JONES LANG LASALLE INC - 10-Q Quarterly Report

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

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

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 April 30, 2004
----- ------------------

Common Stock ($0.01 par value) 31,883,405

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

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

Consolidated Balance Sheets as of
March 31, 2004 and December 31, 2003 . . . . . . . . 3

Consolidated Statements of Earnings and
Comprehensive Income for the three months
ended March 31, 2004 and 2003. . . . . . . . . . . . 5

Consolidated Statement of Stockholders' Equity
as of March 31, 2004 . . . . . . . . . . . . . . . . 6

Consolidated Statements of Cash Flows for the
three months ended March 31, 2004 and 2003 . . . . . 8

Notes to Consolidated Financial Statements . . . . . 10

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . 33

Item 3. Quantitative and Qualitative Disclosures
about Market Risk. . . . . . . . . . . . . . . . . . 50

Item 4. Controls and Procedures. . . . . . . . . . . . . . . 51

PART II OTHER INFORMATION

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 52

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

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 54

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS

MARCH 31, 2004 AND DECEMBER 31, 2003
($ in thousands, except share data)

MARCH 31,
2004 DECEMBER 31,
(Unaudited) 2003
------------ -----------
ASSETS
- ------

Current assets:
Cash and cash equivalents. . . . . . . . . $ 22,984 63,105
Trade receivables, net of allowances
of $6,056 and $4,790 in 2004
and 2003, respectively . . . . . . . . . 240,570 253,126
Notes receivable . . . . . . . . . . . . . 4,275 3,698
Other receivables. . . . . . . . . . . . . 11,363 8,317
Prepaid expenses . . . . . . . . . . . . . 17,568 18,866
Deferred tax assets. . . . . . . . . . . . 16,816 18,097
Other assets . . . . . . . . . . . . . . . 10,040 7,731
---------- ---------
Total current assets . . . . . . . 323,616 372,940

Property and equipment, at cost, less
accumulated depreciation of $146,946
and $140,520 in 2004 and 2003,
respectively . . . . . . . . . . . . . . . 68,400 71,621
Goodwill, with indefinite useful lives,
at cost, less accumulated amortization
of $38,416 and $38,169 in 2004
and 2003, respectively . . . . . . . . . . 336,566 334,154
Identified intangibles, with definite
useful lives, at cost, less accumulated
amortization of $36,758 and $35,196
in 2004 and 2003, respectively . . . . . . 12,163 13,454
Investments in and loans to real estate
ventures . . . . . . . . . . . . . . . . . 67,757 71,335
Long-term receivables, net . . . . . . . . . 9,785 13,007
Prepaid pension asset. . . . . . . . . . . . 12,812 11,920
Deferred tax assets. . . . . . . . . . . . . 46,587 43,252
Debt issuance costs, net . . . . . . . . . . 3,825 4,113
Other assets, net. . . . . . . . . . . . . . 11,829 7,144
--------- ----------

$ 893,340 942,940
========= ==========

JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED

MARCH 31, 2004 AND DECEMBER 31, 2003
($ in thousands, except share data)

MARCH 31,
2004 DECEMBER 31,
(Unaudited) 2003
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------

Current liabilities:
Accounts payable and accrued
liabilities. . . . . . . . . . . . . . . $ 89,189 96,466
Accrued compensation . . . . . . . . . . . 89,625 154,317
Short-term borrowings. . . . . . . . . . . 9,528 3,592
Deferred tax liabilities . . . . . . . . . 2,199 2,623
Other liabilities. . . . . . . . . . . . . 41,146 28,414
--------- ----------
Total current liabilities. . . . . 231,687 285,412

Long-term liabilities:
Credit facilities. . . . . . . . . . . . . -- --
9% Senior Euro Notes, due 2007 . . . . . . 203,214 207,816
Deferred tax liabilities . . . . . . . . . 4,011 761
Other. . . . . . . . . . . . . . . . . . . 23,725 17,960
--------- ----------
Total liabilities. . . . . . . . . 462,637 511,949

Commitments and contingencies

Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
31,874,055 and 31,762,077 shares
issued and outstanding as of
March 31, 2004 and December 31,
2003, respectively . . . . . . . . . . . 319 318
Additional paid-in capital . . . . . . . . 528,055 519,438
Deferred stock compensation. . . . . . . . (24,941) (21,649)
Retained deficit . . . . . . . . . . . . . (65,431) (59,346)
Stock held by subsidiary . . . . . . . . . (20,311) (12,846)
Stock held in trust. . . . . . . . . . . . (230) (460)
Accumulated other comprehensive income . . 13,242 5,536
--------- ----------
Total stockholders' equity . . . . 430,703 430,991
--------- ----------
$ 893,340 942,940
========= ==========

See accompanying notes to consolidated financial statements.

