JONES LANG LASALLE INC - 10-Q Quarterly Report

Back to GetFilings.com

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 JUNE 30, 2003

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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 July 28, 2003
----- ------------------

Common Stock ($0.01 par value) 31,433,650

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. . . 41

Item 3. Quantitative and Qualitative Disclosures
about Market Risk. . . . . . . . . . . . . . . . . 58

Item 4. Controls and Procedures. . . . . . . . . . . . . . 59

PART II OTHER INFORMATION

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 59

Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . 60

Item 5. Other Information. . . . . . . . . . . . . . . . . 61

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 61

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS

JUNE 30, 2003 AND DECEMBER 31, 2002
($ in thousands, except share data)

JUNE 30,
2003 DECEMBER 31,
(Unaudited) 2002
---------- -----------
ASSETS
- ------

Current assets:
Cash and cash equivalents . . . . . . . $ 13,175 13,654
Trade receivables, net of allowances
of $5,275 and $4,992 in 2003
and 2002, respectively. . . . . . . . 188,293 227,579
Notes receivable. . . . . . . . . . . . 2,724 4,165
Other receivables . . . . . . . . . . . 6,235 7,623
Prepaid expenses. . . . . . . . . . . . 24,064 15,142
Deferred tax assets . . . . . . . . . . 28,953 27,382
Other assets. . . . . . . . . . . . . . 12,884 10,760
---------- ---------
Total current assets. . . . . . 276,328 306,305

Property and equipment, at cost, less
accumulated depreciation of $132,496
and $116,214 in 2003 and 2002,
respectively. . . . . . . . . . . . . . 73,611 81,652
Goodwill, with indefinite useful lives,
at cost, less accumulated amortization
of $37,177 and $36,398 in 2003
and 2002, respectively. . . . . . . . . 323,722 315,477
Identified intangibles, with definite
useful lives, at cost, less accumulated
amortization of $31,944 and $28,928
in 2003 and 2002, respectively. . . . . 15,946 18,344
Investments in and loans to real estate
ventures. . . . . . . . . . . . . . . . 71,361 74,994
Long-term receivables, net. . . . . . . . 13,796 15,248
Prepaid pension asset . . . . . . . . . . 1,735 9,646
Deferred tax assets . . . . . . . . . . . 24,377 18,839
Debt issuance costs, net. . . . . . . . . 4,595 4,343
Other assets, net . . . . . . . . . . . . 7,223 7,668
--------- ----------

$ 812,694 852,516
========= ==========

JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED

JUNE 30, 2003 AND DECEMBER 31, 2002
($ in thousands, except share data)

JUNE 30,
2003 DECEMBER 31,
(Unaudited) 2002
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------

Current liabilities:
Accounts payable and accrued
liabilities . . . . . . . . . . . . . $ 87,900 92,389
Accrued compensation. . . . . . . . . . 62,680 139,513
Short-term borrowings . . . . . . . . . 15,757 15,863
Deferred tax liabilities. . . . . . . . 566 20
Other liabilities . . . . . . . . . . . 33,863 21,411
--------- ----------
Total current liabilities . . . 200,766 269,196

Long-term liabilities:
Credit facilities . . . . . . . . . . . 43,500 26,077
9% Senior Euro Notes, due 2007. . . . . 189,849 173,068
Deferred tax liabilities. . . . . . . . 705 146
Minimum pension liability . . . . . . . 5,336 --
Other . . . . . . . . . . . . . . . . . 17,313 17,071
--------- ----------
Total liabilities . . . . . . . 457,469 485,558

Commitments and contingencies

Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
31,128,438 and 30,896,333 shares
issued and outstanding as of
June 30, 2003 and December 31,
2002, respectively. . . . . . . . . . 311 309
Additional paid-in capital. . . . . . . 500,055 494,283
Deferred stock compensation . . . . . . (17,239) (17,321)
Retained deficit. . . . . . . . . . . . (104,073) (95,411)
Stock held by subsidiary. . . . . . . . (4,659) (4,659)
Stock held in trust . . . . . . . . . . (460) (460)
Accumulated other comprehensive loss. . (18,710) (9,783)
--------- ----------
Total stockholders' equity. . . 355,225 366,958
--------- ----------
$ 812,694 852,516
========= ==========

See accompanying notes to consolidated financial statements.

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
($ in thousands, except share data)
(UNAUDITED)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

SIX MONTHS ENDED JUNE 30, 2003
($ in thousands, except share data)
(UNAUDITED)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2003 AND 2002
($ in thousands)
(UNAUDITED)

2003 2002
---------- ----------
Cash flows from operating activities:
Cash flows from earnings:
Net loss. . . . . . . . . . . . . . . . $ (8,662) (529)
Reconciliation of net loss to net
cash provided by earnings:
Cumulative effect of change in
accounting principle. . . . . . . . -- (846)
Minority interest . . . . . . . . . . -- 1,292
Depreciation and amortization . . . . 18,976 18,821
Equity in earnings and gain on sale
from unconsolidated ventures. . . . 205 (501)
Operating distributions from real
estate ventures . . . . . . . . . . 1,619 1,572
Provision for loss on receivables and
other assets. . . . . . . . . . . . 6,012 2,820
Stock compensation expense. . . . . . -- 139
Amortization of deferred compensation 6,157 4,178
Amortization of debt issuance costs . 800 645
---------- ----------
Net cash provided by earnings . . . 25,107 27,591

Cash flows from changes in
working capital:
Receivables . . . . . . . . . . . . . 41,314 41,136
Prepaid expenses and other assets . . (11,799) 2,321
Deferred tax assets . . . . . . . . . (2,122) (497)
Accounts payable, accrued liabilities
and accrued compensation. . . . . . (62,605) (89,995)
---------- ----------
Net cash flows from changes in
working capital . . . . . . . . . (35,212) (47,035)
---------- ----------
Net cash used in operating
activities. . . . . . . . . . . . (10,105) (19,444)

Cash flows used in investing activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . (9,035) (5,360)
Other acquisitions and investments,
net of cash balances assumed. . . . . (1,100) (224)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures. . . . . . . . (1,783) (15,688)
Distributions, repayments of advances
and sale of investments . . . . . . 4,534 6,244
---------- ----------
Net cash used in
investing activities. . . . . . (7,384) (15,028)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

SIX MONTHS ENDED JUNE 30, 2003 AND 2002
($ in thousands)
(UNAUDITED)

2003 2002
---------- ----------
Cash flows provided by financing activities:
Proceeds from borrowings under credit
facilities. . . . . . . . . . . . . . . 212,107 218,892
Repayments of borrowings under credit
facilities. . . . . . . . . . . . . . . (195,792) (189,762)
Shares repurchased for payment of
taxes on stock awards . . . . . . . . . (767) --
Common stock issued under stock option
plan and stock purchase programs. . . . 1,462 2,860
---------- ----------
Net cash provided by
financing activities. . . . . . . 17,010 31,990
---------- ----------
Net decrease in cash and
cash equivalents. . . . . . . . . (479) (2,482)

Cash and cash equivalents,
beginning of period . . . . . . . . . . . 13,654 10,446
---------- ----------
Cash and cash equivalents, end of period. . $ 13,175 7,964
========== ==========

Supplemental disclosure of cash flow
information:

Cash paid (received) during the period for:
Interest. . . . . . . . . . . . . . . . $ 10,230 9,465
Taxes, net of refunds . . . . . . . . . 7,507 4,579

See accompanying notes to consolidated financial statements.

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

Readers of this quarterly report should refer to the audited financial
statements of Jones Lang LaSalle Incorporated ("Jones Lang LaSalle", which
may also be referred to as the "Company" or as "we," "us" or "our") for the
year ended December 31, 2002, which are included in Jones Lang LaSalle's
2002 Form 10-K, filed with the United States of America Securities and
Exchange Commission and also available on our website (www.joneslang
lasalle.com), since certain footnote disclosures which would substantially
duplicate those contained in such audited financial statements have been
omitted from this report. You should also refer to the "Summary of
Critical Accounting Policies and Estimates" section within Item 2.,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained herein for further discussion of our accounting
policies and estimates.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTERIM INFORMATION

Our consolidated financial statements as of June 30, 2003 and for the
three and six months ended June 30, 2003 and 2002 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 June 30, 2003 and 2002 are not necessarily indicative of the
results to be obtained for the full fiscal year.

RECLASSIFICATIONS

Certain amounts described below have been reclassified to conform
with the current presentation. These reclassifications have no
impact on operating income (loss), net income (loss) or cash flows
for any of the periods affected.

Beginning in December 2002, pursuant to the Financial Accounting
Standards Board's ("FASB") Emerging Issues Task Force ("EITF") No.
01-14, "Income Statement Characterization of Reimbursements Received
for 'Out-of-Pocket' Expenses Incurred", we have reclassified
reimbursements received for out-of-pocket expenses to revenues in the
income statement, as opposed to being shown as a reduction of
expenses. Out-of-pocket expenses include, but are not limited to,
expenses related to airfare, mileage, hotel stays, out-of-town meals,
photocopies and telecommunications and facsimile charges. The
amounts related to these out-of-pocket expenses by quarter are as
follows ($ in millions):

EARNINGS PER SHARE

For the three months ended June 30, 2003, we calculated the basic and
diluted loss per common share according to basic weighted average
shares outstanding of 30.7 million. As a result of the net loss
incurred for this period, diluted weighted average shares outstanding
do not give effect to common stock equivalents, as to do so would be
anti-dilutive. For the three months ended June 30, 2002, we
calculated the basic earnings per common share based on weighted
average shares outstanding of 30.3 million, and we calculated diluted
earnings per common share based on diluted weighted average shares
outstanding of 31.9 million. The increase of 1.6 million weighted
average shares outstanding reflects the dilutive effect of shares to
be issued under employee stock compensation programs and outstanding
stock options with an exercise price that was less than the average
market price of our stock during this period.

For the six months ended June 30, 2003, we calculated the basic and
diluted loss per common share based on basic weighted average shares
outstanding of 30.7 million. For the six months ended June 30, 2002,
we calculated the basic and diluted loss per common share based on
basic weighted average shares outstanding of 30.2 million. 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 with an
exercise price that was less than the average market price of our
stock during these periods. In addition, we did not include in the
weighted average shares outstanding for the three and six months
ended June 30, 2003 the 300,000 shares that we repurchased in the
fourth quarter of 2002 and which are held by one of our subsidiaries.

STATEMENT OF CASH FLOWS

We show the effects of foreign currency translation on cash balances
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 2003 forecasted results, we have estimated
an effective tax rate of 34% for 2003. While there can be no
assurance that we will achieve an effective tax rate of 34% in 2003,
we believe that this is an achievable rate due to the impact of tax
planning, particularly planning to (i) reduce the impact of losses in
jurisdictions where we cannot recognize tax benefits and (ii) reduce
the incidence of double taxation of earnings and other tax
inefficiencies. For the six months ended June 30, 2002, we used an
estimated effective tax rate of 40% on recurring operations. Due to
the impact of tax planning undertaken later in the year, we
ultimately achieved an effective tax rate of 34% on recurring
operations for the full year of 2002. 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.

