may also be solely responsible for the entire payment of the liability if
we are subject to joint and several liability with other responsible
parties who are unable to pay. We may be subject to additional liability
if we fail to disclose environmental issues to a buyer or lessee of
property or if a third party is damaged or injured as a result of
environmental contamination emanating from the site (including the presence
of asbestos containing materials). Additionally, some environmental laws
create a lien on the site in favor of the government for damages and costs
it incurs in connection with the contamination. We may also be liable
under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site, including the presence
of asbestos containing materials. We can not be sure that any of such
liabilities to which we or any of our affiliates may become subject will
not have a material adverse effect upon our business, results of operations
or financial condition.
ITEM 2. PROPERTIES
Jones Lang LaSalle's principal holding company headquarters is located
at 200 East Randolph Drive, Chicago, Illinois, where Jones Lang LaSalle
currently occupies over 100,000 square feet of office space pursuant to a
lease that expires in February 2006. Jones Lang LaSalle's principal
operational headquarters is located at 22 Hanover Square, London, England
where approximately 83,000 square feet are leased under a lease expiring in
June 2004. Regional headquarters are located in Chicago, London and Hong
Kong. Jones Lang LaSalle has approximately 100 local offices worldwide
located in 94 major cities and metropolitan areas as follows: 31 in the
United States, 37 in 18 countries in Europe and 26 in 9 countries in Asia
Pacific. Jones Lang LaSalle's offices are each leased pursuant to
agreements with terms ranging from month-to-month to ten years. In
addition, Jones Lang LaSalle has property and other offices located
throughout the world. On-site property management offices are generally
located within properties under management and are provided without cost.
ITEM 3. LEGAL PROCEEDINGS
Jones Lang LaSalle is 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 matters are
covered by insurance. In the opinion of Management, the ultimate resolution
of such litigation is not expected to have a material adverse effect on the
financial position, results of operations and liquidity of Jones Lang
LaSalle.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of Jones Lang LaSalle's
stockholders during the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Jones Lang LaSalle's Common Stock is listed for trading on the New
York Stock Exchange under the symbol "JLL."
As of March 7, 2000, there were approximately 3,500 beneficial holders
of Jones Lang LaSalle's Common Stock.
The following table sets forth the high and low sale prices of the
Common Stock as reported on the New York Stock Exchange.
1999 High Low
------ ------
First Quarter. . . . . . . . . . . . . . . . . . $36.50 $27.56
Second Quarter . . . . . . . . . . . . . . . . . $32.00 $25.94
Third Quarter. . . . . . . . . . . . . . . . . . $30.00 $12.63
Fourth Quarter . . . . . . . . . . . . . . . . . $16.69 $ 9.19
1998 High Low
------ ------
First Quarter. . . . . . . . . . . . . . . . . . $36.81 $30.50
Second Quarter . . . . . . . . . . . . . . . . . $48.00 $31.38
Third Quarter. . . . . . . . . . . . . . . . . . $44.50 $32.69
Fourth Quarter . . . . . . . . . . . . . . . . . $32.69 $21.94
Jones Lang LaSalle has not paid cash dividends on its common stock to
date. Jones Lang LaSalle intends to retain its earnings to support the
expansion of the business and therefore does not intend to pay cash
dividends for the foreseeable future. Any payment of future dividends and
the amounts thereof will be at the discretion of the Board of Directors and
will depend upon Jones Lang LaSalle's financial condition, earnings and
other factors deemed relevant by the Board of Directors. See Management's
Discussion and Analysis of Financial Condition and Results of Operations
for information regarding restrictions on Jones Lang LaSalle's ability to
pay dividends.
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)
The following table sets forth summary historical consolidated financial data for Jones Lang LaSalle. The
information should be read in conjunction with Jones Lang LaSalle's consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1999 1998
Adjusted Adjusted 1997 1996
Pro Forma Pro Forma Pro Forma Pro Forma
1999 1998 1997 1996 1995 (1) (2) (3) (3)
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
(in thousands, except share data)
Statement
of Opera-
tions Data:
Total
revenue
(4). . .$ 755,439 304,464 224,773 159,453 138,618 813,899 848,325 232,984 189,398
Total
operat-
ing ex-
penses
before
merger re-
lated non-
recurring
charges
(4) . . . 675,341 256,601 189,659 132,552 118,502 741,458 760,942 198,333 159,221
Merger re-
lated non-
recurring
charges
(1)(2). . 151,401 10,021 -- -- -- 160,528 163,504 -- --
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
Operating
income
(loss). . . (71,303) 37,842 35,114 26,901 20,116 (88,087) (76,121) 34,651 30,177
Interest
expense . . 18,211 4,153 3,995 5,730 3,806 18,118 14,736 1,000 1,075
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1999 1998
Adjusted Adjusted 1997 1996
Pro Forma Pro Forma Pro Forma Pro Forma
1999 1998 1997 1996 1995 (1) (2) (3) (3)
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
(in thousands, except share data)
Earnings (loss)
before pro-
vision for
income
taxes . . . (89,514) 33,689 31,119 21,171 16,310 (106,205) (90,857) 33,651 29,102
Net provision
for income
taxes . . . 5,328 13,224 5,279 1,207 505 2,065 16,850 12,956 11,204
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
Net earnings
(loss). . .$ (94,842) 20,465 25,840 19,964 15,805 (108,253) (108,365) 20,695 17,898
========== ========== ========== ========== ========== ========== ========== ========== ==========
Adjustments
(1) (2):
Merger re-
lated non-
recurring
charges. . 160,528 163,504
Tax benefit
associated
with merger
related non-
recurring
charges. . (20,004) (10,877)
---------- ---------- --------------------- ---------- ---------- ---------- ---------- ----------
Adjusted
net earn-
ings (1)(2) 32,271 44,262 20,695 17,898
========== ========== ========== ========== ========== ========== ========== ========== ==========
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1999 1998
Adjusted Adjusted 1997 1996
Pro Forma Pro Forma Pro Forma Pro Forma
1999 1998 1997 1996 1995 (1) (2) (3) (3)
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
(in thousands, except share data)
Basic
earnings
(loss) per
common (5) (6) (6)
share . . .$ (4.20) 1.26 1.50 1.28 1.10
========== ========== ========== ========== ==========
Basic
weighted
average
shares
outstand-
ing . . . .22,607,35016,215,478 16,200,000 30,144,521 30,469,594 16,200,000 16,200,000
========== ========== ========== =========== ========== ========== ==========
Diluted
earnings
(loss) per
common (5) (6) (6)
share . . .$ (4.20) 1.25 1.49 1.27 1.10
========== ========== ========== ========== ==========
Diluted
weighted
average
shares
outstand-
ing . . . .22,607,35016,387,721 16,329,613 30,298,332 30,644,227 16,329,555 16,329,555
========== ========== ========== =========== ========== ========== ==========
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1999 1998
Adjusted Adjusted 1997 1996
Pro Forma Pro Forma Pro Forma Pro Forma
1999 1998 1997 1996 1995 (1) (2) (3) (3)
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
(in thousands, except share data)
Other Data:
Adjusted
EBITDA
(7). . . .$ 116,774 61,318 44,207 32,317 24,356 112,164 123,800 44,407 37,624
Cash flows
provided by
(used in):
Operating
activi-
ties . . .$ (32,766) 19,238 40,577 13,964 13,553 29,114 83,658 33,027 13,646
Investing
activi-
ties . . . (67,143) (235,365) (14,126) (32,478) (5,706) (108,463) (318,467) (14,367) (31,852)
Financing
activi-
ties . . . 106,717 202,377 (3,128) 17,189 (12,365) 110,051 209,011 (10,996) 37,605
Investments
under
management
(8) . . . .21,500,00014,200,000 14,700,000 15,200,000 11,500,000 21,500,000 20,300,000 14,700,000 15,200,000
Square feet
under manage-
ment-Corporate
Property
Services
(9) . . . . 250,000 188,000 98,900 66,700 66,700 250,000 220,000 98,900 97,500
Total square
feet under
management
(10). . . . 700,000 400,500 202,700 131,600 125,700 700,000 650,000 202,700 200,000
========== ========== ========== ========== ========= ========== ========== ========== ==========
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1999 1998
Adjusted Adjusted 1997 1996
Pro Forma Pro Forma Pro Forma Pro Forma
1999 1998 1997 1996 1995 (1) (2) (3) (3)
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
(in thousands, except share data)
Balance
Sheet
Data:
Cash and
cash equi-
valents . .$ 23,308 16,941 30,660 7,207 8,322
Total
assets. . . 924,800 490,921 219,887 156,614 115,001
Long-term
debt. . . . 159,743 202,923 -- 55,551 40,805
Total
liabil-
ities . . . 600,275 321,349 72,990 132,367 100,004
Total
partners'
capital/
stockholders'
equity. . . 323,936 169,572 146,897 24,247 14,997
(1) Adjusted Pro Forma results for 1999 give effect to the operations of
the Jones Lang Wootton companies for the two months ended February 28,
1999, the period prior to their merger with LaSalle Partners Incorporated,
amortization expense of the goodwill resulting from the merger as if the
merger occurred on January 1, 1999 and a benefit for taxes as if the Jones
Lang Wootton companies and LaSalle Partners Incorporated were taxable
entities at an effective tax rate of 40% as of January 1, 1999. No effect
has been given to the compensation expense incurred associated with the
issuance of shares to former employees of Jones Lang Wootton. Management
believes that Adjusted Pro Forma is useful to investors as a measure of
operating performance, cash generation and ability to service debt.
However, Adjusted Pro Forma should not be considered as an alternative
either to: (i) net earnings (determined in accordance with GAAP); (ii)
operating cash flow (determined in accordance with GAAP); or (iii)
liquidity.
(2) Adjusted Pro Forma results for 1998 give effect to the operations of
COMPASS and the Jones Lang Wootton companies for the twelve months ended
December 31, 1998 as if the acquisition and merger occurred on January 1,
1998, amortization of intangible assets and goodwill resulting from the
transactions, incremental interest expense resulting from borrowings used
to fund the COMPASS acquisition and a benefit for taxes as if COMPASS, the
Jones Lang Wootton companies and LaSalle Partners Incorporated were taxable
entities at an effective tax rate of 38% as of January 1, 1998. No effect
has been given to the compensation expense incurred associated with the
issuance of shares to former employees of Jones Lang Wootton. Management
believes that Adjusted Pro Forma is useful to investors as a measure of
operating performance, cash generation and ability to service debt.
However, Adjusted Pro Forma should not be considered as an alternative
either to: (i) net earnings (determined in accordance with GAAP); (ii)
operating cash flow (determined in accordance with GAAP); or (iii)
liquidity.
(3) Pro forma results give effect to: (i) the acquisition of Galbreath
on April 22, 1997, as adjusted for the Tenant Representation and Investment
Banking units which were not acquired, as if such acquisition had occurred
on January 1, 1996; (ii) the provision for income taxes as though Jones
Lang LaSalle and Galbreath were taxable entities as of January 1, 1996 at
an effective tax rate of 38.5%; and (iii) estimated incremental general and
administrative costs associated with operations as a public company and the
repayment of Jones Lang LaSalle's long-term notes payable out of the
proceeds of the initial public offering as if the Offering had occurred on
January 1, 1996.
(4) Historical revenue and operating expenses have been reclassified to
reflect personnel cost reimbursements received on property management or
specific client assignments on a net rather than gross basis. There was no
effect on operating income or net earnings as historically reported.
(5) Basic and diluted earnings per common share for 1997 are calculated
based on net earnings for the period from conversion to corporate form,
July 22, 1997, through December 31, 1997.
(6) Pro forma basic earnings per common share are calculated based on the
16,200,000 shares outstanding upon completion of the initial public
offering. Pro forma diluted earnings per common share give further effect
to the impact of outstanding dilutive options in accordance with SFAS No.
128.
(7) Adjusted EBITDA represents earnings before interest expense, income
taxes, depreciation and amortization and merger related non-recurring
charges. Management believes that Adjusted EBITDA is useful to investors as
a measure of operating performance, cash generation and ability to service
debt. However, Adjusted EBITDA should not be considered as an alternative
either to: (i) net earnings (determined in accordance with GAAP); (ii)
operating cash flow (determined in accordance with GAAP); or (iii)
liquidity.
(8) Investments under management represent the aggregate fair market
value or cost basis of assets managed by the Jones Lang LaSalle Investment
Management segment as of the end of the periods reflected.
(9) Represents the square footage of properties for which Jones Lang
LaSalle provided corporate property services as of the end of the periods
reflected.
(10) Represents the total square footage of properties for which Jones
Lang LaSalle provided property management and leasing or corporate property
services as of the end of the periods reflected.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Jones Lang LaSalle Incorporated ("Jones Lang LaSalle"; formerly
LaSalle Partners Incorporated) is a leading full-service real estate
services firm that provides investment management, hotel acquisition,
disposition, strategic advisory and valuation, property management,
corporate property services, development services, project management,
tenant and agency leasing, investment disposition, acquisition, financing
and capital placement services on a local, regional and global basis. With
over 7,000 employees in more than 100 markets on five continents, Jones
Lang LaSalle is able to satisfy local, regional and international service
needs. The ability to provide this network of services around the globe was
solidified effective March 11, 1999 with the merger of the businesses of
the Jones Lang Wootton companies ("JLW") with those of LaSalle Partners
Incorporated. In connection with this merger, the name of the company was
changed from LaSalle Partners Incorporated to Jones Lang LaSalle
Incorporated.
Jones Lang LaSalle has grown by expanding both its client base and its
range of services and products in anticipation of client needs as well as
through a series of strategic acquisitions, of which the acquisition of
COMPASS was the most significant, and the merger with JLW, as described
below. LaSalle Partners completed its initial public offering ("Offering")
on July 22, 1997, raising net proceeds of $82.8 million, which were used
primarily to repay its long-term debt and related interest of $63.5
million.
The acquisition of COMPASS, which was combined with Jones Lang
LaSalle's various businesses, created the largest real estate management
services company in the United States, adding approximately 200 million
square feet of property and corporate property services assignments to
Jones Lang LaSalle's portfolio. Jones Lang LaSalle paid $180.0 million in
cash for the acquisition with provisions for an earnout payment of up to
$77.5 million over five years. The consideration, in addition to
transaction costs of approximately $3.2 million, was financed with a new
$175.0 million acquisition facility and borrowings on Jones Lang LaSalle's
existing revolving credit facility. Jones Lang LaSalle incurred transition
and integration costs related to the acquisition of $5.2 million in 1998
and $4.8 million in 1999, on an after-tax basis.
On March 11, 1999, LaSalle Partners Incorporated and JLW merged their
businesses. JLW was an employee-owned international real estate services
firm with approximately 4,000 employees and operations in 32 countries. The
operations, headquartered in London, were managed geographically with four
main regions in Europe, Asia, Australasia and the United States. JLW had a
culture, long-term strategy and service capability which were compatible
with those of LaSalle Partners and had approximately 280 million square
feet under management and approximately $6.3 billion in assets under
management. Jones Lang LaSalle incurred merger related transition and
integration costs during 1998 and 1999 totaling $.9 million and $27.0
million, respectively, on an after-tax basis. See Jones Lang Wootton Merger
below for further discussion of this transaction.
Jones Lang LaSalle intends to continue to increase its level of co-
investment with its investment management clients. This strategy should
serve to grow the assets under management, generate returns on investment
and create potential opportunities to provide services related to the
acquisition, financing, property management, leasing and disposition of
such investments. As of December 31, 1999, Jones Lang LaSalle had a total
investment of $67.3 million in 34 separate property or fund co-investments
with additional capital commitments of $28.7 million for future fundings of
co-investments.
Included in the investments noted above is an investment in LaSalle
Hotel Properties ("LHO"), a real estate investment trust which completed
its initial public offering in April 1998. LHO was formed to own hotel
properties and to continue and expand the hotel investment activities of
Jones Lang LaSalle by investing principally in upscale and luxury full-
service hotels located primarily in major business and urban, resort and
convention markets. Jones Lang LaSalle provides advisory, acquisition and
administrative services to LHO for which it receives a base advisory fee
calculated as a percentage of net operating income, as well as performance
fees based on growth in funds from operations on a per share basis. Such
performance fees, if any, will be paid in the form of LHO common stock or
units, at Jones Lang LaSalle's option. LHO was formed with 10 hotels, nine
of which Jones Lang LaSalle had a nominal co-investment in and acted as the
investment advisor for. In accordance with the individual investment
advisory agreements, Jones Lang LaSalle earned and received performance
fees totaling $15.2 million on the disposition of certain of the assets
which were shared between Jones Lang LaSalle's Investment Management and
Capital Markets units. Jones Lang LaSalle contributed its ownership
interests in the hotels as well as the related performance fees to LHO for
an effective ownership interest of approximately 6.4%.