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2004 AND 2003
($ in thousands, except share data)
(UNAUDITED)

2004 2003
---------- ----------
Revenue:
Fee based services . . . . . . . . . . . . $ 217,040 184,861
Equity in earnings from unconsolidated
ventures . . . . . . . . . . . . . . . . 2,123 80
Other income . . . . . . . . . . . . . . . 3,623 2,971
---------- ----------
Total revenue. . . . . . . . . . . . 222,786 187,912

Operating expenses:
Compensation and benefits, excluding
non-recurring and restructuring
charges. . . . . . . . . . . . . . . . . 155,064 130,678
Operating, administrative and other,
excluding non-recurring and
restructuring charges. . . . . . . . . . 64,077 54,385
Depreciation and amortization. . . . . . . 8,302 9,690
Non-recurring and restructuring charges:
Compensation and benefits. . . . . . . . (210) (444)
Operating, administrative and other. . . 190 500
---------- ----------
Total operating expenses . . . . . . 227,423 194,809

Operating loss . . . . . . . . . . . (4,637) (6,897)

Interest expense, net of interest income . . 3,814 4,083
---------- ----------
Loss before benefit for income
taxes. . . . . . . . . . . . . . . (8,451) (10,980)

Net benefit for income taxes . . . . . . . . (2,366) (3,733)
---------- ----------
Net loss . . . . . . . . . . . . . . . . . . $ (6,085) (7,247)
========== ==========

Other comprehensive income (loss),
net of tax:
Foreign currency translation
adjustments. . . . . . . . . . . . . . . $ 7,706 (3,077)
Minimum pension liability. . . . . . . . . -- (9,057)
---------- ----------
Comprehensive income (loss). . . . . . . . . $ 1,621 (19,381)
========== ==========

Basic loss per common share. . . . . . . . . $ (0.20) (0.24)
========== ==========
Basic weighted average shares outstanding. . 31,045,367 30,715,364
========== ==========

Diluted loss per common share. . . . . . . . $ (0.20) (0.24)
========== ==========
Diluted weighted average shares
outstanding. . . . . . . . . . . . . . . . 31,045,367 30,715,364
========== ==========

See accompanying notes to consolidated financial statements.

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

THREE MONTHS ENDED MARCH 31, 2004
($ in thousands, except share data)
(UNAUDITED)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2004 AND 2003
($ in thousands)
(UNAUDITED)

2004 2003
---------- ----------
Cash flows from operating activities:
Cash flows from earnings:
Net loss . . . . . . . . . . . . . . . . . $ (6,085) (7,247)
Reconciliation of net loss to
net cash provided by earnings:
Depreciation and amortization. . . . . . 8,302 9,690
Equity in earnings . . . . . . . . . . . (2,123) (80)
Operating distributions from real
estate ventures. . . . . . . . . . . . 1,548 689
Provision for loss on receivables and
other assets . . . . . . . . . . . . . 1,178 839
Amortization of deferred compensation. . 3,544 2,955
Amortization of debt issuance costs. . . 340 332
---------- ----------
Net cash provided by earnings. . . . . 6,704 7,178

Cash flows from changes in
working capital:
Receivables. . . . . . . . . . . . . . . 11,407 34,122
Prepaid expenses and other assets. . . . (2,454) 781
Deferred tax assets . . . . . . . . . . (3,486) 1,049
Accounts payable, accrued liabilities
and accrued compensation . . . . . . . (52,827) (66,936)
---------- ----------
Net cash flows from changes in
working capital. . . . . . . . . . . (47,360) (30,984)
---------- ----------

Net cash used in operating
activities . . . . . . . . . . . . . (40,656) (23,806)