STOCK-BASED COMPENSATION

The Jones Lang LaSalle amended and restated Stock Award and Incentive
Plan ("SAIP"), adopted in 1997 and amended and restated in 2002
provides for the granting of options to purchase a specified number
of shares of common stock and other stock awards to eligible
employees of Jones Lang LaSalle. As a result of a change in
compensation strategy, other than as an inducement to certain new
employees, we do not generally utilize stock option grants as part of
our employee compensation strategy. We account for our stock option
and stock compensation plans under the provisions of FASB Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as
amended by FASB Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS 148"), which allows
entities to continue to apply the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), using the intrinsic value based method, and provide pro
forma net income and net income per share as if the fair value based
method, defined in SFAS 123, as amended, had been applied. We have
elected to apply the provisions of APB 25 in accounting for stock
options and other stock awards. Therefore, pursuant to APB 25, no
compensation expense has been recognized with respect to options
granted at the market value of our common stock on the date of grant.
Other stock awards, which were granted at prices below the market
value of our common stock on the date of grant, have been recognized
as compensation expense over the vesting period of those awards
pursuant to APB 25. The following table provides pro forma net
income (loss) and net income (loss) per common share as if the fair
value based method had been applied to all awards ($ in thousands,
except share data):

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net income (loss),
as reported. . . . . $ (1,415) 3,506 (8,662) (529)
Add: Stock-based
employee compensation
expense included in
reported net income
(loss), net of related
tax effects . . . . 1,958 998 3,753 2,345
Deduct: Total stock-
based employee compen-
sation expense deter-
mined under fair value
based method for all
awards, net of related
tax effects . . . . (2,496) (1,272) (4,670) (2,893)
-------- -------- -------- --------
Pro forma net income
(loss) . . . . . . . $ (1,953) 3,232 (9,579) (1,077)
======== ======== ======== ========
Net earnings (loss)
per share:
Basic - as reported. $ (0.05) 0.12 (0.28) (0,02)
======== ======== ======== ========
Basic - pro forma. . $ (0.06) 0.11 (0.31) (0.04)
======== ======== ======== ========

Diluted
- as reported. . . $ (0.05) 0.11 (0.28) (0.02)
======== ======== ======== ========
Diluted
- pro forma. . . . $ (0.06) 0.10 (0.31) (0.04)
======== ======== ======== ========

DERIVATIVES AND HEDGING ACTIVITIES

We apply FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended by FASB
Statement No. 138, "Accounting For Certain Derivative Instruments and
Certain Hedging Activities", when accounting for derivatives and
hedging activities.

In the normal course of business, we use derivative financial
instruments in the form of forward foreign currency exchange
contracts to manage foreign currency risk. At June 30, 2003, we had
forward exchange contracts in effect with a gross notional value of
$149.0 million ($74.7 million on a net basis) and a market and
carrying gain of approximately $477,000.

In the past we have used interest rate swap agreements to limit the
impact of changes in interest rates on earnings and cash flows. We
did not use any interest rate swap agreements in 2002 or in the first
six months of 2003 and there were no such agreements outstanding as
of June 30, 2003.

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 currency
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 three and six
months ended June 30, 2003 of the unrealized gain on foreign currency
contracts, offset by the loss resulting from re-measurement of
foreign currency transactions, was not significant.

REVENUE RECOGNITION

In certain of our businesses, primarily those involving management
services, our clients reimburse us for expenses we incur on their
behalf. We base the treatment of reimbursable expenses for financial
reporting purposes upon the fee structure of the underlying contract.
We report on a gross basis contracts that provide a fixed
fee/billing, fully inclusive of all personnel or other recoverable
expenses that we incur, and not separately scheduled as such. 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, namely (i) the fixed management fee and (ii) 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. This characterization is based on the
following factors: (i) the property owner generally has the authority
over hiring practices and the approval of payroll prior to payment by
Jones Lang LaSalle; (ii) Jones Lang LaSalle is the primary obligor
with respect to the property personnel, but bears little or no credit

risk under the terms of the management contract; (iii) reimbursement
to Jones Lang LaSalle is generally completed simultaneously with
payment of payroll or soon thereafter; and (iv) Jones Lang LaSalle
generally earns no margin in the arrangement, obtaining reimbursement
only for actual costs incurred. The majority of our service contracts
utilize the latter structure and are accounted for on a net basis. We
have always presented the above reimbursable contract costs on a net
basis in accordance with accounting principles generally accepted in
the United States of America. Such costs aggregated $93.0 million and
$92.3 million for the three months ended June 30, 2003 and 2002,
respectively. Such costs aggregated $190.9 million and $185.7
million for the six months ended June 30, 2003 and 2002,
respectively. This treatment has no impact on operating income
(loss), net income (loss) or cash flows.

LEGAL PROCEEDINGS

The Company has contingent liabilities from various pending claims
and litigation matters arising in the ordinary course of business,
some of which involve claims from damages that are substantial in
amount. Many of these matters are covered by insurance. Although the
ultimate liability for these matters cannot be determined, based upon
information currently available, we believe the ultimate resolution
of such claims and litigation will not have a material adverse effect
on our financial position, results of operations or liquidity.

On November 8, 2002, Bank One N.A. ("Bank One") filed suit against
the Company and certain of its subsidiaries in the Circuit Court of
Cook County, Illinois with regard to three different agreements
relating to facility management, project development and broker
services. The suit alleges negligence, breach of contract and breach
of fiduciary duty on the part of Jones Lang LaSalle and seeks damages
to recover a total of $40 million in compensatory damages and $80
million in punitive damages. The Company is aggressively defending
the suit and on December 16, 2002 filed a counterclaim for breach of
contract seeking payment of approximately $1.2 million for fees due
for services provided under the agreements. While there can be no
assurance as to the outcome, the Company believes that the complaint
is without merit and, as such, will not have a material adverse
effect on our financial position, results of operations or liquidity.
The suits are in their early stages. As of the date of this report,
we are in the process of discovery and no trial date has been set. As
such, the outcome of Bank One's suit cannot be predicted with any
certainty and management is unable to estimate an amount or range of
potential loss that could result if an improbable unfavorable outcome
did occur.

(2) BUSINESS SEGMENTS

We manage our business along a combination of geographic and
functional lines. We report operations as four business segments:
the three geographic regions of Owner and Occupier Services ("OOS"),
(i) Americas, (ii) Europe and (iii) Asia Pacific, each of which offer
our full range of Corporate Solutions, Investor Services 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 and
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 since
nearly all expenses incurred benefit one or more of the segments.
Allocated expenses primarily consist of corporate global overhead,
including certain globally managed stock programs. We allocate these
corporate global overhead expenses to the business segments based on
the relative revenue of each segment.

Our measure of segment operating results excludes non-recurring and
restructuring charges. See Note 3 for a detailed discussion of these
non-recurring and restructuring charges. 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 and performance for incentive
compensation purposes is assessed before the impact of these charges.

We have reclassified certain prior year amounts to conform with the
current presentation. A summary of these reclassifications can be
found in Note 1.

The following table summarizes unaudited financial information by
business segment for the three and six months ended June 30, 2003 and
2002 ($ in thousands):

SEGMENT OPERATING RESULTS
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
OWNER AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services $ 23,778 26,482 45,379 47,063
Management services . . 41,352 33,807 78,320 68,070
Equity losses . . . . . -- -- -- (10)
Other services. . . . . 1,301 1,065 2,187 1,942
Intersegment revenue. . 270 85 339 202
-------- -------- -------- --------
66,701 61,439 126,225 117,267
Operating expenses:
Compensation, operating
and administrative
expenses. . . . . . . 59,455 53,146 115,871 106,197
Depreciation and
amortization. . . . . 4,550 4,739 9,209 9,632
-------- -------- -------- --------
Operating income. . $ 2,696 3,554 1,145 1,438
======== ======== ======== ========

EUROPE
Revenue:
Implementation services $ 56,099 58,193 104,888 103,339
Management services . . 23,996 20,803 44,916 39,147
Other services. . . . . 1,917 595 3,510 1,842
-------- -------- -------- --------
82,012 79,591 153,314 144,328

SEGMENT OPERATING RESULTS
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Operating expenses:
Compensation, operating
and administrative
expenses. . . . . . . 76,825 71,174 146,806 133,077
Depreciation and
amortization. . . . . 2,781 2,712 5,546 5,268
-------- -------- -------- --------
Operating income. . $ 2,406 5,705 962 5,983
======== ======== ======== ========

ASIA PACIFIC
Revenue:
Implementation services $ 22,062 19,685 37,067 34,577
Management services . . 18,839 16,947 35,934 31,960
Other services. . . . . 341 253 804 658
-------- -------- -------- --------
41,242 36,885 73,805 67,195
Operating expenses:
Compensation, operating
and administrative
expenses. . . . . . . 39,238 34,005 75,095 65,622
Depreciation and
amortization. . . . . 1,635 1,587 3,579 3,306
-------- -------- -------- --------
Operating income
(loss). . . . . . $ 369 1,293 (4,869) (1,733)
======== ======== ======== ========

INVESTMENT MANAGEMENT -
Revenue:
Implementation services $ 355 509 2,123 1,093
Advisory fees . . . . . 23,626 20,008 46,341 38,568
Equity earnings (losses) (285) 1,496 (205) 1,428
Other services. . . . . 176 -- 205 82
-------- -------- -------- --------
23,872 22,013 48,464 41,171
Operating expenses:
Compensation, operating
and administrative
expenses. . . . . . . 22,136 19,051 45,014 37,054
Depreciation and
amortization. . . . . 320 312 642 615
-------- -------- -------- --------
Operating income. . $ 1,416 2,650 2,808 3,502
======== ======== ======== ========

Total segment revenue . . . $213,827 199,928 401,808 369,961
Intersegment revenue
eliminations. . . . . . . (270) (85) (339) (202)
-------- -------- -------- --------
Total revenue . . . $213,557 199,843 401,469 369,759
======== ======== ======== ========

SEGMENT OPERATING RESULTS
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Total segment operating
expenses. . . . . . . . . $206,940 186,726 401,762 360,771
Intersegment operating
expense eliminations. . . (270) (85) (339) (202)
-------- -------- -------- --------
Total operating
expenses before
non-recurring
charges . . . . . $206,670 186,641 401,423 360,569
======== ======== ======== ========
Non-recurring
charges . . . . . $ 4,097 951 4,153 1,051
======== ======== ======== ========
Operating income
(loss). . . . . . $ 2,790 12,251 (4,107) 8,139
======== ======== ======== ========

(3) NON-RECURRING AND RESTRUCTURING CHARGES

For the three and six months ended June 30, 2003, non-recurring and
restructuring charges totaled $4.1 million and $4.2 million,
respectively. For the three and six months ended June 30, 2002, non-
recurring and restructuring charges totalled $951,000 and $1.1
million. The charges consist of the following elements ($ in
thousands):

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Non-Recurring & Restructuring
- -----------------------------

Land Investment and
Development Group
Impairment Charges. . . . $ -- 837 -- 917

Insolvent Insurance
Providers . . . . . . . . (606) -- (606) --

Abandonment of Property
Management Accounting
System:
Compensation & Benefits . 113 -- 113 --
Operating, Administrative
& Other . . . . . . . . 4,822 -- 4,822 --

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
2001 Global Restructuring
Program:
Compensation & Benefits . 82 114 82 134
Operating, Administrative
& Other . . . . . . . . -- -- -- --

2002 Global Restructuring
Program:
Compensation & Benefits . (338) -- (782) --
Operating, Administrative
& Other . . . . . . . . 24 -- 524 --
-------- -------- -------- --------
Total Non-Recurring &
Restructuring . . . . . . $ 4,097 951 4,153 1,051
======== ======== ======== ========

LAND INVESTMENT AND DEVELOPMENT GROUP IMPAIRMENT

As part of our broad based business restructuring in the second half
of 2001, we closed the non-strategic residential land investment
business in the Americas region of our Investment Management segment.
We include in investment in and loans to real estate ventures the
book value of the five remaining investments of $2.1 million, net of
impairment charges of $6.3 million recorded in prior years. We
included in non-recurring expense for the three and six months ended
June 30, 2002 equity losses of $149,000 and $221,000, respectively.
There were no similar charges for the three and six months ended June
30, 2003. We have provided guarantees associated with this
investment portfolio of $1.2 million, which we currently do not
expect to fund. We currently expect to have liquidated the Land
Investment Group investments by the end of 2006.

