JONES LANG LASALLE INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission file number 1-13145

JONES LANG LASALLE INCORPORATED
-----------------------------------------------------
(Exact name of registrant as specified in its charter)

Maryland 36-4150422
------------------------- ---------------------------------
(State or other jurisdic- (IRS Employer Identification No.)
tion of incorporation or
organization)

200 East Randolph Drive, Chicago, IL 60601
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code 312/782-5800

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

Outstanding at
Class October 28, 2002
----- ------------------

Common Stock ($0.01 par value) 30,794,858

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1. Financial Statements . . . . . . . . . . . . . . . 3

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . 36

Item 3. Quantitative and Qualitative Disclosures
about Market Risk. . . . . . . . . . . . . . . . . 51

Item 4. Controls and Procedures. . . . . . . . . . . . . . 52

PART II OTHER INFORMATION

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 53

Item 5. Other Information. . . . . . . . . . . . . . . . . 53

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 53

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(in thousands)
(UNAUDITED)

SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -----------
ASSETS
- ------

Current assets:
Cash and cash equivalents . . . . . . . $ 9,333 10,446
Trade receivables, net of allowances
of $7,586 and $6,305 in 2002
and 2001, respectively. . . . . . . . 174,241 222,590
Notes receivable. . . . . . . . . . . . 3,014 3,847
Other receivables . . . . . . . . . . . 7,136 8,872
Prepaid expenses. . . . . . . . . . . . 13,749 11,802
Deferred tax assets . . . . . . . . . . 16,239 16,935
Other assets. . . . . . . . . . . . . . 12,151 11,340
---------- ---------
Total current assets. . . . . . 235,863 285,832

Property and equipment, at cost, less
accumulated depreciation of $108,050
and $102,401 in 2002 and 2001,
respectively. . . . . . . . . . . . . . 81,209 92,503
Goodwill, with indefinite useful lives,
at cost, less accumulated amortization
of $36,095 and $35,327 in 2002 and
2001, respectively. . . . . . . . . . . 312,620 305,688
Negative goodwill, at cost, less
accumulated amortization of ($565)
in 2001 . . . . . . . . . . . . . . . . -- (846)
Identified intangibles, with definite
useful lives, at cost, less accumulated
amortization of $27,474 and $23,195
in 2002 and 2001, respectively. . . . . 19,583 23,327
Investments in and loans to real estate
ventures. . . . . . . . . . . . . . . . 76,556 64,528
Long-term receivables, net. . . . . . . . 16,354 10,427
Prepaid pension asset . . . . . . . . . . 10,791 14,384
Deferred tax assets . . . . . . . . . . . 23,561 25,770
Debt issuance costs . . . . . . . . . . . 4,633 5,407
Other assets, net . . . . . . . . . . . . 8,030 8,707
--------- ----------

$ 789,200 835,727
========= ==========

JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED

SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(in thousands)
(UNAUDITED)

SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------

Current liabilities:
Accounts payable and accrued liabilities $ 73,638 116,968
Accrued compensation. . . . . . . . . . 80,943 131,680
Short-term borrowings . . . . . . . . . 15,867 15,497
Deferred tax liabilities. . . . . . . . 203 23
Other liabilities . . . . . . . . . . . 23,600 23,467
--------- ----------
Total current liabilities . . . 194,251 287,635

Long-term liabilities:
Credit facilities . . . . . . . . . . . 60,834 60,621
9% Senior Euro Notes, due 2007. . . . . 162,953 146,768
Deferred tax liabilities. . . . . . . . 4,930 6,567
Other . . . . . . . . . . . . . . . . . 17,935 18,966
--------- ----------
Total liabilities . . . . . . . 440,903 520,557

Commitments and contingencies

Minority interest in consolidated
subsidiaries. . . . . . . . . . . . . . 2,918 789

Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
30,796,147 and 30,183,450 shares
issued and outstanding as of
September 30, 2002 and December 31,
2001, respectively. . . . . . . . . . 308 302
Additional paid-in capital. . . . . . . 480,990 463,926
Deferred stock compensation . . . . . . (11,625) (6,038)
Retained deficit. . . . . . . . . . . . (112,881) (122,521)
Stock held in trust . . . . . . . . . . (460) (1,658)
Accumulated other comprehensive loss. . (10,953) (19,630)
--------- ----------
Total stockholders' equity. . . 345,379 314,381
--------- ----------
$ 789,200 835,727
========= ==========

See accompanying notes to consolidated financial statements.

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(in thousands, except share data)
(UNAUDITED)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2002
(in thousands, except share data)
(UNAUDITED)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(in thousands)
(UNAUDITED)

2002 2001
---------- ----------
Cash flows from operating activities:
Cash flows from earnings:
Net income (loss) . . . . . . . . . . . $ 9,640 (12,542)
Reconciliation of net income (loss)
to net cash provided by earnings:
Cumulative effect of change in
accounting principle. . . . . . . . (846) --
Minority interest . . . . . . . . . . 1,313 213
Depreciation and amortization . . . . 28,239 35,466
Equity in earnings and gain on sale
from unconsolidated ventures. . . . (2,405) (6,677)
Operating distributions from real
estate ventures . . . . . . . . . . 3,670 7,762
Provision for loss on receivables and
other assets. . . . . . . . . . . . 3,397 27,429
Stock compensation expense. . . . . . 139 --
Amortization of deferred compensation 6,141 4,874
Amortization of debt issuance costs . 973 902
---------- ----------
Net cash provided by earnings . . . 50,261 57,427

Cash flows from changes in
working capital:
Receivables . . . . . . . . . . . . . 43,783 43,781
Prepaid expenses and other assets . . 3,733 (11,256)
Deferred tax assets . . . . . . . . . 1,448 (1,181)
Accounts payable, accrued liabilities
and accrued compensation. . . . . . (79,002) (102,474)
---------- ----------
Net cash flows from changes in
working capital . . . . . . . . . (30,038) (71,130)
---------- ----------
Net cash provided by (used in)
operating activities. . . . . . . 20,223 (13,703)

Cash flows used in investing activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . (10,149) (28,314)
Other acquisitions and investments,
net of cash balances assumed. . . . . -- (284)
Investments in e-commerce ventures. . . (287) (3,418)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures. . . . . . . . (28,051) (3,440)
Distributions, repayments of advances
and sale of investments . . . . . . 17,763 22,712
---------- ----------
Net cash used in
investing activities. . . . . . (20,724) (12,744)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(in thousands)
(UNAUDITED)

2002 2001
---------- ----------
Cash flows provided by (used in)
financing activities:
Proceeds from borrowings under credit
facilities. . . . . . . . . . . . . . . 284,627 289,218
Repayments of borrowings under credit
facilities. . . . . . . . . . . . . . . (284,104) (260,824)
Shares repurchased for payment of
taxes on stock awards . . . . . . . . . (4,189) (4,144)
Shares repurchased under share
repurchase program. . . . . . . . . . . -- (6,942)
Common stock issued under stock option
plan and stock purchase programs. . . . 3,054 1,167
---------- ----------
Net cash provided by (used in)
financing activities. . . . . . . (612) 18,475
---------- ----------
Net decrease in cash and
cash equivalents. . . . . . . . . (1,113) (7,972)

Cash and cash equivalents,
beginning of period . . . . . . . . . . . 10,446 18,843
---------- ----------
Cash and cash equivalents, end of period. . $ 9,333 10,871
========== ==========

Supplemental disclosure of cash flow
information:

Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . $ 10,821 13,104
Taxes, net of refunds . . . . . . . . . 7,580 19,914

Non-cash investing and financing
activities:
Acquisitions, merger and investments:
Fair value of assets acquired . . . . $ -- (802)
Fair value of liabilities assumed . . -- 667
Goodwill. . . . . . . . . . . . . . . -- (149)
---------- ----------
Cash paid, net of cash
balances assumed. . . . . . . . $ -- (284)
========== ==========

See accompanying notes to consolidated financial statements.

JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Readers of this quarterly report should refer to Jones Lang LaSalle
Incorporated's ("Jones Lang LaSalle", which may be referred to as we, us,
our or the Company) audited financial statements for the year ended
December 31, 2001, which are included in Jones Lang LaSalle's 2001 Form 10-
K, filed with the Securities and Exchange Commission, as certain footnote
disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report. Readers
of this quarterly report should also refer to the "Summary of Critical
Accounting Policies" section within Item 2., "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained herein
for further discussion of our accounting policies.

(1) ACCOUNTING POLICIES

INTERIM INFORMATION

Our consolidated financial statements as of September 30, 2002 and
for the three and nine months ended September 30, 2002 and 2001 are
unaudited; however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial statements for these
interim periods have been included. The results for the periods
ended September 30, 2002 and 2001 are not necessarily indicative of
the results to be obtained for the full fiscal year.

Certain prior year amounts have been reclassified to conform with the
current presentation. In 2001, Global Consulting ("GCON"), a
globally allocated department, recorded its revenue as a reduction to
expense. Beginning in 2002, this revenue is recorded as part of
revenue. The GCON revenue for 2001 has been reclassified for
comparability. The impact of the reclassification of 2001 revenue
related to GCON was to increase revenues and operating expenses by
$2.0 million and $6.1 million for the three and nine months ended
September 30, 2001, respectively. Notes and loans receivable
associated with our real estate ventures have been reclassified to
Investments in real estate ventures in the balance sheet.

EARNINGS PER SHARE

For the three and nine months ended September 30, 2002, basic
earnings per share were calculated based on basic weighted average
shares outstanding of 30.8 million and 30.4 million, respectively;
and diluted earnings per share were calculated based on diluted
weighted average shares outstanding of 32.0 million and 31.9 million,
respectively. The increase of 1.2 million and 1.5 million for the
three and nine months ended September 30, 2002, respectively, in
weighted average shares outstanding reflects the dilutive effect of
shares to be issued under employee stock compensation programs and
outstanding stock options whose exercise price was less than the
average market price of our stock during these periods.

For the three and nine months ended September 30, 2001, basic and
diluted losses per common share were calculated based on basic
weighted average shares outstanding of 30.1 million and 30.0 million,
respectively. As a result of the net losses incurred for these
periods, diluted weighted average shares outstanding do not give
effect to common stock equivalents, as to do so would be anti-
dilutive. These common stock equivalents consist principally of
shares to be issued under employee stock compensation programs and
outstanding stock options whose exercise price was less than the
average market price of our stock during these periods.

STATEMENT OF CASH FLOWS

The effects of foreign currency translation on cash balances are
reflected in cash flows from operating activities on the Consolidated
Statements of Cash Flows.