Cash flows provided by (used in)
investing activities:
Net capital additions - property and
equipment. . . . . . . . . . . . . . . . (2,998) (3,805)
Other acquisitions and investments,
net of cash balances assumed . . . . . . -- (1,100)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures . . . . . . . . . (1,900) (550)
Distributions, repayments of advances
and sale of investments. . . . . . . . 5,056 3,239
---------- ----------
Net cash provided by (used in)
investing activities . . . . . . . 158 (2,216)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

THREE MONTHS ENDED MARCH 31, 2004 AND 2003
($ in thousands)
(UNAUDITED)

2004 2003
---------- ----------
Cash flows provided by financing activities:
Proceeds from borrowings under credit
facilities . . . . . . . . . . . . . . . . 23,936 116,623
Repayments of borrowings under credit
facilities . . . . . . . . . . . . . . . . (18,000) (89,990)
Shares repurchased for payment of
taxes on stock awards. . . . . . . . . . . (16) (780)
Shares repurchased under share repurchase
program. . . . . . . . . . . . . . . . . . (7,465) --
Common stock issued under stock option
plan and stock purchase programs . . . . . 1,922 --
---------- ----------
Net cash provided by
financing activities . . . . . . . . 377 25,853
---------- ----------
Net decrease in cash and
cash equivalents . . . . . . . . . . (40,121) (169)

Cash and cash equivalents,
beginning of period. . . . . . . . . . . . . 63,105 13,654
---------- ----------
Cash and cash equivalents, end of period . . . $ 22,984 13,485
========== ==========

Supplemental disclosure of cash flow
information:

Cash paid (received) during the period for:
Interest . . . . . . . . . . . . . . . . . $ (391) 209
Taxes, net of refunds. . . . . . . . . . . 2,015 1,525

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, 2003, which are included in Jones
Lang LaSalle's 2003 Annual Report on Form 10-K, filed with the United
States Securities and Exchange Commission and also available on our website
(www.joneslanglasalle.com), since we have omitted from this report certain
footnote disclosures which would substantially duplicate those contained in
such audited financial statements. You should also refer to the "Summary
of Critical Accounting Policies and Estimates" section within Item 2.,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contained herein, for further discussion of our accounting
policies and estimates.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTERIM INFORMATION

Our consolidated financial statements as of March 31, 2004 and for
the three months ended March 31, 2004 and 2003 are unaudited;
however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair
presentation of the consolidated financial statements for these
interim periods have been included. Historically, our revenue,
operating income and net earnings in the first three calendar
quarters are substantially lower than in the fourth quarter. Other
than for the Investment Management segment, this seasonality is due
to a calendar-year-end focus on the completion of real estate
transactions, which is consistent with the real estate industry
generally. The Investment Management segment earns performance fees
on clients' returns on their real estate investments. Such
performance fees are generally earned when assets are sold, the
timing of which is geared towards the benefit of our clients. As
such, the results for the periods ended March 31, 2004 and 2003 are
not indicative of the results to be obtained for the full fiscal
year.

EARNINGS PER SHARE

For the three months ended March 31, 2004 and 2003, we calculated
basic and diluted losses per common share based on basic weighted
average shares outstanding of 31.0 million and 30.7 million,
respectively. As a result of the net losses incurred for these
periods, diluted weighted average shares outstanding do not give
effect to common stock equivalents, since to do so would be anti-
dilutive. These common stock equivalents consist principally of
shares to be issued under employee stock compensation programs and
outstanding stock options whose exercise price was less than the
average market price of our stock during these periods. In addition,
we did not include in the weighted average shares for the three
months ended March 31, 2004 and 2003, 994,800 shares and 300,000
shares, respectively, that were repurchased and 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 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 of 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.