Additionally, as part of the 2001 restructuring program, we disposed
of our Americas Development Group, although we retained an interest
in certain investments the group had originated. We included in non
recurring expense for the three and six months ended June 30, 2002
equity losses of $216,000 and $224,000, respectively. Additionally
for the three and six months ended June 30, 2002, we recorded an
impairment charge of $472,000. There were no similar charges for the
three and six months ended June 30, 2003. We include in investments
in and loans to real estate ventures the book value of the one
remaining Development Group investment of $523,000. We currently
expect to have liquidated this investment by the end of 2003.

INSOLVENT INSURANCE PROVIDERS

As part of our broad-based business restructuring in the second half
of 2001, we recorded $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 insolvent Australian insurance
provider, HIH Insurance Limited ("HIH"). We have settled
approximately 20 of these claims. There are approximately 20 claims
outstanding at June 30, 2003 as we have been notified of additional
claims subsequent to the insolvency of HIH with a reserve of
approximately $0.7 million (Australian dollar 1 million). As a
result of favorable developments related to the loss reserves, we
have recorded a credit of $0.6 million to the non-recurring
operating, administrative and other expense in the second quarter of
2003. We believe the remaining reserve is adequate to cover the
remaining claims and expenses to be paid as a result of the HIH
insolvency.

ABANDONMENT OF PROPERTY MANAGEMENT ACCOUNTING SYSTEM

In the second quarter of 2003 we completed a feasibility analysis of
a property management accounting system that was in the process of
being implemented in Australia. As a result of the review, we have
concluded that the potential benefits from successfully correcting
deficiencies in the system that would allow it to be implemented
throughout Australia are not justified by the costs that would have
to be incurred to do so. We have implemented a transition plan to an
existing alternative system and will use this system from July 1,
2003. As a result of this decision, we have taken a charge of $4.9
million to non-recurring expense in the second quarter of 2003. In
addition, we have commenced litigation against the consulting firm
that was responsible for the design and implementation of this
system. The charge of $4.9 million includes $113,000 for severance
costs of personnel who worked exclusively on the system and $158,000
for professional fees associated with pursuing litigation. We
anticipate incurring additional such costs over the balance of the
year.

BUSINESS RESTRUCTURING

Business restructuring charges include severance, professional fees
and costs related to excess lease space associated with the
realignment of our business. The actual costs incurred with respect
to our 2002 and 2001 restructuring 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 with employees and/or landlords.
These events resulted in the recording of a credit to non-recurring
compensation and benefits expense of $338,000 related to the 2002
restructuring program and a charge of $82,000 related to the 2001
restructuring program for the three months ended June 30, 2003.
Additionally, for the six months ended June 30, 2003 we recorded
$524,000 to the non-recurring operating, administrative and other
expense for additional lease costs of excess space reflecting a lease
modification that was entered into in the first quarter of 2003. We
recorded a charge of $114,000 and $134,000 related to the 2001
restructuring program for the three and six months ended June 30,
2002, respectively.

The following table displays the net charges by segment for the three
and six months ended June 30, 2003 and 2002 ($ in thousands):

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Non-Recurring & Restructuring
- -----------------------------
Owner and Occupier Services:
Americas. . . . . . . . . $ -- 688 -- 696
Europe. . . . . . . . . . (352) -- (296) --
Asia Pacific. . . . . . . 4,449 -- 4,449 --
Investment Management . . . -- 149 -- 221
Corporate . . . . . . . . . -- 114 -- 134
-------- -------- -------- --------
Total Non-Recurring
& Restructuring . . . . . $ 4,097 951 4,153 1,051
======== ======== ======== ========

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

We apply FASB Statement No. 141, "Business Combinations" ("SFAS
141"), when accounting for business combinations. SFAS 141 requires
that we use purchase method of accounting 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 followed the provisions of SFAS 141 in
accounting for the acquisition of the minority interest in our
Skandia joint venture which was at a discount to the fair value of
the net assets acquired. As a result, we recorded an after-tax gain
of $341,000 as an extraordinary item in the fourth quarter of 2002.

We apply FASB Statement No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), when accounting for goodwill and other
intangible assets. SFAS 142 requires an annual impairment evaluation
of intangibles with indefinite useful lives. To accomplish this
annual evaluation we determine the carrying value of each reporting
unit by assigning assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of the
date of evaluation. For purposes of evaluating SFAS 142, we define
reporting units as Investment Management, Americas OOS, Australia
OOS, Asia OOS, and by country groups in Europe OOS. The result of the
2002 evaluation was that the fair value of each reporting unit
exceeded its carrying amount, and therefore no impairment loss was
recognized on goodwill. The 2003 evaluation is planned to take place
later this year. There were no triggering events in the first six
months of the 2003 that would have required an impairment evaluation.

We have $339.7 million of unamortized intangibles and goodwill as of
June 30, 2003, 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 foreign currency exchange rates.
The tables below set forth further details on the foreign exchange
impact on intangible and goodwill balances. Of the $339.7 million of
unamortized intangibles and goodwill, $323.7 million represents
goodwill with indefinite useful lives, which we ceased amortizing
January 1, 2002. 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 $15.9 million of
identified intangibles (principally representing management contracts
acquired) will be amortized over their remaining definite useful
lives (with a maximum of four years remaining). Other than the
prospective non-amortization of goodwill, which results in a non-cash
improvement in our operating results, the adoption of SFAS 142 did
not 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):

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------

Reported net income
(loss) . . . . . . . . . . $ (1,415) 3,506 (8,662) (529)
Add back: Cumulative effect
of change in accounting
principle. . . . . . . . . -- -- -- (846)
-------- -------- -------- --------

Adjusted net income (loss). $ (1,415) 3,506 (8,662) (1,375)
======== ======== ======== ========

Basic earnings (loss)
per common share . . . . . $ (0.05) 0.12 (0.28) (0.02)
Cumulative effect of change
in accounting principle. . -- -- -- (0.03)
-------- -------- -------- --------

Adjusted basic earnings
(loss) per common share. . $ (0.05) 0.12 (0.28) (0.05)
======== ======== ======== ========

Diluted earnings (loss)
per common share . . . . . $ (0.05) 0.11 (0.28) (0.02)
Cumulative effect of
change in accounting
principle. . . . . . . . . -- -- -- (0.03)
-------- -------- -------- --------

Adjusted diluted earnings
(loss) per common share. . $ (0.05) 0.11 (0.28) (0.05)
======== ======== ======== ========

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

Owner and Occupier Services Invest-
----------------------------- ment
Asia Manage- Consol-
Americas Europe Pacific ment idated
-------- -------- -------- -------- --------
Gross Carrying
Amount
- --------------
Balance as of
January 1, 2003 . .$179,335 58,145 82,755 31,640 351,875

Impact of exchange
rate movements. . . 28 2,060 6,195 741 9,024
-------- -------- -------- -------- --------
Balance as of
June 30, 2003 . . .$179,363 60,205 88,950 32,381 360,899

Accumulated
Amortization
- ------------
Balance as of
January 1, 2003 . .$(15,531) (4,704) (5,835) (10,328) (36,398)

Impact of exchange
rate movements. . . 1 (194) (449) (137) (779)
-------- -------- -------- -------- --------
Balance as of
June 30, 2003 . . .$(15,530) (4,898) (6,284) (10,465) (37,177)

Net book value. . . .$163,833 55,307 82,666 21,916 323,722
======== ======== ======== ======== ========

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 ($ 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, 2003 . .$ 39,377 819 2,296 4,780 47,272

Impact of exchange
rate movements. . . -- 25 445 148 618
-------- -------- -------- -------- --------
Balance as of
June 30, 2003 . . .$ 39,377 844 2,741 4,928 47,890

Owner and Occupier Services Invest-
----------------------------- ment
Asia Manage- Consol-
Americas Europe Pacific ment idated
-------- -------- -------- -------- --------
Accumulated
Amortization
- ------------
Balance as of
January 1, 2003 . .$(22,494) (435) (1,219) (4,780) (28,928)

Amortization expense
- Q1. . . . . . . . (1,192) (26) (75) -- (1,293)
Amortization expense
- Q2. . . . . . . . (1,197) (25) (82) -- (1,304)
Impact of exchange
rate movements. . . (4) (15) (252) (148) (419)
-------- -------- -------- -------- --------
Balance as of
June 30, 2003 . . .$(24,887) (501) (1,628) (4,928) (31,944)

Net book value. . . .$ 14,490 343 1,113 -- 15,946
======== ======== ======== ======== ========

ESTIMATED ANNUAL AMORTIZATION EXPENSE
Remaining 2003 Amortization $2.6 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

(5) NEW ACCOUNTING STANDARDS

ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

We adopted the provisions of FASB Statement No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS 143"), as of January 1, 2003.
SFAS 143 addresses financial accounting and reporting obligations
associated with the retirement of tangible long-lived assets and the
associated retirement costs. The standard applies to legal
obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and/or normal
use of the asset.

SFAS 143 requires that the fair value of the liability for an asset
retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The fair
value of the liability is added to the carrying amount of the
associated asset and this additional carrying amount is depreciated
over the life of the asset. The liability is accreted at the end of
each period through charges to operating expense. If the obligation
is settled for other than the carrying amount of the liability, the
Company will recognize a gain or loss on settlement. Operating
leases for space we occupy in certain of our Asian markets contain
obligations that would require us, on termination of the lease, to
reinstate the space to its original condition. We have assessed our
liability under such obligations as required by the adoption of SFAS
143. This has not had a material impact on our financial statements.

ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

As of January 1, 2003, we adopted FASB Statement No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" ("SFAS 146").
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. The adoption has not had
a material impact on our financial statements.