JONES LANG WOOTTON MERGER
On March 11, 1999, Jones Lang LaSalle (at the time known as LaSalle
Partners Incorporated) merged its businesses with those of JLW and changed
its name to Jones Lang LaSalle Incorporated. In accordance with the
purchase and sale agreements, Jones Lang LaSalle issued 14.3 million shares
of common stock and paid cash consideration of $6.2 million (collectively,
the "Consideration"). Included in the 14.3 million shares were 1.2 million
shares subject to the post-closing net worth adjustment. The procedures
related to the post-closing net worth calculation were completed during the
third quarter and resulted in .5 million shares being retained by Jones
Lang LaSalle and an additional $.5 million in cash consideration being due
to certain of the former JLW shareholders. Of the original 14.3 million
shares issued, approximately 12.5 million of the shares were issued to
former JLW equity owners and 1.8 million shares were placed in an employee
stock ownership trust ("ESOT") to be distributed by December 31, 2000 to
selected employees of the former JLW entities. Included in the total ESOT
shares were .9 million shares that were allocated on March 11, 1999 and .2
million shares that were allocated on December 31, 1999, with the remaining
.7 million shares to be allocated on December 31, 2000. Issuance of the
shares was not registered under the U.S. securities laws, and the shares
are generally subject to a contractual one year restriction on sale.
The merger, which was principally structured as a share exchange, has
been treated as an acquisition and is being accounted for using both APB
Opinion No. 16, "Business Combinations" and APB Opinion No. 25, "Accounting
for Stock Issued to Employees." In accordance with the purchase and sale
agreements, the merger is effective for accounting purposes as of March 1,
1999. Accordingly, the results of operations for the former JLW entities
have been included in the first quarter results of Jones Lang LaSalle from
that date. Giving effect to the adjustment shares retained, the following
table summarizes the accounting treatment applied to the issued shares:
Net Net
Shares Shares
Net Allocated to be
Shares at Allocated at Total
Accounting Method Issued at December 31, December 31, Net
(shares in millions) Closing 1999 2000 Shares
- -------------------- ---------- ------------ ------------ ------
APB Opinion No. 16 7.2 -- -- 7.2
APB Opinion No. 25 -
Fixed Award 4.4 .2 .7 5.3
Variable Award 1.3 -- -- 1.3
---- --- --- ----
Net Shares Issued 12.9 .2 .7 13.8
==== === === ====
As a general matter, the accounting treatment of the Consideration is
dependent on whether the recipient (i) had a legal ownership interest in
the JLW entities prior to the integration of those entities ("Current JLW
Owners"), (ii) obtained their legal ownership interest in the JLW entities
as part of the JLW integration ("New JLW Owners") or (iii) will receive
their shares from the ESOT. The accounting treatment is further dependent
on whether the shares issued are non-restricted ("Non-restricted Shares"),
issued from the ESOT ("ESOT Shares"), or are subject to: (i) forfeiture
provisions ("Forfeiture Shares"), (ii) indemnification provisions
("Indemnification Shares") or (iii) closing net worth requirements
("Adjustment Shares").
All Consideration paid to Current JLW Owners, excluding Forfeiture
Shares, has been accounted for using the purchase method of accounting
under APB Opinion No. 16. Such Consideration consists of 7.2 million shares
and $6.2 million in cash. The shares were valued based on the average price
of Jones Lang LaSalle common stock of $24.66 per share for the five-day
period that includes the two trading days immediately preceding, the
trading day of, and the two trading days immediately following the date of
substantial completion of negotiations regarding the principal financial
terms of the merger (October 9, 1998) discounted at a rate of 20%, to
account for transferability restrictions applicable to such shares. The
total value attributed to the issuance of shares, $141.9 million, in
addition to the cash payment and capitalizable transaction costs of
approximately $15.8 million, have been allocated to the identifiable assets
acquired and liabilities assumed with the excess value being allocated to
goodwill which is being amortized over its estimated useful life of 40
years. The liabilities assumed included employee termination costs of $9.3
million and office rental payments in excess of sublease rental income of
$.3 million related to the closing of offices with geographic overlap in
the United States. As of December 31, 1999, $.9 million of employee
termination costs remain unpaid and will be paid in 2000. Approximately $.3
million of office closure costs remain unpaid as of December 31, 1999.
These amounts will be recognized over the remaining terms of the leases
through 2002.
Accounting under APB Opinion No. 25 is being applied to the remaining
6.6 million shares, which represent all shares issued to New JLW Owners,
shares allocated from the ESOT and Forfeiture Shares issued to Current JLW
Owners. Shares issued or allocated from the ESOT at March 11, 1999 were
valued at $35.38, the market price of Jones Lang LaSalle common stock on
March 10, 1999. Shares issued or allocated from the ESOT on December 31,
1999 were valued at $11.88, the market price on December 31, 1999. Shares
to be allocated from the ESOT on December 31, 2000, totaling .7 million,
will be valued based on the market price of the common stock on that date.
Of the 5.7 million shares issued or allocated from the ESOT on
March 11, 1999, after giving effect to the adjustment shares retained, 1.3
million shares, which are deemed to be contingently returnable, are being
accounted for as a variable stock award plan. Such shares include
Forfeiture Shares issued to the JLW Asia Shareholders (which are subject to
indemnification provisions) in addition to Indemnification Shares issued to
New JLW Owners and allocated from the ESOT at March 11, 1999. 1.2 million
shares subject to forfeiture or vesting provisions have been accounted for
as deferred compensation with compensation expense to be recognized over
the forfeiture or vesting period. The value of the remaining .1 million
shares was accounted for as compensation expense during 1999. Under a
variable stock award plan, the amount of compensation expense and value of
deferred compensation will be adjusted at the end of each quarter based on
the change in stock price from the previous quarter until the final number
of shares to be issued is known.
The remaining 4.4 million shares, after giving effect to the
adjustment shares retained, issued or allocated from the ESOT on March 11,
1999 are subject to accounting under APB Opinion No. 25 and are being
accounted for as a fixed stock award plan. Such shares include Forfeiture
Shares issued to Current JLW Owners (excluding Forfeiture Shares issued to
JLW Asia Shareholders which are subject to indemnification provisions) and
New JLW Owners in addition to shares allocated from the ESOT on March 11,
1999 and December 31, 1999 which are not subject to indemnity provisions.
Of these shares, 3.4 million are subject to forfeiture or vesting
provisions and have been accounted for as deferred compensation with
compensation expense to be recognized over the forfeiture or vesting
period. The value of the remaining 1.0 million shares, in addition to a
cash payment of $.4 million, was accounted for as compensation expense
during 1999.
Compensation expense incurred for the year ended December 31, 1999
related to the issuance of shares and the amortization of deferred
compensation totaled $101.6 million, net of the quarterly adjustment for
the change in stock price. Deferred compensation at December 31, 1999
totaled $70.1 million, including the effect of the quarterly adjustment for
the change in stock price, which will be amortized into compensation
expense during 2000. Such compensation expense, in addition to compensation
expense anticipated to be incurred at December 31, 2000 associated with the
final allocations of ESOT shares, is expected to result in a significant
non-cash net loss for Jones Lang LaSalle for the year.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Operating results in 1999 include the results of the acquired COMPASS
businesses for a full twelve months (the acquisition was completed in
October 1998) and the results of JLW effective March 1, 1999.
REVENUE
Total revenue, after elimination of intersegment revenue, increased
$450.9 million, or 148.1%, to $755.4 million in 1999 from $304.5 million in
1998, primarily as a result of the acquisition of COMPASS and the merger
with JLW. In addition, a $7.5 million gain was recognized in 1999, relating
to the disposition of Jones Lang LaSalle's former construction subsidiary,
which was sold in a leveraged buyout in 1996. These increases were
partially offset by lower management fees and leasing commissions, as well
as lower performance fees generated on the disposition of assets under
management during 1999 as compared to 1998.
OPERATING EXPENSES
Total operating expenses, after elimination of intersegment expenses
and excluding the effect of merger related non-recurring charges, increased
$418.7 million, or 163.2%, to $675.3 million in 1999 as compared with
$256.6 million in 1998, substantially as a result of the acquisition of
COMPASS and the JLW merger. These two transactions also resulted in
increases in personnel and office occupancy costs related to the global
infrastructure added to support the larger size of the combined company, as
well as increased global management and coordination costs associated with
a global organization. In addition, operating expenses increased as a
result of additional goodwill amortization expense relating to the
acquisition of COMPASS and the merger with JLW.
Merger related non-recurring charges totaled $151.4 million in 1999.
$101.6 million of these charges for 1999 represent non-cash compensation
expense recorded as a result of shares issued to certain former employees
of JLW in connection with the merger. $49.8 million of these charges
represent non-recurring transition and integration costs in 1999, of which
approximately $8.1 million is attributable to the completion of the
integration of the acquired COMPASS businesses in 1999. The remaining
transition expense relates to the merger with JLW and represents non-
capitalizable expenses such as rebranding, office consolidations and
information technology initiatives.
OPERATING INCOME
The resulting operating income in 1999, excluding the effect of merger
related non-recurring charges, totaled $80.1 million compared to $47.9
million in 1998, an increase of $32.2 million, or 67.2%. Operating income
as a percentage of total revenue, exclusive of merger related charges, was
10.6% for 1999 as compared to 15.6% in 1998. The operating results for 1999
have been negatively affected by four primary factors: (i) management
distractions caused by the integration of the COMPASS and JLW operations,
resulting in less generation of new business, (ii) increased infrastructure
costs associated with the acquisition of COMPASS and the merger with JLW,
(iii) a delay in the realization of anticipated cost savings from the JD
Edwards property accounting and information system and (iv) lower
performance fees generated on the disposition of certain assets under
management.
Including the effect of the merger related non-recurring charges, the
operating loss in 1999 totaled $71.3 million compared to operating income
in 1998 of $37.8 million.
SEGMENT OPERATING RESULTS
As a result of the merger with JLW, Jones Lang LaSalle is managing its
business along a combination of functional and geographic lines. In the
fourth quarter of 1999, Jones Lang LaSalle consolidated its operations in
Asia and Australasia into a unified region now known as Asia Pacific.
Accordingly, operations are now classified into five business segments: two
global businesses, (i) Investment Management and (ii) Hotel Services; and
three geographic regions, (iii) the Americas, (iv) Europe and (v) Asia
Pacific. The Investment Management segment provides real estate investment
management services to institutional investors, corporations and high net
worth individuals. The Hotel Services segment provides strategic advisory,
sales, acquisition, valuation and asset management services related solely
to hotel, conference and resort properties. The geographic regions for the
Americas, Europe and Asia Pacific each provide Owner and Occupier Services
which consist primarily of tenant representation and agency leasing,
investment disposition and acquisition, and valuation services
(collectively, "implementation services"), and property, corporate
property, development and project management services (collectively,
"management fees"). Results for 1998 and 1997 have been realigned based
upon the current business segments.
OWNER AND OCCUPIER SERVICES
AMERICAS
Revenue for the Americas region increased $78.0 million, or 36.3%, to
$293.1 million in 1999 compared to $215.1 million in 1998. Increased
revenues were driven substantially by the acquisition of COMPASS and the
merger with JLW, and to a lesser extent by an increased volume of
transactions completed by the Project Management and Tenant Representation
business units, which posted a $7.6 million increase in revenue from
strategic alliance clients. In addition, the Americas region recognized a
gain of $7.5 million associated with the disposition of Jones Lang
LaSalle's former construction subsidiary, which was sold in a leveraged
buyout in December 1996. U.S. GAAP accounting requirements governing the
accounting for this transaction did not permit the recognition of the gain
in prior years.
These revenue gains were partially offset by a reduction in management
fees and leasing commissions generated by the region's Leasing & Management
unit. The reductions are primarily a function of the timing of property
dispositions by clients, as compared to the timing of start dates for new
assignments, in addition to slower new business generation in late 1998 and
early 1999 as a result of management's integration efforts on the COMPASS
acquisition and JLW merger. Leasing commissions have been further impacted
by the high occupancy rates of properties within the portfolio coupled with
a lack of new construction or existing large blocks of office space. This
has resulted in more lease renewals, which generate lower fees than new
leases, than in prior years. To a lesser extent, the revenue for the
Americas region decreased as a result of performance fees generated during
1998 related to the LHO initial public offering.
Operating expenses for the Americas region increased $78.7 million, or
42.5%, to $263.7 million in 1999 from $185.0 million in 1998. The increase
is primarily attributable to the acquisition of COMPASS and the merger with
JLW and the resulting increase in personnel, office occupancy and goodwill
amortization costs, in addition to added infrastructure to support the
increased size of the combined company. Operating expenses increased to a
lesser extent as a result of the continued expansion into South America and
Canada, resulting in investments in personnel and infrastructure for those
units and incremental depreciation and infrastructure costs associated with
the implementation and rollout of the JD Edwards property accounting and
information system. These costs were partially offset by a cost reduction
program which was initiated in the second half of 1999 and expanded in
early 2000 that is anticipated to yield annualized savings of $20 million
beginning in 2001. In conjunction with this cost reduction program, the
Americas region recorded employee termination costs of approximately $4.7
million in 1999. These costs were reflected as integration and transition
expenses in the Consolidated Statement of Earnings.
EUROPE
Revenue for the Europe region, which is substantially a new reportable
segment as a result of the JLW merger and the acquisition of COMPASS,
totaled $253.2 million in 1999. The revenue generated by the region
primarily reflects robust activity within the United Kingdom primarily in
the form of tenant and agency leasing activities and investment sales and
acquisition transactions. In addition, property management, corporate
property services and agency leasing activity in Germany and France, as
well as investment sales and acquisition transactions in Germany and
valuation transactions in France, were strong in 1999, particularly in the
latter half of the year. The effect of a strong transaction flow was
partially offset by a weakening of both the British pound and the euro
during 1999. Activity in Central and Eastern Europe remained flat due to a
lack of substantial economic growth.
Operating expenses for the region totaled $223.9 million in 1999.
These expenses are composed primarily of personnel and office occupancy
costs, as well as added infrastructure to support the increased size of the
combined company. In addition, these expenses include amortization of
goodwill associated with the merger with JLW.
ASIA PACIFIC
The Asia Pacific region was formed in the last quarter of 1999 through
a consolidation of the Asia and Australasia regions of the Owner and
Occupier Services segment, in order to capitalize on efficiencies in the
regional infrastructure, promote sharing of best practices throughout the
region and improve the delivery of products and services to clients.
Revenue for the Asia Pacific region, also substantially a new reportable
segment for Jones Lang LaSalle as a result of the JLW merger, totaled
$114.2 million in 1999. This revenue was primarily generated by strong
activity within Hong Kong, representing property management, agency leasing
activity, consulting and valuation services, as well as management and
leasing activity in Australia and investment sales transactions in
Singapore. This region continues to benefit from several positive trends in
the Australian real estate market, including continued economic growth
funded by strong consumer spending and the outsourcing of property
management functions by corporations and the Australian government. A
revival in Asia's real estate activity was boosted by a gradual economic
recovery within the Asian markets in 1999, including a renewed interest
from international investors, primarily in the latter half of the year.
However, conditions vary from country to country, and the benefits from the
recovery in the areas noted above were partially offset by the stagnant
market conditions in other areas of Asia. The currency valuation throughout
most of Asia remained stable for the period, inflation remained low, and
property prices and rents in a number of the Asia markets have begun to
stabilize.
Operating expenses totaled $106.6 million in 1999. These expenses
mainly represent personnel costs and office occupancy costs, as well as
added infrastructure to support the increased size of the combined company.
In addition, these expenses include amortization of goodwill associated
with the merger with JLW.
INVESTMENT MANAGEMENT
Investment Management revenue decreased $3.3 million, or 3.7%, to
$85.0 million in 1999 from $88.3 million in 1998. The decrease for 1999 is
primarily attributable to strong performance fees generated in 1998 on the
disposition of certain assets under management in which Jones Lang LaSalle
had co-investments, including certain hotel properties in connection with
the formation of LHO. In addition, for a portion of 1998, advisory fees
were earned in relation to $1.0 billion in assets under management related
to the CalPERS portfolio. These assets were transferred to the client's new
investment advisor during the third quarter of 1998 and thus, no fees were
earned on these assets in 1999. This decline was partially offset by
increased revenue, resulting from the merger with JLW and to a lesser
extent to a significant acquisition fee earned in 1999, and increased
equity earnings related to co-investments. In the latter half of 1999, the
Investment Management segment had its first closing on the Euro5 Fund and
its first and second closings on the Income and Growth Fund II. Equity
earnings are expected to increase in 2000 as a result of an anticipated
gain on the disposition of a large portfolio, which was delayed from
closing in late 1999.
Operating expenses increased $3.7 million, or 5.3%, to $73.4 million
in 1999 as compared with $69.7 million in 1998, primarily as a result of
the merger with JLW and added infrastructure to support the increased size
of the combined company. The increase was partially offset by lower levels
of incentive bonuses in 1999 as compared to 1998 as a result of the lower
performance fees generated.
HOTEL SERVICES
Hotel Services, a new reportable segment as a result of the recent
merger, had total revenue of $13.8 million in 1999, representing a
combination of valuation, disposition and acquisition services. This
segment experienced good activity in 1999, primarily relating to
disposition and acquisition services. The segment benefited late in 1999
from the recovering Asian real estate market and in late 1999 completed the
sale of the Seoul Hilton. This was a sizable single transaction, generating
a large transaction fee for this segment. However, in Europe and the United
States, several major transactions failed to close in 1999 as expected,
thus creating a strong backlog at the end of the year. These transactions
are expected to close in 2000.
Operating expenses for the segment totaled $11.5 million in 1999.