Our global effective tax rate is sensitive to the complexity of our
operations as well as to changes in the mix of our geographic
profitability, as local statutory tax rates range from 10% to 42% in
the countries in which we have significant operations. We evaluate
our estimated effective tax rate on a quarterly basis to reflect
forecasted changes in: (i) our geographic mix of income, (ii)
legislative actions on statutory tax rates, (iii) the impact of tax
planning to reduce losses in jurisdictions where we cannot recognize
the tax benefit of those losses, and (iv) tax planning for
jurisdictions affected by double taxation. We continuously seek to
develop and implement potential strategies and/or actions that would
reduce our overall effective tax rate. We reflect the benefit from
tax planning actions when we believe it is probable that they will be
successful, which usually requires that certain actions have been
initiated. We provide for the effects of income taxes on interim
financial statements based on our estimate of the effective tax rate
for the full year. Based on our forecasted results we have estimated
an effective tax rate of 28% for 2004. While there can be no
assurance that we will achieve an effective tax rate of 28% in 2004,
we believe that this is an achievable rate due to the impact of
consistent and effective tax planning. For the three months ended
March 31, 2003, we used an estimated effective tax rate of 34% on
recurring operations. We ultimately achieved an effective tax rate of
27.7% on recurring operations in 2003, which excluded: (i) a specific
tax benefit of $2.2 million related to non-recurring and restructur
ing items, and (ii) a tax benefit of $3.0 million related to a write
down of an e-commerce investment taken as a restructuring action in
2001, which was not originally expected to be deductible, but which,
as a result of actions undertaken in 2003, was deemed deductible.

STOCK-BASED COMPENSATION

The Jones Lang LaSalle Amended and Restated Stock Award and Incentive
Plan ("SAIP"), adopted in 1997 and amended and restated in February
2004, 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 program. 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"). These
provisions allow 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. We have recognized other stock awards, which we
granted at prices below the market value of our common stock on the

date of grant, as compensation expense over the vesting period of
those awards pursuant to APB 25. The following table provides net
loss and pro forma net loss per common share as if the fair value
based method had been applied to all awards ($ in thousands, except
share data):

March 31, March 31,
2004 2003
--------- ---------

Net loss, as reported. . . . . . . . . . . . . $ (6,085) (7,247)
Add: Stock-based employee compensation
expense included in reported net loss,
net of related tax effects . . . . . . . . . 2,303 1,795
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects . . . . . . . . . (2,514) (2,174)
-------- --------

Pro forma net loss . . . . . . . . . . . . . . $ (6,296) (7,626)
======== ========
Net loss per share:
Basic - as reported. . . . . . . . . . . . . $ (0.20) (0.24)
======== ========
Basic - pro forma. . . . . . . . . . . . . . $ (0.20) (0.25)
======== ========

Diluted - as reported. . . . . . . . . . . . $ (0.20) (0.24)
======== ========
Diluted - pro forma. . . . . . . . . . . . . $ (0.20) (0.25)
======== ========

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.

As a firm, we do not enter into derivative financial instruments for
trading or speculative purposes. However, in the normal course of
business we do use derivative financial instruments in the form of
forward foreign currency exchange contracts to manage foreign
currency risk. At March 31, 2004, we had forward exchange contracts
in effect with a gross notional value of $267.0 million ($204.7
million on a net basis) and a market and carrying gain of
approximately $2.6 million.

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 2003 or in the first
three months of 2004 and there were no such agreements outstanding as
of March 31, 2004.

We require that hedging derivative instruments be effective in
reducing the exposure that they are designated to hedge, which is
necessary in order 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.

We hedge any foreign currency exchange risk resulting from
intercompany loans through the use of foreign currency forward
contracts. SFAS 133 requires that we recognize unrealized gains and
losses on these derivatives 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 months ended March 31, 2004 of the
unrealized gain on foreign currency contracts, offset by the loss
resulting from re-measurement of foreign currency transactions, was
not significant.

In connection with a previous investment in an unconsolidated real
estate venture, we were granted certain residual "Common Share
Purchase Rights" that gave us the ability to purchase shares in a
publicly traded real estate investment trust at a fixed price. These
rights, which extended through April of 2008, were a non-hedging
derivative instrument and should have been recorded at fair value as
part of the adoption of SFAS 133 effective January 1, 2001, with
subsequent changes in fair value reflected in equity earnings. The
initial accounting for these common share purchase rights through
June 30, 2003 was not in accordance with the rules of SFAS 133 due to
an inadvertent error as a result of the complexity of this unique
derivative. The fair value of these common share purchase rights was
recorded in the third quarter of 2003. We determine fair value
through the use of the Black Scholes option pricing model. The fair
value of these common share purchase rights at December 31, 2003 was
$1.4 million. During the first quarter of 2004, market conditions
became favorable for us to begin disposing of these common share
purchase rights. The disposition began during the last few trading
days of the first quarter of 2004 and was completed during the first
few trading days of the second quarter. We recorded an increase in
fair value of $220,000 to equity earnings during the first quarter,
based on the net disposition gain, as the net sales proceeds were our
best estimate of the current value of the common share purchase
rights. We do not own any other instruments of this nature.