For the six months ended June 30, 2003 we recorded $524,000 to the
non-recurring operating, administrative and other expense for
additional lease costs of excess space not yet occupied, reflecting a
lease modification signed in the first quarter of 2003. We are
evaluating the exposure related to the early exit of leased space
currently occupied. In accordance with SFAS 146, any costs related to
the early exit of the lease would be recorded at the time we cease
use of the leased space. We anticipate that we will cease to use
this space in 2004, at which point we would expect to incur a charge
which could be significant depending on the underlying market
conditions at that time.

ACCOUNTING AND DISCLOSURE BY GUARANTORS

We apply FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others" ("FIN 45"), which addresses the disclosure
to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. The Company has
not entered into, or modified guarantees pursuant to the recognition
provisions of FIN 45 that have had a significant impact on the
financial statements during the six months ended June 30, 2003.
Guarantees covered by the disclosure provisions of FIN 45 are
discussed in the "Liquidity and Capital Resources" section within
Item 2., "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained herein.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued Interpretation No. 46, "Consolida-
tion of Variable Interest Entities, an Interpretation of ARB No. 51"
("FIN 46"). FIN 46 addresses the consolidation by business
enterprises of variable interest entities as defined. FIN 46 applies
immediately to variable interests in variable interest entities
created after January 31, 2003. We have not invested in any variable
interest entities created after January 31, 2003. For public
enterprises with a variable interest entity created before
February 1, 2003, FIN 46 applies to that enterprise no later than the
beginning of the first interim or annual period beginning after
June 15, 2003. After analyzing the requirements of FIN 46 we have
concluded that we have no variable interest entities created prior to
February 1, 2003 that would be subject to the provisions of FIN 46.

(6) UNITED KINGDOM RETIREMENT PLAN

We maintain a contributory defined benefit pension plan in the United
Kingdom to provide retirement benefits to eligible employees. On
January 1, 2003 we curtailed the United Kingdom defined benefit plan
and implemented a defined contribution plan. No gain or loss was
required to be recognized as a result of the curtailment. The table
below shows how the curtailment impacted the accumulated benefit
obligation, the projected benefit obligation and the fair value of
the plan assets ($ in millions):

At At
December 31, January 1,
2002 2003
------------ ----------

Projected benefit obligation . . . $ 104.2 $ 92.7
------- -------
Accumulated benefit obligation . . $ 82.2 $ 90.1
Fair value of plan assets. . . . . $ 85.3 $ 85.3
Surplus/(Shortfall) of
Plan Assets to accumulated
benefit obligation . . . . . . . $ 3.1 $ (4.8)

Given that after the curtailment the accumulated benefit obligation
exceeds the fair value of plan assets, we were required under
accounting principles generally accepted in the United States of
America to record a minimum pension liability through other
comprehensive income in stockholders' equity. The minimum pension
liability is equal to the excess accumulated benefit obligation of
$4.8 million plus the value of the prepaid pension asset relating to
the United Kingdom defined benefit plan which was $8.1 million at
January 1, 2003. The adjustment to reflect the required minimum
pension liability of $12.9 million, net of associated tax benefit of
$3.9 million, was recorded through other comprehensive income in the
three months ended March 31, 2003.

(7) INVESTMENTS IN REAL ESTATE VENTURES

We invest in certain real estate ventures that own and operate
commercial real estate. These investments include non-controlling
ownership interests generally ranging from less than 1% to 47.85% of
the respective ventures. We generally account for these interests
under the equity method of accounting in the accompanying
Consolidated Financial Statements due to the nature of the non
controlling ownership. We apply the provisions of SFAS 144 when
evaluating these investments for impairment, including an impairment
evaluation of the individual assets held by the investment funds.
During the second quarter it was determined that four of the thirty
assets held by one of our investment funds were impaired. As a
result, we recorded an impairment charge of $1.1 million in equity
earnings, representing our equity share of the impairment charge for
these assets. On an overall basis our investment in this fund is not
impaired.

(8) SHARE REPURCHASE

On October 30, 2002, we announced that our Board of Directors had
approved a share repurchase program. Under the program, we may
repurchase up to one million shares of our outstanding common stock
in the open market and in privately negotiated transactions from time
to time, depending upon market prices and other conditions. In the
fourth quarter of 2002, we repurchased 300,000 shares at an average
price of $15.56 per share. We did not repurchase any shares in the
first six months of 2003. Given that shares repurchased under this
program are not cancelled, but are held by one of our subsidiaries,
we include them in our equity account. However, these shares are
excluded from our share count for the purposes of calculating
earnings per share.

(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 June 30, 2003 and December 31,
2002, Condensed Consolidating Statement of Earnings for the three and
six months ended June 30, 2003 and 2002, and Condensed Consolidating
Statement of Cash Flows for the six months ended June 30, 2003 and
2002 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. We manage cash 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, we have calculated taxes 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. In
addition to the reclassifications listed in Note 1, in the first
quarter of 2003, $17 million of goodwill related to the JLW merger
was reclassified from the guarantor subsidiary Jones Lang LaSalle,
Ltd. to various non-guarantor subsidiaries. We have reclassified the
December 31, 2002 comparative balance sheet to reflect this movement.

JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

CONDENSED CONSOLIDATING BALANCE SHEET

As of June 30, 2003
($ in thousands)

CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2002
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended June 30, 2003
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Six Months Ended June 30, 2003
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended June 30, 2002
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Six Months Ended June 30, 2002
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2003
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2002
($ 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 six
months ended June 30, 2003, included herein, and Jones Lang LaSalle's
audited consolidated financial statements and notes thereto for the fiscal
year ended December 31, 2002, which have been filed with the United States
of America Securities and Exchange Commission as part of our 2002 Annual
Report on Form 10-K and are also available on our website (www.joneslang
lasalle.com).

SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

An understanding of our accounting policies is necessary for a
complete analysis of our results, financial position, liquidity and trends.
The preparation of our financial statements requires management to make
certain critical accounting estimates that impact the stated amount of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of revenues
and expenses during the reporting periods. These accounting estimates are
based on management's judgment and are considered to be critical because of
their significance to the financial statements and the possibility that
future events may differ from current judgments, or that the use of
different assumptions could result in materially different estimates. We
review these estimates on a periodic basis to ensure reasonableness.
However, the amounts we may ultimately realize could differ from such
estimated amounts.

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 contin-
gencies exist. If future contingencies exist, we defer recognition of this
revenue until the respective contingencies have been satisfied.
Development management fees are generally recognized as billed, which we
believe approximates the percentage of completion method of accounting.
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 No. 101, "Revenue Recognition" ("SAB 101"), provides
guidance on the application of accounting principles generally accepted in
the United States of America 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 101.

In certain of our businesses, primarily those involving management
services, our clients reimburse us for expenses we incur on their behalf.
We base the treatment of reimbursable expenses for financial reporting
purposes upon the fee structure of the underlying contract. 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, namely (i) the fixed management fee and
(ii) 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. We
base this characterization on the following factors: (i) the property owner
generally has the authority over hiring practices and the approval of
payroll prior to payment by Jones Lang LaSalle; (ii) Jones Lang LaSalle is
the primary obligor with respect to the property personnel, but bears
little or no credit risk under the terms of the management contract; (iii)
reimbursement to Jones Lang LaSalle is generally completed simultaneously
with payment of payroll or soon thereafter; and (iv) Jones Lang LaSalle
generally earns no margin in the arrangement, obtaining reimbursement only

for actual costs incurred. The majority of our service contracts utilize
the latter structure and are accounted for on a net basis. We have always
presented the above reimbursable contract costs on a net basis in
accordance with accounting principles generally accepted in the United
States of America. Such costs aggregated $93.0 million and $92.3 million
for the three months ended June 30, 2003 and 2002, respectively, and $190.9
million and $185.7 million for the six months ended June 30, 2003 and 2002,
respectively. This treatment has no impact on operating income (loss), net
income (loss) or cash flows.

Beginning in December 2002, pursuant to the Financial Accounting and
Standards Board's ("FASB") Emerging Issues Task Force ("EITF") No. 01-14,
"Income Statement Characterization of Reimbursements Received for 'Out-of-
Pocket' Expenses Incurred", we have reclassified reimbursements received
for out-of-pocket expenses to revenues in the income statement, as opposed
to being shown as a reduction of expenses. Out-of-pocket expenses include,
but are not limited to, expenses related to airfare, mileage, hotel stays,
out-of-town meals, photocopies and telecommunications and facsimile
charges. These out-of-pocket expenses amounted to $1.2 million and $1.0
million for the three months ended June 30, 2003 and 2002, respectively and
$2.6 million and $1.9 million for the six months ended June 30, 2003 and
2002, respectively. This reclassification has no impact on reported
operating income (loss), net income (loss) or cash flows. A summary of the
quarterly and full year impact of this adjustment on 2002 results can be
found in the Reclassification section of Note 1 to Notes to Consolidated
Financial Statements.

Beginning in December 2002, we reclassified as revenue our recovery of
indirect costs related to our management services business, as opposed to
being classified as a reduction of expenses in the income statement. This
recovery of indirect costs amounted to $8.6 million and $7.4 million for
the three months ended June 30, 2003 and 2002, respectively, and $16.8
million and $14.5 million for the six months ended June 30, 2003 and 2002,
respectively. This reclassification has no impact on reported operating
income (loss), net income (loss) or cash flows. A summary of the quarterly
and full year impact of this adjustment on 2002 results can be found in the
Reclassification section of Note 1 to Notes to Consolidated Financial
Statements.

ACCOUNTS RECEIVABLE - We estimate the allowance necessary to provide
for uncollectible accounts receivable. This estimate includes specific
accounts for which payment has become unlikely. We also base this estimate
on historical experience, combined with a careful review of current
developments and with a strong focus on credit quality. The process by
which we calculate the allowance begins in the individual business units
where specific problem accounts are identified and reserved as part of an
overall reserve that is formulaic and driven by the age profile of the
receivables. These reserves are then reviewed on a quarterly basis by
regional and global management to ensure that they are appropriate. As part
of this review, we develop a range of potential reserves on a consistent
formulaic basis. Over the last two years we have placed considerable focus
on working capital management and in particular, collecting our receivables
on a more timely basis. As we are successful in doing this, the range of
potential reserves is narrowing. We would normally expect that the
allowance would fall within this range. The table below sets out certain
information regarding our accounts receivable, allowance for uncollectible
accounts receivable, range of possible allowance and the bad debt expense
we incurred for the six months ended June 30, 2003 and 2002 ($ in
millions).

Allowance
Accounts for
Receivable Uncollec-
Gross More Than tible Bad
Accounts 90 Days Accounts Maximum Minimum Debt
Receivable Past Due Receivable Allowance Allowance Expense
-------------------- ---------- --------- --------- -------
June 30,
2003 . . $ 193.6 8.5 5.3 7.7 3.8 1.3

June 30,
2002 . . $ 177.7 10.2 8.1 9.3 4.6 2.6

PERIODIC ACCOUNTING FOR INCENTIVE COMPENSATION - An important part of
our overall compensation package is incentive compensation, which we
typically pay 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. Total
incentive compensation for the three and six months ended June 30, 2003
increased 11.6% and 34.6%, respectively (5.0% and 26.2%, respectively,
excluding the impact of movements in foreign currency exchange rates), when
compared to the same periods in 2002. These increases are due to the
timing of incentive compensation since a greater portion of our forecasted
annual revenues were achieved in the first six months of 2003 when compared
to the same period last year. Also contributing to the increase in 2003 is
an increased dollar value of incentive compensation that is not subject to
normal performance criteria and is therefore accounted for on a straight-
line basis. We are in the process of implementing a global incentive
compensation program that will provide our employees an increased "line of
sight" between their performance and incentive compensation. As a result
of this, we are currently evaluating the methodology used in recognizing
periodic incentive compensation. Any change would become effective
January 1, 2004 and is not expected to impact annual incentive compensation
expense but may impact the quarterly recognition pattern.