These expenses mainly represent personnel costs and office occupancy costs.
INTEREST EXPENSE
Interest expense, net of interest income, increased $14.0 million to
$18.2 million in 1999 as compared to 1998, primarily as a result of the
acquisition of COMPASS and the related borrowings on the acquisition credit
facility. To a lesser extent, additional borrowings on the revolving credit
facilities as a result of the transition and integration expenses
associated with the acquisition of COMPASS and merger with JLW contributed
to the increase in interest expense. In addition, on October 27, 1999 Jones
Lang LaSalle replaced its five-year unsecured $150.0 million revolving
credit facility, $175.0 million term credit facility and $30.0 million
short-term facility with a new $380.0 million unsecured credit agreement
(see Liquidity and Capital Resources for discussion), which bears a higher
rate of interest. Interest expense is expected to be significantly higher
in 2000 as a result of an increase in the average level of debt
outstanding, generally increasing interest rates and the likely refinancing
of the portion of the credit facilities due October 15, 2000 at a higher
rate of interest.
PROVISION FOR INCOME TAXES
The provision for income taxes decreased $7.9 million, or 59.8%, to
$5.3 million in 1999 as compared to $13.2 million in 1998. The decrease is
primarily attributable to the generally lower level of earnings before
provision for income taxes, exclusive of the compensation expense
associated with the issuance of shares to former JLW employees in
connection with the merger, which is largely nondeductible for tax
purposes. Excluding the impact of merger related compensation expense and
non-recurring transition and integration expense, the effective tax rate on
recurring operations increased from 39.3% in 1998 to 40.5% in 1999. The
increase in the effective tax rate is primarily due to an increase in
nondeductible goodwill amortization related to the merger with JLW and to
the provision of valuation allowances on the tax benefits of certain
foreign net operating loss carryforwards.
NET EARNINGS (LOSS)
Net earnings, excluding the effect of merger related non-recurring
charges, was $36.8 million for 1999 as compared to $26.6 million for 1998,
an increase of $10.2 million or 38.3%. This increase was primarily the
result of the acquisition of COMPASS and the merger with JLW, partially
offset by the decline in the operating results of the Americas Owner and
Occupier Services segment as discussed previously.
Including the effect of the merger related non-recurring charges, the
net loss for 1999 was $94.8 million compared to net earnings of $20.5
million for 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUE
Jones Lang LaSalle's total revenue, after elimination of intersegment
revenue, grew $79.7 million, or 35.5%, to $304.5 million in 1998 from
$224.8 million in 1997. Increased revenues were driven, in part, by the
acquisitions of COMPASS, Satulah and Galbreath, as well as by the
completion of the LHO initial public offering. In addition, growth was
driven by strong capital flows into the U.S. real estate market, in spite
of a market correction which occurred during the latter half of 1998,
continued underlying demand for real estate by users across the spectrum of
property types, and Jones Lang LaSalle's ability to cross-market real
estate services to its clients.
These increases were partially offset by a decline in property
management, leasing and investment management fees from four of Jones Lang
LaSalle's multiple investor funds ("Commingled Funds") formed by Jones Lang
LaSalle in the 1980s. The decline is a result of the disposition of the
funds' assets, in accordance with the strategic plan. These asset
dispositions were completed by December 1998. Revenue generated from these
funds compared with total revenue was .8% for 1998 and 4.5% for 1997.
OPERATING EXPENSE
Jones Lang LaSalle's operating expenses, after elimination of
intersegment expenses, increased $77.0 million, or 40.6%, to $266.6 million
in 1998 from $189.7 million in 1997. Operating expenses include $10.0
million in merger related non-recurring charges as a result of the COMPASS
acquisition and the merger with JLW. Jones Lang LaSalle's operating
expenses, exclusive of these charges, totaled $256.6 million and
represented an increase of $66.9 million, or 35.3%, over the prior year. As
a percentage of total revenue, operating expenses, exclusive of the merger
related charges, remained constant at approximately 84.3%.
OPERATING INCOME
As a result of the factors noted above, Jones Lang LaSalle's operating
income, including merger related non-recurring charges of $10.0 million,
increased $2.7 million, or 7.7%, to $37.8 million in 1998 from $35.1
million in 1997. Exclusive of the merger related charges, Jones Lang
LaSalle's operating income increased $12.7 million, or 36.3%. As a
percentage of total revenue, operating income, exclusive of merger related
charges, remained constant at approximately 15.6%.
SEGMENT OPERATING RESULTS
As a result of the merger with JLW in 1999, Jones Lang LaSalle changed
the way it manages its business to a combination of functional and
geographic lines. Segment operating results for 1998 and 1997 were
realigned based upon these new business segments, however, for 1998 and
1997 the Europe and Asia Pacific regions of the Owner and Occupier Services
segment were immaterial to Jones Lang LaSalle as a whole and the Hotel
Services segment was nonexistent. Consequently, the discussion below
focuses on the Americas segment of Owner and Occupier Services and the
Investment Management segment.
OWNER AND OCCUPIER SERVICES
AMERICAS
Revenue for the Americas segment of Owner and Occupier Services
increased $67.3 million, or 45.5%, to $215.1 million in 1998 from $147.8
million in 1997. This increase was primarily due to five factors: (i) the
acquisitions of COMPASS, Satulah and Galbreath, (ii) higher volumes of
activity within the Agency Leasing, Property Management, Tenant
Representation and Capital Markets business units, (iii) the addition of
nine new Corporate Property Services clients, (iv) new strategic alliance
relationships formed by the Project Management and Tenant Representation
businesses and (v) a higher volume of projects being managed by the
Development Services business. In addition, the growth in revenue
experienced by the Capital Markets business includes incentive fees of $5.6
million related to the initial public offering of LHO. These increases were
partially offset by a decline in revenue related to the sale of the
Commingled Fund properties discussed previously, in addition to the
volatility in the capital markets during the latter half of 1998.
Operating expenses for the Americas region increased $61.5 million, or
49.8%, to $185.0 million in 1998 from $123.5 million in 1997. This increase
was primarily a result of the effects of the COMPASS, Satulah and Galbreath
acquisitions, including personnel and facility costs and the amortization
of intangibles resulting from the acquisitions. Additionally, higher
compensation and benefit costs associated with increased incentive
compensation earned by the Capital Markets and Tenant Representation
businesses, consistent with the increased levels of operating income
generated contributed to the increase. Other contributing factors included
increased staffing to support new business initiatives and incremental
corporate infrastructure costs as a result of higher staffing levels and
technology enhancements.
INVESTMENT MANAGEMENT
Investment Management segment revenue increased $10.7 million, or
13.8%, to $88.3 million in 1998 from $77.6 million in 1997. The net gain in
revenue was primarily attributable to performance fees generated on the
disposition of certain assets under management in which Jones Lang LaSalle
had a co-investment, including certain hotel properties in connection with
the formation of LHO, and, to a lesser extent, to increased acquisition and
advisory fees generated on international fund activity and a higher volume
of activity performed by the securities business. These increases were
partially offset by a decline in revenue related to the sale of the
Commingled Fund properties discussed previously, in addition to the
transition of approximately $1.0 billion in assets under management related
to the CalPERS portfolio to the client's new investment advisor during the
third quarter of 1998 and the reduction in publicly traded REIT values
during the latter half of 1998.
Operating expenses for the Jones Lang LaSalle Investment Management
segment increased $3.5 million, or 5.3%, to $69.7 million in 1998 from
$66.2 million in 1997. The increase was primarily a result of increased
incentive compensation, consistent with the increased level of operating
income generated. To a lesser extent, costs associated with new business
initiatives contributed to the increase. These increases were partially
offset as a result of a one-time reserve of $1.5 million established in
late 1997 related to the pending liquidation of a mid-1980 investment
vehicle.
INTEREST EXPENSE
Interest expense increased $.2 million, or 5.0%, to $4.2 million in
1998 from $4.0 million in 1997, principally as a result of the COMPASS
acquisition and the resulting borrowings on the new acquisition facility
and existing revolving credit facility. This was partially offset by the
repayment of Jones Lang LaSalle's long-term debt from the net proceeds of
the Offering and the subsequent repayment of outstanding debt under its
working capital facility in July 1997.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $7.9 million to $13.2 million
in 1998 from $5.3 million in 1997 as a result of Jones Lang LaSalle's
conversion from partnership to corporate form in July 1997 and the
resulting provision for income taxes at an effective tax rate of 39.3% in
1998 and 38.5% in 1997. This increase included the effects of the
recognition of a $6.8 million tax benefit in July 1997, in accordance with
SFAS No. 109, as a result of Jones Lang LaSalle recording a deferred tax
asset arising from temporary differences between the book and tax basis of
its consolidated assets and liabilities at the date of conversion to
corporate form. In 1998, the provision for income taxes includes a tax
benefit of approximately $3.9 million related to merger related charges.
NET EARNINGS
Net earnings, including merger related charges of $6.1 million on an
after-tax basis, decreased $5.4 million, or 20.8%, to $20.5 million in 1998
from $25.8 million in 1997. Exclusive of merger related charges, net
earnings increased slightly to $26.6 million. Net earnings, excluding
merger related charges, represented 8.7% of total revenue compared to 11.5%
in 1997. This decrease primarily reflects the increased tax provision in
1998 as a result of being a taxable entity for the entire year, and to a
lesser extent, the impact of amortization of intangibles related to recent
acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Jones Lang LaSalle has financed its operations,
acquisitions and co-investment activities with internally generated funds,
the common stock of Jones Lang LaSalle and borrowings under its credit
facilities. On October 27, 1999, Jones Lang LaSalle closed a new $380.0
million unsecured credit agreement that replaced the existing five-year
unsecured $150.0 million revolving credit facility, the $175.0 million term
credit facility used to finance the COMPASS acquisition and the $30.0
million short-term facility (collectively the "Previous Facilities"). The
new agreement includes a $223.5 million three-year revolving facility and a
$156.5 million term facility due October 15, 2000 (collectively, the "New
Facilities"). The revolving facility is available for working capital, co-
investments and acquisitions. Jones Lang LaSalle is authorized under the
agreement to increase the revolving facility up to a total of $250 million
and the term facility up to a total of $175 million through the expansion
of its existing bank group. Jones Lang LaSalle is in discussions with
additional banks to increase the New Facilities, however, there can be no
guarantee as to the final outcome of these discussions. As of December 31,
1999 there was $316.2 million outstanding on the New Facilities, of which
$156.5 million was classified as current.
The New Facilities are guaranteed by certain of Jones Lang LaSalle's
subsidiaries. Jones Lang LaSalle must maintain a certain level of
consolidated net worth and a ratio of funded debt to earnings before
interest expense, taxes, depreciation and amortization ("EBITDA"). Jones
Lang LaSalle must also meet a minimum interest coverage ratio, minimum
liquidity ratio, and minimum EBITDA. Additionally, Jones Lang LaSalle is
restricted from, among other things, incurring certain levels of
indebtedness to lenders outside of the New Facilities, disposing of a
significant portion of its assets, and paying dividends until the term
facility is repaid. Lender approval is required for certain levels of co-
investment. The New Facilities bear variable rates of interest based on
market rates. Jones Lang LaSalle uses interest rate swaps to convert a
portion of the floating rate indebtedness to a fixed rate. The effective
interest rate on the Previous Facilities and the New Facilities was 6.48%
for 1999, including the effect of interest rate swap agreements. The
interest rate swap agreements had a notional amount as of December 31, 1999
of $55.0 million.
Jones Lang LaSalle has additional access to liquidity via various
interest bearing overdraft facilities and short-term credit facilities in
Europe and Asia Pacific. The aggregate amount available under these
facilities is approximately $32.8 million, of which $4.1 million was
outstanding as of December 31, 1999. Borrowings on these facilities are
currently limited to $50.0 million under the terms of the New Facilities.
Management believes that the New Facilities, along with existing local
borrowing facilities and cash flow generated from operations, will provide
adequate liquidity and financial flexibility to meet working capital
requirements, including merger and integration costs yet to be paid. Jones
Lang LaSalle is exploring financing alternatives for the refinancing of the
term facility due October 15, 2000, however, there can be no guarantee as
to the final outcome of these discussions.
During 1999, cash flows used in operating activities totaled $32.8
million compared to cash flows provided by operations of $19.2 million in
1998. The increased use is primarily a result of increased operating
expenses resulting from the acquisition of COMPASS and the merger with JLW,
and the related payment of integration, transition and transaction costs
associated with the transactions. To a lesser extent, the increased use is
due to higher bonus accruals at December 31, 1998 as compared to December
31, 1997, which are paid in the first quarter of the following year and
higher trade receivables at December 31, 1999 as compared to December 31,
1998, primarily as a result of the COMPASS acquisition and the JLW merger.
Jones Lang LaSalle expects to continue to pursue co-investment
opportunities with investment management clients for which the holding
period typically ranges from three to seven years. While this program
remains very important to the continued growth of the Investment Management
segment, the future commitment to co-investment is completely discretionary
(other than with respect to the $28.7 million of commitments discussed
below) and can be increased or decreased based on the availability of
capital and other factors. The performance of the Investment Management
segment would likely be negatively impacted if a substantial decrease in
co-investment were to occur. Management anticipates that co-investment
activity within the Americas and Europe regions will continue with probable
expansion into Asia Pacific, as appropriate opportunities arise. This
strategy should serve to grow the assets under management, generate returns
on investment and create potential opportunities to provide other services.
Such co-investments are generally represented by non-controlling general
partner, limited partner and limited liability company interests. In
addition to a share of investment returns, Jones Lang LaSalle typically
earns investment management fees, and in some cases, property management
and leasing fees on these investments. The equity earnings from these co-
investments have had a relatively small impact on current earnings and cash
flow. However, increased investment participation could increase
fluctuations in net earnings and cash flow as a result of the timing and
magnitude of the gains or losses and potential performance fees, if any, to
be recognized upon the disposition of these assets. In most of these
investments, Jones Lang LaSalle will not have complete discretion to
control the timing of the disposition of such investments. Jones Lang
LaSalle anticipates that a significant gain will be recorded in 2000
relating to the disposition of a large portfolio, which was delayed from
closing in 1999. As of December 31, 1999, there were total investments of
$67.3 million in 34 separate property or fund co-investments with
additional capital commitments of $28.7 million for future fundings of co-
investments.
Capital expenditures are anticipated to be approximately $40.0 million
for 2000. These expenditures are associated primarily with the continual
improvements to Jones Lang LaSalle's information systems and computer
hardware, including the implementation of global reporting and
communication systems, office renewals and expansions and the scheduled
replacement of fleet cars primarily within the European countries.
Net cash used in investing activities was $67.1 million for 1999
compared with $235.4 million in 1998. The decreased use of cash of $168.3
million is primarily attributable to the cash paid in relation to the
acquisition of COMPASS in 1998 and significant co-investment activity in
1998, including the investment in LaSalle Hotel Properties. These factors
were partially offset by the cash paid in connection with the JLW merger
and the increased capital expenditures during 1999 as a result of the JLW
merger and acquisition of COMPASS and the resulting consolidation of
corporate offices. The continued customization and implementation of the JD
Edwards property accounting and information system also offset these
factors.
Net cash provided by financing activities of $106.7 million in 1999
was comprised primarily of proceeds from borrowings under credit
facilities, net of repayments, of $102.5 million for increased working
capital requirements and to fund the payment of integration, transition and
transaction costs associated with the COMPASS acquisition and the JLW
merger. Cash flows provided by financing activities of $202.4 million in
1998 were composed of borrowings under credit facilities, net of
repayments, of $202.4 million to fund the acquisition of COMPASS and
infrastructure investments.
SEASONALITY
Historically, Jones Lang LaSalle's revenue, operating profits and net
earnings in the first three calendar quarters are substantially lower than
in the fourth quarter. Other than Investment Management, this seasonality
is due to a calendar-year-end focus, primarily in the United States, on the
completion of transactions, which is consistent with the real estate
industry generally. The Investment Management segment earns performance
fees on clients' returns on their real estate investments. Such performance
fees are generally earned when the asset is disposed of, the timing of
which Jones Lang LaSalle does not have complete discretion over. Non-
variable operating expenses, which are treated as expenses when incurred
during the year, are relatively constant on a quarterly basis. Therefore,
Jones Lang LaSalle typically sustains a loss in the first quarter of each
calendar year, reports a small profit or loss in the second and third
quarters and records a substantial majority of its earnings in the fourth
calendar quarter, barring the recognition of investment generated
performance fees in earlier quarters.
INFLATION
Jones Lang LaSalle's operations are directly affected by various
national and local economic conditions, including interest rates, the
availability of credit to finance real estate transactions and the impact
of tax laws. To date, management does not believe that general inflation
has had a material impact on operations, as revenue, bonuses and other
variable costs related to revenue are primarily impacted by real estate
supply and demand rather than general inflation.
OTHER MATTERS
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" becomes effective for all
fiscal quarters for fiscal years beginning after June 15, 2000 and is not
expected to have a material impact on the consolidated financial
statements.
During December, 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statement," which provides guidance on various revenue recognition matters.
Jones Lang LaSalle has not yet determined the impact of the Staff
Accounting Bulletin on the consolidated financial statements.