INCOME TAX PROVISION

We provide for the effects of income taxes on interim financial
statements based on our estimate of the effective tax rate for the
full year. Based on our 2002 forecasted results and actions we have
implemented to date we have lowered our estimated effective tax rate
for 2002 to 36% from 40%. The estimated effective tax rate of 36%
excludes a tax benefit of $1.8 million related to certain costs
incurred in restructuring actions taken in 2001. These costs were
not originally expected to be deductible for tax purposes. However,
as a result of actions undertaken in the third quarter of 2002, these
costs are now deductible. This tax benefit has been fully recognized
during the third quarter of 2002 in addition to the Company's normal
provision based on an effective tax rate of 36%. We believe that 36%
is an achievable effective tax rate, particularly in light of the
effective tax rate benefit provided by SFAS 142 which is discussed
further in Note 6. For the three and nine months ended September 30,
2001 we used an effective tax rate of 42% on recurring operations.
In the third quarter of 2001 we revised our estimated effective tax
rate on recurring operations from 38% to 42% due to a shift in income
mix to jurisdictions with high tax rates. An effective tax rate of
42% on recurring operations was achieved for the full year of 2001.
The non-recurring and restructuring charges incurred in 2001 were
separately tax-effected based on the projected tax deductibility of
those items.

(2) BUSINESS SEGMENTS

We manage our business along a combination of geographic and
functional lines. Operations are reported as four business segments:
the three geographic regions of Owner and Occupier Services ("OOS"),
(i) Americas, (ii) Europe and (iii) Asia Pacific, which offer our
full range of corporate, investor, and capital markets services; and
(iv) Investment Management, which offers investment management
services on a global basis. The OOS business consists primarily of
tenant representation and agency leasing, capital markets and
valuation services (collectively, "implementation services") and
property management, corporate property services, project and
development management services (collectively, "management
services"). The Investment Management segment provides real estate
investment management services to institutional investors,
corporations, and high net worth individuals.

Total revenue by industry segment includes revenue derived from
services provided to other segments. Operating income represents
total revenue less direct and indirect allocable expenses. We
allocate all expenses, other than interest and income taxes, as
nearly all expenses incurred benefit one or more of the segments.
Allocated expenses primarily consist of corporate global overhead,
including certain globally managed stock compensation programs.
These corporate global overhead expenses are allocated to the
business segments based on the relative revenue of each segment.

During the third quarter of 2001, we changed our measure of segment
operating results to exclude non-recurring and restructuring charges.
Consistent with our 2001 presentation, in 2002 we have also excluded
non-recurring and restructuring charges from our segment operating
results. We have determined that it is not meaningful to investors
to allocate these non-recurring and restructuring charges to our
segments. In addition, the Chief Operating Decision Maker of Jones
Lang LaSalle measures the segment results without these charges
allocated. Amounts reported for the first six months of 2002 have

also been reclassified to conform to the current period presentation. Results were not materially impacted
by this change. See note 3 for a detailed discussion of these non-recurring and restructuring charges.

Summarized unaudited financial information by business segment for the three and nine months ended
September 30, 2002 and 2001 is as follows ($ in thousands):

(3) NON-RECURRING AND RESTRUCTURING CHARGES

The following tables detail the consolidated non-recurring and
restructuring charges or (credits) by segment (amounts in millions):

Three Months Ended Nine Months Ended
September 30, 2002 September 30, 2002
------------------- -------------------
Non- Restruc- Non- Restruc-
Recurring turing Recurring turing
--------- -------- --------- --------
Owner & Occupier
Services
Americas. . . . . . (0.6) -- 0.1 --
Europe. . . . . . . -- -- -- --
Asia Pacific. . . . -- (0.5) -- (0.5)

Investment
Management . . . . . 1.7 (0.2) 1.9 (0.2)

Corporate. . . . . . . -- 0.1 -- 0.2
---- ---- ---- ----

Consolidated . . . 1.1 (0.6) 2.0 (0.5)
==== ==== ==== ====

Three Months Ended Nine Months Ended
September 30, 2001 September 30, 2001
------------------- -------------------
Non- Restruc- Non- Restruc-
Recurring turing Recurring turing
--------- -------- --------- --------
Owner & Occupier
Services
Americas. . . . . . 14.6 1.8 16.5 2.9
Europe. . . . . . . 0.7 -- 0.9 0.1
Asia Pacific. . . . 2.2 1.6 2.2 1.9

Investment
Management . . . . . 3.6 -- 3.6 --
---- ---- ---- ----

Consolidated . . . 21.1 3.4 23.2 4.9
==== ==== ==== ====

The total charge for the full year of 2001 for estimated severance
and related costs was $43.9 million. Of these estimated costs, $9.9
million had been paid at December 31, 2001, with a further $28.8
million paid in the first nine months of 2002. The actual costs
incurred by individual have varied from our original estimates for a
variety of reasons, including the identification of additional facts
and circumstances, the complexity of international labor law and
developments in the underlying business, resulting in the unforeseen
reallocation of resources and better or worse than expected
settlement discussions. This has meant that in the first nine months
of 2002 we have taken a credit of $481,000 to the non-recurring
compensation and benefits expense. We expect that the balance of
$4.7 million relating to these estimated costs will be paid out in
the next nine months. Included in the $43.9 million was $40 million
of severance costs and approximately $3 million of professional fees.
The balance of the expenses included relocation and other severance
related expenses.

Non-recurring charges in 2001 include the write-down of our
investments in e-commerce ventures. In 2001, we reviewed our e
commerce investments on an investment by investment basis, evaluating
actual business performance against original expectations, projected
future performance and associated cash flows, and capital needs and
availability. By the end of 2001, we had written down all of our
investments in e-commerce ventures. It is currently our policy to
expense any additional investments, primarily contractual commitments
to fund operating expenses of existing investments, that are made
into these ventures in the period they are funded. These charges are
booked as ordinary recurring charges. In the three and nine months
ended September 30, 2002, we expensed a total of $63,000 and
$287,000, respectively, of such investments.

Restructuring charges include severance and professional fees
associated with the realignment of our business. The Asia Pacific
business underwent a realignment from a traditional geographic
structure to one that is managed according to business lines. In
addition, in the second half of 2001 we implemented a broad based
restructuring of our business that reduced headcount by approximately
9%.

Included in non-recurring expense in the third quarter of 2001 was an
impairment provision of $3.5 million against the carrying value of
certain residential land co-investments. We had determined that we
would not fund these investments beyond our contractual commitments
and would seek to manage an exit from this portfolio. In the third
quarter of 2002 we took an additional impairment charge of $1.7
million to fully write down an additional one of these co-investments
which has defaulted on its financing arrangements. This has been
included in the non-recurring charges. We had previously expensed
approximately $200,000 of advances made to this venture in the first
six months of 2002 in equity earnings. We have reclassified these
impairment charges to the non-recurring expense line for the nine
months ended September 30, 2002.

Additionally, in the third quarter of 2001 we disposed of our
Americas Development Group, retaining an interest in certain
investments originated by this group with the intention of
liquidating them by the end of 2003. In the third quarter of 2002 we
have booked a net gain of $568,000 as a result of the disposal of one
of these investments. This has been included in the non-recurring
charges. For the first six months of 2002, there was a net expense
of $696,000 relating to this investment portfolio, reflecting an
impairment expense of $472,000 relating to two properties that are
under contract to sell in the fourth quarter of 2002 and equity
losses of $224,000. These expenses had previously been reported in
equity earnings. We have reclassified these impairment charges to
the non-recurring expense line for the nine months ended
September 30, 2002.

The non-recurring charges for the full year of 2001 included $1.9
million against our exposure to insolvent insurance providers, of
which $1.6 million related to approximately 30 claims that were
covered by an Australian insurance provider, HIH Insurance Limited
("HIH"). At September 30, 2002 $1.2 million remained to pay claims
related to HIH. We believe this reserve is adequate to cover the
remaining claims and expenses to be paid as a result of the HIH
insolvency. In addition there was one large, complex claim, with
multiple defendants and plaintiffs, which we believed was covered by
another class of insurance, and therefore, no reserve was established
for this claim. In the third quarter of 2002, we settled this claim
at no cost to us.

(4) IMPLEMENTATION OF SAB 101

Effective January 1, 2000, as a result of the implementation of Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), we recorded a one-time, non-cash, after-tax
cumulative effect of change in accounting principle of $14.2 million,
net of taxes of $8.7 million. This adjustment represented revenues
of $22.9 million that had been recognized prior to January 1, 2000
that would not have been recognized if the new accounting policy had
been in effect in the years prior to 2000. These revenues are now
recognized as the underlying contingencies are satisfied. We
recognized $5.8 million and $16.2 million of these revenues in the
twelve months ended December 31, 2001 and 2000, respectively, and
$0.2 million and $0.3 million of these revenues in the three and nine
months ended September 30, 2002, respectively. Of the $22.9 million
of revenue that was deferred on January 1, 2000, $0.5 million
represented revenues related to our land investment business, a
business we exited in 2001. We have determined that this $0.5
million will not be collected, and therefore will not be recorded as
revenue. This item will have no impact on our earnings or cash flow.
The balance of $0.1 million is expected to be recognized in the
fourth quarter of 2002.

(5) DERIVATIVES AND HEDGING ACTIVITIES

On January 1, 2001, we adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments.
Specifically, SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities in the consolidated
balance sheet and to measure those instruments at fair value.
Additionally, the fair value adjustments will affect either
stockholders' equity or net income depending on whether the
derivative instrument qualifies as a hedge for accounting purposes
and, if so, the nature of the hedging activity.

In the normal course of business, we use derivative financial
instruments to manage foreign currency risk. At September 30, 2002,
we had forward exchange contracts in effect with a gross notional
value of $121.8 million ($88.2 million on a net basis) and a market
and carrying gain of $1.1 million. We have used interest rate swap
agreements to limit the impact of changes in interest rates on
earnings and cash flows. We did not enter into any interest rate
swap agreements during 2002 or 2001, and there were no such
agreements outstanding as of September 30, 2002.

We require that hedging derivative instruments be effective in
reducing the exposure that they are designated to hedge. This
effectiveness is essential to qualify for hedge accounting treatment.
Any derivative instrument used for risk management that does not meet
the hedging criteria is marked-to-market each period with changes in
unrealized gains or losses recognized currently in earnings.