REVENUE RECOGNITION

We recognize advisory and management fees in the period in which we
perform the service. Transaction commissions are recognized as income
when we provide the service unless future contingencies exist. If
future contingencies exist, we defer recognition of this revenue
until the respective contingencies are satisfied. 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
in Financial Statements" ("SAB 101"), as amended by SAB 104, 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, as amended by
SAB 104.

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 which define us as an agent rather than a
principal: (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 $105.2 million
and $97.9 million for the three months ended March 31, 2004 and 2003,
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 for damages that are substantial in
amount. Many of these matters are covered by insurance, although they
may nevertheless be subject to large deductibles or retentions and
the amounts being claimed may exceed the available insurance.
Although the ultimate liability for these matters cannot be
determined, based upon information currently available, we believe
the ultimate resolution of such claims and litigation will not have a
material adverse effect on our financial position, results of
operations or liquidity.

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
generally alleged negligence, breach of contract and breach of
fiduciary duty on the part of Jones Lang LaSalle and sought to
recover a total of $40 million in compensatory damages and $80
million in punitive damages. On December 16, 2002, the Company filed
a counterclaim for breach of contract seeking payment of
approximately $1.2 million for fees due for services provided under
the agreements. On December 16, 2003, the court granted the Company's
motion to strike the complaint because, after completion of
significant discovery, Bank One had been unable to substantiate its
allegations that it suffered damages of $40 million as it had
previously claimed. Bank One was authorized to file an amended
complaint that seeks to recover compensatory damages in an
unspecified amount, plus an unspecified amount of punitive damages.
The amended complaint also includes allegations of fraudulent
misrepresentation, fraudulent concealment and conversion. The court
has currently set November 29, 2004 as the date the trial is to
begin. The Company continues to aggressively defend the suit. While
there can be no assurance, the Company continues to believe that the
complaint is without merit and, as such, will not have a material
adverse impact on our financial position, results of operations, or
liquidity. As of the date of this report, we are in the process of
discovery. As such, although we still have not seen or heard
anything that leads us to believe that the suit has merit, 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
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 Jones Lang

Wootton 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 of March 31,
2004, $0.6 million of the reserve established remains 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.

(2) BUSINESS SEGMENTS

We manage our business along a combination of functional and
geographic lines. We report our operations as four business segments:
(i) Investment Management, which offers Real Estate Money Management
services on a global basis, and the three geographic regions of
Investor and Occupier Services ("IOS"): (ii) Americas, (iii) Europe
and (iv) Asia Pacific, each of which offers our full range of Real
Estate Investors Services, Real Estate Capital Markets and Real
Estate Occupier Services. The Investment Management segment provides
Real Estate Money Management services to institutional investors and
high-net-worth individuals. The IOS business consists primarily of
tenant representation and agency leasing, capital markets and
valuation services (collectively "implementation services") and
property management, facilities management services, project and
development services (collectively "management services").

Total revenue by 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 assesses performance for
incentive compensation purposes before the impact of these charges.
We define the Chief Operating Decision Maker collectively as our
Global Executive Committee, which is comprised of our Global Chief
Executive Officer, Global Chief Financial Officer and the Chief
Executive Officers of each of our reporting segments.

The following table summarizes unaudited financial information by
business segment for the three months ended March 31, 2004 and 2003
($ in thousands):

Segment
Operating Results
--------------------
March 31,
--------------------
2004 2003
-------- --------
INVESTOR AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services. . . . . . . . . . $ 24,076 21,601
Management services. . . . . . . . . . . . 37,991 36,968
Equity earnings. . . . . . . . . . . . . . 467 --
Other services . . . . . . . . . . . . . . 1,277 886
Intersegment revenue . . . . . . . . . . . 82 69
-------- --------
63,893 59,524
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . 61,115 56,416
Depreciation and amortization. . . . . . . 3,663 4,659
-------- --------
Operating loss . . . . . . . . . . . . $ (885) (1,551)
======== ========