EURO CONVERSION ISSUES
On January 1, 1999, certain countries of the European Monetary Union
("EMU") adopted a common currency, the euro. For a three-and-one-half-year
transition period, non-cash transactions may be denominated in either the
euro or in the old national currencies. After July 1, 2002, the euro will
be the sole legal tender for the EMU countries. The adoption of the euro
will affect a multitude of financial systems and business applications as
the commerce of these nations will be transacted in the euro and the
existing national currency.
Jones Lang LaSalle is currently evaluating the potential impact of
euro related issues on information systems, currency exchange rate risk and
other business activities. Management does not expect the impact of euro
conversion issues to be material to Jones Lang LaSalle, however there can
be no assurance that external factors will not have a material adverse
effect on operations.
YEAR 2000 ISSUES
The "Year 2000 Issue" was the result of computer programs and systems
having been designed and developed to use two digits, rather than four, to
define the applicable year. As a result, these computer programs and
systems had the potential to recognize a date using "00" as the year 1900
rather than the year 2000. This could have resulted in system failure or
miscalculations causing disruption of operations, including, among other
things, a temporary inability to process transactions, pay invoices or
engage in similar normal business activities.
Jones Lang LaSalle successfully modified its software and hardware to
meet Year 2000 requirements and experienced no significant disruption of
its operations. The total cost of such modifications was $4.8 million of
operating expenses associated with testing and other matters and $1.5
million of capital expenditures primarily representing system upgrades
which provide operational benefits above and beyond Year 2000 compliance.
Although Jones Lang LaSalle is not aware of any threatened claims
related to the Year 2000, it may become subject to litigation arising from
such claims, and, depending on the outcome, such litigation could have a
material adverse affect on Jones Lang LaSalle. It is not clear whether
insurance coverage would be adequate to offset these and other business
risks related to the Year 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Jones Lang LaSalle is exposed to interest rate changes primarily as a
result of its lines of credit used to maintain liquidity and to fund
capital expenditures, acquisitions, co-investments and operations. Jones
Lang LaSalle's 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, Jones Lang LaSalle
borrows primarily at variable rates and enters into derivative financial
instruments such as interest rate swap agreements when appropriate. Jones
Lang LaSalle does not enter into derivative or interest rate transactions
for trading or speculative purposes.
As of December 31, 1999, Jones Lang LaSalle had entered into interest
rate swap agreements with a notional amount of $55.0 million providing for
an average fixed interest rate of approximately 5.21%. These agreements
have terms which expire through June 15, 2000. Such interest rate swap
agreements had an approximate market value of $.2 million at December 31,
1999. The carrying value of the debt approximates its fair value. As of
December 31, 1999, the outstanding borrowings on the New Facilities were
$316.2 million. The Previous Facilities bore and the New Facilities bear
variable rates of interest based on market rates. The effective interest
rate on the Previous Facilities and the New Facilities was 6.48% for 1999,
including the effect of interest rate swap agreements.
FOREIGN CURRENCY RISK
Jones Lang LaSalle's reporting currency is the U.S. dollar. Business
is transacted in various foreign currencies throughout Europe and Asia
Pacific. The financial statements of subsidiaries outside the United
States, except those located in highly inflationary economies, are
generally measured using the local currency as the functional currency. As
a result, fluctuations in the U.S. dollar relative to the other currencies
in which earnings are generated can impact Jones Lang LaSalle's business,
operating results and financial condition as reported in U.S. dollars. For
1999, on a pro forma basis (excluding the effect of stock compensation
expense), 142% of Jones Lang LaSalle's net loss was attributable to
operations with U.S. dollars as their functional currency and (42%) was
attributable to operations having other functional currencies. Revenues and
expenses are primarily earned and incurred in the currency of the location
where the operations generating the revenues and expenses have occurred,
thereby limiting exposure to exchange rate fluctuations to some extent.
On a limited basis, Jones Lang LaSalle enters into forward foreign
currency exchange contracts to manage currency risks and reduce exposure
resulting from fluctuations in the designated foreign currency associated
with existing commitments, assets or liabilities. At December 31, 1999,
Jones Lang LaSalle had forward exchange contracts in effect with a notional
value of $5.7 million with no market value and no carrying value. Jones
Lang LaSalle does not enter into forward foreign currency exchange
contracts for trading or speculative purposes.
DISCLOSURE OF LIMITATIONS
As the information presented above includes only those exposures that
exist as of December 31, 1999, it does not consider those exposures or
positions which could arise after that date. Moreover, because firm
commitments are not presented, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
JONES LANG LASALLE INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS
Report of KPMG LLP, Independent Auditors . . . . . . . . . . . . . 46
Consolidated Balance Sheets as of
December 31, 1999 and 1998 . . . . . . . . . . . . . . . . . . . 47
Consolidated Statements of Earnings
For the Years Ended December 31, 1999, 1998 and 1997 . . . . . . 49
Consolidated Statements of Stockholders'
Equity For the Years Ended December 31,
1999, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . 51
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997 . . . . . . 54
Notes to Consolidated Financial Statements . . . . . . . . . . . . 57
Quarterly Results of Operations (Unaudited). . . . . . . . . . . . 80
SCHEDULES SUPPORTING THE CONSOLIDATED FINANCIAL STATEMENTS:
II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . 83
All other schedules have been omitted since the required information
is presented in the financial statements and related notes or is not
applicable.
INDEPENDENT AUDITORS' REPORT
The Stockholders and
Board of Directors of
Jones Lang LaSalle Incorporated:
We have audited the accompanying consolidated financial statements of
Jones Lang LaSalle Incorporated and subsidiaries and their predecessors as
listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we have also audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Jones Lang LaSalle Incorporated and subsidiaries and their predecessors as
of December 31, 1999 and 1998, and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/S/ KPMG LLP
Chicago, Illinois
February 7, 2000
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
($ in thousands, except share data)
1999 1998
--------- ---------
ASSETS
- ------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $ 23,308 16,941
Trade receivables, net of allowances of $9,871 and $3,978 in
1999 and 1998, respectively. . . . . . . . . . . . . . . . . . . . . 270,593 116,965
Notes receivable and advances to real estate ventures. . . . . . . . . 4,519 17,042
Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . 7,045 3,385
Income tax refund receivable . . . . . . . . . . . . . . . . . . . . . 14,500 --
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,598 2,185
Deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . 13,673 9,926
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,446 --
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 348,682 166,444
Property and equipment, at cost, less accumulated
depreciation of $55,943 and $35,859
in 1999 and 1998, respectively . . . . . . . . . . . . . . . . . . . . 76,470 28,773
Intangibles resulting from business acquisitions and JLW merger,
net of accumulated amortization of $27,515 and
$11,961 in 1999 and 1998, respectively . . . . . . . . . . . . . . . . 367,215 229,437
Investments in real estate ventures. . . . . . . . . . . . . . . . . . . 67,305 52,976
Long-term receivables, net . . . . . . . . . . . . . . . . . . . . . . . 27,962 10,950
Prepaid pension asset. . . . . . . . . . . . . . . . . . . . . . . . . . 23,956 --
Deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,270 660
Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,940 1,681
-------- --------
$924,800 490,921
======== ========
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
1999 1998
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . $ 88,257 51,101
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . 142,960 58,398
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . 162,643 --
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 26,259 8,324
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 420,119 117,823
Long-term liabilities:
Credit facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 159,743 202,923
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . 7,535 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,878 603
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 600,275 321,349
Commitments and contingencies
Minority interest in consolidated subsidiaries . . . . . . . . . . . . . 589 --
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
30,285,472 and 16,264,176 shares issued and
outstanding as of December 31, 1999 and 1998, respectively . . . . . 303 163
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 442,699 123,543
Unallocated ESOT shares. . . . . . . . . . . . . . . . . . . . . . . . (7) --
Deferred stock compensation. . . . . . . . . . . . . . . . . . . . . . (70,106) --
Retained earnings (deficit). . . . . . . . . . . . . . . . . . . . . . (50,050) 44,792
Accumulated other comprehensive income . . . . . . . . . . . . . . . . 1,097 1,074
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 323,936 169,572
-------- --------
$924,800 490,921
======== ========
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
($ in thousands, except share data)
1999 1998 1997 (1)
------------ ------------ ------------
Revenue:
Fee based services . . . . . . . . . . . . . . . . . $736,042 298,296 219,911
Equity in earnings from unconsolidated
ventures . . . . . . . . . . . . . . . . . . . . . 6,218 3,911 3,238
Gain on sale of business . . . . . . . . . . . . . . 7,502 -- --
Other income . . . . . . . . . . . . . . . . . . . . 5,677 2,257 1,624
-------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . 755,439 304,464 224,773
Operating expenses:
Compensation and benefits. . . . . . . . . . . . . . 477,658 172,982 123,281
Operating, administrative and other. . . . . . . . . 161,007 70,164 57,285
Depreciation and amortization. . . . . . . . . . . . 36,676 13,455 9,093
-------- -------- --------
Total operating expenses before merger
related non-recurring charges. . . . . . . . 675,341 256,601 189,659
Merger related non-recurring charges:
Stock compensation expense . . . . . . . . . . . . . 101,579 -- --
Integration and transition expenses. . . . . . . . . 49,822 10,021 --
-------- -------- --------
Total merger related non-recurring charges . . 151,401 10,021 --
-------- -------- --------
Total operating expenses . . . . . . . . . . . 826,742 266,622 189,659
Operating income (loss). . . . . . . . . . . . . . . (71,303) 37,842 35,114
Interest expense, net of interest income . . . . . . . 18,211 4,153 3,995
-------- -------- --------
Earnings (loss) before provision
for income taxes . . . . . . . . . . . . . . . . . (89,514) 33,689 31,119
Net provision for income taxes . . . . . . . . . . . . 5,328 13,224 5,279
-------- -------- --------
Net earnings (loss). . . . . . . . . . . . . . . . . . $(94,842) 20,465 25,840
======== ======== ========
Other comprehensive income, net of tax:
Foreign currency translation adjustments . . . . . . 23 444 (469)
-------- -------- --------
Comprehensive income (loss). . . . . . . . . $(94,819) 20,909 25,371
======== ======== ========
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS - CONTINUED
1999 1998 1997 (1)
------------ ------------ ------------
Basic earnings (loss) per common share . . . . . . . . $ (4.20) 1.26 1.50
========== ========== ==========
Basic weighted average shares outstanding. . . . . . . 22,607,350 16,215,478 16,200,000
========== ========== ==========
Diluted earnings (loss) per common share . . . . . . . $ (4.20) 1.25 1.49
========== ========== ==========
Diluted weighted average shares outstanding. . . . . . 22,607,350 16,387,721 16,329,613
========== ========== ==========
(1) Earnings per share for 1997 is calculated based on earnings for the period from conversion to corporate
form, July 22, 1997, through December 31, 1997.
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
($ in thousands, except share data)
Partners' Accumu-
Capital lated
(Deficit) Other
Additi- Unallo- Deferred Pre- Compre-
Common Stock tional cated Stock Retained decessor hensive
------------------- Paid-In ESOT Compen- Earnings Partner- Income
Shares Amount Capital Shares sation (Deficit) ships (Loss) Total
---------- ------ -------- ------- -------- --------- -------- ------- -------
Balances at
December 31,
1996. . . . . . . -- -- -- -- -- -- 23,148 1,099 24,247
Net earnings
(through
July 21,
1997) . . . . . -- -- -- -- -- -- 1,513 -- 1,513
Distributions. . -- -- -- -- -- -- (14,835) -- (14,835)
Acquisition
of Galbreath
common
stock. . . . . -- -- -- -- -- -- 29,292 -- 29,292
Effect of
the reorgani-
zation . . . . 12,200,000 $ 122 38,996 -- -- -- (39,118) -- --
Net proceeds
from the
initial
Offering . . . 4,000,000 40 82,782 -- -- -- -- -- 82,822
Cumulative
effect of
foreign
currency
translation
adjustments. . -- -- -- -- -- -- -- (565) (565)
---------- ----- ------- -------- -------- -------- -------- -------- --------
Balances after
the reorgani-
zation and
initial
Offering. . . . . 16,200,000 162 121,778 -- -- -- -- 534 122,474
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Partners' Accumu-
Capital lated
(Deficit) Other
Additi- Unallo- Deferred Pre- Compre-
Common Stock tional cated Stock Retained decessor hensive
------------------- Paid-In ESOT Compen- Earnings Partner- Income
Shares Amount Capital Shares sation (Deficit) ships (Loss) Total
---------- ------ -------- ------- -------- --------- -------- ------- -------
Net earnings
(July 22,
1997 through
December 31,
1997) . . . . . -- -- -- -- -- 24,327 -- -- 24,327
Cumulative
effect of
foreign
currency
translation
adjustments . . -- -- -- -- -- -- -- 96 96
---------- ----- ------- -------- -------- -------- -------- ------- ------
Balances at
December 31,
1997. . . . . . . 16,200,000 162 121,778 -- -- 24,327 -- 630 146,897
Net earnings. . -- -- -- -- -- 20,465 -- -- 20,465
Shares issued
under stock
purchase plan. 64,176 1 1,765 -- -- -- -- -- 1,766
Cumulative
effect of
foreign
currency
translation
adjustments. . -- -- -- -- -- -- -- 444 444
---------- ----- ------- -------- -------- -------- -------- -------- --------
Balances at
December 31,
1998. . . . . . . 16,264,176 163 123,543 -- -- 44,792 -- 1,074 169,572
Net loss. . . . -- -- -- -- -- (94,842) -- -- (94,842)
Shares issued in
connection with:
Stock option
plan . . . . 21,292 -- 495 -- -- -- -- -- 495
Stock purchase
programs . . 199,587 2 3,695 -- -- -- -- -- 3,697
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Partners' Accumu-
Capital lated
(Deficit) Other
Additi- Unallo- Deferred Pre- Compre-
Common Stock tional cated Stock Retained decessor hensive
------------------- Paid-In ESOT Compen- Earnings Partner- Income
Shares Amount Capital Shares sation (Deficit) ships (Loss) Total
---------- ------ -------- ------- -------- --------- -------- ------- -------
Share activity
related to JLW
merger:
Shares issued
at closing . 14,254,116 143 355,233 (9) (160,253) -- -- -- 195,114
Adjustment
shares sub-
sequently
retained . . (453,699) (5) (8,462) -- -- -- -- -- (8,467)
ESOT shares
allocated. . -- -- 1,597 2 -- -- -- -- 1,599
Stock compensa-
tion adjust-
ments . . . . -- -- (33,402) -- 27,906 -- -- -- (5,496)
Amortization of
deferred stock
compensation. -- -- -- -- 62,241 -- -- -- 62,241
Cumulative
effect of
foreign
currency
translation
adjustments . -- -- -- -- -- -- -- 23 23
---------- ----- ------- -------- -------- -------- -------- -------- --------
Balances at
December 31,
1999. . . . . . . 30,285,472 $ 303 442,699 (7) (70,106) (50,050) -- 1,097 323,936
========== ===== ======= ======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
($ in thousands)
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net earnings (loss). . . . . . . . . . . . . . . . . $(94,842) 20,465 25,840
Reconciliation of net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization. . . . . . . . . . . 36,676 13,455 9,093
Equity in earnings and gain on sale from
unconsolidated ventures. . . . . . . . . . . . . (6,218) (3,911) (3,238)
Provision for loss on receivables and
other assets . . . . . . . . . . . . . . . . . . 2,744 4,009 2,640
Stock compensation expense . . . . . . . . . . . . 101,143 -- --
Amortization of deferred compensation. . . . . . . 2,070 229 --
Tax benefit on conversion to corporate form. . . . -- -- (6,842)
Changes in:
Receivables. . . . . . . . . . . . . . . . . . . . (49,962) (28,504) 9,631
Prepaid expenses and other assets. . . . . . . . . (10,442) (3,760) 1,864
Deferred tax assets and income tax
refund receivable. . . . . . . . . . . . . . . . (19,479) -- --
Accounts payable, accrued liabilities
and accrued compensation . . . . . . . . . . . . 5,544 17,255 (2,429)
---------- ---------- ----------
Net cash (used in) provided by
operating activities . . . . . . . . . . . (32,766) 19,238 36,559
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1999 1998 1997
------------ ------------ ------------
Cash flows provided by (used in) investing
activities:
Net capital additions--property and equipment. . . (36,848) (15,592) (6,277)
Cash paid in connection with merger with
Jones Lang Wootton, net of cash balances
assumed (Note 3) . . . . . . . . . . . . . . . . (27,704) -- --
Other acquisitions, net of cash balances
assumed. . . . . . . . . . . . . . . . . . . . . (3,030) (178,919) 1,008
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures . . . . . . . . . . . . . (25,491) (51,347) (16,546)
Distributions, repayments of advances
and sale of investments. . . . . . . . . . . . 25,930 10,493 11,707
---------- ---------- ----------
Net cash used in investing activities . . . (67,143) (235,365) (10,108)
Cash flows provided by (used in) financing
activities:
Proceeds from borrowings under credit
facilities . . . . . . . . . . . . . . . . . . . 326,004 356,929 92,300
Repayments of borrowings under credit
facilities . . . . . . . . . . . . . . . . . . . (223,479) (154,552) (126,202)
Net repayments under long-term notes payable . . . -- -- (37,213)
Common stock issued under stock option plan
and stock purchase programs. . . . . . . . . . . 4,192 -- --
Distributions to partners. . . . . . . . . . . . . -- -- (14,835)
Net proceeds from the initial Offering . . . . . . -- -- 82,822
---------- ---------- ----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . 106,717 202,377 (3,128)
Effects of foreign currency translation
on cash balances. . . . . . . . . . . . . . . . . . (441) 31 130
---------- ---------- ----------
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1999 1998 1997
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . 6,367 (13,719) 23,453
Cash and cash equivalents, January 1 . . . . . . . . 16,941 30,660 7,207
---------- ---------- ----------
Cash and cash equivalents, December 31 . . . . . . . $ 23,308 16,941 30,660
========== ========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . $ 20,448 3,215 4,195
Taxes, net of refunds. . . . . . . . . . . . . . . 20,763 2,881 9,910
Non-cash investing and financing activities:
Acquisitions and merger:
Shares issued in connection with
merger and acquisition . . . . . . . . . . . . $ 141,918 -- 29,292
Fair value of assets acquired. . . . . . . . . . (218,514) (23,257) (12,448)
Fair value of liabilities assumed. . . . . . . . 197,556 22,652 14,740
Goodwill . . . . . . . . . . . . . . . . . . . . (151,694) (178,314) (30,576)
---------- ---------- ----------
Cash paid, net of cash balances
assumed. . . . . . . . . . . . . . . . . . $ (30,734) (178,919) 1,008
========== ========== ==========
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except where otherwise noted)
(1) ORGANIZATION
Jones Lang LaSalle Incorporated ("Jones Lang LaSalle") is a leading
full-service real estate services firm that provides investment management,
hotel acquisition, disposition, strategic advisory and valuation, property
management, corporate property services, development services, project
management, tenant and agency leasing, investment disposition, acquisition,
financing and capital placement services on a local, regional and global
basis. With over 7,000 employees in more than 100 markets on five
continents, Jones Lang LaSalle is able to satisfy local, regional and
international service needs. The ability to provide this network of
services around the globe was solidified effective March 11, 1999 with the
merger of the business of the Jones Lang Wootton companies ("JLW") with
those of LaSalle Partners Incorporated ("LaSalle Partners"). In connection
with this merger, the name of the company was changed from LaSalle Partners
Incorporated to Jones Lang LaSalle Incorporated (see Note 3).