We have a stock ownership program for certain of our senior employees
pursuant to which they receive a portion of their annual incentive
compensation in the form of restricted stock units of our common stock.
These restricted shares vest 50% at 18 months from the date of grant
(January of the following year to which the restricted stock units relate)
and 50% vest at 30 months from the date of grant. The related compensation
cost is amortized to expense over the service period. The service period
consists of the 12 months of the year to which payment of the restricted
stock units relate, plus the periods over which the shares vest. Given that
individual incentive compensation awards are not finalized until after
year-end, we must estimate the portion of the overall incentive
compensation pool that will qualify for this program. This estimation
factors in the performance of the Company and individual business units,
together with the target bonuses for qualified individuals. We do not
estimate and account for the current year impact of this program until the
fourth quarter (namely, the enhancement, the deferral and the related
amortization) because the majority of our incentive compensation is accrued
in the fourth quarter. In March 2003, we decreased the deferred
compensation by approximately $383,000 because the population eligible for
the stock ownership program was awarded less incentive compensation related

to 2002 than we had originally estimated. This change in estimate resulted
in additional cash bonus related to 2002 being paid in the first quarter of
2003. The additional cash bonus was expensed in the first quarter 2003
financial statements. In March of 2002, we increased the deferred
compensation by approximately $181,000 since the population eligible for
the stock ownership program was awarded more incentive compensation related
to 2001 than we had originally estimated. This change in estimate resulted
in less cash bonus related to 2001 being paid in the first quarter of 2002.

This was credited to the income statement in the first quarter 2002
financial statements.

The table below sets out the amortization expense related to the stock
ownership program for the three and six months ended June 30, 2003 and 2002
(in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Compensation expense
amortization. . . . . . $ 1,684 965 3,252 2,664

ASSET IMPAIRMENT - We apply FASB Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), to recognize
and measure impairment of long-lived assets. 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 group 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 group.

If impairment exists due to the inability to recover the carrying value of
an asset group, we record an impairment loss to the extent that the
carrying value exceeds estimated fair value.

We invest in certain real estate ventures that own and operate
commercial real estate. These investments include non-controlling ownership
interests generally ranging from less than 1% to 47.85% of the respective
ventures. We generally account for these interests under the equity method
of accounting in the accompanying Consolidated Financial Statements due to
the nature of the non-controlling ownership. We apply the provisions of
SFAS 144 when evaluating these investments for impairment, including an
impairment evaluation of the individual assets held by the investment
funds. During the second quarter it was determined that four of the thirty
assets held by one of our investment funds were impaired. As a result, we
recorded an impairment charge of $1.1 million in equity earnings,
representing our equity share of the impairment charge for these assets.
On an overall basis our investment in this fund is not impaired.

We apply FASB Statement No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), when we account for goodwill and other intangible
assets. SFAS 142 requires an annual impairment evaluation of intangibles
with indefinite useful lives. To accomplish this annual evaluation, we
determine the carrying value of each reporting unit by assigning assets and
liabilities, including the existing goodwill and intangible assets, to
those reporting units as of the date of evaluation. For purposes of
evaluating SFAS 142, we define reporting units as Investment Management,
Americas OOS, Australia OOS, Asia OOS, and by country groups in Europe OOS.
We determine the fair value of each reporting unit on the basis of a
discounted cash flow methodology and compare it to the reporting unit's
carrying value. The result of the 2002 evaluation was that the fair value
of each reporting unit exceeded its carrying amount, and therefore no
impairment loss was recognized on goodwill. The 2003 evaluation is planned
to take place later this year. There were no triggering events in the
first six months of 2003 that would have required an impairment evaluation.

Although the Land Investment Group was closed down in 2001, we have
retained certain investments originated by this group. Included in
investments in and loans to real estate ventures is the book value of the
five remaining Land Investment Group investments of $2.1 million, net of
impairment charges of $6.3 million recorded in prior years. We continue to
monitor this portfolio very carefully and have not recorded an impairment
charge in the three or six months ended June 30, 2003. We have provided
guarantees associated with this investment portfolio of $1.2 million, which
we currently do not expect to fund. We expect to have liquidated the Land
Investment Group investments by the end of 2006.

Although we sold the Development Group in 2001, we have retained
certain investments originated by this group. Included in investments in
and loans to real estate ventures is the book value of the one remaining
Development Group investment of $523,000. We continue to monitor this
investment very carefully and have not recorded an impairment charge in the
three or six months ended June 30, 2003. We expect to have liquidated the
remaining Development Group investment by the end of 2003.

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 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 2003 forecasted results, we have estimated an effective
tax rate of 34% for 2003. While there can be no assurance that we will
achieve an effective tax rate of 34% in 2003, we believe that this is an
achievable tax rate due to the impact of tax planning, particularly
planning to (i) reduce the impact of losses in jurisdictions where we
cannot recognize tax benefits and (ii) reduce the incidence of double
taxation of earnings and other tax inefficiencies. For the six months ended
June 30, 2002, we used an estimated effective tax rate of 40% for recurring
operations. If we had used an estimated effective tax rate of 40% for the
first six months of 2003, the tax benefit would have been $5.3 million as
compared to the $4.5 million tax benefit that we actually recorded. Due to
the impact of tax planning undertaken later in 2002, an effective tax rate
of 34% on recurring operations was achieved for the full year of 2002. Our
global effective tax rate is also sensitive to changes in the mix of our
geographic profitability as local statutory tax rates range from 10% to 43%
in the countries in which we have significant operations. We continuously
seek to develop and implement 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.

ACCOUNTING FOR SELF-INSURANCE PROGRAMS - In our Americas business, in
common with many other American companies, we have chosen to retain certain
risks regarding health insurance and workers' compensation rather than
purchase third-party insurance. Estimating our exposure to such risks
involves subjective judgments about future developments. We engage the
services of an independent actuary on an annual basis to assist us in
quantifying our potential exposure.

. HEALTH INSURANCE - Beginning in January 2002, we chose to self-
insure our health benefits for all employees based in the
United States of America, although we did purchase stop loss
coverage to limit our exposure. We engage an actuary who
specializes in health insurance to estimate our likely full
year cost at the beginning of the year and expense this cost on
a straight-line basis throughout the year. In the fourth
quarter, we employ the same actuary to estimate the required
reserve for unpaid health costs we would need at year-end. With
regard to the year-end reserve, the actuary provides us with a
point estimate, which we accrue; additionally we accrue a
provision for adverse deviation. Given the nature of medical
claims, it may take up to 12 months for claims to be processed
and recorded. The reserve balance at June 30, 2003, which
relates to both 2002 and 2003 is $3.7 million. The reserve
balance at December 31, 2002 was $2.4 million. Our external
benefit administrator is currently working to analyze the
development of the reserve estimate from year-end. The table
below sets out certain information related to the cost of this
program for the three and six months ended June 30, 2003 and
2002 ($ in millions):

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Expense to Company. . . $ 3.2 3.0 6.2 6.1
Employee contributions. 0.7 0.6 1.4 1.2
-------- -------- -------- --------
Total program cost. . . $ 3.9 3.6 7.6 7.3
======== ======== ======== ========

. WORKERS' COMPENSATION INSURANCE - We have been self-insured for
workers' compensation insurance for a number of years. We have
stop loss insurance in place which limits our exposure in
certain cases. On a periodic basis we accrue using the various
state rates based on job classifications, engaging on an annual
basis in the third quarter, an independent actuary who
specializes in workers' compensation to estimate our exposure
based on actual experience. In prior years, we have recorded
an adjustment to revenues for the difference between the
actuarial estimate and our reserve after the receipt of the
actuary's report (usually in the third quarter). Given our
considerable experience in this area, in the first quarter of
2003 we determined that we would accrue for the estimated
adjustment to revenues on a periodic basis. The credit taken to
revenue for this was $433,000 and $866,000 for the three and
six months ended June 30, 2003, respectively. There were no
similar credits in the first six months of 2002.

. CAPTIVE INSURANCE COMPANY - In order to better manage our
global insurance program, we use a captive insurance company to
provide professional indemnity insurance coverage on a "claims
made" basis to certain of our international operations in
addition to our traditional insurance coverage. The maximum
risk retained by this captive insurance company in any one year
is pound sterling 1 million (approximately $1.6 million). Given
the nature of these types of claims, it may take several years
for there to be a resolution of the underlying claims and to
finalize the expense. We are required to estimate the ultimate
cost of these claims. This estimate includes specific claim
reserves that are developed on the basis of a review of the
circumstances of the individual claim. Given that the timeframe

for these reviews may be lengthy, we also provide a reserve
against the current year exposures on the basis of our historic
loss ratio. The table below provides the reserve balance, which
can relate to multiple years, that we have established as of ($
in millions):

June 30, 2003 $1.9
June 30, 2002 $2.7

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. Please see Part II "Other
Information" Item 1., "Legal Proceedings" for a discussion of certain legal
proceedings.

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE AND SIX
MONTHS ENDED JUNE 30, 2002

ITEMS AFFECTING COMPARABILITY

LASALLE INVESTMENT MANAGEMENT REVENUES

Our Investment Management business is in part compensated through the
receipt of incentive fees when investment performance exceeds agreed
benchmark levels. Depending 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.

ACQUISITION

In December 2002, Jones Lang LaSalle acquired the 45% minority
interest in the joint venture company Jones Lang LaSalle Asset Management
Services, which since 2000 has exclusively provided asset management
services for all Skandia Life properties in Sweden. The purchase price of
the minority interest was approximately $1 million, a discount to the fair
value of the net assets acquired. Because the acquisition occurred in
December of 2002, this joint venture was accounted for as a minority
interest in the first six months of 2002. The six months ended June 30,
2002 included $1.2 million of minority interest earnings. The six months
ended June 30, 2003 included no minority interest earnings or losses as
this venture is now fully consolidated in our results.