EUROPE
Revenue:
Implementation services. . . . . . . . . . $ 65,631 48,789
Management services. . . . . . . . . . . . 22,398 20,920
Other services . . . . . . . . . . . . . . 1,879 1,593
-------- --------
89,908 71,302
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . 89,030 69,981
Depreciation and amortization. . . . . . . 2,779 2,765
-------- --------
Operating loss . . . . . . . . . . . . $ (1,901) (1,444)
======== ========
ASIA PACIFIC
Revenue:
Implementation services. . . . . . . . . . $ 19,173 15,005
Management services. . . . . . . . . . . . 20,662 17,095
Other services . . . . . . . . . . . . . . 348 463
-------- --------
40,183 32,563
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . 43,194 35,857
Depreciation and amortization. . . . . . . 1,556 1,944
-------- --------
Operating loss . . . . . . . . . . . . $ (4,567) (5,238)
======== ========
INVESTMENT MANAGEMENT -
Revenue:
Implementation and
other services . . . . . . . . . . . . . $ 1,464 1,797
Advisory fees. . . . . . . . . . . . . . . 25,696 22,154
Incentive fees . . . . . . . . . . . . . . 68 561
Equity earnings. . . . . . . . . . . . . . 1,656 80
-------- --------
28,884 24,592
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . 25,884 22,878
Depreciation and amortization. . . . . . . 304 322
-------- --------
Operating income . . . . . . . . . . . $ 2,696 1,392
======== ========

Segment
Operating Results
--------------------
March 31,
--------------------
2004 2003
-------- --------

Total segment revenue. . . . . . . . . . . . . $222,868 187,981
Intersegment revenue eliminations. . . . . . . (82) (69)
-------- --------
Total revenue. . . . . . . . . . . . . $222,786 187,912
======== ========

Total segment operating expenses . . . . . . . $227,525 194,822
Intersegment operating
expense eliminations . . . . . . . . . . . . (82) (69)
-------- --------
Total operating expenses
before non-recurring
charges. . . . . . . . . . . . . . . $227,443 194,753
======== ========
Non-recurring charges. . . . . . . . . $ (20) 56
======== ========

Operating loss . . . . . . . . . . . . $ (4,637) (6,897)
======== ========

(3) NON-RECURRING AND RESTRUCTURING CHARGES

For the three months ended March 31, 2004, we recorded a credit of
$210,000 to non-recurring compensation and benefits expense and a
charge of $190,000 to non-recurring operating, administrative and
other expense. For the three months ended March 31, 2003, we recorded
a credit of $444,000 to non-recurring compensation and benefits
expense and a charge of $500,000 to non-recurring operating,
administrative and other expense. This activity consists of the
following elements ($ in thousands):

March 31,
-------------------
2004 2003
-------- --------
Non-Recurring & Restructuring
-----------------------------

Abandonment of Property Management
Accounting System:
Compensation & Benefits. . . . . . . . . . . $ -- --
Operating, Administrative & Other. . . . . . 190 --

2001 Global Restructuring Program:
Compensation & Benefits. . . . . . . . . . . (35) --
Operating, Administrative & Other. . . . . . -- --

2002 Global Restructuring Program:
Compensation & Benefits. . . . . . . . . . . (175) (444)
Operating, Administrative & Other. . . . . . -- 500
-------- --------
Total Non-Recurring & Restructuring. . . . . . $ (20) 56
======== ========

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
concluded that the potential benefits from successfully correcting
deficiencies in the system that would allow it to be implemented
throughout Australia were not justified by the costs that would have
to be incurred to do so. As a result of this decision, we recorded a
charge of $5.1 million to non-recurring expense in 2003. The charge
of $5.1 million includes $113,000 related to severance costs of
personnel who worked exclusively on the system and $218,000 for
professional fees associated with pursuing litigation against the
consulting firm that was responsible for the design and
implementation of this system. In the first quarter of 2004 we
recorded an additional $190,000 to non-recurring expense for legal
expenses incurred in connection with this litigation. We anticipate
incurring additional litigation expenses over the balance of the year
as we continue to move through the litigation process. We
implemented a transition plan to an existing alternative system and
have used this system from July 1, 2003.