Jones Lang LaSalle, formerly LaSalle Partners Incorporated [successor
to LaSalle Partners Limited Partnership and LaSalle Partners Management
Limited Partnership (collectively, the "Predecessor Partnerships")], was
incorporated in Maryland on April 15, 1997. On July 22, 1997, LaSalle
Partners completed an initial public offering (the "Offering") of 4,000,000
shares of LaSalle Partners common stock, $.01 par value per share (the
"Common Stock"). In addition, all of the partnership interests held in the
Predecessor Partnerships were contributed to LaSalle Partners, pursuant to
agreements among the general and limited partners, in exchange for an
aggregate of 12,200,000 shares of common stock. The contribution occurred
immediately prior to the closing of the Offering. The 4,000,000 shares
were offered at $23 per share, aggregating $82.8 million, net of offering
costs, of which $63.5 million was used to retire long-term debt and related
interest.
The Predecessor Partnerships were subject to a reorganization as part
of Jones Lang LaSalle's incorporation. Due to the existence of a paired
share arrangement between the Predecessor Partnerships and between the
former general partners of the Predecessor Partnerships, as well as the
existence of identical ownership before and after the incorporation of the
Predecessor Partnerships, such transactions were accounted for in a manner
similar to the accounting used for a pooling of interests. Thus, the
financial statements include the financial positions and results of
operations of the Predecessor Partnerships at their historical basis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Jones
Lang LaSalle and their majority-owned-and-controlled partnerships and
subsidiaries. All material intercompany balances and transactions have been
eliminated in consolidation.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
CASH HELD FOR OTHERS
Jones Lang LaSalle controls certain cash and cash equivalents as
agents for its investment and property management clients. Such amounts are
not included in the accompanying Consolidated Balance Sheets.
STATEMENT OF CASH FLOWS
Cash and cash equivalents include demand deposits and investments in
U.S. Treasury instruments (generally held available for sale) with
maturities of three months or less. The combined carrying value of such
investments of $5.6 million and $3.0 million at December 31, 1999 and 1998,
respectively, approximates their market value.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or a change in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying value of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.
INVESTMENTS IN REAL ESTATE VENTURES
Jones Lang LaSalle has limited partner, general partner and limited
liability company interests in various real estate ventures with interests
generally ranging from less than 1% to 49.5% which are accounted for using
the equity method. In instances where Jones Lang LaSalle exercises
temporary control over co-investments, such investments are accounted for
under the equity method.
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS AND JLW MERGER
Intangibles resulting from business acquisitions and the JLW merger
are amortized on a straight-line basis over the estimated lives (generally
eight to 40 years) of the related assets. Jones Lang LaSalle periodically
evaluates the recoverability of the carrying amount of intangibles
resulting from business acquisitions and mergers by assessing whether any
impairment indications are present, including substantial recurring
operating deficits or significant adverse changes in legal or economic
factors that affect the businesses acquired. If such analysis indicates
impairment, the intangible asset would be adjusted in the period such
changes occurred based on its estimated fair value, which is derived from
expected cash flow of the businesses.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
Jones Lang LaSalle's financial instruments include cash and cash
equivalents, receivables, accounts payable, notes payable, interest rate
swap agreements and foreign currency exchange contracts. The estimated
fair value of cash and cash equivalents, receivables and payables
approximates their carrying amounts due to the short maturity of these
instruments. The estimated fair value of Jones Lang LaSalle's credit
facilities approximates their carrying value due to their variable interest
rate terms. The fair value of interest rate swaps is estimated, using
third-party quotes, as the amount that Jones Lang LaSalle would receive or
pay to execute a new agreement with terms identical to those remaining on
the current agreement, considering current interest rates. The fair value
of forward foreign currency exchange contracts is estimated by valuing the
net position of the contracts using the applicable spot rates and forward
rates as of the reporting date.
FOREIGN CURRENCY TRANSLATION
The financial statements of subsidiaries located outside the United
States, except those subsidiaries located in highly inflationary economies,
are generally measured using the local currency as the functional currency.
The assets and liabilities of these subsidiaries are translated at the
rates of exchange at the balance sheet date with the resulting translation
adjustments included as a separate component of stockholders' equity and
comprehensive income. Income and expense are translated at average monthly
rates of exchange. Gains and losses from foreign currency transactions are
included in net earnings. For subsidiaries operating in highly inflationary
economies, the associated gains and losses from balance sheet translation
adjustments are included in net earnings.
DERIVATIVE INSTRUMENTS
Jones Lang LaSalle has entered into interest rate swap agreements as a
hedge against a portion of its credit facilities in order to manage
interest rate risk. Fees, if any, related to these agreements are
amortized using the effective interest method over the life of the
agreements. As of December 31, 1999 and 1998, Jones Lang LaSalle had
interest rate swap agreements in effect with a notional amount of $55.0
million with an approximate market value of $.2 million.
Interest rate swap agreements are contracts that represent an exchange
of interest payments and the underlying principal balances of the assets or
liabilities are not affected. Net settlement amounts are reported as
adjustments to interest income or interest expense. Gains and losses from
the termination of interest rate swaps are deferred and amortized over the
remaining lives of the interest rate swap agreements. If the balance of
the liability falls below that of the notional amount of the derivative,
the excess portion of the derivative is marked-to-market with a
corresponding effect on current earnings.
Jones Lang LaSalle also enters into forward foreign currency exchange
contracts on a limited basis to manage currency risks and reduce its
exposure resulting from fluctuations in the designated foreign currency
associated with existing commitments, assets or liabilities. The
associated gains and losses are deferred and are recognized in income upon
settlement of the related transaction. At December 31, 1999, Jones Lang
LaSalle had forward foreign currency exchange contracts in effect with a
notional value of $5.7 million with no market value and no carrying value.
There were no forward exchange contracts in effect at December 31, 1998.
Jones Lang LaSalle does not enter into derivative financial
instruments for trading or speculative purposes.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
EARNINGS PER SHARE
The basic and diluted losses per common share for the year ended
December 31, 1999 were calculated based on basic weighted average shares
outstanding of 22,607,350. Consideration shares issued as a result of the
merger with JLW, to the extent included, have been weighted as of March 11,
1999. As a result of the operating loss incurred for the period, diluted
weighted average shares outstanding for the year ended December 31, 1999 do
not give effect to common stock equivalents as to do so would be anti-
dilutive. These common stock equivalents consist principally of
consideration shares issued in connection with the JLW merger that are
subject to vesting provisions or are contingently returnable. Basic
earnings per share for the year ended December 31, 1998 and for the period
from conversion to corporate form, July 22, 1997, through December 31, 1997
were based on weighted average shares outstanding of 16,215,478 and
16,200,000, respectively. Diluted earnings per share for the year ended
December 31, 1998 and for the period from conversion to corporate form,
July 22, 1997, through December 31, 1997 were based on weighted average
shares outstanding of 16,387,721 and 16,329,613, respectively. These
amounts reflect an increase of 172,243 shares and 129,613 shares,
respectively, primarily representing the dilutive effect of outstanding
stock options whose exercise price was less than the average market price
of Jones Lang LaSalle's stock for the period, and, to a lesser extent, the
dilutive effect of shares to be issued under employee stock compensation
programs.
REVENUE RECOGNITION
Advisory and management fees are recognized in the period in which the
services are performed. Transaction commissions are recorded as income at
the time the related services are provided unless significant future
contingencies exist. Development services fees are generally recognized as
billed, which approximates the percentage of completion method of
accounting. Incentive fees are recorded in accordance with specific terms
of each compensation agreement and are typically tied to performance that
is measured at contractual milestones, such as the disposition of an asset,
or at the conclusion of a given project. Fees recognized in the current
period that are expected to be received beyond one year have been
discounted to the present value of future expected payments. Pursuant to
contractual arrangements, accounts receivable includes unbilled amounts of
$70.9 million and $32.3 million at December 31, 1999 and 1998,
respectively.
For financial statement presentation purposes, certain one-time
leasing commission payments, aggregating $10.8 million in 1997, made to
former Galbreath employees related to contracts in progress at the
acquisition date have been presented as a reduction of related commission
revenue.
DEPRECIATION
Depreciation and amortization is calculated for financial reporting
purposes primarily using the straight-line method based on the estimated
useful lives of the assets. Furniture, fixtures and equipment totaling
$34.4 million and $18.0 million at December 31, 1999 and 1998,
respectively, are generally depreciated over seven years. Computer
equipment and software totaling $59.7 million and $33.3 million at
December 31, 1999 and 1998, respectively, are generally depreciated over
three to five years. Leasehold improvements totaling $26.2 million and
$13.3 million at December 31, 1999 and 1998, respectively, are amortized
over the lease periods which generally range from one to ten years.
Automobiles totaling $12.1 million at December 31, 1999 are generally
depreciated using a declining balance method over three to five years.
There were no automobiles at December 31, 1998.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
INCOME TAXES
Income taxes are accounted for 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 operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
STOCK-BASED COMPENSATION
Jones Lang LaSalle grants stock options for a fixed number of shares
to employees with an exercise price equal to the fair value of the shares
at the date of grant. Jones Lang LaSalle follows the requirements of the
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees" in accounting for stock-based compensation, and
accordingly, recognizes no compensation expense for stock option grants,
but provides the pro forma disclosures required by the Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-
Based Compensation."
RECLASSIFICATIONS
Certain 1998 and 1997 amounts have been reclassified to conform with
the 1999 presentation.
(3) ACQUISITIONS AND MERGER
ACQUISITIONS
On October 1, 1998, Jones Lang LaSalle acquired all of the common
stock of the following real estate service companies formerly owned by Lend
Lease Corporation ("Lend Lease"): Compass Management and Leasing, Inc. and
its wholly owned subsidiaries; The Yarmouth Group Property Management,
Inc.; and ERE Yarmouth Retail, Inc. (formerly Compass Retail, Inc.). On
October 31, 1998, Jones Lang LaSalle also acquired Compass Management and
Leasing (Australia) Pty Limited, the Lend Lease property management and
corporate property services business in Australia. Atlanta-based Compass
Management and Leasing, Inc. was a global real estate management firm, with
operations across the United States, United Kingdom, South America and
Australia. Jones Lang LaSalle paid $180.0 million in cash for all of the
acquired companies ("COMPASS"). The purchase of the companies also
includes provisions for an earnout payment of up to $77.5 million over five
years. The acquisition was accounted for as a purchase and, accordingly,
operating results of this business subsequent to the date of acquisition
are included in the accompanying Consolidated Statements of Earnings. The
excess purchase price over the fair value of the identifiable assets and
liabilities acquired was $175.6 million, including transaction costs, of
which $35.1 million was allocated to management contracts and is being
amortized on a straight-line basis over eight years, and $140.5 million was
allocated to goodwill and is being amortized on a straight-line basis over
40 years based on Jones Lang LaSalle's estimate of useful lives.
On April 22, 1997, Jones Lang LaSalle acquired all of the common stock
of Galbreath, a property, facility and development management company. In
consideration for the stock, Jones Lang LaSalle issued a 17.5% limited
partnership interest in the Predecessor Partnerships to the former
stockholders of Galbreath. The acquisition was accounted for as a purchase
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
and, accordingly, operating results of this business subsequent to the date
of acquisition are included in the accompanying Consolidated Statements of
Earnings. The excess purchase price over the fair value of the
identifiable assets and liabilities acquired was $30.6 million, including
transaction costs, of which $6.1 million was allocated to management
contracts that are being amortized on a straight-line basis over eight
years and $24.5 million was allocated to goodwill which is being amortized
on a straight-line basis over 40 years based on Jones Lang LaSalle's
estimate of useful lives.
JONES LANG WOOTTON MERGER
On March 11, 1999, LaSalle Partners merged its business with that of
JLW and changed its name to Jones Lang LaSalle Incorporated. In accordance
with the purchase and sale agreements, Jones Lang LaSalle issued 14.3
million shares of its common stock on March 11, 1999, plus $6.2 million in
cash (collectively, the "Consideration") in connection with the acquisition
of the property and asset management, advisory and other real estate
businesses operated by a series of JLW partnerships and corporations in
Europe, Asia, Australia, North America and New Zealand. Approximately 12.5
million of the shares were issued to former JLW equity owners (having both
direct and indirect ownership) and 1.8 million of the shares were placed in
an employee stock ownership trust ("ESOT") to be distributed by December
31, 2000 to selected employees of the former JLW entities. Included in the
total ESOT shares are .9 million shares that were allocated on March 11,
1999 and .2 million that were allocated on December 31, 1999, with the
remaining .7 million shares to be allocated on December 31, 2000. Issuance
of the shares was not registered under the U.S. securities laws, and the
shares are generally subject to a contractual one-year restriction on sale.
Included in the 14.3 million shares originally issued were 1.2 million
shares which were subject to a post-closing net worth adjustment. The
procedures related to the post-closing net worth calculation were completed
during the third quarter and resulted in .5 million shares being retained
by Jones Lang LaSalle and an additional $.5 million in cash consideration
being due to certain of the former JLW shareholders.
The transaction, which was principally structured as a share exchange,
has been treated as a purchase and is being accounted for using both APB
Opinion No. 16, "Business Combinations" and APB Opinion No. 25, "Accounting
for Stock Issued to Employees" as reflected in the following table.
Accordingly, JLW's operating results have been included in Jones Lang
LaSalle's results as of March 1, 1999, the effective date of the merger for
accounting purposes.
Accounting Method No. of % of Shares
(shares in millions) Shares Issued
-------------------- -------- -----------
APB Opinion No. 16 7.2 52%
APB Opinion No. 25 -
Fixed Award 5.3 38%
Variable Award 1.3 10%
---- ----
Net Shares Issued 13.8 100%
==== ====
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As noted in the previous table, 7.2 million shares, or 52% of the
shares issued, are subject to accounting under APB Opinion No. 16. The
value of those shares totaled $141.9 million for accounting purposes based
on the five-day average closing stock price surrounding the date the
financial terms of the merger with JLW were substantially complete,
discounted at a rate of 20% for transferability restrictions. The value of
the shares, in addition to a cash payment of approximately $6.2 million and
capitalizable transaction costs of approximately $15.8 million were
allocated to the identifiable assets acquired and liabilities assumed,
based on management's estimate of fair value, which totaled $252.6 million
and $240.7 million, respectively. Included in the assets acquired is $32.2
million in cash. Included in the liabilities assumed is $47.4 million of
obligations to former partners for undistributed earnings, of which $9.5
million remains unpaid at December 31, 1999. The resulting excess purchase
price of $152.0 million was allocated to goodwill which is being amortized
on a straight-line basis over 40 years based on management's estimate of
useful lives.
The remaining 6.6 million shares, or 48% of the shares issued, and $.4
million in cash paid are subject to accounting under APB Opinion No. 25.