As a firm, we do not enter into derivative financial instruments for
trading or speculative purposes. We hedge any foreign exchange risk
resulting from intercompany loans through the use of foreign currency
forward contracts. SFAS 133 requires that unrealized gains and
losses on these derivatives be recognized currently in earnings. The
gain or loss on the re-measurement of the foreign currency
transactions being hedged is also recognized in earnings. The net
impact on our earnings during the nine months ended September 30,
2002 of the unrealized gain on foreign currency contracts, offset by
the loss resulting from re-measurement of foreign currency
transactions, was a loss of $39,100.

The effect of implementing SFAS 133 did not have a material impact on
our consolidated financial statements.

(6) ACCOUNTING FOR BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE
ASSETS

Effective July 2001, we adopted SFAS No. 141, Business Combinations,
("SFAS 141"). SFAS 141 requires that the purchase method of
accounting be used for all business combinations completed after
June 30, 2001. SFAS 141 also specifies that intangible assets
acquired in a purchase method business combination must meet certain
criteria to be recognized and reported apart from goodwill. We have
not completed any purchase business combinations after June 30, 2001.

Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and
Other Intangible Assets ("SFAS 142"). SFAS 142 requires that
goodwill and intangible assets with indefinite useful lives no longer
be amortized, but instead they must be tested for impairment at least
annually in accordance with the provisions of SFAS 142. SFAS 142
also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their
estimated residual values and reviewed for impairment.

In connection with the transitional goodwill impairment evaluation,
SFAS 142 required us to perform an assessment of whether there was an
indication that goodwill was impaired as of the date of adoption. To
accomplish this evaluation, we determined the carrying value of each
reporting unit by assigning the assets and liabilities, including the
existing goodwill and intangible assets, to those reporting units as
of the date of adoption. For purposes of analyzing SFAS 142 we
defined reporting units based on how the Chief Operating Decision
Makers for each region looked at their regions when determining
strategic business decisions for their region. The following
reporting units were determined: Investment Management, Americas OOS,
Australia OOS, Asia OOS, and by country in Europe OOS. We have
determined the fair value of each reporting unit on the basis of a
discounted cash flow methodology and compared it to the reporting
unit's carrying amount. In all cases the fair value of each
reporting unit exceeded its carrying amount, and therefore no
impairment loss has been recognized on our goodwill. Also,
unamortized negative goodwill of $846,000, which existed at the date
we adopted SFAS 142, has been credited to the income statement as the
cumulative effect of a change in accounting principle.

We have $332.2 million of unamortized intangibles and goodwill as of
September 30, 2002, that are subject to the provisions of SFAS 142.
A significant portion of these unamortized intangibles and goodwill
are denominated in currencies other than US dollars, which means that
a portion of the movements in the reported book value of these
balances are attributable to movements in currency exchange rates.
See the tables included later in this footnote for further details on
the foreign exchange impact on intangible and goodwill balances.
$312.6 million of these intangibles represent goodwill with an
indefinite useful life and have ceased to be amortized beginning
January 1, 2002. The amortization savings in the three and nine
months ended September 30, 2002 were $2.4 million and $7.2 million,
respectively. As a result of adopting SFAS 142, on January 1, 2002
we credited to the income statement, as the cumulative effect of a
change in accounting principle, $846,000, which represented our
negative goodwill balance at January 1, 2002. The gross carrying
amount of this negative goodwill (which related to the Americas OOS
reporting segment) at January 1, 2002 was $1.4 million with
accumulated amortization of $565,000. The remaining $19.6 million of
identified intangibles (principally representing management contracts
acquired) will be amortized over their remaining definite useful
lives. Other than the prospective non-amortization of goodwill,
which results in a non-cash improvement in our operating results, we
do not expect the adoption to have a material effect on our revenue,
operating results or liquidity.

In accordance with SFAS 142, the effect of this accounting change is
applied prospectively. Supplemental comparative disclosure as if the
change had been retroactively applied to the prior period is as
follows (in thousands, except share data):

For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2002 2001 2002 2001
-------- -------- -------- --------

Reported net income
(loss) . . . . . . . . $ 10,169 (6,181) 9,640 (12,542)
Add back: Cumulative
effect of change in
accounting principle . -- -- (846) --
Add back: Amortization
of Goodwill with
indefinite useful
lives, net of tax. . . -- 1,284 -- 4,363
-------- -------- -------- --------

Adjusted net income
(loss) . . . . . . . . $ 10,169 (4,897) 8,794 (8,179)
======== ======== ======== ========

Basic earnings (loss)
per common share . . . $ 0.33 (0.21) 0.32 (0.42)
Cumulative effect of
change in accounting
principle. . . . . . . -- -- (0.03) --
Amortization of Goodwill
with indefinite useful
lives, net of tax. . . -- 0.04 -- 0.15
-------- -------- -------- --------
Adjusted basic earnings
(loss) per common
share. . . . . . . . . $ 0.33 (0.17) 0.29 (0.27)
======== ======== ======== ========

Diluted earnings (loss)
per common share . . . $ 0.32 (0.21) 0.31 (0.42)
Cumulative effect of
change in accounting
principle. . . . . . . -- -- (0.03) --
Amortization of Goodwill
with indefinite useful
lives, net of tax. . . -- 0.04 -- 0.15
-------- -------- -------- --------
Adjusted diluted
earnings (loss) per
common share . . . . . $ 0.32 (0.17) 0.28 (0.27)
======== ======== ======== ========

The following table sets forth, by reporting segment, the current
year movements in the gross carrying amount and accumulated
amortization of our goodwill with indefinite useful lives (amounts in
thousands):

Owner and Occupier Services Invest-
----------------------------- ment
Asia Manage- Consol-
Americas Europe Pacific ment idated
-------- -------- -------- -------- --------
Gross Carrying
Amount
- --------------
Balance as of
January 1, 2002 . .$179,263 62,382 79,603 19,767 341,015

Impact of exchange
rate movements. . . 22 4,955 1,926 797 7,700
-------- -------- -------- -------- --------
Balance as of
September 30,
2002. . . . . . . .$179,285 67,337 81,529 20,564 348,715

Accumulated
Amortization
- ------------
Balance as of
January 1, 2002 . .$(15,516) (4,901) (5,607) (9,303) (35,327)

Impact of exchange
rate movements. . . (18) (410) (136) (204) (768)
-------- -------- -------- -------- --------
Balance as of
September 30,
2002. . . . . . . .$(15,534) (5,311) (5,743) (9,507) (36,095)

Net book value. . . .$163,751 62,026 75,786 11,057 312,620
======== ======== ======== ======== ========

The following table sets forth, by reporting segment, the current
year movements in the gross carrying amount and accumulated
amortization of our intangibles with definite useful lives as well as
estimated future amortization expense (amounts in thousands, unless
otherwise noted).

Owner and Occupier Services Invest-
----------------------------- ment
Asia Manage- Consol-
Americas Europe Pacific ment idated
-------- -------- -------- -------- --------
Gross Carrying
Amount
- --------------
Balance as of
January 1, 2002 . .$ 39,377 742 2,071 4,332 46,522

Impact of exchange
rate movements. . . -- 59 136 340 535
-------- -------- -------- -------- --------
Balance as of
September 30,
2002. . . . . . . .$ 39,377 801 2,207 4,672 47,057

Owner and Occupier Services Invest-
----------------------------- ment
Asia Manage- Consol-
Americas Europe Pacific ment idated
-------- -------- -------- -------- --------
Accumulated
Amortization
- ------------
Balance as of
January 1, 2002 . .$(17,720) (302) (841) (4,332) (23,195)

Amortization expense
- Q1. . . . . . . . (1,207) (23) (66) -- (1,296)

Amortization expense
- Q2. . . . . . . . (1,207) (23) (72) -- (1,302)

Amortization expense
- Q3. . . . . . . . (1,177) (25) (67) -- (1,269)

Impact of exchange
rate movements. . . 13 (28) (57) (340) (412)
-------- -------- -------- -------- --------
Balance as of
September 30,
2002. . . . . . . .$(21,298) (401) (1,103) (4,672) (27,474)

Net book value. . . .$ 18,079 400 1,104 -- 19,583
======== ======== ======== ======== ========

ESTIMATED ANNUAL AMORTIZATION EXPENSE
Remaining 2002 Amortization $1.3 million
For Year Ended 12/31/03 $5.2 million
For Year Ended 12/31/04 $5.2 million
For Year Ended 12/31/05 $4.7 million
For Year Ended 12/31/06 $3.2 million
For Year Ended 12/31/07 None

(7) ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

In June 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS
146 addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task
Force Issue No. 94-3 "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS 146 requires that a
liability for costs associated with an exit or disposal activity be
recognized when the liability is incurred rather than when a company
commits to such an activity and also establishes fair value as the
objective for initial measurement of the liability. SFAS 146 is
effective for exit or disposal activities that are initiated after
December 31, 2002. We have not yet fully assessed the impact of
SFAS 146 on our consolidated financial statements, but do not
anticipate it to be material.

(8) SHARE REPURCHASE

On October 30, 2002, Jones Lang LaSalle announced that the Board of
Directors had approved a share repurchase program. Under the
program, Jones Lang LaSalle may repurchase up to 1 million shares in
the open market and in privately negotiated transactions from time to
time, depending upon market prices and other conditions.

(9) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

On July 26, 2000, Jones Lang LaSalle Finance B.V. ("JLL Finance"), a
wholly-owned subsidiary of Jones Lang LaSalle, issued 9% Senior Euro
Notes with an aggregate principal amount of euro 165 million, due
2007 (the "Euro Notes"). The payment obligations under the Euro
Notes are fully and unconditionally guaranteed by Jones Lang LaSalle
Incorporated and certain of its wholly-owned subsidiaries: Jones
Lang LaSalle Americas, Inc.; LaSalle Investment Management, Inc.;
Jones Lang LaSalle International, Inc.; Jones Lang LaSalle Co-
Investment, Inc.; and Jones Lang LaSalle Ltd. (the "Guarantor
Subsidiaries"). All of Jones Lang LaSalle Incorporated's remaining
subsidiaries (the "Non-Guarantor Subsidiaries") are owned by the
Guarantor Subsidiaries. The following supplemental Condensed
Consolidating Balance Sheets as of September 30, 2002 and
December 31, 2001, Condensed Consolidating Statement of Earnings for
the three and nine months ended September 30, 2002 and 2001, and
Condensed Consolidating Statement of Cash Flows for the nine months
ended September 30, 2002 and 2001 present financial information for
(i) Jones Lang LaSalle Incorporated (carrying any investment in
subsidiaries under the equity method), (ii) Jones Lang LaSalle
Finance B.V. (the issuer of the Euro Notes), (iii) on a combined
basis the Guarantor Subsidiaries (carrying any investment in Non
Guarantor subsidiaries under the equity method) and (iv) on a
combined basis the Non-Guarantor Subsidiaries (carrying their
investment in JLL Finance under the equity method). Separate
financial statements of the Guarantor Subsidiaries are not presented
because the guarantors are jointly, severally, and unconditionally
liable under the guarantees, and Jones Lang LaSalle Incorporated
believes that separate financial statements and other disclosures
regarding the Guarantor Subsidiaries are not material to investors.
In general, historically, Jones Lang LaSalle Incorporated has entered
into third party borrowings, financing its subsidiaries via
intercompany accounts that are then converted into equity, or long
term notes, on a periodic basis. Certain Guarantor and Non-Guarantor
Subsidiaries also enter into third party borrowings on a limited
basis. All intercompany activity has been included as subsidiary
activity in investing activities in the Condensed Consolidating
Statements of Cash Flows. Cash is managed on a consolidated basis
and there is a right of offset between bank accounts in the different
groupings of legal entities in the condensed consolidating financial
information. Therefore, in certain cases, negative cash balances
have not been reallocated to payables as they legally offset positive
cash balances elsewhere in Jones Lang LaSalle Incorporated. In
certain cases, taxes have been calculated on the basis of a group
position that includes both Guarantor and Non-Guarantor Subsidiaries.
In such cases, the taxes have been allocated to individual legal
entities on the basis of that legal entity's pre tax income. For
periodic reporting purposes, the adjustment for the global effective
tax rate is made in the parent organization.

JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, 2002
($ in thousands)

CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2001
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

For the Three Months Ended September 30, 2002
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

For the Nine Months Ended September 30, 2002
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

For the Three Months Ended September 30, 2001
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

For the Nine Months Ended September 30, 2001
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2002
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2001
($ in thousands)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto for the three and nine
months ended September 30, 2002, included herein, and Jones Lang LaSalle's
audited consolidated financial statements and notes thereto for the fiscal
year ended December 31, 2001 which have been filed with the Securities and
Exchange Commission as part of Jones Lang LaSalle's Annual Report on
Form 10-K.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

An understanding of our accounting policies is necessary for a
complete analysis of our results, financial position, liquidity and trends.

We focus your attention on the following:

PRINCIPLES OF CONSOLIDATION - Our financial statements include the
accounts of Jones Lang LaSalle and its majority-owned-and-controlled
affiliates. All material intercompany balances and transactions have been
eliminated in consolidation. Investments in unconsolidated affiliates over
which we exercise significant influence, but not control, are accounted for
by the equity method. Under this method we maintain an investment account,
which is increased by contributions made and our share of net income of the
unconsolidated affiliates, and decreased by distributions received and our
share of net losses of the unconsolidated affiliates. Our share of each
unconsolidated affiliate's net income or loss, including gains and losses
from capital transactions, is reflected on our statement of earnings as
"equity in earnings from unconsolidated ventures." Investments in
unconsolidated affiliates over which we are not able to exercise
significant influence are accounted for under the cost method. Under the
cost method our investment account is increased by contributions made and
decreased by distributions representing return of capital. Distributions
of income are reflected as "equity in earnings from unconsolidated
ventures".

REVENUE RECOGNITION - We recognize advisory and management fees in the
period in which we perform the service. Transaction commissions are
recognized as income when we provide the service unless future
contingencies exist. If future contingencies exist, we defer recognition
of this revenue until the respective contingencies are satisfied.
Incentive fees are generally tied to some form of contractual milestone and
are recorded in accordance with the specific terms of the underlying
compensation agreement. The Securities and Exchange Commission's Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition, provides guidance
on the application of generally accepted accounting principles to selected
revenue recognition issues. We believe that our revenue recognition policy
is appropriate and in accordance with accounting principles generally
accepted in the United States of America and SAB No. 101. We implemented
SAB 101 in 2000 and this is discussed more fully in Note 4 to Notes to
Consolidated Financial Statements.

In certain of our businesses, primarily those involving management
services, we are reimbursed by our clients for expenses that are incurred
on their behalf. The treatment of reimbursable expenses for financial
reporting purposes is based upon the underlying contract's fee structure.
A contract that provides a fixed fee/billing, fully inclusive of all
personnel or other recoverable expenses that we incur, and not separately
scheduled as such, is reported on a gross basis. This means that our
reported revenues include the full billing to our client and our reported
expenses include all costs associated with the client. When the fee
structure is comprised of at least two distinct elements: the fixed
management fee and a separate component which allows for scheduled
reimbursable personnel or other expenses to be billed directly to the
client, we will account for the contract on a net basis. This means we
include the fixed management fee in reported revenues and we net the
reimbursement against expenses. The majority of our service contracts
utilize the latter structure and are accounted for on a net basis.

We estimate the allowance necessary to provide for uncollectible
accounts receivable. This estimate includes specific accounts for which
payment has become unlikely. This estimate is also based on historical
experience, combined with a careful review of current developments and with
a strong focus on credit control.

PERIODIC ACCOUNTING FOR INCENTIVE COMPENSATION - An important part of
our overall compensation package is incentive compensation, which is
typically paid out to employees in the first quarter of the year after it
is earned. In our interim financial statements we accrue for incentive
compensation based on the percentage of revenue and compensation costs
recorded to date relative to forecasted revenue and compensation costs for
the full year as substantially all incentive compensation pools are based
upon revenues and profits. The impact of this incentive compensation
accrual methodology is that we accrue very little incentive compensation in
the first six months of the year, with the majority of our incentive
compensation accrued in the second half of the year, particularly in the
fourth quarter. We adjust the incentive compensation accrual in those
unusual cases where earned incentive compensation has been paid to
employees. In addition, we exclude from the standard accrual methodology
incentive compensation pools that are not subject to the normal performance
criteria. These pools are accrued for on a straight-line basis. In 2002
we have chosen to guarantee a portion of the incentive compensation for
certain employees. The effect of excluding the incentive compensation pool
relating to these employees from the accrual methodology and expensing the
guaranteed minimum on a straight line basis has been to increase the year-
to-date incentive compensation expense by $3.5 million.

ASSET IMPAIRMENT - We apply SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"), to recognize and
measure impairment of long-lived assets. SFAS 144 addresses issues
relating to the implementation of FASB Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("SFAS 121"). SFAS 144 establishes accounting and reporting
standards for the impairment or disposal of long-lived assets by requiring
those long-lived assets to be held and used, be measured at the lower of
carrying costs or fair value and those long-lived assets to be disposed of,
be measured at the lower of carrying costs or fair value less costs to
sell, whether reported in continuing operations or in discontinued
operations. The provisions of SFAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001. We
adopted SFAS 144 on January 1, 2002. The effect of implementing SFAS 144
did not have a material impact on our consolidated financial statements.

We review long-lived assets, including investments in real estate
ventures, intangibles and property and equipment for impairment on an
annual basis, or whenever events or circumstances indicate that the
carrying value of an asset may not be recoverable. The review of
recoverability is based on an estimate of the future undiscounted cash
flows expected to be generated by the asset. If impairment exists due to
the inability to recover the carrying value of an asset, an impairment loss
is recorded to the extent that the carrying value exceeds estimated fair
value.

Although the Land Investment Group was closed down in 2001, we have
retained certain investments originated by this group. Included in
investments in real estate ventures as of September 30, 2002 is the book
value of the five remaining Land Investment Group investments of $3.0
million. This book value is net of $5.4 million of impairment charges, of
which $3.5 million of impairment charges were recorded in 2001 as part of
our non-recurring charges. We have also provided guarantees associated with
these projects of $1.2 million. We continue to monitor the portfolio very
carefully and have taken an additional impairment charge of $1.7 million in
the third quarter, $1.9 million year-to-date, related to an investment that
had previously not been impaired, but which defaulted on certain financial
covenants. Any future impairment charges or gains on disposal relating to
the Land Investment Group will be included in non-recurring expenses. We
currently expect to have liquidated the Land Investment Group investments
by the end of 2005.

Although the Development Group was sold in the third quarter of 2001,
we have retained certain investments originated by this group. Included in
investments in real estate ventures as of September 30, 2002 is the book
value of the three remaining investment projects of $1.7 million. This book
value is net of equity losses of $224,000 and an impairment charge of
$472,000 against two of these investments, recorded in non-recurring
expense for the nine months ended September 30, 2002. Additionally, in the
third quarter of 2002, we disposed of one investment for a net gain of
$568,000. This gain is also recorded in non-recurring expenses. Any
future impairment charges or gains on disposal relating to the Development
Group will be included in non-recurring expenses. We continue to evaluate
these investments for impairment. We currently expect to have liquidated
the Development Group investments by the end of 2003.

During 2001, we reviewed our e-commerce investments on an investment
by investment basis, evaluating actual business performance against
original expectations, projected future performance and associated cash
flows, and capital needs and availability. As a result of this evaluation
we determined that our investments in e-commerce were impaired, and fully
wrote down these investments by the end of 2001 as part of our non-
recurring charges. It is currently our policy to expense any additional
investments, primarily contractual commitments to fund operating expenses
of existing investments, that are made into these ventures in the period
they are made. These charges are booked as ordinary recurring charges. In
the nine months ended September 30, 2002, we expensed a total of $287,000
of such investments.

INCOME TAXES - We account for income taxes under the asset and
liability method. Because of the global and cross border nature of our
business, our corporate tax position is complex. We generally provide
taxes in each tax jurisdiction in which we operate based on local tax
regulations and rules. Such taxes are provided on net earnings and include
the provision for taxes on substantively all differences between accounting
principles generally accepted in the United States of America and tax
accounting, excluding certain non-deductible items and permanent
differences. We have established valuation allowances against the possible
future tax benefits of current losses where expected future taxable income
does not support the realization of the deferred tax assets.

We provide for the effects of income taxes on interim financial
statements based on our estimate of the effective tax rate for the full
year. Based on our 2002 forecasted results and actions we have implemented
to date, we have lowered our estimated effective tax rate for 2002 to 36%
from 40%. The estimated effective tax rate of 36% excludes a tax benefit of
$1.8 million related to certain costs incurred in restructuring actions
taken in 2001. These costs were not originally expected to be deductible
for tax purposes. However, as a result of actions undertaken in the third
quarter of 2002, these costs are now deductible. This tax benefit has been
fully recognized during the third quarter of 2002 in addition to the
Company's normal provision based on an effective tax rate of 36%. We
believe that 36% is an achievable effective tax rate, particularly in light
of the effective tax rate benefit provided by SFAS 142 which is discussed
further in Note 6 to Notes to Consolidated Financial Statements. The tax
environment in which we operate is complex as a result of the number of
jurisdictions in which we do business and the cross border nature of
certain of our transactions. Our global effective tax rate is also
sensitive to changes in the mix of our geographic profitability as local
statutory tax rates range from 16% to 42% in the countries in which we have
significant operations. The estimated effective tax rate for 2002 of 36%
(excluding the additional element of tax benefit related to the 2001
restructuring charge) reflects the impact of tax planning to reduce losses
in jurisdictions where we cannot recognize the tax benefit of those losses,
as well as tax planning for jurisdictions affected by double taxation. We
continuously seek to develop and implement potential strategies and/or
actions that would reduce our overall effective tax rate. We reflect the
benefit from tax planning actions when we believe it is probable that they
will be successful, which usually requires that certain actions have been
initiated.