FOREIGN CURRENCY

We operate in a variety of currencies in 34 countries, but report our
results in U.S. dollars. This means that our reported results may be
positively or negatively impacted by the volatility of currencies against
the U.S. dollar. This volatility makes it more difficult to perform
period-to-period comparisons of the reported results of operations. As an
example, the euro, the pound sterling and the Australian dollar, each a
currency used in a significant portion of our operations, strengthened in
the last nine months of 2002, and remained strong in the first six months
of 2003. This means that for those businesses located in jurisdictions
that utilize these currencies, the U.S. dollar reported revenues and
expenses in the three and six months ended June 30, 2003 demonstrate an
apparent growth rate that is not consistent with the real underlying growth

rate in the local operations. In order to provide more meaningful period-
to-period comparisons of the reported results of operations in our
discussion and analysis of financial condition and results of operations,
we have provided information about the impact of foreign currencies where
we believe that it is necessary. In addition, set out below is guidance as
to the key currencies that the Company does business in and their
significance to reported revenues and operating results. The operating
results sourced in pound sterling and US dollars understates the
profitability of the businesses in the United Kingdom and America because
they include the locally incurred expenses of our global offices in London
and Chicago, respectively, as well as the European regional office in
London. The revenues and operating income of the global investment
management business are allocated to their underlying currency, which means
that this analysis may not be consistent with the performance of the
geographic OOS segments. In particular, as incentive fees are earned by
this business, there may be significant shifts in the geographic mix of
revenues and operating income. The following table sets forth revenues
derived from our most significant currencies ($ in millions, except for
exchange rates).

Austra-
Pound lian US
Sterling Euro Dollar Dollar Other Total
-------- ------- ------- ------- ------- -------

REVENUES
Q1, 2003 . . $ 37.7 37.2 13.7 70.0 29.3 187.9
Q2, 2003 . . $ 43.9 36.5 18.7 75.9 38.6 213.6
------- ------- ------- ------- ------- -------
$ 81.6 73.7 32.4 145.9 67.9 401.5
======= ======= ======= ======= ======= =======

Q1, 2002 . . $ 34.9 32.7 12.4 63.3 26.6 169.9
Q2, 2002 . . $ 47.1 32.2 16.5 70.2 33.8 199.8
------- ------- ------- ------- ------- -------
$ 82.0 64.9 28.9 133.5 60.4 369.7
======= ======= ======= ======= ======= =======

OPERATING
INCOME
(LOSS)
Q1, 2003 . . $ (2.6) 2.9 (1.4) (2.4) (3.4) (6.9)
Q2, 2003 . . $ (0.4) 0.1 (4.1) 1.9 5.3 2.8
------- ------- ------- ------- ------- -------
$ (3.0) 3.0 (5.5) (0.5) 1.9 (4.1)
======= ======= ======= ======= ======= =======

Q1, 2002 . . $ (2.5) 3.8 (2.5) (1.0) (1.9) (4.1)
Q2, 2002 . . $ 7.2 (0.2) (0.3) 2.9 2.7 12.3
------- ------- ------- ------- ------- -------
$ 4.7 3.6 (2.8) 1.9 0.8 8.2
======= ======= ======= ======= ======= =======

AVERAGE
EXCHANGE
RATES
Q1, 2003 . . 1.600 1.075 0.595 N/A N/A N/A
Q2, 2003 . . 1.624 1.140 0.644 N/A N/A N/A

Q1, 2002 . . 1.426 0.877 0.520 N/A N/A N/A
Q2, 2002 . . 1.464 0.924 0.553 N/A N/A N/A

REVENUE

Total revenue, after the elimination of intersegment revenue,
increased $13.8 million, or 6.9%, to $213.6 million for the three months
ended June 30, 2003 from $199.8 million for the three months ended June 30,
2002. For the six months ended June 30, 2003, total revenue, after the
elimination of intersegment revenue, increased $31.7 million, or 8.6%, to
$401.5 million from $369.8 million for the same period in 2002. These
increases reflect the general strengthening of the euro, pound sterling and
Australian dollar against the U.S. dollar. Excluding the impact of
movements in foreign currency exchange rates, reported U.S. dollar revenues
decreased 1.8% and 0.1% for the three and six months ended June 30, 2003,
respectively, when compared to the same periods of 2002 as revenue strength
in the Americas and Asia Pacific was offset by continued revenue weakness
in Europe.

OPERATING EXPENSES

Total operating expenses, after the elimination of intersegment
expense, increased $23.2 million, or 12.4%, to $210.8 million for the three
months ended June 30, 2003 from $187.6 million for the three months ended
June 30, 2002. For the six months ended June 30, 2003, total operating
expenses, after the elimination of intersegment expense, increased $44.0
million, or 12.2%, to $405.6 million from $361.6 million for the same
period in 2002. These increases reflect the general strengthening of the
euro, pound sterling and Australian dollar against the U.S. dollar.
Excluding the impact of these movements in foreign currency exchange rates,
reported U.S. dollar expenses increased 4.2% and 3.9% for the three and six
months ended June 30, 2003, respectively, when compared to the same periods
of 2002.

Compensation and benefits expense increased $16.2 million and $33.1
million for the three and six months ended June 30, 2003, respectively,
when compared to the same periods of 2002. The impact of movements in
foreign currency exchange rates, primarily the euro, pound sterling and
Australian dollar, is attributable for $9.9 million and $19.3 million of
the increase in U.S. dollar reported compensation and benefits expense for
the three and six months ended June 30, 2003, respectively. The balance of
the increase in compensation and benefits expense for the three and six
months ended June 30, 2003 is primarily attributable to an increase in
salaries and related payroll and social taxes as we implement a strategic
growth plan in our Asia Pacific region and an increase in staffing to
support new fund activity in our Investment Management business. The
increase in expenses for the three and six months ended June 30, 2003 can
also be attributed to the timing of incentive compensation expense, as a
higher portion of our forecasted full year revenues were achieved in the
first six months of 2003 when compared to the first six months of 2002. The
increase in incentive compensation is a timing difference that may reverse
over the balance of the year dependent upon performance. See the Periodic
Accounting for Incentive Compensation section of Critical Accounting
Policies and Estimates, included herein, for a further discussion of the
timing of incentive compensation recognition.

Operating, administrative and other expenses increased $3.9 million,
or 7.2%, to $58.3 million for the three months ended June 30, 2003 from
$54.4 million for the three months ended June 30, 2002. For the six months
ended June 30, 2003, operating, administrative and other expenses increased
$7.6 million, or 7.2%, to $112.7 million from $105.1 million for the same
period in 2002. The impact of movements in foreign currency exchange rates,
primarily the euro, pound sterling and Australian dollar, is attributable
for $4.2 million and $8.5 million of the increase in U.S. dollar reported
operating, administrative and other expense for the three and six months
ended June 30, 2003, respectively. Excluding this impact, operating,
administrative and other expenses are slightly improved for the three and
six months ended June 30, 2003, when compared to the same periods of 2002,

reflecting a strong commitment to cost controls. Our continued focus on
working capital management resulted in an improvement of $1.3 million in
bad debt expense for the first half of 2003. This was more than offset by
an increase of $2.5 million in insurance cost reflecting the market
tightening in insurance cost and availability.

The most significant component of non-recurring and restructuring
expense for the three and six months ended June 30, 2003 is the abandonment
of a property management accounting system that was in the process of being
implemented in Australia. We completed a feasibility analysis of the system
in the second quarter of 2003 and concluded that the potential benefits
from successfully correcting deficiencies in the system that would allow it
to be implemented throughout Australia are not justified by the costs that
would have to be incurred to do so. As such, we have ceased use of the
system and have written off the balance sheet carrying value. Partially
offsetting this charge is a credit of $606,000 to the non-recurring
operating, administrative and other expense in the second quarter of 2003,
a result of favorable developments related to loss reserves we had recorded
for an insolvent insurance provider in 2001. As part of our broad-based
business restructuring in the second half of 2001, we recorded $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
insolvent Australian insurance provider, HIH Insurance Limited ("HIH"). We
believe the remaining reserve is adequate to cover the remaining claims and
expenses to be paid as a result of the HIH insolvency. A further
discussion of non-recurring and restructuring charges can be found in
Note 3 to Notes to Consolidated Financial Statements.

OPERATING INCOME

We reported operating income of $2.8 million for the three months
ended June 30, 2003, as compared to $12.3 million for the three months
ended June 30, 2002. For the six months ended June 30, 2003, we reported an
operating loss of $4.1, as compared to an operating income of $8.1 million
for the six months ended June 30, 2002.

INTEREST

Interest expense, net of interest income, increased $574,000 for the
three months ended June 30, 2003 when compared to the same period of 2002.
For the six months ended June 30, 2003, interest expense, net of interest
income, increased $739,000 when compared to the same period of 2002.
Interest expense was negatively impacted by the strengthening euro which
increased the reported U.S. dollar value of the interest expense on the
Euro Notes by approximately $800,000 and $1.5 million for the three and six
months ended June 30, 2003, respectively. In addition, as a result of the
early renewal and reduction of our credit facility, we accelerated the
expensing of approximately $150,000 of capitalized debt issuance costs.

PROVISION/(BENEFIT) FOR INCOME TAXES

For the three and six months ended June 30, 2003 we recorded an
income tax benefit of $730,000 and $4.5 million, respectively. For the
three and six months ended June 30, 2002 we recorded a provision of $3.2
million and a benefit of $57,000, respectively. Our estimated effective tax
rate for the first half of 2003 was 34%, as compared to 40% for the first
half of 2002. If we had used an estimated effective tax rate of 40% for the
six months ended June 30, 2003, our tax benefit would have been $5.3
million as compared to the $4.5 million tax benefit that we actually
recorded. See the Income Tax Provision section of Note 1 to Notes to
Consolidated Financial Statements for a further discussion of our estimated
effective tax rate.

NET INCOME/(LOSS)

We reported a net loss of $1.4 million for the three months ended
June 30, 2003, as compared to net income of $3.5 million for the three
months ended June 30, 2002. For the six months ended June 30, 2003, we
reported a net loss of $8.7 million, as compared to a net loss before
cumulative effect of a change in accounting principle of $1.4 million for
the same period of 2002. Including the cumulative effect of a change in
accounting principle (a net benefit of $846,000) related to the adoption of
SFAS 142 in 2002, which is discussed in detail in Note 4 to Notes to
Consolidated Financial Statements, our net loss for the six months ended
June 30, 2002 was $529,000.

SEGMENT OPERATING RESULTS

See Note 2 to Notes to Consolidated Financial Statements for a
discussion of our segment reporting. Our measure of segment operating
results excludes non-recurring and restructuring charges. 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 and performance for incentive compensation
purposes is assessed before the impact of these charges. As such, these
costs are not included in the discussions below. See Note 3 to Notes to
Consolidated Financial Statements for a detailed discussion of the non-
recurring and restructuring charges.

We have reclassified certain prior year amounts to conform with the
current presentation. A summary of these reclassifications can be found in
Note 1 to Notes to Consolidated Financial Statements.

OWNER AND OCCUPIER SERVICES

AMERICAS

Revenue for the Americas region increased $5.3 million, or 8.6%, to
$66.7 million for the three months ended June 30, 2003 from $61.4 million
for the three months ended June 30, 2002. For the six months ended June 30,
2003, revenue increased $8.9 million, or 7.6%, to $126.2 million from
$117.3 million for the same period of 2002. The increase for the three and
six months is primarily attributable to improved transaction flow in the
Tenant Representation business and new business wins in the Project and
Development unit, partially offset by a decrease in the Capital Markets
unit, as 2002 included two significant transactions.