Accordingly, shares issued are being accounted for as compensation expense
or deferred compensation expense to the extent they are subject to
forfeiture or vesting provisions. Included in the 6.6 million shares are
1.3 million shares that are subject to variable stock award plan
accounting. The remaining 5.3 million shares and the $.4 million in cash
paid are subject to fixed stock award plan accounting. Compensation expense
incurred for the year ended December 31, 1999 totaled $101.6 million,
inclusive of the compensation expense recognized at closing and the
amortization of deferred compensation for the periods.
UNAUDITED COMBINED PRO FORMA RESULTS
The following unaudited combined pro forma results give effect to the
merger with JLW as if it had occurred on January 1, 1998 and the
acquisitions of COMPASS and Galbreath and estimated incremental general and
administrative costs associated with operations as a public company and the
repayment of Jones Lang LaSalle's long-term debt out of the proceeds of the
Offering, as if these events occurred on January 1, 1997 ($ in thousands):
1999 1998 1997
-------- -------- --------
Total revenue $813,899 $848,325 $317,788
Net earnings (loss) (108,253) (108,365) 16,683
Basic earnings (loss)
per common share (4.50) (4.47) 1.03
Diluted earnings (loss)
per common share (4.50) (4.47) 1.02
The above combined pro forma results are based upon available
information and certain assumptions that management believes are
reasonable. These pro forma results are not necessarily indicative of what
the actual results of operations would have been for the three-year period
ended December 31, 1999 had Jones Lang LaSalle completed the merger with
JLW, the acquisitions of COMPASS and the Galbreath common stock and
consummated its conversion to corporate form and the Offering transactions
as of the dates indicated nor does it purport to represent the future
financial position or results of operations of Jones Lang LaSalle.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(4) DISPOSITION
Effective December 31, 1996, Jones Lang LaSalle sold its Construction
Management business and certain related assets to a former member of
management for a $9.1 million note. The note, which is secured by the
current and future assets of the business, is due December 31, 2006 and
bears interest at rates of 6.8% to 10.0%, with interest payments due
annually. Annual principal repayments began in January 1998.
Under the terms of the Asset Purchase Agreement, Jones Lang LaSalle
agreed to provide certain financial assistance and administrative and
financial services, at cost, beginning in January 1997. The nature of
these arrangements prohibited Jones Lang LaSalle from recognizing the sale
as a divestiture prior to December 31, 1999. As such, Jones Lang LaSalle
accounted for the results of operations, including principal and interest
received on the note, in a method similar to the equity method of
accounting. As such, principal and interest received under the note were
treated as a reduction of such net assets and as a reserve, if necessary,
for any anticipated financial exposure under the terms of the Asset
Purchase Agreement with the remainder recognized as income. Revenue
recognized for the years ended December 31, 1999, 1998 and 1997 was $1.8
million, $1.3 million and $1.1 million, respectively, and has been
reflected in Fee Based Services in the accompanying Consolidated Statements
of Earnings.
As of December 31, 1999, Jones Lang LaSalle had received substantial
principal payments on its note receivable and is no longer obligated to
provide financial assistance to the Construction Management business under
the Asset Purchase Agreement. Accordingly, Jones Lang LaSalle recognized
the disposition as a divestiture at December 31, 1999 and has recognized a
resulting gain of $7.5 million in the Consolidated Statement of Earnings.
(5) BUSINESS SEGMENTS
As a result of the merger with JLW, Jones Lang LaSalle is managing its
business along a combination of functional and geographic lines. In the
fourth quarter of 1999, Jones Lang LaSalle consolidated its operations in
Asia and Australasia into a unified region now known as Asia Pacific.
Accordingly, operations are now classified into five business segments:
two global businesses, (i) Investment Management and (ii) Hotel Services;
and three geographic regions, (iii) the Americas, (iv) Europe and (v) Asia
Pacific. The Investment Management segment provides real estate investment
management services to institutional investors, corporations, and high net
worth individuals. The Hotel Services segment provides strategic advisory,
sales, acquisition, valuation and asset management services related solely
to hotel, conference and resort properties. The geographic regions of the
Americas, Europe and Asia Pacific each provide Owner and Occupier Services
which consist primarily of tenant representation and agency leasing,
investment disposition and acquisition, and valuation services
(collectively, "implementation services") and property management,
corporate property services, development and project management services
(collectively, "management fees"). Results for 1998 and 1997 have been
realigned based upon the current business segments.
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. Jones Lang LaSalle
allocates all expenses, other than interest and income taxes, as nearly all
expenses incurred benefit one or more of the segments. Merger related non-
recurring charges are not allocated to the segments.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Summarized financial information by business segment for 1999, 1998
and 1997 are as follows ($ in thousands):
1999 1998 1997
-------- -------- --------
OWNER AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services. . . . $151,769 119,928 90,817
Management fees. . . . . . . . 117,395 82,330 48,264
Equity earnings. . . . . . . . 873 369 816
Other services . . . . . . . . 11,883 10,168 6,270
Gain on sale of business . . . 7,502 -- --
Intersegment revenue . . . . . 3,661 2,353 1,659
-------- -------- --------
293,083 215,148 147,826
Operating expenses:
Compensation, operating and
administrative expenses. . . 243,883 176,184 118,683
Depreciation and
amortization . . . . . . . . 19,843 8,787 4,796
-------- -------- --------
Operating income . . . . $ 29,357 30,177 24,347
======== ======== ========
EUROPE
Revenue:
Implementation services. . . . $171,935 831 710
Management fees. . . . . . . . 79,454 755 --
Equity losses. . . . . . . . . (219) -- --
Other services . . . . . . . . 1,998 168 --
-------- -------- --------
253,168 1,754 710
Operating expenses:
Compensation, operating and
administrative expenses. . . 215,830 1,243 625
Depreciation and
amortization . . . . . . . . 8,047 47 --
-------- -------- --------
Operating income . . . . $ 29,291 464 85
======== ======== ========
ASIA PACIFIC
Revenue:
Implementation services. . . . $ 69,899 1,543 319
Management fees. . . . . . . . 36,651 81 --
Equity earnings. . . . . . . . 117 -- --
Other services . . . . . . . . 7,577 6 --
-------- -------- --------
114,244 1,630 319
Operating expenses:
Compensation, operating and
administrative expenses. . . 101,642 2,883 971
Depreciation and
amortization . . . . . . . . 4,976 107 6
-------- -------- --------
Operating income
(loss) . . . . . . . . $ 7,626 (1,360) (658)
======== ======== ========
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1999 1998 1997
-------- -------- --------
HOTEL SERVICES
Revenue:
Implementation services. . . . $ 10,089 -- --
Management fees. . . . . . . . 1,301 -- --
Other services . . . . . . . . 2,375 -- --
-------- -------- --------
13,765 -- --
Operating expenses:
Compensation, operating and
administrative expenses. . . 11,340 -- --
Depreciation and
amortization . . . . . . . . 149 -- --
-------- -------- --------
Operating income . . . . $ 2,276 -- --
======== ======== ========
INVESTMENT MANAGEMENT
Revenue:
Implementation services. . . . $ 11,488 6,402 3,600
Advisory fees. . . . . . . . . 67,560 77,140 70,817
Equity earnings. . . . . . . . 5,447 3,542 2,422
Other services . . . . . . . . 345 1,201 738
Intersegment revenue . . . . . 136 -- --
-------- -------- --------
84,976 88,285 77,577
Operating expenses:
Compensation, operating and
administrative expenses. . . 69,767 65,189 61,946
Depreciation and
amortization . . . . . . . . 3,661 4,514 4,291
-------- -------- --------
Operating income . . . . $ 11,548 18,582 11,340
======== ======== ========
Total segment revenue. . . . . . . $759,236 306,817 226,432
Intersegment revenue
eliminations . . . . . . . . . . (3,797) (2,353) (1,659)
-------- -------- --------
Total revenue. . . . . . 755,439 304,464 224,773
-------- -------- --------
Total segment operating
expenses . . . . . . . . . . . . 679,138 258,954 191,318
Intersegment operating
expense eliminations . . . . . . (3,797) (2,353) (1,659)
-------- -------- --------
Total operating
expenses before
merger related
non-recurring
charges (1) . . . . . . 675,341 256,601 189,659
-------- -------- --------
Merger related non-
recurring charges (1) . 151,401 10,021 --
-------- -------- --------
Operating income
(loss). . . . . . . . . $(71,303) 37,842 35,114
======== ======== ========
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- ------------
(1) Merger related non-recurring charges consist of integration and
transition costs related to the merger with JLW and the COMPASS acquisition
and compensation expense incurred associated with the issuance of shares to
former employees of JLW.
Identifiable assets by segment are those assets that are used by or
are a result of each segment's business. Corporate assets are principally
cash and cash equivalents, office furniture and computer hardware and
software.
The following table reconciles segment identifiable assets to
consolidated assets, investments in real estate ventures to consolidated
investments in real estate ventures and fixed asset expenditures to
consolidated fixed asset expenditures.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1999 1998 1997
----------------------------- ----------------------------- --------
Invest- Invest-
ments Fixed ments Fixed Fixed
Identi- in Real Asset Identi- in Real Asset Asset
fiable Estate Expen- fiable Estate Expen- Expen-
($ in thousands) Assets Ventures ditures Assets Ventures ditures ditures
------- -------- -------- -------- -------- -------- --------
Owner and Occupier Services:
Americas . . . . . . . . . . . . . $428,226 $ 9,604 $ 19,294 $355,840 $ 7,059 $14,022 $ 5,536
Europe . . . . . . . . . . . . . . 226,535 -- 10,328 5,221 -- -- --
Asia Pacific . . . . . . . . . . . 149,365 -- 5,867 14,859 -- 30 117
Hotel Services . . . . . . . . . . . 5,193 -- 20 -- -- -- --
Investment Management. . . . . . . . 107,000 57,701 3,999 98,060 45,917 1,540 624
Corporate. . . . . . . . . . . . . . 8,481 -- 763 16,941 -- -- --
-------- -------- -------- -------- ------- ------- -------
Consolidated . . . . . . . . . . . . $924,800 $ 67,305 $ 40,271 $490,921 $52,976 $15,592 $ 6,277
======== ======== ======== ======== ======= ======= =======
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Jones Lang LaSalle conducts business in two countries which
individually comprise over 10% of total revenue and total assets in 1999.
Geographic segment information is as follows ($ in thousands):
Total Long-Lived
Revenue Assets
-------- ----------
United States. . . . . . . . . . $339,339 292,102
United Kingdom . . . . . . . . . 160,238 108,788
Other foreign countries. . . . . 255,862 156,695
-------- --------
$755,439 557,585
======== ========
Long-lived assets exclude intangibles resulting from business
acquisitions and the JLW merger.
(6) INVESTMENTS IN REAL ESTATE VENTURES
Jones Lang LaSalle has invested in certain real estate ventures that
own and operate commercial real estate. These investments include
noncontrolling general and limited partnership ownership interests
generally ranging from less than 1% to 49.5% of the respective ventures.
Jones Lang LaSalle has made initial capital contributions to the ventures
and had remaining commitments to certain ventures for additional capital
contributions of approximately $28.7 million as of December 31, 1999.
Substantially all venture interests are held by corporate subsidiaries of
Jones Lang LaSalle. Accordingly, Jones Lang LaSalle's exposure to
liabilities and losses of the ventures is limited to its initial and
remaining commitments. To the extent Jones Lang LaSalle's investment basis
differs from its share of the equity of an unconsolidated investment, such
difference is amortized over the depreciable lives of the investee's
investment assets.
Included in investment in real estate ventures is an investment in
LaSalle Hotel Properties ("LHO"), a real estate investment trust, which
completed its initial public offering in April 1998. LHO was formed to own
hotel properties and to continue and expand the hotel investment activities
of Jones Lang LaSalle by investing principally in upscale and luxury full-
service hotels located primarily in major business and urban, resort and
convention markets. Jones Lang LaSalle provides advisory, acquisition and
administrative services to LHO for which it receives a base advisory fee
calculated as a percentage of net operating income, as well as performance
fees based on growth in funds from operations on a per share basis. Such
performance fees, if any, are paid in the form of LHO common stock or
units, at Jones Lang LaSalle's option. LHO was formed with 10 hotels, nine
of which Jones Lang LaSalle had a nominal co-investment in and acted as the
investment advisor for. In accordance with the individual investment
advisory agreements, Jones Lang LaSalle earned and received performance
fees totaling $15.2 million on the disposition of certain of the assets.
Jones Lang LaSalle contributed its ownership interests in the hotels as
well as the related performance fees to LHO for an effective ownership
interest of approximately 6.4%.
Such investments have been accounted for under the equity method of
accounting in the accompanying Consolidated Financial Statements. As such,
Jones Lang LaSalle recognizes its share of the underlying profits and
losses of the ventures as revenue in the accompanying Consolidated
Statements of Earnings. Jones Lang LaSalle generally is entitled to
operating distributions in accordance with its respective ownership
interests.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Summarized combined financial information for the above unconsolidated
ventures is presented below ($ in thousands):
1999 1998 1997
---------- --------- ---------
Balance Sheet:
Investments in real estate . . .$2,081,747 2,021,372 1,236,217
Total assets . . . . . . . . . .$2,603,815 2,513,483 1,406,236
========== ========= =========
Mortgage indebtedness. . . . . .$ 695,442 614,349 579,310
Total liabilities. . . . . . . .$1,327,824 977,194 631,807
========== ========= =========
Total equity . . . . . . . . . .$1,275,991 1,536,289 774,429
========== ========= =========
Investments in real estate
ventures . . . . . . . . . . . . .$ 66,538 52,083 17,100
Statements of Operations:
Revenues . . . . . . . . . . . .$ 403,557 298,886 288,709
Net earnings . . . . . . . . . .$ 115,571 104,095 96,725
========== ========= =========
Equity in earnings from
real estate ventures . . . . . . .$ 6,218 3,911 3,238
========== ========= =========
During 1999, 1998 and 1997, Jones Lang LaSalle made loans to certain
of these real estate ventures, of which $6.7 million, $15.5 million and
$4.7 million was outstanding at December 31, 1999, 1998 and 1997,
respectively, and is included in notes and other receivables in the
accompanying Consolidated Balance Sheets. These notes, which bear interest
rates of 7.25% to 8.0%, are to be repaid by 2005.
Jones Lang LaSalle also has investments that are accounted for using
the cost method that totaled $.8 million, $.9 million and $1.0 million at
December 31, 1999, 1998 and 1997, respectively.
(7) DEBT
CREDIT FACILITIES
On October 27, 1999, Jones Lang LaSalle closed a new $380.0 million
unsecured credit agreement. The agreement includes a $223.5 million three-
year revolving facility and a $156.5 million term facility due October 15,
2000 (collectively, the "New Facilities"). Jones Lang LaSalle is
authorized under the agreement to increase the revolving facility up to a
total of $250.0 million and the term facility up to a total of $175.0
million through the expansion of its existing bank group. Jones Lang
LaSalle is currently in discussions with additional banks to increase the
New Facilities, however, there can be no guarantee as to the final outcome
of these discussions. The New Facilities replaced the five-year unsecured
$150.0 million revolving credit facility, $175.0 million term credit
facility and $30.0 million short-term facility (the "Previous Facilities").
The revolving facility is available for working capital, co-investments and
acquisitions. As of December 31, 1999, there was $316.2 million
outstanding on the New Facilities, of which $156.5 million is classified as
current.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The New Facilities are guaranteed by certain of Jones Lang LaSalle's
subsidiaries. Jones Lang LaSalle must maintain a certain level of
consolidated net worth and a ratio of funded debt to earnings before
interest expense, taxes, depreciation and amortization ("EBITDA"). Jones
Lang LaSalle must also meet a minimum interest coverage ratio, a minimum
liquidity ratio and minimum EBITDA. Additionally, Jones Lang LaSalle is
restricted from, among other things, incurring certain levels of
indebtedness to lenders outside of the New Facilities, disposing of a
significant portion of its assets, and paying dividends until the term
facility is repaid. Lender approval is required for certain levels of co-
investment. The New Facilities bear variable rates of interest based on
market rates. Jones Lang LaSalle uses interest rate swaps to convert a
portion of the floating rate indebtedness to a fixed rate. The effective
interest rate on the Previous Facilities and the New Facilities was 6.48%
for the year ended December 31, 1999, including the effect of interest rate
swap agreements. The effective interest rate on the Previous Facilities
for the year ended December 31, 1998 was 6.1%, including the effect of
interest rate swap agreements.
Jones Lang LaSalle also has various interest bearing overdraft
facilities and short-term credit facilities in Europe and Asia Pacific.
The aggregate amount available under these facilities approximates $32.8
million, of which $4.1 million was outstanding as of December 31, 1999.
Borrowings on these facilities are currently limited to $50.0 million under
the terms of the New Facilities.
(8) LEASES
Jones Lang LaSalle leases office space in various buildings for its
own use. The terms of these non-cancelable operating leases provide for
Jones Lang LaSalle to pay base rent and a share of increases in operating
expenses and real estate taxes in excess of defined amounts. Jones Lang
LaSalle also leases equipment under both operating and capital lease
arrangements.