Based on our historical experience and future business plans we do not
expect to repatriate our foreign source earnings to the United States. As
a result, we have not provided deferred taxes on such earnings or the
difference between tax rates in the United States and the various foreign
jurisdictions where such amounts were earned. Further, there are various
limitations on our ability to utilize foreign tax credits on such earnings
when repatriated. As such, we may incur taxes in the United States upon
repatriation without credits for foreign taxes paid on such earnings.

HEDGING ACTIVITIES - As a firm, we do not enter into derivative
financial instruments for trading or speculative purposes. However, the
global nature of our business means that we are often required to enter
into cross-border loans between Jones Lang LaSalle legal entities in order
to facilitate the use of our cash for debt repayment. An intercompany loan
will create foreign exchange risk if it is denominated in a currency that
is different from the functional currency of one or both of the Jones Lang
LaSalle legal entities party to the loan. We hedge any foreign exchange
risk resulting from intercompany loans through the use of foreign currency
forward contracts. At September 30, 2002, we had forward exchange
contracts in effect with a gross notional value of $121.8 million ($88.2
million on a net basis) and a market and carrying gain of $1.1 million.

COMMITMENTS AND CONTINGENCIES - We are subject to various claims and
contingencies related to lawsuits, taxes and environmental matters as well
as commitments under contractual obligations. We recognize the liability
associated with commitments and contingencies when a loss is probable and
estimable. Our contractual obligations relate to the provision of services
by us in the normal course of our business.

ACCOUNTING FOR BUSINESS COMBINATIONS - We have historically grown
through a series of acquisitions and one substantial merger. As a result
of this activity, and consistent with the services nature of the businesses
we acquired, the largest assets on our balance sheet are intangibles
resulting from business acquisitions and the JLW merger. Historically we
have amortized these over their estimated useful lives (generally eight to
forty years). SFAS 142, which we adopted January 1, 2002, requires that we
cease amortizing the goodwill element of these intangibles, which has a
book value of $312.6 million at September 30, 2002. This will reduce our
annual amortization expense by $10 million. We will continue to amortize
intangibles with definite useful lives, which primarily represent the value
placed on management contracts that are acquired as part of our acquisition
of a company.

In connection with the transitional goodwill impairment evaluation,
SFAS 142 required us to perform an assessment of whether there was an
indication that goodwill was impaired as of the date of adoption. To
accomplish this evaluation, we determined the carrying value of each
reporting unit by assigning the assets and liabilities, including the
existing goodwill and intangible assets, to those reporting units as of the
date of adoption. For purposes of analyzing SFAS 142 we defined reporting
units based on how the Chief Operating Decision Makers for each region
looked at their regions when determining strategic business decisions for
their region. The following reporting units were determined: Investment
Management, Americas OOS, Australia OOS, Asia OOS, and by country in Europe
OOS. We have determined the fair value of each reporting unit on the basis
of a discounted cash flow methodology and compared it to the reporting
unit's carrying amount. In all cases, the fair value of each reporting unit
exceeded its carrying amount, and therefore no impairment loss has been
recognized on our goodwill.

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 2001

ITEMS AFFECTING COMPARABILITY

NON-RECURRING AND RESTRUCTURING CHARGES

In 2001, we incurred non-recurring and restructuring charges related
to; 1) impairment of e-commerce investments, 2) exit from certain
businesses and business relationships, including related asset impairment,
3) insolvent insurance providers and 4) restructuring actions taken to
bring ongoing operating expenses in line with anticipated future business.
In the first nine months of 2001 we incurred $23.2 million of non-recurring
expense related to the exit of two non-strategic businesses, the write-down
of e-commerce investments and charges related to the insolvency of two of
our insurance providers; and $4.9 million of restructuring expense
consisting of severance and professional fees associated with the
realignment of our business. Full year charges for non-recurring and
restructuring were $27.8 million and $49.4 million, respectively. Actual
costs incurred have varied from our original estimate for a variety of
reasons, including the identification of additional facts and
circumstances, the complexity of international labor law and developments
in the underlying business, resulting in the unforeseen reallocation of
resources and better or worse than expected settlement discussions. These
events have resulted in a credit of $481,000 recorded in the non-recurring
compensation and benefits expense in the first nine months of 2002.
Additionally, the first nine months of 2002 included non-recurring charges
of $2.0 million related to impairment and net equity losses of certain
investments in the Land Investment Group and Development Group, businesses
which were exited in 2001. See Note 3 to Notes to Consolidated Financial
Statements for a more detailed discussion of these non-recurring and
restructuring items.

NEW YORK EXPANSION

In the third quarter of 2002 we initiated the expansion of our New
York business. To support this expansion, we increased the underlying
headcount and associated costs in this business. Given the nature of our
business, we expect that it will take at least six months for this
headcount to deliver incremental revenues. In addition, there were
significant up front costs associated with expanding the New York business.
The combination of these factors has meant that we have incurred expenses
of $1.7 million in the third quarter associated with the expansion. We
expect to incur an additional $2.5 million of expense in the fourth quarter
of 2002.

ADOPTION OF STATEMENT NO. 142, GOODWILL AND OTHER INTANGIBLE ASSETS
("SFAS 142")

We adopted the provisions of SFAS 142 effective January 1, 2002. This
adoption is described more fully in Note 6 to Notes to Consolidated
Financial Statements. As a result of implementing SFAS 142, we recorded an
after-tax credit to earnings representing a cumulative change in accounting
principle effective January 1, 2002 of $846,000. During the first nine
months of 2002, the net impact of SFAS 142 was to increase operating income
by $7.2 million as a result of ceasing the amortization of goodwill with
indefinite lives.

LASALLE INVESTMENT MANAGEMENT REVENUES

Our Investment Management business is in part compensated through the
receipt of incentive fees where investment performance exceeds agreed
benchmark levels. Dependent upon performance, these fees can be
significant and will generally be recognized when agreed events or
milestones are reached. The timing of recognition may impact comparability
between quarters, in any one year, or compared to a prior year. The third
quarter of 2001 included incentive fees and equity earnings of $14.4
million generated from the disposition of a hotel investment. Conversely,
the third quarter of 2002 included $11.8 million of incentive fees, of
which $8.7 million related to the performance of an investment portfolio in
which we have a co-investment.

REVENUE

Total revenue, after elimination of intersegment revenue, decreased
$11.4 million, or 5.2%, to $207.1 million for three months ended
September 30, 2002 from $218.5 million for the three months ended September
30, 2001. For the nine months ended September 30, 2002, revenues decreased
$57.8 million, or 9.3% to $560.5 million from $618.3 million for the nine
months ended September 30, 2001. Excluding the impact of foreign exchange,
the revenue declines were 8.9% and 10.9% for the three and nine months
ended September 30, 2002. This reflects the general strengthening of the
euro, pound sterling and Australian dollar against the US dollar when
compared to last year. The reduction in our revenues year over year
reflects the weak global economy but was most significant in the Americas
and European OOS businesses. The broad based business restructuring
initiated in the second half of 2001 was in anticipation of a decline in
revenues as we had not anticipated a turnaround in overall economic
conditions until late 2002. However, as discussed in the Performance
Outlook Section below, the severity and persistence of revenue pressures is
greater than we had expected.

OPERATING EXPENSES

Total operating expenses, after elimination of intersegment expense
and excluding the effect of non-recurring charges, decreased $3.8 million,
or 2.0%, to $188.8 million for the three months ended September 30, 2002
from $192.6 million for the three months ended September 30, 2001. For the
nine months ended September 30, 2002 operating expenses decreased $53.0
million, or 9.0%, to $533.0 million from $586.0 million for the nine months
ended September 30, 2001. The impact of the stronger euro, pound sterling
and Australian dollar on reported US Dollar expenses has meant that the
effectiveness of our cost reduction initiatives have been masked by an
increase in US dollar reported expenses. Excluding the impact of foreign
exchange, the cost reduction was 5.8% and 10.4% for the three and nine
months ended September 30, 2002, respectively. The reduction in expenses
is largely the result of restructuring actions taken in 2001 to bring on
going operating expenses in line with anticipated future business in light
of the existing economic conditions.

Compensation and benefit expense increased $3.1 million for the three
months ended September 30, 2002, but is down $28.7 million for the nine
months ended September 30, 2002. The increase in compensation and benefit
expense for the third quarter is partially attributable to the timing of
incentive compensation expense, which increased $4.2 million from the third
quarter of 2001 as the favorable timing variance through the first six
months of the year begins to reverse. For the nine months ended September
30, 2002, incentive compensation expense is $7.2 million lower when
compared to the same period last year. This favorable variance may
continue to reverse over the balance of the year depending on performance
(see Periodic Accounting for Incentive Compensation in the Summary of
Critical Accounting Policies for further discussion). In addition, the
impact of foreign currency, primarily the strengthening of the euro, pound
sterling and Australian dollar, has increased reported US dollar
compensation and benefit expense by $5.2 million and $5.6 million for the
three and nine months ended September 30, 2002, respectively.

Operating, administrative and other expenses were down $4.2 million
and $17.1 million for the three and nine months ended September 30, 2002,
respectively, largely due to cost containment initiatives put into place in
2001. In the third quarter, the main cost savings have come from reduced
information technology support charges due to a contract renegotiation with
our external support provider, and a $2.0 million reduction in bad debt
reserves related to the partial reversal of a reserve established for an
Investment Management receivable due to positive changes in the underlying
collateral arrangements. The benefit resulting from adopting SFAS 142
(discussed in Note 6 to Notes to Consolidated Financial Statements) was an
amortization savings of $2.4 million and $7.2 million for the three and
nine months ended September 30, 2002, respectively. In addition, the
impact of foreign currency, primarily the strengthening of the euro, pound
sterling and Australian dollar has increased reported US dollar expense by
$2.0 million and $2.1 million for the three and nine months ended September
30, 2002, respectively.