BUSINESS RESTRUCTURING

Business restructuring charges include severance and professional
fees associated with the realignment of our business. In 2001, the
Asia Pacific business underwent a realignment from a traditional
geographic structure to one that is managed according to business
lines. In addition, in the second half of 2001 we implemented a broad
based restructuring of our global business that reduced headcount by
approximately nine percent. The total charge for the full year of
2001 for estimated severance and related costs was $43.9 million.
Included in the $43.9 million was $40.0 million of severance costs
and approximately $3.0 million of professional fees. The balance of
$900,000 included relocation and other severance related expenses. Of
the estimated $43.9 million (adjusted down to $42.6 million for
reasons stated below), $41.5 million had been paid at March 31, 2004,
with a further $1.1 million to be paid over the next several years as
required by labor laws.

In December 2002, we reduced our workforce by four percent to meet
expected global economic conditions. As such, we recorded $12.7
million in non-recurring compensation and benefits expense related to
severance and certain professional fees, and $632,000 in non-
recurring operating, administrative and other expense in 2002,
primarily related to the lease cost of excess space. Of the estimated
$12.7 million (adjusted down to $10.5 million in 2003 for reasons
stated below), $9.5 million had been paid at March 31, 2004, with the
remaining $1.0 million to be paid by the end of 2004.

The actual costs incurred related to these business restructurings
have varied by individual from our original estimates for a variety
of reasons, including the identification of additional facts and
circumstances, the complexity of international labor law,
developments in the underlying business, resulting in the unforeseen
reallocation of resources and better or worse than expected
settlement discussions. As a result of the above, we have credited
$210,000 back to the non-recurring compensation and benefit line in
the first quarter of 2004.

The following table displays the net charges (credits) by segment for
the three months ended March 31, 2004 and 2003 ($ in thousands):

March 31,
-------------------
2004 2003
-------- --------

Non-Recurring & Restructuring
-----------------------------
Investor and Occupier Services:
Americas . . . . . . . . . . . . . . . . . . $ (175) --
Europe . . . . . . . . . . . . . . . . . . . (35) 56
Asia Pacific . . . . . . . . . . . . . . . . 190 --
Investment Management. . . . . . . . . . . . . -- --
Corporate. . . . . . . . . . . . . . . . . . . -- --
-------- --------
Total Non-Recurring & Restructuring. . . . . . $ (20) 56
======== ========

(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 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 IOS, Australia
IOS, Asia IOS, and by country groupings in Europe IOS. We completed
the 2003 evaluation in the third quarter of 2003 and concluded that
the fair value of each reporting unit exceeded its carrying amount
and therefore we did not recognize an impairment loss. There were no
triggering events since this evaluation that would have required an
impairment evaluation. We anticipate completing the 2004 annual
impairment evaluation in the third quarter of 2004.

We have $348.7 million of unamortized intangibles and goodwill as of
March 31, 2004, that are subject to the provisions of SFAS 142. A
significant portion of these unamortized intangibles and goodwill are
denominated in currencies other than U.S. dollars, which means that a
portion of the movements in the reported book value of these balances
are attributable to movements in foreign currency exchange rates.
The tables below set forth further details on the foreign exchange
impact on intangible and goodwill balances. Of the $348.7 million of
unamortized intangibles and goodwill, $336.5 million represents
goodwill with indefinite useful lives, which we ceased amortizing
January 1, 2002. The remaining $12.2 million of identified
intangibles (principally representing management contracts acquired)
will be amortized over their remaining definite useful lives (with a
maximum of three years remaining).

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

Investor and Occupier Services Invest-
------------------------------ ment
Asia Manage- Consol-
Americas Europe Pacific ment idated
-------- -------- -------- -------- --------
Gross Carrying
Amount
- --------------
Balance as of
January 1, 2004. . . $179,354 65,200 93,577 34,192 372,323

Impact of exchange
rate movements . . . -- 1,184 652 823 2,659
-------- -------- -------- -------- --------
Balance as of
March 31, 2004 . . . $179,354 66,384 94,229 35,015 374,982

Accumulated
Amortization
- ------------
Balance as of
January 1, 2004. . . $(15,531) (5,254) (6,619) (10,765) (38,169)

Impact of exchange
rate movements . . . -- (63) (48) (136) (247)
-------- -------- -------- -------- --------
Balance as of
March 31, 2004 . . . $(15,531) (5,317) (6,667) (10,901) (38,416)

Net book value as
of March 31, 2004. . $163,823 61,067 87,562 24,114 336,566
======== ======== ======== ======== ========

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).