Minimum future lease payments (i.e., base rent for leases of office
space) due in each of the next five years ending December 31 and thereafter
are as follows ($ in thousands):
Operating Capital
Leases Leases
--------- --------
2000 . . . . . . . . . . $ 36,270 $ 1,957
2001 . . . . . . . . . . 33,408 1,314
2002 . . . . . . . . . . 26,813 461
2003 . . . . . . . . . . 21,077 386
2004 . . . . . . . . . . 17,091 169
Thereafter . . . . . . . 37,410 92
-------- --------
$172,069 $ 4,379
======== ========
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Assets recorded under capital leases in the Consolidated Balance Sheet
at December 31, 1999 are as follows ($ in thousands):
1999
--------
Furniture, fixtures and equipment $ 2,244
Computer equipment and software 2,492
Automobiles 455
Leasehold improvements 1,775
--------
6,966
Less accumulated depreciation
and amortization (3,557)
--------
Net assets under capital leases $ 3,409
========
Rent expense was $45.0 million, $9.8 million and $7.1 million, during
1999, 1998 and 1997, respectively.
(9) INCOME TAXES
For the year ended December 31, 1999, 1998 and for the period
subsequent to conversion to corporate form in 1997, Jones Lang LaSalle's
provision for income taxes aggregated $5.3 million, $13.2 million and $11.0
million, respectively, and consisted of the following ($ in thousands):
Year Ended December 31,
---------------------------------------
1999 1998 1997
-------- -------- --------
U.S. Federal:
Current. . . . . . . . $(11,762) $ 11,843 $ 3,930
Deferred tax . . . . . 2,570 (1,970) 2,656
-------- -------- --------
(9,192) 9,873 6,586
-------- -------- --------
State and Local:
Current. . . . . . . . (2,979) 2,819 823
Deferred tax . . . . . 901 (144) 1,000
-------- -------- --------
(2,078) 2,675 1,823
-------- -------- --------
Foreign:
Current. . . . . . . . 17,959 1,506 2,600
Deferred tax . . . . . (1,361) (830) --
-------- -------- --------
16,598 676 2,600
-------- -------- --------
Total. . . . . . . . . . $ 5,328 $ 13,224 $ 11,009
======== ======== ========
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For the period prior to the incorporation of the Predecessor
Partnerships, the accompanying Consolidated Statements of Earnings include
a federal and state income tax provision for wholly owned corporate
subsidiaries and a state tax provision for certain states that require
partnerships to pay income taxes. For the period January 1, 1997 through
July 21, 1997, such amounts aggregated $1.1 million. No other provision
for income taxes was made for those periods as the liability for such taxes
would have been that of the respective partners of the Predecessor
Partnerships. As a result of Jones Lang LaSalle's conversion from
partnership to corporate form in July 1997, a tax benefit of $6.8 million
was recognized related to deferred tax assets recorded in accordance with
the provisions of SFAS No. 109 arising from temporary differences between
the book and tax basis of Jones Lang LaSalle's assets and liabilities at
the date of conversion.
Income tax expense for 1999, 1998 and for the period subsequent to
conversion to corporate form for 1997 differed from the amounts computed by
applying the U.S. federal income tax rate of 35% to earnings before
provision for income taxes (a loss of $89.5 million for the year ended
December 31, 1999, income of $33.7 million for the year ended December 31,
1998 and income of $28.6 million for the period July 22, 1997 through
December 31, 1997) as a result of the following ($ in thousands):
1999 1998 1997
---------------- ----------------- --------------
Computed "expected"
tax expense
(benefit) . . . . . .$(31,330) 35.0% $11,791 35.0% $10,009 35.0%
Increase (reduction)
in income taxes
resulting from:
Nondeductible
stock compensa-
tion expense. . . . 34,078 (38.1%) -- -- -- --
State and local
income taxes,
net of federal
income tax benefit. (1,350) 1.5% 1,739 5.2% 1,185 4.1%
Amortization of
goodwill and
other intangibles . 76 (0.1%) (1,182) (3.5%) (573) (2.0%)
Nondeductible
expenses. . . . . . 2,402 (2.7%) 807 2.4% 205 0.7%
Foreign earnings
taxed at varying
rates . . . . . . . (1,022) 1.1% -- -- -- --
Valuation
allowances. . . . . 1,552 (1.7%) -- -- -- --
Other, net . . . . . . 922 (1.0%) 69 0.2% 183 0.7%
------- ------ ------- ------ ------- ------
$ 5,328 (6.0%) $13,224 39.3% $11,009 38.5%
======= ====== ======= ====== ======= ======
Domestic and foreign losses before provision for income taxes for the
year ended December 31, 1999 were $35.6 million and $53.9 million,
respectively. Domestic and foreign earnings before provision for income
taxes for the year ended December 31, 1998 were $29.9 million and $3.8
million, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below ($ in thousands):
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31,
---------------------------------------
1999 1998 1997
-------- -------- --------
Deferred tax assets:
Accrued expenses . . . $ 13,525 $ 3,957 $ 2,205
Allowances for
uncollectible
accounts. . . . . . . 3,983 3,238 2,208
Foreign tax credit
carryforwards . . . . 3,634 3,800 2,600
Foreign loss carry-
forwards. . . . . . . 3,326 830 --
Property and
equipment . . . . . . 2,233 1,644 1,397
Investments in real
estate ventures . . . 1,208 -- --
Alternative minimum
tax credit
carryover . . . . . . 750 -- --
Other. . . . . . . . . 639 355 554
-------- -------- --------
29,298 13,824 8,964
Less valuation
allowances . . . . . 2,020 -- --
-------- -------- --------
$ 27,278 $ 13,824 $ 8,964
======== ======== ========
Deferred tax liabilities:
Prepaid pension
asset . . . . . . . . $ 6,978 $ -- $ --
Intangible assets. . . 3,743 -- --
Income deferred for
tax purposes. . . . . 3,329 -- --
Investments in real
estate ventures . . . -- 2,483 2,820
Other. . . . . . . . . 1,820 716 1,065
-------- -------- --------
$ 15,870 $ 3,199 $ 3,885
======== ======== ========
In connection with the merger with JLW, Jones Lang LaSalle recorded
deferred tax assets of $13.3 million and deferred tax liabilities of $8.2
million as part of its purchase price allocation. In connection with the
COMPASS acquisition, Jones Lang LaSalle recorded deferred tax assets of
$2.6 million as part of its purchase price allocation.
A deferred U.S. tax liability has not been provided on the unremitted
earnings of foreign subsidiaries because it is the intent of Jones Lang
LaSalle to permanently reinvest such earnings.
As of December 31, 1999, Jones Lang LaSalle has available $3.6 million
of foreign tax credit carryforwards for U.S. federal income tax purposes,
which expire in 2002 through 2004. There were also foreign loss
carryforwards at December 31, 1999 approximating $10.8 million which expire
in 2003 and thereafter.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The net deferred tax asset of $11.4 million at December 31, 1999 is
considered realizable given past income and estimates of future income.
These considerations include, but are not limited to, net operating losses,
earnings trends and tax planning strategies. Valuation allowances have
been provided with regard to the tax benefit of certain foreign net
operating loss carryforwards for which utilization is not probable.
(10) RETIREMENT PLANS
DEFINED CONTRIBUTION PLANS
Jones Lang LaSalle has a qualified profit sharing plan that
incorporates IRC Section 401(k) for its eligible U.S. employees.
Contributions under the qualified profit sharing plan are made via a
combination of employer match and an annual contribution on behalf of
eligible employees. Included in the accompanying Consolidated Statements
of Earnings for the years ended December 31, 1999, 1998 and 1997 are
contributions of $4.2 million, $1.8 million and $1.7 million, respectively.
Related trust assets of the Plan are managed by trustees and are excluded
from the accompanying Consolidated Financial Statements.
Jones Lang LaSalle maintains several defined contribution retirement
plans for its eligible non-U.S. employees. Contributions to these plans
were approximately $2.0 million for the year ended December 31, 1999.
Amounts contributed to similar plans for the year ended December 31, 1998,
prior to the merger with JLW, were immaterial.
DEFINED BENEFIT PLANS
Jones Lang LaSalle maintains several contributory defined benefit
pension plans to provide retirement benefits to eligible employees in
certain countries. It is Jones Lang LaSalle's policy to fund the minimum
annual contributions required by applicable regulations.
Net periodic pension cost consisted of the following ($ in thousands):
1999
--------
Employer service cost - benefits earned
during the year . . . . . . . . . . . . . . . . . $ 5,902
Interest cost on projected benefit
obligation. . . . . . . . . . . . . . . . . . . . 3,680
Expected (return) loss on plan assets . . . . . . . (5,332)
Net amortization/deferrals. . . . . . . . . . . . . (1,224)
--------
Net periodic pension cost . . . . . . . . . . . . . $ 3,026
========
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The change in benefit obligation and plan assets and reconciliation of
funded status as of December 31, 1999 are as follows ($ in thousands):
1999
--------
Change in benefit obligation:
Projected benefit obligation at
beginning of year . . . . . . . . . . . . . . . $ --
Merger with JLW . . . . . . . . . . . . . . . . . 85,311
Service cost. . . . . . . . . . . . . . . . . . . 5,902
Interest cost . . . . . . . . . . . . . . . . . . 3,680
Benefits paid . . . . . . . . . . . . . . . . . . (1,631)
Actuarial loss. . . . . . . . . . . . . . . . . . (4,309)
Changes in foreign exchange rates . . . . . . . . 210
--------
Projected benefit obligation at
end of year . . . . . . . . . . . . . . . . . $ 89,163
========
Change in plan assets:
Fair value of plan assets at
beginning of year . . . . . . . . . . . . . . . $ --
Merger with JLW . . . . . . . . . . . . . . . . . 111,197
Actual return on plan assets. . . . . . . . . . . 5,729
Benefits paid . . . . . . . . . . . . . . . . . . (2,610)
Changes in foreign exchange rates . . . . . . . . 408
--------
Fair value of plan assets at end of year. . . . $114,724
========
Reconciliation of funded status:
Funded status . . . . . . . . . . . . . . . . . . $ 25,561
Unrecognized actuarial loss . . . . . . . . . . . (2,153)
--------
Net amount recognized . . . . . . . . . . . . . $ 23,408
========
The amounts recognized in the accompanying Consolidated Balance Sheet
as of December 31, 1999 are as follows ($ in thousands):
1999
--------
Prepaid pension asset . . . . . . . . . . . . . . . $ 23,956
Accrued pension liability . . . . . . . . . . . . . (548)
--------
Net amount recognized . . . . . . . . . . . . . . . $ 23,408
========
For one of the plans, the accumulated benefit obligation exceeded the
fair value of the plan assets at December 31, 1999. The related aggregate
benefit obligation was $2.4 million and the aggregate fair value of the
plan assets was $1.9 million.
Weighted average assumptions used in developing the projected benefit
obligation as of December 31 were generally as follows:
1999
--------
Discount rate used in determining
present values. . . . . . . . . . . . . . . . . . 6.25%
Annual increase in future compensation
levels. . . . . . . . . . . . . . . . . . . . . . 4.00%
Expected long-term rate of return
on assets . . . . . . . . . . . . . . . . . . . . 7.50%
Plan assets consist of a diversified portfolio of fixed-income
investments and equity securities.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(11) STOCK OPTION AND STOCK COMPENSATION PLANS
STOCK AWARD AND INCENTIVE PLAN
In 1997, Jones Lang LaSalle adopted a stock award and incentive plan
that provides for the granting of options to purchase a specified number of
shares of common stock and other stock awards to eligible participants of
Jones Lang LaSalle. Under the plan, the total number of shares of common
stock available to be issued is 4,160,000. The options are granted at the
market value of common stock at the date of grant. The options vest at
such times and conditions as the Compensation Committee of the Board of
Directors of Jones Lang LaSalle determines and sets forth in the award
agreement. Such options granted in 1999 and 1998 vest over a period of
zero to five years. Such options granted in 1997 vest over a period of one
to six years. Certain 1997 options having a six-year vesting period are
subject to an accelerated vesting schedule based on the future average
stock price. At December 31, 1999 and 1998, there were 2,127,662 and
973,100 additional shares, respectively, available for grant under the
stock award and incentive plan.
The per share weighted-average fair value of options granted during
1999, 1998 and 1997 was $17.63, $16.44 and $11.63 on the date of grant
using the Black Scholes option-pricing model with the following weighted-
average assumptions:
1999 1998 1997
-------------- ------------- -------------
Expected dividend yield. . 0.00% 0.00% 0.00%
Risk-free interest rate. . 6.90% 4.95% 6.95%
Expected life. . . . . . . 6 to 9 years 6 to 9 years 6 to 9 years
Expected volatility. . . . 47.34% 41.50% 16.50%
Contractual terms. . . . . 7 to 10 years 7 to 10 years 7 to 10 years
Jones Lang LaSalle accounts for its stock option and compensation
plans under the provisions of SFAS No. 123, which allows entities to
continue to apply the provisions of APB No. 25 and provide pro forma net
income and net income per share disclosures for employee option grants as
if the fair-value-based method defined in SFAS No. 123 had been applied.
Jones Lang LaSalle has elected to apply the provisions of APB No. 25 in
accounting for its stock award and incentive plan, and, accordingly, no
compensation cost has been recognized for its stock award and incentive
plan in the Consolidated Financial Statements. Had Jones Lang LaSalle
determined compensation cost based upon the fair value at the date of grant
for its options as set forth under SFAS No. 123, Jones Lang LaSalle's net
earnings (loss), basic earnings (loss) per common share and diluted
earnings (loss) per common share would have been as follows ($ in
thousands, except share data):
1999 1998 1997 (1)
-------- -------- --------
Net earnings (loss). . . . . . . . $(98,767) $ 15,689 $ 23,924
Basic earnings (loss) per
common share . . . . . . . . . . (4.37) 0.97 1.48
Diluted earnings (loss) per
common share . . . . . . . . . . (4.37) 0.96 1.47
- -----------
(1) Earnings per share for 1997 is calculated based on earnings for the
period from conversion to corporate form, July 22, 1997, through December
31, 1997.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Stock option activity is as follows (shares in thousands):
1999 1998 1997
----------------- ----------------- -----------------
Weighted- Weighted- Weighted-
Shares Average Shares Average Shares Average
------ --------- ------ --------- ------ ---------
Outstanding
at beginning
of year . . . 1,241.9 $26.75 738.0 $23.29 -- $ --
Granted. . . . 997.6 31.45 524.9 31.71 740.5 23.29
Exercised. . . (21.3) 23.25 -- -- -- --
Forfeited. . . (207.2) 31.39 (21.0) 29.56 (2.5) 23.00
------- ------- -----
Outstanding
at end of
year. . . . . 2,011.0 $28.67 1,241.9 $26.75 738.0 $23.29
======= ======= =====
At December 31, 1999, 1998 and 1997, the range of exercise prices and
weighted-average remaining contractual life of outstanding options was
$9.31-$43.88 and 6.5 years, $23.00-$43.88 and 7.6 years, and $23.00-$35.06
and 9.5 years, respectively. At December 31, 1999 and 1998, approximately
645,333 and 534,000 options were exercisable, respectively. None of the
options were exercisable at December 31, 1997.
OTHER STOCK COMPENSATION PROGRAMS
In 1999, Jones Lang LaSalle established a stock compensation program
for certain of its employees pursuant to which they are awarded a portion
of their annual bonus in the form of restricted shares of Jones Lang
LaSalle common stock. The number of shares awarded was enhanced by Jones
Lang LaSalle by 20% in 1999 and will be enhanced by 15% in future years.
The shares vest 50% at eighteen months from the date of grant and the
remaining 50% at thirty months from the date of grant. The related
compensation cost is amortized to expense over the vesting period.
In 1997 and 1998, Jones Lang LaSalle maintained a Stock Compensation
Program ("SCP") for eligible employees. Under this plan, employee
contributions for stock purchases were enhanced by Jones Lang LaSalle
through an additional contribution of 15%. Employee contributions vested
immediately while Jones Lang LaSalle contributions were subject to various
vesting periods. The related compensation cost is amortized to expense
over the vesting period. As of December 31, 1999, 37,598 shares have been
issued under this plan. The plan was suspended in 1999.
In 1998, Jones Lang LaSalle adopted an Employee Stock Purchase Plan
("ESPP") for eligible employees. Under this plan, employee contributions
for stock purchases will be enhanced by Jones Lang LaSalle through an
additional contribution of 15%. Employee contributions and Jones Lang
LaSalle contributions vest immediately. As of December 31, 1999, 226,165
shares have been issued under this plan.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(12) TRANSACTIONS WITH AFFILIATES
Certain officers of Jones Lang LaSalle are trustees for real estate
funds that were organized by a subsidiary. Jones Lang LaSalle earns
advisory and management fees for services rendered to the funds. Included
in the accompanying Consolidated Financial Statements are revenues of $.2
million, $2.3 million and $4.2 million for 1999, 1998 and 1997,
respectively, as well as receivables of $.03 million and $.1 million at
December 31, 1999 and 1998, respectively, related to such services.
Jones Lang LaSalle also earns fees and commissions for services
rendered to affiliates of Dai-ichi Life Property Holdings, Inc. and
Galbreath Holdings, LLC, two significant stockholders and real estate
ventures in which Jones Lang LaSalle has an equity interest. Included in
the accompanying Consolidated Financial Statements are revenues from such
affiliates of $39.0 million, $45.9 million and $33.0 million for 1999, 1998
and 1997, respectively, as well as receivables for reimbursable expenses
and revenues as of December 31, 1999 and 1998 of $8.7 million and $9.3
million, respectively.