OPERATING INCOME

We reported operating income, excluding non-recurring charges, for the
three months ended September 30, 2002 of $18.3 million, a decrease of $7.6
million from $25.9 million for the three months ended September 30, 2001.
For the nine months ended September 30, 2002, we reported operating income
of $27.5 million compared to an operating income of $32.4 million for nine
months ended September 30, 2001, excluding non-recurring charges (discussed
in Note 3 of Notes to Consolidated Financial Statements).

Including non-recurring charges, operating income for the three months
ended September 30, 2002 was $17.8 million, as compared to $1.4 million in
the same period last year. Operating income, including non-recurring
charges, for the nine months ended September 30, 2002 was $25.9 million, as
compared to $4.3 million for the nine months ended September 30, 2001.

NON-RECURRING AND RESTRUCTURING

The third quarter of 2002 included a net impairment charge of $1.1
million related to the $1.7 million impairment of an investment in the Land
Investment Group portfolio, offset by a gain of $0.6 million on the
disposal of an investment in the Development Group portfolio. For the nine
months ended September 30, 2002, we recorded a net impairment charge of
$2.0 million. In 2001, we underwent a broad-based realignment of our
business with non-recurring and restructuring charges totaling $27.8
million and $49.4 million, respectively. Of the $77.2 million accrued at
December 31, 2001, $26.2 million was non-cash related, $12.1 million had
been paid in 2001, with $38.9 million remaining to cover costs in 2002.
Actual costs incurred related to this broad based realignment have varied
from our original estimates for a variety of reasons, including the
identification of additional facts and circumstances, the complexity of
international labor law and developments in the underlying business,
resulting in the unforeseen reallocation of resources and better or worse
settlement discussions. These events have resulted in the recording of a
credit to non-recurring compensation and benefits expense for the third
quarter of $615,000 and a credit in the first nine months of 2002 of
$481,000.

Non-recurring charges for the three months ended September 30, 2001
included expenses of: 1) $14.8 million related to the write-off of
investments in e-commerce, 2) $2.0 million for the insolvency of two
insurance providers and 3) $3.5 million associated with the exiting of two
non-strategic business in the Americas. The restructuring charges included
severance and professional fees associated with the realignment of the Asia
Pacific business of $1.6 million and the exiting of two non-strategic
businesses in the Americas of $1.4 million. Non-recurring charges for the
nine months ended September 30, 2001 included expenses of: 1) $17.0 million

related to the write-off of investments in e-commerce, 2) $2.0 million
related to the insolvency of two insurance providers and 3) $3.5 million
associated with the exiting of two non-strategic businesses in the
Americas. Restructuring fees for the nine months ended September 30, 2001
included severance and professional fees associated with the realignment of
the Asia Pacific business of $1.9 million and the exiting of two non-
strategic businesses in the Americas of $1.4 million.

See Note 3 in Notes to Consolidated Financial Statements for a more
detailed discussion of these non-recurring and restructuring items.

INTEREST EXPENSE

Interest expense, net of interest income, decreased $0.3 million, to
$4.7 million for the three months ended September 30, 2002 and decreased
$2.8 million, to $13.0 million for the nine months ended September 30, 2002
from the prior year periods. The decrease in interest expense is the
result of lower average revolver borrowings at declining interest rates
partially offset by the impact of the strengthening euro on the reported US
dollar value of the interest expense on the Euro Notes.

PROVISION FOR INCOME TAXES

The provision for income taxes was $2.9 million for the three months
ended September 30, 2002, as well as for the same period of 2001. The
provision for income taxes was $2.9 million for the nine months ended
September 30, 2002 as compared to a provision of $0.8 million for the same
period of 2001. The non-recurring and restructuring charges incurred in
2001 and 2002 were separately tax effected based on the projected tax
deductibility of these items. Based on our 2002 forecasted results and
actions we have implemented to date, we have lowered our estimated
effective tax rate for 2002 to 36% from 40%. The estimated effective tax
rate for 2002 of 36% (excluding the additional element of tax benefit
related to the 2001 restructuring charge discussed below) reflects the
impact of tax planning to reduce losses in jurisdictions where we cannot
recognize the tax benefit of these losses, as well as tax planning for
jurisdictions affected by double taxation. Included in the expense for the
third quarter of 2002 is a tax benefit of $1.8 million related to certain
costs incurred in restructuring actions taken in 2001. These costs were
not originally expected to be deductible for tax purposes. However, as a
result of actions undertaken in the third quarter of 2002, these costs are
now deductible. This tax benefit has been fully recognized during the
third quarter of 2002 in addition to the Company's normal provision based
on an effective tax rate of 36%. See the Income Tax Provision section of
Note 1 to Notes to Consolidated Financial Statements for further discussion
of our effective tax rate.

NET INCOME/(LOSS)

Net income for the three months ended September 30, 2002 was $10.2
million as compared to a net loss of $6.2 million for the three months
ended September 30, 2001. Including the cumulative effect of change in
accounting principle (a net benefit of $0.8 million) related to the
adoption of SFAS 142, which is discussed in detail in Note 6 to Notes to
Consolidated Financial Statements, our net income for the nine months ended
September 30, 2002 was $9.6 million. This compared to our net loss for the
nine months ended September 30, 2001 of $12.5 million.

SEGMENT OPERATING RESULTS

See Note 2 in Notes to Consolidated Financial Statements, included
herein, for a discussion of our segment reporting. Consistent with 2001, we
have not allocated non-recurring and restructuring charges to the business
segments for segment reporting purposes and therefore these costs are not
included in the discussions below.

OWNER AND OCCUPIER SERVICES

AMERICAS

Revenue for the Americas region decreased $7.9 million, or 10.4%, to
$67.9 million for the three months ended September 30, 2002, as compared to
$75.8 million for the three months ended September 30, 2001. For the nine
months ended September 30, 2002, revenue decreased $33.3 million, or 15.7%,
to $178.9 million, as compared to $212.2 million for the nine months ended
September 30, 2001. The pressure on revenues continues a trend that began
in the middle of 2001, the business restructuring in late 2001 was a
response to this pressure. The reducing revenues reflect the weakness in
the economy which has been more persistent than was generally expected.
The most significant revenue declines during the three and nine months
ended September 30, 2002, as compared to the same periods last year, were
experienced in our transaction business as clients continued to delay or
defer decision making. The Tenant Representation, Leasing and Management
and Project and Development units were most severely impacted.

Operating expenses for the Americas region decreased $6.1 million, or
9.0%, to $61.6 million for the three months ended September 30, 2002, as
compared to $67.7 million for the three months ended September 30, 2001.
For the nine months ended September 30, 2002, operating expenses decreased
$40.2 million, or 19.0%, to $171.2 million, as compared to $211.4 million
for the nine months ended September 30, 2001. The decline in expenses is
primarily attributable to the strong focus placed on cost containment,
including significant reductions in compensation due to reduced headcount
as a result of the restructuring in late 2001. While incentive
compensation increased $3.6 million for the third quarter of 2002, it
remains down $2.6 million year-to-date, as compared to the same periods
last year. The increase in the third quarter of 2002 reflects an increase
in the percentage of annual revenue achieved in the quarter versus last
year and is a reversal of the favorable timing variance experienced through
the first six months of 2002. The reduction in incentive compensation
year-to-date reflects the impact of lower revenues versus last year. The
remaining favorable variance may continue to reverse over the balance of
the year depending on performance (see Periodic Accounting for Incentive
Compensation in the Summary of Critical Accounting Policies for further
discussion). The expansion of our New York business platform, initiated in
the third quarter, has incurred expenses of $1.7 million. In addition, as
a result of adopting SFAS 142 (discussed in Note 6 to Notes to Consolidated
Financial Statements) amortization expense was reduced by $1.2 million and
$3.5 million for the three and nine months ended September 30, 2002,
respectively.

EUROPE

Revenues for the Europe region for the three months ended
September 30, 2002 were essentially flat at $73.9 million as compared to
$74.3 million for the same period in 2001. However, local currency
revenues were down 9.0% from the same period in 2001. For the nine months
ended September 30, 2002, revenue totaled $217.1 million, as compared to
$237.6 million for the same period in 2001, a decrease of 8.6%. Local
currency revenues were down 11.5% when compared to the same period in 2001.

The most significant declines for the nine months ended September 30, 2002,
as compared to the prior year period, occurred in England, France, Germany
and Belgium, reflecting the difficult economic conditions in these parts.
The business in France and Spain experienced a very strong start to the
third quarter, such that overall they were ahead of the prior year
comparable period. However, these markets saw a dramatic reduction in
transaction activity in the final thirty days of the quarter. Reflecting
the underlying difficult economic condition, revenue pressures continued in
our German business. Within our United Kingdom business, we continued to
see strength in capital markets activity, offset by increasing weakness in
the leasing market. Reported US dollar revenues were positively impacted
by approximately $6 million and $7 million in the three and nine months
ended September 30, 2002, respectively, as compared to the same periods
last year, primarily due to the strengthening of the euro and the pound
sterling against the US dollar.

Operating expenses for the region increased by $3.0 million, or 4.3%,
to $73.0 million for the three months ended September 30, 2002 from $70.0
million for the three months ended September 30, 2001. For the nine months
ended September 30, 2002, operating expenses decreased $8.8 million, or
4.0%, to $210.2 million from $219.0 million for the same period of 2001.
Expenses declined 4.1% and 6.8% in local currencies for the three and nine
months ended September 30, 2002. Reported US dollar operating expenses
were increased approximately $6 million during the three and nine months
ended September 30, 2002, as compared to the same periods last year,
primarily due to the strengthening of the euro and the pound sterling
against the US dollar. Total incentive compensation in the three and nine
months ended September 30, 2002 was $3.0 million and $7.8 million less than
the prior year period due to the overall reduction in revenues in this
region. This favorable variance may reverse over the balance of the year
depending on performance. As a result of adopting SFAS 142 (discussed in
Note 6 to Notes to Consolidated Financial Statements), amortization expense
was reduced $0.4 million and $1.1 million for the three and nine months
ended September 30, 2002, respectively.

ASIA PACIFIC

Revenue for the Asia Pacific region decreased by $2.2 million, or
6.7%, to $30.5 million for the three months ended September 30, 2002
compared to $32.7 million for the three months ended September 30, 2001.
For the nine months ended September 30, 2002, revenue was $88.7 million as
compared to $89.3 million for the nine months ended September 30, 2001.
The most significant revenue declines for the nine months ended
September 30, 2002, as compared to the same period last year, are
attributable to Singapore, Hong Kong and Australia offset by increased
revenue in Japan and Korea. Reported US dollar revenues for the three and
nine months ended September 30, 2002 were increased by $1.0 million and
$1.5 million, respectively, over last year primarily due to movements in
exchange rates between the US dollar and Australian dollar, our most
significant currency in the Asia Pacific region.