Operating expenses for the Americas region increased $6.1 million, or
10.5%, to $64.0 million for the three months ended June 30, 2003, as
compared to $57.9 million for the three months ended June 30, 2002. For the
six months ended June 30, 2003, operating expenses increased $9.3 million,
or 8.0%, to $125.1 million from $115.8 million for the same period of 2002.
The increase in operating expenses is primarily due to the timing of
recognition of incentive compensation which was $5.4 million and $8.0
million higher for the three and six months ended June 30, 2003,
respectively, when compared to the same periods of 2002, as a comparatively
greater percentage of forecasted annual revenue was recorded in 2003 than
in the same periods of 2002. In addition, in 2003 there is a greater dollar
value of incentive compensation that is not subject to normal performance
criteria and is therefore accounted for on a straight-line basis. The
increase in incentive compensation is a timing difference that may reverse
over the balance of the year dependent upon performance. See the Periodic
Accounting for Incentive Compensation section of Critical Accounting
Policies and Estimates, included herein, for a further discussion of the
timing of incentive compensation recognition.

EUROPE

Revenues for the Europe region increased $2.4 million, or 3.0%, to
$82.0 million for the three months ended June 30, 2003 from $79.6 million
for the three months ended June 30, 2002. For the six months ended June 30,
2003, revenues increased $9.0 million, or 6.2%, to $153.3 million from
$144.3 million for the same period of 2002. This increase in reported U.S.
dollar revenues reflect the general strengthening of the euro and pound
sterling against the U.S. dollar when compared to last year. Excluding the
impact of movements in foreign currency exchange rates, reported U.S.
dollar revenues decreased 13.6% and 10.8% for the three and six months
ended June 30, 2003, respectively, when compared to the same periods of
2002. Partially contributing to the year-over-year decrease was a large
incentive fee related to our Skandia joint venture recorded in the second
quarter of 2002 where there was no similar incentive fee in 2003. Positive
performance in Southern and Central Europe was offset by continued revenue
pressures in England, Germany and France. Also contributing to the
decrease in revenues was a decline in the second quarter of 2003 in leasing
activity in Holland and Scotland combined with the timing of certain
Capital Markets transactions which have now slipped to the third quarter.

Operating expenses for the Europe region increased $5.7 million, or
7.7%, to $79.6 million for the three months ended June 30, 2003 from $73.9
million for the three months ended June 30, 2002. For the six months ended
June 30, 2003, operating expenses increased $14.1 million, or 10.2%, to
$152.4 million from $138.3 million for the same period of 2002. Excluding
the impact of movements in foreign currency exchange rates, operating
expenses decreased 6.5% and 4.9% for the three and six months ended
June 30, 2003, respectively, when compared to the same periods of 2002
reflecting our continued focus on cost controls and the impact of weaker
performance on the timing of recognition of incentive compensation. The
decrease in incentive compensation is a timing difference that may reverse
over the balance of the year dependent upon performance. See the Periodic
Accounting for Incentive Compensation section of Critical Accounting
Policies and Estimates, included herein, for a further discussion of the
timing of incentive compensation recognition.

ASIA PACIFIC

Revenue for the Asia Pacific region increased $4.3 million, or 11.7%,
to $41.2 million for the three months ended June 30, 2003 from $36.9
million for the three months ended June 30, 2002. For the six months ended
June 30, 2003, revenues increased $6.6 million, or 9.8%, to $73.8 million
from $67.2 million for the same period of 2002. Excluding the impact of
movements in foreign currency exchange rates, reported U.S. dollar revenues
increased 5.1% and 3.1% for the three and six months ended June 30, 2003,
respectively, when compared to the same periods of 2002. The keys to the
increase in revenue are a continued strong performance in our North Asia
business with continuing strong revenue performance in Japan, the close of
a large capital markets transaction in Korea and despite the SARS epidemic,
revenue in China was in line with 2002 performance.

Operating expense for the Asia Pacific region increased $5.3 million,
or 14.9%, to $40.9 million for the three months ended June 30, 2003 from
$35.6 million for the three months ended June 30, 2002. For the six months
ended June 30, 2003, operating expenses increased $9.8 million, or 14.2%,
to $78.7 million from $68.9 million for the same period of 2002. Excluding
the impact of movements in foreign currency exchange rates, operating
expenses increased 7.9% and 7.0% for the three and six months ended
June 30, 2003, respectively, when compared to the same periods of 2002. The
increase in expenses is primarily attributable to compensation and
benefits, together with an investment in training and marketing expense as
this region implements its strategic growth plan.

INVESTMENT MANAGEMENT

Investment Management revenue increased $1.9 million, or 8.6%, to
$23.9 million for the three months ended June 30, 2003 from $22.0 million
for the three months ended June 30, 2002. For the six months ended June 30,
2003, revenue increased $7.3 million, or 17.7%, to $48.5 million from $41.2
million for the same period of 2002. Excluding the impact of movement in
foreign currency exchange rates, Investment Management revenue increased
2.3% and 10.9% for the three and six months ended June 30, 2003,
respectively, when compared to the same period of 2002. Positive
performance was seen across all regions, as advisory fees improved due to
the successful renegotiation of several fee arrangements, as well as the
introduction of additional new products. An impairment charge of $1.1
million was recorded to equity earnings in the second quarter of 2003,
reflecting our share of an impairment charge for certain real estate assets
held by one of our investment funds. A further discussion of this charge
can be found in the Asset Impairment section of Critical Accounting
Policies and Estimates, included herein.

Operating expenses for Investment Management increased $3.1 million,
or 16.0%, to $22.5 million for the three months ended June 30, 2003 from
$19.4 million for the three months ended June 30, 2002. For the six months
ended June 30, 2003, operating expenses increased $8.0 million, or 21.2%,
to $45.7 million from $37.7 million for the same period of 2002. Excluding
the impact of movements in foreign currency exchange rates, operating
expenses increased 8.8% and 13.8% for the three and six months ended
June 30, 2003, respectively, when compared to the same periods of 2002.
The increase in expense is primarily attributable to the costs related to
the introduction of additional investments and products. The increase in
expenses for the three and six months ended June 30, 2003 can also be
attributed to the timing of incentive compensation expense, as a higher
portion of our forecasted full year revenues were achieved in the first six
months of 2003 when compared to the first six months of 2002. The increase
in incentive compensation is a timing difference that may reverse over the
balance of the year dependent upon performance. See the Periodic Accounting
for Incentive Compensation section of Critical Accounting Policies and
Estimates, included herein, for a further discussion of the timing of
incentive compensation recognition.

PERFORMANCE OUTLOOK

As a result of the seasonality of the firm's business, revenue and
profits are generated primarily during the second half of the year. The
first half results saw modest improvement in the Americas while Europe
continued to experience declining revenues. The timing and balance of
these two market inflections continues to make accurate forecasting for the
full year difficult. The firm's full year goal remains to improve on last
year's results and it expects third quarter earnings to be in the range of
$.20 to $.30 per share.

CONSOLIDATED CASH FLOWS

CASH FLOWS USED IN OPERATING ACTIVITIES

During the six months ended June 30, 2003 cash flows used in
operating activities totaled $10.1 million, as compared to $19.4 million
during the six months ended June 30, 2002. The cash flows used in operating
activities for the six months ended June 30, 2003 can be further divided
into cash generated from operations of $25.1 million (compared to $27.6
million generated in 2002) and cash used in balance sheet movements
(primarily working capital management) of $35.2 million (compared to a use
of $47.0 million in 2002).

CASH FLOWS USED IN INVESTING ACTIVITIES

We used $7.4 million for investing activities during the six months
ended June 30, 2003, as compared to $15.0 million used during the six
months ended June 30, 2002. This decrease in investing activity is a result
of the timing of our co-investment cash flows, which are dependent upon the
underlying fund's investment decisions.

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES

Cash flows provided by financing activities were $17.0 million during
the six months ended June 30, 2003, as compared to $32.0 million for the
six months ended June 30, 2002. The decrease in cash flows provided by
financing activities of $15.0 million is primarily due to lower net
borrowings at June 30, 2003 when compared to the same period of 2002.

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. In the second quarter of 2003 we
renegotiated our unsecured revolving credit facility agreement reducing the
facility from $275 million to $225 million and extending the term from 2004
to 2006. As of June 26, 2003, this replaces the previous $275 million
revolving credit facility agreement and will continue to be utilized 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 $60.0 million under local facilities. In addition, the facility
size may be increased by up to $100 million if we retire our 9% Senior Euro
Notes (the "Euro Notes"). We have outstanding euro 165 million in
aggregate principal amount of Euro Notes, all of 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 June 30, 2003, there was $43.5 million outstanding under the
revolving credit facility, euro 165 million ($189.8 million) of borrowings
outstanding under the Euro Notes and short-term borrowings (including
capital lease obligations) of $15.8 million. The short-term borrowings are
primarily borrowings by subsidiaries on various interest-bearing overdraft
facilities. As of June 30, 2003, $13.0 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 $16.7 million in
the first six months of 2003 was solely as a result of the strengthening
euro. No additional Euro Notes have been issued.

Jones Lang LaSalle and certain of our subsidiaries guarantee the
revolving credit facility and the Euro Notes (the "Facilities"). In
addition, we guarantee the local overdraft facilities of certain
subsidiaries. Third-party lenders request these guarantees to ensure
payment by the Company in the event that one of our subsidiaries fails to
repay its borrowing on an overdraft facility. The guarantees typically have
one-year or two-year maturities. We apply FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"), to
recognize and measure the provisions of future guarantees. The guarantees
of the revolving credit facility, Euro Notes and local overdraft facilities
do not meet the recognition provisions, but do meet the disclosure
requirements of FIN 45. We have local overdraft facilities totaling $40.7
million, of which $13.0 million was outstanding as of June 30, 2003. We
have provided guarantees of $27.7 million related to the local overdraft
facilities, as well as guarantees related to the $225 million revolving
credit facility and the euro 165 million Euro Notes, which in total
represent the maximum future payments that Jones Lang LaSalle could be
required to make under the guarantees provided for subsidiaries' third-
party debt.

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 a minimum
fixed charge coverage ratio. As part of the renegotiation of the revolving
credit facility, the ratios for the funded debt to EBITDA and minimum
interest coverage were revised providing more operating flexibility under
these covenants. In addition, these covenants, along with the fixed charge
coverage ratio, will now exclude the impact of certain of the charges
related to the abandonment of the property management system in Australia
and certain of the charges taken in 2002 related to the Land Investment
Group. We were in compliance with all covenants as of June 30, 2003.
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 in 2002 or in the first six months
of 2003 and none were outstanding as of June 30, 2003. The effective
interest rate on the Facilities was 8.0% for the six months ended June 30,
2003 (versus an effective rate of 7.3% for the same period in 2002). The
increase in the effective interest rate is due to the mix of our borrowings
being more heavily weighted toward the higher coupon Euro Notes.

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
share repurchases.