(13) COMMITMENTS AND CONTINGENCIES
At December 31, 1999, Jones Lang LaSalle has several completion and
budget guarantees relating to development projects. Management does not
expect to incur any material losses under these guarantees.
Jones Lang LaSalle is a defendant in various litigation matters
arising in the ordinary course of business, some of which involve claims
for damages that are substantial in amount. Many of these litigation
matters are covered by insurance. In the opinion of Management, the
ultimate resolution of such litigation matters is not expected to have a
material adverse effect on the financial position, results of operations or
liquidity of Jones Lang LaSalle.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited consolidated
statements of earnings data for each of Jones Lang LaSalle's last eight
quarters. In the opinion of Management, this information has been presented
on the same basis as the audited consolidated financial statements
appearing elsewhere in this report, and includes all adjustments,
consisting only of normal recurring adjustments and accruals, that Jones
Lang LaSalle considers necessary for a fair presentation. The unaudited
consolidated quarterly information should be read in conjunction with Jones
Lang LaSalle's Consolidated Financial Statements and the notes thereto.
The operating results for any quarter are not necessarily indicative of the
results for any future period.
JONES LANG LASALLE INCORPORATED
QUARTERLY INFORMATION
(UNAUDITED)
1999
-------------------------------------------------------
($ in thousands, except share data) March 31 June 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- --------
Revenue (1):
Owner & Occupier Services:
Americas . . . . . . . . . . . . . . . . . . . . . $ 44,111 54,439 72,346 118,526 289,422
Europe . . . . . . . . . . . . . . . . . . . . . . 27,783 68,011 67,795 89,579 253,168
Asia Pacific . . . . . . . . . . . . . . . . . . . 9,727 33,434 31,677 39,406 114,244
Hotel Services . . . . . . . . . . . . . . . . . . . 854 3,181 3,715 6,015 13,765
Investment Management. . . . . . . . . . . . . . . . 18,946 20,079 18,639 27,176 84,840
-------- -------- -------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . $101,421 179,144 194,172 280,702 755,439
Merger related non-recurring charges (2) . . . . . . . 54,043 35,587 25,742 36,029 151,401
Operating income (loss) (1). . . . . . . . . . . . . . $(66,333) (38,462) (12,992) 46,484 (71,303)
Net earnings (loss). . . . . . . . . . . . . . . . . . $(55,415) (37,704) (16,937) 15,214 (94,842)
Basic earnings (loss) per common share . . . . . . . . $ (3.09) (1.62) (0.70) .63 (4.20)
Diluted earnings (loss) per common share . . . . . . . $ (3.09) (1.62) (0.70) .63 (4.20)
JONES LANG LASALLE INCORPORATED
QUARTERLY INFORMATION - CONTINUED
1998
-------------------------------------------------------
($ in thousands, except share data) March 31 June 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- --------
Revenue (1):
Owner & Occupier Services:
Americas . . . . . . . . . . . . . . . . . . . . . $ 27,752 44,649 48,339 92,055 212,795
Europe . . . . . . . . . . . . . . . . . . . . . . 3 270 437 1,044 1,754
Asia Pacific . . . . . . . . . . . . . . . . . . . 46 170 120 1,294 1,630
Hotel Services . . . . . . . . . . . . . . . . . . . -- -- -- -- --
Investment Management. . . . . . . . . . . . . . . . 23,264 29,123 15,936 19,962 88,285
-------- -------- -------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . $ 51,065 74,212 64,832 114,355 304,464
Merger related non-recurring charges (2) . . . . . . . -- -- -- 10,021 10,021
Operating income (loss) (1). . . . . . . . . . . . . . $ (5,349) 12,220 8,229 22,742 37,842
Net earnings (loss). . . . . . . . . . . . . . . . . . $ (3,440) 7,310 4,806 11,789 20,465
Basic earnings (loss) per common share . . . . . . . . $ (0.21) 0.45 0.30 0.73 1.26
Diluted earnings (loss) per common share . . . . . . . $ (0.21) 0.45 0.29 0.72 1.25
(1) Excludes intersegment revenue and intersegment expense.
(2) Merger related non-recurring charges include integration and transition costs related to the merger with JLW
and the COMPASS acquisition and compensation expense incurred associated with the issuance of shares to former
employees of JLW.
JONES LANG LASALLE INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
($ in thousands)
Additions
Balance at -------------------------- Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- ---------- ---------- ---------- ---------- ---------
1999
Accounts Receivable
Reserves . . . . . . . . . $ 3,978 2,744 8,722(A) 5,573(D) $9,871
1998
Accounts Receivable
Reserves . . . . . . . . . $ 2,679 4,009 107(B) 2,817(D) $3,978
1997
Accounts Receivable
Reserves . . . . . . . . . $ 1,900 2,640 1,530(C) 3,391(D) $2,679
(A) Represents reserve acquired as a result of the merger with JLW.
(B) Represents reserve acquired as a result of the COMPASS acquisition.
(C) Represents reserve acquired as a result of the Galbreath acquisition.
(D) Includes primarily write-offs of uncollectible accounts.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
the material in the Company's Proxy Statement for the 2000 Annual Meeting
of Stockholders (the "Proxy Statement") under the captions "Election of
Directors," "Management" and "Section 16(a) Beneficial Ownership Reporting
Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the material appearing in the Proxy Statement under the caption "Certain
Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Financial Statements and Schedules:
1. Financial Statements
See Index to Consolidated Financial Statements in Item 8
of this report.
2. Financial Statement Schedule:
See Index to Consolidated Financial Statements in Item 8
of this report.
3. Exhibits
A list of exhibits is set forth in the Exhibit Index
which immediately precedes the exhibits and is incorporated by reference
herein.
(b) Reports on Form 8-K:
None
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this filing and elsewhere (such as in reports,
other filings with the Securities and Exchange Commission, press releases,
presentations and communications by Jones Lang LaSalle or its management
and written and oral statements) may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause Jones Lang LaSalle's
actual results, performance, achievements, plans and objectives to be
materially different from any future results, performance, achievements,
plans and objectives expressed or implied by such forward-looking
statements. Such factors are discussed in (i) this Report in Item 1.
"Business," Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations," Item 7A. "Quantitative and
Qualitative Disclosures About Market Risk," and elsewhere, (ii) our Proxy
Statement dated February 4, 1999 under the captions "Risk Factors," "The
Transactions," "The Purchase Agreements," "JLW Management's Discussion and
Analysis of Financial Condition and Results of Operations of the JLW
Companies," and elsewhere, and (iii) in other reports filed with the
Securities and Exchange Commission. 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.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Jones Lang LaSalle
Incorporated, a Maryland corporation, and the undersigned Directors and
officers of Jones Lang LaSalle Incorporated, hereby constitutes and
appoints Stuart L. Scott, Christopher A. Peacock, William E. Sullivan and
Nicholas J. Willmott its, his or her true and lawful attorneys-in-fact and
agents, for it, him or her and in its, his or her name, place and stead, in
any and all capacities, with full power to act alone, to sign any and all
amendments to this report, and to file each such amendment to this report,
with all exhibits thereto, and any and all documents in connection
therewith, with the Securities and Exchange Commission, hereby granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as it, he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
SIGNATURES
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, in the
City of Chicago, State of Illinois, on the 24th day of March, 2000.
JONES LANG LASALLE INCORPORATED
/S/ STUART L. SCOTT
__________________________
By: Stuart L. Scott
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 24th day of March, 2000.
SIGNATURE TITLE
- --------- -----
/S/ STUART L. SCOTT
_____________________________
Stuart L. Scott Chairman of the Board of Directors, and
Chief Executive Officer and Director
(Principal Executive Officer)
/S/ CHRISTOPHER A. PEACOCK
____________________________
Christopher A. Peacock President, Deputy Chief Executive
Officer, Chief Operating Officer
and Director
/S/ WILLIAM E. SULLIVAN
____________________________
William E. Sullivan Executive Vice President,
Chief Financial Officer and
Secretary
(Principal Financial Officer)
/S/ MICHAEL J. SMITH
____________________________
Michael J. Smith Deputy Chairman and Director
/S/ PETER H. T. LEE
____________________________
Peter H. T. Lee Chairman of Hong Kong and Director
/S/ CLIVE J. PICKFORD
____________________________
Clive J. Pickford Chairman of Europe and Director
SIGNATURE TITLE
- --------- -----
/S/ M.G. ROSE
____________________________
M.G. Rose Chief Executive Officer of
Global Services
Management and Director
/S/ EARL E. WEBB
____________________________
Earl E. Webb Chief Executive Officer
of the Americas and Director
/S/ HENRI-CLAUDE DE BETTIGNIES
______________________________
Henri-Claude de Bettignies Director
/S/ DARRYL HARTLEY-LEONARD
____________________________
Darryl Hartley-Leonard Director
/S/ DEREK A. HIGGS
____________________________
Derek A. Higgs Director
/S/ DAVID K.P. LI
____________________________
David K.P. Li Director
/S/ THOMAS C. THEOBALD
____________________________
Thomas C. Theobald Director
/S/ JOHN R. WALTER
____________________________
John R. Walter Director
/S/ NICHOLAS J. WILLMOTT
____________________________
Nicholas J. Willmott Senior Vice President and
Global Controller
(Principal Accounting Officer)
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Subscription Agreement (Incorporated by reference to
Exhibit 2.01 to the Registrant's Registration Statement No. 333-25741).
2.2 Purchase and Sale Agreement, dated as of October 21, 1998, as
amended, with respect to the acquisition by the Registrant of the JLW
Parent Companies operating in Europe and the U.S.A. (the "Europe/USA
Agreement") (Incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K dated October 22, 1998 (filed December 9, 1998)).
2.3 Purchase and Sale Agreement, dated as of October 21, 1998, as
amended, with respect to the acquisition by the Registrant of the JLW
Parent Companies operating in Australia and New Zealand (the "Australasia
Agreement") (Incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K dated October 22, 1998 (filed December 9, 1998)).
2.4 Purchase and Sale Agreement, dated as of October 21, 1998, as
amended, with respect to the acquisition by the Registrant of the JLW
Parent Companies operating in Asia (the "Asia Agreement") (Incorporated by
reference to Exhibit 10.3 to the Current Report on Form 8-K dated October
22, 1998 (filed December 9, 1998)).
2.5 Form of Purchase and Sale Joinder Agreement, dated as of
October 21, 1998, by and among the Registrant and each of the shareholders
selling equity interests in the JLW Parent Companies under the Europe/USA
Agreement (Incorporated by reference to Exhibit 10.4 to the Current Report
on Form 8-K dated October 22, 1998 (filed December 9, 1998)).
2.6 Form of Purchase and Sale Joinder Agreement, dated as of
October 21, 1998, by and among the Registrant and each of the shareholders
selling equity interests in the JLW Parent Companies under the Australasia
Agreement (Incorporated by reference to Exhibit 10.5 to the Current Report
on Form 8-K dated October 22, 1998 (filed December 9, 1998)).
2.7 Form of Purchase and Sale Joinder Agreement, dated as of
October 21, 1998, by and among the Registrant and each of the shareholders
selling equity interests in the JLW Parent Companies under the Asia
Agreement (Incorporated by reference to Exhibit 10.6 to the Current Report
on Form 8-K dated October 22, 1998 (filed December 9, 1998)).
2.8 Form of Indemnity and Escrow Agreement, dated as of October 21,
1998, by and among the Registrant, certain subsidiaries of the Registrant
and each of the shareholders selling equity interests in the JLW Parent
Companies under the Europe/USA Agreement, the Australasia Agreement and the
Asia Agreement (Incorporated by reference to Exhibit 10.7 to the Current
Report on Form 8-K dated October 22, 1998 (filed December 9, 1998)).
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.9 Form of Stockholder Agreement, dated as of October 21, 1998, by
and among the Registrant and each of the persons receiving shares of common
stock under the Europe/USA Agreement, the Australasia Agreement and the
Asia Agreement (Incorporated by reference to Exhibit 10.8 to the Current
Report on Form 8-K dated October 22, 1998 (filed December 9, 1998)).
2.10 Form of Stockholder Agreement, dated as of October 21, 1998, by
and among the Registrant and each of the partners of DEL-LPL Limited
Partnership and DEL-LPAML Limited Partnership who was an employee of the
Registrant in October 1998 and who received shares of Common Stock in
connection with the dissolution of DEL-LPL Limited Partnership and DEL-
LPAML Limited Partnership (Incorporated by reference to Exhibit 10.9 to the
Current Report on From 8-K dated October 22, 1998 (filed December 9,
1998)).
3.1 Articles of Amendment and Restatement of the Registrant
(Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
dated March 11, 1999 (filed March 24, 1999)).
3.2 Second Amended and Restated Bylaws of the Registrant
(Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K
dated March 11, 1999 (filed March 24, 1999)).
4.1 Form of certificate representing shares of Jones Lang LaSalle
Incorporated common stock (Incorporated by reference to Exhibit 4.3 to the
Current Report on Form 8-K dated March 11, 1999 (filed March 24, 1999)).
10.1 Amended and Restated Multicurrency Credit Agreement, dated as
of October 27, 1999 (Incorporated by reference to Exhibit 10.3 to the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).
10.2 Contribution and Exchange Agreement, dated as of April 21,
1997, by and among DEL-LPL Limited Partnership, DEL-LPAML Limited
Partnership, LaSalle Partners Limited Partnership, LaSalle Partners
Management Limited Partnership, The Galbreath Company, The Galbreath
Company of California, Inc., Galbreath Holdings, LLC and the Stockholders
of The Galbreath Company (Incorporated by reference to Exhibit 10.08 to the
Registrant's Registration Statement No. 333-25741).
10.3 Asset Purchase Agreement, dated as of December 31, 1996, by and
among LaSalle Construction Limited Partnership, LaSalle Partners Limited
Partnership, Clune Construction Company, L.P. and Michael T. Clune
(Incorporated by reference to Exhibit 10.10 to the Registrant's
Registration Statement No. 333-25741).
10.4 1997 Stock Award and Incentive Plan (Incorporated by reference
to Exhibit 99.2 to the Registrant's Registration Statement No. 333-42193).
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.5 Amendment to the Registrant's 1997 Stock Award and Incentive
Plan (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
10.6 Second Amendment to the 1997 Stock Award and Incentive Plan
(Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q for the quarter ended September 30, 1999).
10.7 Third Amendment to the 1997 Stock Award and Incentive Plan
(Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form
10-Q for the quarter ended September 30, 1999).
10.8 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 99.1 to the Registrant's Registration Statement No. 333-42193).
10.9 First Amendment to the Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1998).
10.10 Second Amendment to the Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form
10-Q for the quarter ended September 30, 1998).
10.11 Amended and Restated Stock Compensation Program
10.12 Description of Management Incentive Plan (Incorporated by
reference to Exhibit 10.8 to the Annual Report on Form 10-K for the year
ended December 31, 1997).
10.13 Registration Rights Agreement, dated as of April 22, 1997, by
and among the Registrant, DEL-LPL Limited Partnership, DEL-LPAML Limited
Partnership, DSA-LSPL, Inc., DSA-LSAM, Inc. and Galbreath Holdings, LLC
(Incorporated by reference to Exhibit 10.14 to the Registrant's
Registration Statement No. 333-25741.)
10.14 Form of Indemnification Agreement with Executive Officers and
Directors (Incorporated by Reference to Exhibit 10.14 to the Annual Report
on Form 10-K for the year ended December 31, 1998).
10.15 Severance Pay Plan.
10.16 Senior Executive Service Agreement with Christopher A. Peacock.
10.17 Senior Executive Service Agreement with Robert Orr.
10.18 Consent Agreement, dated as of April 15, 1997, by and among
DSA-LSPL, Inc., DSA-LSAM, Inc., DEL-LPL Limited Partnership, DEL-LPAML
Limited Partnership, DEL/LaSalle Finance Company, L.L.C., LaSalle Partners
Limited Partnership and LaSalle Partners Management Limited Partnership
(Incorporated by reference to Exhibit 10.16 to the Registrant's
Registration Statement No. 333-25741.)
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.19 Consent Agreement, dated as of April 22, 1997, by and among the
Stockholders of The Galbreath Company and The Galbreath Company of
California, Inc., Galbreath Holdings, LLC, DEL-LPL Limited Partnership,
DEL-LPAML Limited Partnership, DEL/LaSalle Finance Company, L.L.C., LaSalle
Partners Limited Partnership and LaSalle Partners Management Limited
Partnership (Incorporated by reference to Exhibit 10.17 to the Registrant's
Registration Statement No. 333-25741.)
10.20 Purchase Agreement by and among the Registrant and Lend Lease
Corporation Limited, and the subsidiaries of Lend Lease Corporation Limited
named herein dated August 31, 1998 (Incorporated by reference to Exhibit
2(a) to the Current Report on Form 8-K dated October 1, 1998).
21.1 List of Subsidiaries
23.1 Consent of KPMG LLP, independent auditors
24.1 Power of Attorney (Set forth on page preceding signature page
of this report.)
27.1 Financial Data Schedule
99.1 Jones Lang LaSalle press release announcing 1999 earnings