Operating expenses for the region totaled $30.4 million for the three
months ended September 30, 2002, as compared to $32.1 million for the three
months ended September 30, 2001. For the nine months ended September 30,
2002, operating expenses decreased $3.2 million, or 3.4%, to $90.4 million
compared to $93.6 million for the nine months ended September 30, 2001.
The reduction in operating expenses year over year is attributable to; 1) a
lower level of compensation due to reduced headcount, 2) reduced incentive
compensation of $0.3 million and $0.8 million for the three and nine months
ended September 30, 2002, respectively, due to the reduction in revenues
(this reduction in incentive compensation may reverse over the balance of
the year depending on performance), and 3) the adoption of SFAS 142
(discussed in Note 6 to Notes to Consolidated Financial Statements), which
reduced amortization expense by $0.5 million and $1.5 million for the three
and nine months ended September 30, 2002, respectively. These declines in
expenses were partially offset by increased depreciation expense on
technology infrastructure and investment put into place last year during
the restructuring of this region, together with additional expenses related
to the growth opportunity areas of Japan, China and Korea. In addition,
reported US dollar operating expenses for the three and nine months ended
September 30, 2002 were increased $1.0 million and $1.2 million,
respectively, primarily due to the strengthening of the Australian dollar
against the US dollar.

INVESTMENT MANAGEMENT

Investment Management revenue totaled $35.0 million for the three
months ended September 30, 2002 compared to $35.9 million for the three
months ended September 30, 2001. For the nine months ended September 30,
2002, revenues totaled $76.2 million a 4.9% decrease from $80.1 million for
the same period 2001. The reduction in equity earnings during the first
nine months of 2002, as compared to 2001, is partially due to the first
quarter of 2001 including a one-time gain from our disposition of our
investment in LaSalle Hotel Properties. The third quarter of 2001 included
an incentive fee of $14.4 million related to the disposition of a hotel co-
investment. Conversely, the third quarter of 2002 includes incentive fees
of $11.8 million. In addition, reported US dollar revenues for the three
and nine months ended September 30, 2002 were increased by $1.0 million
primarily due to the strengthening of the euro and pound sterling against
the US dollar.

Operating expenses totaled $23.9 million for the three months ended
September 30, 2002, as compared with $23.0 million for the three months
ended September 30, 2001. For the nine months ended September 30, 2002,
operating expenses decreased $1.3 million, or 2.1%, to $61.6 million from
$62.9 million for the nine months ended September 30, 2001. Compensation
expense increased slightly as staffing increased to support new fund
activity. Incentive compensation for the three and nine months ended
September 30, 2002 increased $3.7 million and $3.2 million, respectively,
over the same periods last year due to incentive compensation tied to
specific co-investment incentive fees. Excluding this, variable incentive
compensation is in line for the third quarter and first nine months of 2002
as compared to the same periods last year. A $2.0 million reduction in bad
debt reserves related to the partial reversal of a reserve, originally
established in 1995 for a receivable due from Diverse Real Estate Holdings
Limited Partnership ("Diverse"), favorably impacted operating expenses for
the quarter. As discussed in Note 14 to Notes to Consolidated Financial
Statements in our most recent 10-K filing, the Chairman of the Board of
Directors holds a 19.8% limited partnership interest in Diverse. The
underlying collateral security for this receivable was significantly
enhanced in the current quarter. In addition, reported US dollar operating
expenses for the three and nine months ended September 30, 2002 were
increased $0.8 million and $0.9 million, respectively, primarily due to the
strengthening of the euro and pound sterling against the US dollar. The
adoption of SFAS 142 (discussed in Note 6 to Notes to Consolidated
Financial Statements) reduced amortization expense by $0.3 and $1.1 million
for the three and nine months ended September 30, 2002, respectively.

PERFORMANCE OUTLOOK

Our previous earnings per share guidance, including the impact of our
expansion in New York, of $1.50 to $1.55 assumed a slow worldwide economy
through the third quarter of this year with a modest economic recovery in
the fourth quarter. Given the continued weakness in the world economic
environment, we now believe that the fourth quarter, which is the highest
revenue and highest margin quarter will not perform at our previously
expected levels. Therefore, we are lowering our earnings guidance
including New York, to $1.00 to $1.20, with the broad range reflecting the
uncertain decision-making behaviors of clients as they respond to the
challenges of the environment.

CONSOLIDATED CASH FLOWS

CASH FLOWS PROVIDED BY/USED IN OPERATING ACTIVITIES

During the nine months ended September 30, 2002 cash flows provided by
operating activities totaled $20.2 million as compared to cash flows used
of $13.7 million during the nine months ended September 30, 2001. The cash
flows provided by operating activities for the nine months ended
September 30, 2002 can be further divided into cash generated from
operations of $50.3 million (compared to $57.4 million generated in 2001)
and cash used in balance sheet movements (primarily working capital
management) of $30.0 million (compared to a use of $71.1 million in 2001).

The decrease in cash used in working capital primarily represents higher
incentive compensation accrued at December of 2000 and paid in the first
three months of 2001 as compared to amounts accrued in December of 2001 and
paid in the first quarter of 2002. The higher level of incentive
compensation accrued at December 2000 was a result of the strong
performance during 2000. Partially offsetting this reduction in cash used
in working capital is lower incentive compensation accruals in the first
nine months of 2002 as compared to the same period of 2001, which have
reduced accrued liabilities in 2002, and resulted in a smaller source of
cash. Also partially offsetting the reduction in cash used in working
capital are payments of $28.8 million in restructuring charges, which were
accrued in the latter half of 2001.

CASH FLOWS USED IN INVESTING ACTIVITIES

We used $20.7 million in investing activities during the nine months
ended September 30, 2002, as compared to $12.7 million used during the nine
months ended September 30, 2001. The primary driver of this change is the
sale of our investment in LaSalle Hotel Properties in the first quarter of
2001, which generated $18.5 million, of which $1.6 million was a
distribution of previously recorded equity earnings, and therefore is shown
in the operating activities section of the Statement of Cash Flows. Also
contributing to the increase in cash used in investing activities is the
continued funding of co-investments. Partially offsetting the increase in
cash used in 2002 is a reduction in capital additions, which have been
intensely scrutinized in 2002. Additionally, in 2001 there were
significant capital expenditures on improving the technology related
infrastructure.

CASH FLOWS PROVIDED BY\(USED IN) FINANCING ACTIVITIES

Cash flows used in financing activities were $0.6 million during the
nine months ended September 30, 2002, as compared to cash provided of $18.5
million during the nine months ended September 30, 2001. The need for
borrowings were reduced as there was lower incentive compensation payments
and share repurchases. This reduced level of borrowing has been partially
offset by the repayment of debt with cash from operations.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our operations, acquisitions and co-
investment activities with internally generated funds, our common stock and
borrowings under our credit facilities. As of September 30, 2002, we have
a $275 million revolving credit facility for working capital needs,
investments and acquisitions. Under the terms of the revolving credit
facility, we have the authorization to borrow up to an additional $50.0
million under local facilities. We also have outstanding the 9% Senior
Euro Notes (the "Euro Notes") of euro 165 million, which mature on June 15,
2007. Beginning June 15, 2004, the Euro Notes can be redeemed, at our
option, at the following redemption prices: during the twelve-month period
commencing June 15, 2004 at 104.50% of principal, during the twelve-month
period commencing June 15, 2005 at 102.25% of principal and commencing
June 15, 2006 and thereafter at 100.00% of principal.

As of September 30, 2002, there was $60.1 million outstanding under
the revolving credit facility, euro 165 million ($163.0 million) of
borrowings outstanding under the Euro Notes and short-term borrowings
(including capital lease obligations) of $15.9 million. In addition, our
Australian office has a five year term loan of Australian dollar 1.3
million ($0.7 million) with a fixed interest rate of 6.98% secured by
certain office improvements. The short-term borrowings are primarily
borrowings by subsidiaries on various interest-bearing overdraft
facilities. As of September 30, 2002, $12.6 million of the total short-term
borrowings were attributable to local overdraft facilities. The increase
in the reported US Dollar book value of the Euro Notes of $16.2 million in
the first nine months of 2002 was solely as a result of the strengthening
euro. No additional Euro Notes have been issued.

Certain of our subsidiaries guarantee the revolving credit facility
and the Euro Notes (the "Facilities"). With respect to the revolving credit
facility, we must maintain a certain level of consolidated net worth and a
ratio of funded debt to EBITDA. We must also meet a minimum interest
coverage ratio and minimum liquidity ratio. Additionally, we are restricted
from, among other things, incurring certain levels of indebtedness to
lenders outside of the Facilities and disposing of a significant portion of
our assets. Lender approval is required for certain levels of co-
investment. The revolving credit facility bears variable rates of interest
based on market rates. We are authorized to use interest rate swaps to
convert a portion of the floating rate indebtedness to a fixed rate,
however, none were used during 2002 or 2001 and none were outstanding as of
September 30, 2002. The effective interest rate on the Facilities was 7.3%
for the nine months ended September 30, 2002 (versus an effective rate of
7.7% during the same period of 2001).

We believe that the revolving credit facility, together with the Euro
Notes, local borrowing facilities and cash flow generated from operations,
will provide adequate liquidity and financial flexibility to meet our needs
to fund working capital, capital expenditures, co-investment activity and
authorized share repurchase.

We expect to continue to pursue co-investment opportunities with our
investment management clients in the Americas, Europe and Asia Pacific.
Co-investment remains very important to the continued growth of Investment
Management, which would likely be negatively impacted if a substantial
decrease in co-investment activity were to occur. As of September 30,
2002, there were total investments and loans of $76.6 million in 20
separate property or fund co-investments, with additional capital
commitments of $120.4 million for future fundings of co-investments. With
respect to certain co-investment indebtedness, we also had repayment
guarantees outstanding at September 30, 2002 of $4.5 million. The $120.4
million of capital commitments includes a commitment of $120.3 million to
LaSalle Investment Limited Partnership ("LILP"). We expect that LILP will
draw down on our commitment over the next three to five years as it enters
into new commitments. LILP is a 47.85% owned English limited partnership
that is intended to be our co-investment vehicle for substantially all new
co-investments. Primarily institutional investors, including a significant
shareholder in Jones Lang LaSalle, hold the remaining 52.15% interest in
LILP. Our investment in LILP is accounted for under the equity method of
accounting in the accompanying Consolidated Financial Statements. In
addition, our Chairman and certain other Directors of Jones Lang LaSalle
are investors in LILP on equivalent terms to other investors. At
September 30, 2002, LILP has unfunded capital commitments of $55.6 million
for future fundings of co-investments. LILP has no external debt, nor any
current intention to leverage its partners' capital other than for working
capital purposes.