We expect to continue to pursue co-investment opportunities with our
investment management clients in the Americas, Europe and Asia Pacific. Co-
investment remains important to the continued growth of Investment
Management. As of June 30, 2003, we had total investments and loans of
$71.4 million in 20 separate property or fund co-investments, with
additional capital commitments of $137.7 million for future fundings of co-
investments. With respect to certain co-investment indebtedness, we also
had repayment guarantees outstanding at June 30, 2003 of $5.1 million. The
$137.7 million capital commitment is a commitment to LaSalle Investment
Limited Partnership, referred to as LaSalle Investment Company ("LIC"). We
expect that LIC will draw down on our commitment over the next five to
seven years as it enters into new commitments. LIC is a series of four
parallel limited partnerships and is intended to be our co-investment
vehicle for substantially all new co-investments. We have an effective
47.85% ownership interest in LIC. Primarily institutional real estate
investors, including a significant shareholder in Jones Lang LaSalle, hold
the remaining 52.15% interest in LIC. In addition, our Chairman and another
Director of Jones Lang LaSalle are investors in LIC on equivalent terms to
other investors. Our investment in LIC is accounted for under the equity
method of accounting in the accompanying Consolidated Financial Statements.

At June 30, 2003, LIC has unfunded capital commitments of $67.3 million, of
which our 47.85% share is $32.2 million, for future fundings of co-
investments. LIC currently has no external debt, but plans to enter into a
revolving credit facility for its working capital purposes.

Our net co-investment funding for 2003 is anticipated to be
approximately $5 million (planned co-investment less return of capital from
liquidated co-investments). For the six months ended June 30, 2003, we
have received a net $2.8 million as the return of capital from liquidated
co-investments exceeded funded co-investments for the period.

Capital expenditures are anticipated to be approximately $25 million
for 2003, primarily for ongoing improvements to computer hardware and
information systems.

On October 30, 2002, we announced that our Board of Directors had
approved a share repurchase program. Under the program, Jones Lang LaSalle
may repurchase up to one million shares in the open market and in privately
negotiated transactions from time to time, depending upon market prices and
other conditions. In the fourth quarter of 2002, we repurchased 300,000
shares at an average price of $15.56 per share. No shares have been
repurchased in the first six months of 2003. Given that shares repurchased
under this program are not cancelled, but are held by one of our
subsidiaries, we include them in our equity account. However, these shares
are excluded from our share count for the purposes of calculating earnings
per share.

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

ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

We adopted the provisions of FASB Statement No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS 143"), as of January 1, 2003. SFAS 143
addresses financial accounting and reporting obligations associated with
the retirement of tangible long-lived assets and the associated retirement
costs. The standard applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition,
construction, development and/or normal use of the asset.

SFAS 143 requires that the fair value of the liability for an asset
retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The fair value of the
liability is added to the carrying amount of the associated asset and this
additional carrying amount is depreciated over the life of the asset. The
liability is accreted at the end of each period through charges to
operating expense. If the obligation is settled for other than the carrying
amount of the liability, the Company will recognize a gain or loss on
settlement. Operating leases for space we occupy in certain of our Asian
markets contain obligations that would require us, on termination of the
lease, to reinstate the space to its original condition. We have assessed
our liability under such obligations as required by the adoption of
SFAS 143. This has not had a material impact on our financial statements.

ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

As of January 1, 2003, we adopted SFAS Statement No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" ("SFAS 146") SFAS
146 requires that a liability for costs associated with an exit or disposal
activity he 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.
The adoption has not had a material impact on our financial statements.

For the six months ended June 30, 2003 we recorded $524,000 to the
non-recurring operating, administrative and other expense for additional
lease costs of excess space not yet occupied, reflecting a lease
modification signed in the first quarter of 2003. We are evaluating the
exposure related to the early exit of lease space currently occupied. In
accordance with SFAS 146, any costs related to the early exit of the lease
would be recorded at the time we cease use of the leased space. We
anticipate that we will cease to use this space in 2004, at which point we
would expect to incur a charge which could be significant depending on the
underlying market conditions at that time.

ACCOUNTING AND DISCLOSURE BY GUARANTORS

We apply FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"), which addresses the disclosure to be
made by a guarantor in its interim and annual financial statements about
its obligations under guarantees. The Company has not entered into, or
modified guarantees pursuant to the recognition provisions of FIN 45 that
have had a significant impact on the financial statements during the six
months ended June 30, 2003. Guarantees covered by the disclosure provisions
of FIN 45 are discussed in the "Liquidity and Capital Resources" section
within Item 2., "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained herein.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51" ("FIN 46") . FIN 46 addresses the consolidation by business enterprises
of variable interest entities as defined. FIN 46 applies immediately to
variable interests in variable interest entities created after January 31,
2003. We have not invested in any variable interest entities created after
January 31, 2003. For public enterprises with a variable interest entity
created before February 1, 2003, FIN 46 applies to that enterprise no later
than the beginning of the first interim or annual period beginning after
June 15, 2003. After analyzing the requirements of FIN 46 we have concluded
that we have no variable interest entities created prior to February 1,
2003 that would be subject to the provisions of FIN 46.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET AND OTHER RISK FACTORS

MARKET RISK

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

. Interest rates on borrowings; and

. 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, taking into account investment
opportunities and risks, tax consequences and overall financing strategies.
We are primarily exposed to interest rate risk on the $225.0 million
revolving multi-currency credit facility, due in June 2006, that is
available for working capital, investments, capital expenditures and
acquisitions. This facility bears a variable rate of interest based on
market rates. The interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower the
overall borrowing costs. To achieve this objective, in the past we have
entered into derivative financial instruments such as interest rate swap
agreements when appropriate and may do so in the future. We entered into
no such agreements in 2002 or the first six months of 2003, and none were
outstanding as of June 30, 2003.

The effective interest rate on our debt for the three months ended
June 30, 2003 was 8.0% as compared to a rate of 7.3% for the same period of
2002. The increase in the effective interest rate is due to the mix of our
borrowings being more heavily weighted toward the higher coupon Euro Notes.

FOREIGN EXCHANGE

Revenues outside of the United States were 64% of our total revenues
for the six months ended June 30, 2003. Operating in international markets
means that we are exposed to movements in foreign currency exchange rates,
primarily the British pound (20% of revenues for the six months ended June
30, 2003), the euro (18% of revenues for the six months ended June 30,
2003) and the Australian dollar (8% of revenues for the six months ended
June 30, 2003). Changes in these foreign currency 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 June 30, 2003, we had forward
exchange contracts in effect with a gross notional value of $149.0 million
($74.7 million on a net basis) and a market and carrying gain of
approximately $477,000. The net impact on our earnings during the six
months ended June 30, 2003 of the unrealized gain on foreign currency
contracts, offset by the loss resulting from re-measurement of foreign
currency transactions, was not significant.

DISCLOSURE OF LIMITATIONS

Since the information presented above includes only those exposures
that exist as of June 30, 2003, 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 filings with the United
States of America Securities and Exchange Commission.

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

The Company has contingent liabilities from various pending claims and
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. Although the ultimate liability for
these matters cannot be determined, based upon information currently
available, we believe the ultimate resolution of such claims and litigation
will not have a material adverse effect on our financial position, results
of operations or liquidity.

On November 8, 2002, Bank One N.A. ("Bank One") filed suit against the
Company and certain of its subsidiaries in the Circuit Court of Cook
County, Illinois with regard to services provided in 1999 and 2000 pursuant
to three different agreements relating to facility management, project
development and broker services. The suit alleges negligence, breach of
contract and breach of fiduciary duty on the part of Jones Lang LaSalle and
seeks damages to recover a total of $40 million in compensatory damages and
$80 million in punitive damages. The Company is aggressively defending the
suit and on December 16, 2002 filed a counterclaim for breach of contract
seeking payment of approximately $1.2 million for fees due for services
provided under the agreements. While there can be no assurance as to the
outcome, the Company believes that the complaint is without merit and, as
such, will not have a material adverse effect on our financial position,
results of operations or liquidity. The suits are in their early stages. As
of the date of this report, we are in the process of discovery and no trial
date has been set. As such, the outcome of Bank One's suit cannot be
predicted with any certainty and management is unable to estimate an amount
or range of potential loss that could result if an improbable unfavorable
outcome did occur.

In the third quarter of 2001 we established a reserve of $1.6 million
which we believe is adequate to cover our exposures resulting from the
insolvency of HIH Insurance Ltd. ("HIH"), one of our former insurance
providers. HIH provided public liability coverage to the Australian
operations of the Company for the years from 1994 to 1997, which coverage
would typically provide protection against, among other things, personal
injury claims arising out of accidents occurring at properties for which we
had property management responsibilities. As discussed in Note 3 to Notes
to Consolidated Financial Statements, we reduced the reserve by $0.6
million in the three months ended June 30, 2003. As of June 30, 2003, $0.7
million of the reserve established remained to cover claims which would
have been covered by the insurance provided by HIH. Although there can be
no assurance, we believe this reserve is adequate to cover any remaining
claims and expenses resulting from the HIH insolvency. Due to the nature of
the claims covered by this insurance, it is possible that future claims may
be made.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the annual meeting of stockholders held on May 22, 2003, the
following business was conducted:

A. Stockholders elected three directors as follows:

The following three Class III Directors were elected for a term
expiring at the 2006 annual meeting of stockholders and until
their successors are elected and qualify:

Stuart L. Scott: 22,765,000 votes for and
368,510 withheld

Derek A. Higgs: 21,289,700 votes for and
1,834,810 withheld

Thomas C. Theobald: 21,885,779 votes for and
1,247,731 withheld

B. Stockholders ratified the appointment of KPMG LLP as the
Company's independent auditors for the fiscal year ending
December 31, 2003 as follows:

Votes for: 20,625,444 66.50% of outstanding shares
Votes against: 2,466,699
Votes abstained: 41,367

C. Stockholders approved the stockholder proposal to declassify
the Board of Directors of the Company as follows:

Votes for: 11,366,617 36.65% of outstanding shares
Votes against: 9,381,861
Votes abstained: 18,639

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, 2002 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 May 29 2003, Jones Lang LaSalle filed a Report on Form 8-K
incorporating its May Investor Relations Presentation.

On June 17, 2003, Jones Lang LaSalle filed a Report on
Form 8-K incorporating its June Investor Relations
Presentation.

On June 26, 2003, Jones Lang LaSalle filed a Report on
Form 8-K incorporating its June Investor Relations
Presentation.

On July 31, 2003, Jones Lang LaSalle filed a Report on
Form 8-K incorporating a press release announcing earnings for
the quarterly period ended June 30, 2003.

On August 1, 2003, Jones Lang LaSalle filed a Report on
Form 8-K incorporating its August Investor Relations
Presentation.

SIGNATURE

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: July 30, 2003 BY: /S/ LAURALEE E. MARTIN
------------------------------
Lauralee E. Martin
Executive Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)

EXHIBIT INDEX

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

10.1 Multicurrency Credit Agreement dated June 26, 2003,
attached hereto as Exhibit 10.1.

99.1 Certification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 of Chief Executive Officer dated
July 30, 2003, attached hereto as Exhibit 99.1

99.2 Certification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 of Chief Financial Officer dated
July 30, 2003, attached hereto as Exhibit 99.2

99.3 Certification pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 of Chief Executive Officer and
Chief Financial Officer dated July 30, 2003, attached
hereto as Exhibit 99.3