Our net co-investment funding for 2002 is anticipated to be between
$15 million and $20 million (planned co-investment less return of capital
from liquidated co-investments). For the nine months ended September 30,
2002, we have funded a net $10.3 million of co-investments.

Capital expenditures are anticipated to be approximately $20 million
for 2002, primarily for ongoing improvements to computer hardware and
information systems, office renewals and expansions. As noted earlier, we
continue to place significant focus and control on capital expenditures.
As a result of this focus, capital expenditures for the first nine months
of 2002 was $13.2 million.

On October 30, 2002, Jones Lang LaSalle announced that the Board of
Directors had approved a share repurchase program. Under the program,
Jones Lang LaSalle may repurchase up 1 million shares in the open market
and in privately negotiated transactions from time to time, depending upon
market prices and other conditions. It is currently our intent that we
will repurchase these shares over the next 12 months, with approximately
300,000 to be repurchased in the fourth quarter of 2002.

SEASONALITY

Historically, our revenue, operating income and net earnings in the
first three calendar quarters are substantially lower than in the fourth
quarter. Other than for the Investment Management segment, this
seasonality is due to a calendar-year-end focus on the completion of real
estate transactions, which is consistent with the real estate industry
generally. The Investment Management segment earns performance fees on
clients' returns on their real estate investments. Such performance fees
are generally earned when assets are sold, the timing of which we do not
have complete discretion over. Non-variable operating expenses, which are
treated as expenses when they are incurred during the year, are relatively
constant on a quarterly basis.

OTHER MATTERS

NEW ACCOUNTING STANDARDS

In June 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
addresses financial accounting and reporting for costs associated with exit
or disposal activities and nullifies Emerging Issues Task Force Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires that a liability for costs associated
with an exit or disposal activity be recognized when the liability is
incurred rather than when a company commits to such an activity and also
establishes fair value as the objective for initial measurement of the
liability. SFAS 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. We have not yet fully assessed the
impact of SFAS 146 on our consolidated financial statements, but do not
anticipate it to be material.

In November 2001, the FASB's Emerging Issues Task Force ("EITF")
issued EITF No. 01-14, "Income Statement Characterization of Reimbursements
Received for 'Out-of-Pocket' Expenses Incurred", effective for financial
statements issued for fiscal years beginning after December 15, 2001. This
EITF requires that reimbursements received for out-of-pocket expenses
incurred should be characterized as revenue in the income statement, as
opposed to being shown as a reduction of expenses. We are currently in the
process of reconfiguring our reporting systems in order to comply with this
EITF. We have preliminarily estimated the amounts of our out-of-pocket
reimbursements, which are currently reported as a reduction of expenses,
and determined that the adoption of this EITF will not have a material
impact on our consolidated financial statements.

EURO CONVERSION ISSUES

On January 1, 1999, certain member countries of the European Union
fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency - the euro. For a three-and-one-half-
year transition period, non-cash transactions were allowed to be
denominated in either the euro or in the legacy currency. As of July 1,
2002 the euro is the sole legal tender for these countries.

In January 2002, we converted our legacy currency general ledgers to
the euro. There has been no adverse impact resulting from this conversion.

We are continuing to evaluate the potential impact of euro related issues
on information systems, currency exchange rate risk and other business
activities, but we do not expect the impact of euro conversion to be
material to us. However, there can be no assurance that external factors
relating to the euro conversion will not have a material adverse impact on
our operations.

SHARE REPURCHASE

On October 30, 2002, Jones Lang LaSalle announced that the Board of
Directors had approved a share repurchase program. Under the program,
Jones Lang LaSalle may repurchase up to 1 million shares in the open market
and in privately negotiated transactions from time to time, depending upon
market prices and other conditions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET AND OTHER RISK FACTORS

MARKET RISK

The principal market risks (i.e., the risk of loss arising from
adverse changes in market rates and prices) to which we are exposed are:

. Interest rates on borrowings.

. Foreign exchange risks.

In the normal course of business we manage these risks through a
variety of strategies, including the use of hedging transactions using
various derivative financial instruments such as interest rate swap
agreements and forward exchange contracts. We do not enter into derivative
financial instruments for trading or speculative purposes.

INTEREST RATES

We centrally manage our debt, considering investment opportunities and
risks, tax consequences and overall financing strategies. We are primarily
exposed to interest rate risk on the $275.0 million revolving multi-
currency credit facility, due in September 2004, and the Senior Euro Notes
of euro 165 million. The revolving credit facility bears a variable rate
of interest based on market rates and the Euro Notes bear a fixed rate of
9%. The interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cash flows and to lower the overall
borrowing costs. To achieve this objective, we have entered into
derivative financial instruments such as interest rate swap agreements when
appropriate and may do so in the future. We entered into no such
agreements in 2002 or 2001, and none were outstanding as of September 30,
2002.

The effective interest rate on our debt for the nine months ended
September 30, 2002 was 7.3% as compared to a rate of 7.7% for the same
period of 2001. The decrease in the effective interest rate is due to
declining market interest rates partially offset by the impact of the
strengthening euro on the reported US dollar value of the interest expense
on the Euro Notes.

FOREIGN EXCHANGE

Revenues outside of the United States were 58% and 62% of our total
revenues for the three and nine months ended September 30, 2002,
respectively. Operating in international markets means that we are exposed
to movements in foreign exchange rates, primarily the British pound (21%
and 22% of revenues for the three and nine months ended September 30, 2002,
respectively), the euro (17% and 18% of revenues for the three and nine
months ended September 30, 2002, respectively) and the Australian dollar
(6% of revenues for the three and nine months ended September 30, 2002).
Changes in these foreign exchange rates would have the largest impact on
translating the operating profit of our international operations into US
dollars.

The British pound expenses incurred as a result of both the worldwide
operational headquarters and the Europe regional headquarters being located
in London act as a partial operational hedge against our translation
exposure to the British pound.

The interest on the euro 165 million of notes acts as a partial hedge
against our translation exposure on our euro denominated earnings. We
enter into forward foreign currency exchange contracts to manage currency
risks associated with intercompany loans. At September 30, 2002, we had
forward exchange contracts in effect with a notional value of $121.8
million ($88.2 million on a net basis) and a market and carrying gain of
$1.1 million. The net impact on our earnings during the nine months ended
September 30, 2002 of the unrealized gain on foreign currency contracts,
offset by the loss resulting from re-measurement of foreign currency
transactions, was a loss of $39,100.

DISCLOSURE OF LIMITATIONS

As the information presented above includes only those exposures that
exist as of September 30, 2002, it does not consider those exposures or
positions which could arise after that date. The information represented
herein has limited predictive value. As a result, the ultimate realized
gain or loss with respect to interest rate and foreign currency
fluctuations will depend on the exposures that arise during the period, the
hedging strategies at the time, and interest and foreign currency rates.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, Jones Lang
LaSalle carried out an evaluation, under the supervision and with the
participation of the Company's management, including Christopher A.
Peacock, the company's Chief Executive Officer and Lauralee E. Martin, the
Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, Mr. Peacock and Ms.
Martin concluded that Jones Lang LaSalle's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required
to be included in Jones Lang LaSalle's periodic SEC filings.

There were no significant changes made in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are a defendant in various litigation matters arising in the
ordinary course of business, some of which involve claims for damages that
are substantial in amount. Many of these matters are covered by insurance.
We believe the ultimate resolution of such litigation will not have a
material adverse effect on our financial position, results of operations or
liquidity. In 2001, a reserve was established against our exposure to an
insolvent Australian insurance provider, HIH Insurance Limited. As of
September 30, 2002, $1.2 million remained to cover claims. We believe this
reserve is adequate to cover any remaining claims and expenses resulting
from the HIH insolvency.

ITEM 5. OTHER INFORMATION

CAUTIONARY STATEMENT 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 our Annual Report on Form 10-K
for the year ended December 31, 2001 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, in this Quarterly Report on Form 10-Q in
Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations", Item 3 "Quantitative and Qualitative Disclosure
about Market Risk" and elsewhere, and 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.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) A list of exhibits is set forth in the Exhibit Index which
immediately precedes the exhibits and which is incorporated by reference
herein.

(b) Reports on Form 8-K

On August 23, 2002, Jones Lang LaSalle filed a Report on
Form 8-K announcing the hiring of executives for its New York
leasing, management and tenant representation operations.

On September 6, 2002, Jones Lang LaSalle filed a Report on
Form 8-K incorporating its September Investor Relations
Presentation.

On September 9, 2002, Jones Lang LaSalle filed a Report on
Form 8-K announcing changes in the composition of its Board of
Directors to a majority of non-employee Directors.

SIGNATURES

Pursuant to the requirements 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.

JONES LANG LASALLE INCORPORATED

Dated: October 31, 2002 BY: /S/ LAURALEE E. MARTIN
------------------------------
Lauralee E. Martin
Executive Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)

CERTIFICATIONS
--------------

I, Christopher A. Peacock, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Jones Lang
LaSalle Incorporated;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date:October 31, 2002

/s/ Christopher A. Peacock
-------------------------------------
Christopher A. Peacock,
President and Chief Executive Officer

CERTIFICATIONS
--------------

I, Lauralee E. Martin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Jones Lang
LaSalle Incorporated;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date:October 31, 2002

/s/ Lauralee E. Martin
----------------------------
Lauralee E. Martin,
Executive Vice President and
Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number Description
- ------- -----------

3(ii) Amended and Restated Bylaws of Jones Lang LaSalle
Incorporated, dated September 6, 2002, attached hereto
as Exhibit 3.1

10.1 Jones Lang LaSalle Incorporated Co-Investment Long-Term
Incentive Plan, attached hereto as Exhibit 10.1.

10.2 LaSalle Investment Management Long-Term Incentive
Compensation Program, attached hereto as Exhibit 10.2

99.1 Certification of Chief Executive Officer dated
October 31, 2002, attached hereto as Exhibit 99.1.

99.2 Certification of Chief Financial Officer dated
October 31, 2002, attached hereto as Exhibit 99.2.

99.3 Press release issued by Jones Lang LaSalle Incorporated
on October 30, 2002, attached hereto as Exhibit 99.3.