Investor and Occupier Services Invest-
------------------------------ ment
Asia Manage- Consol-
Americas Europe Pacific ment idated
-------- -------- -------- -------- --------
Gross Carrying
Amount
- --------------
Balance as of
January 1, 2004 . . . $ 39,364 911 3,057 5,318 48,650

Impact of exchange
rate movements. . . . -- 31 60 180 271
-------- -------- -------- -------- --------
Balance as of
March 31, 2004. . . . $ 39,364 942 3,117 5,498 48,921

Investor and Occupier Services Invest-
------------------------------ ment
Asia Manage- Consol-
Americas Europe Pacific ment idated
-------- -------- -------- -------- --------
Accumulated
Amortization
- ------------
Balance as of
January 1, 2004 . . . $(27,274) (598) (2,006) (5,318) (35,196)

Amortization expense
- Q1. . . . . . . . . (1,192) (29) (97) -- (1,318)
Impact of exchange
rate movements. . . . -- (25) (39) (180) (244)
-------- -------- -------- -------- --------
Balance as of
March 31, 2004. . . . $(28,466) (652) (2,142) (5,498) (36,758)

Net book value as
of March 31, 2004 . . $ 10,898 290 975 -- 12,163
======== ======== ======== ======== ========

ESTIMATED ANNUAL AMORTIZATION EXPENSE
Remaining 2004 Amortization $3.9 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. 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

We apply FASB Statement No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"), which 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 of SFAS 146 has not had a material
impact on our financial statements.

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 three months ended March 31, 2004.
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 December 2003, the FASB issued Interpretation No. 46 (revised
December 2003), "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51" ("FIN 46-R"), which addresses how a
business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting
rights, and accordingly should consolidate the entity. FIN 46-R
replaces FASB Interpretation No. 46, which was issued in January
2003. The provisions of FIN 46-R are to be applied to all entities
subject to the Interpretation effective the first interim period
ending after March 15, 2004. The adoption of FIN 46-R has not had a
material impact on our financial statements.

ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF
BOTH LIABILITIES AND EQUITY

In May 2003, the FASB issued Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards
for how an issuer classifies and measures in its statement of
financial position certain financial instruments with characteristics
of both liabilities and equity. SFAS 150 requires issuers to
classify as liabilities (or assets in some circumstances) three
classes of freestanding financial instruments that embody obligations
for the issuer, specifically: (i) a mandatorily redeemable financial
instrument, (ii) an obligation to repurchase the issuer's equity, and
(iii) certain obligations to issue a variable number of shares.
SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003.
The FASB is in the process of providing additional guidance related
to SFAS 150. The effective date has been deferred indefinitely for
certain types of mandatorily redeemable financial instruments. At
this time we do not believe that we have any financial instruments
that are subject to the standards of SFAS 150.

(6) RETIREMENT PLANS

We maintain contributory defined benefit pension plans in the United
Kingdom, Ireland and Holland 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.

In the twelve months ended December 31, 2003, we made $3.1 million of
contributions to these plans, of which $0.2 million was contributed
by March 31, 2003. Our estimated contributions to these plans for
the twelve months ended December 31, 2004 are $4.0 million, $0.9
million of which has been contributed at March 31, 2004. The
following table details the components of our net periodic pension
cost.

THREE MONTHS ENDED
MARCH 31,
------------------
2004 2003
------ ------
Net periodic pension cost:
Employer service cost. . . . . . . . . . . . $ 701 542
Interest cost on projected benefit
obligations. . . . . . . . . . . . . . . . 1,794 1,505
Expected return on plan assets . . . . . . . (2,203) (1,642)
Net amortization/deferrals . . . . . . . . . 9 8
Recognized actual loss . . . . . . . . . . . -- 126
------ ------
Total net periodic pension cost. . . . . $ 301 539
====== ======

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. As part of
the curtailment we were statutorily required to provide a minimum
level of future benefit increase, which caused our accumulated
benefit obligation to increase by $7.9 million at January 1, 2003.
After the curtailment the accumulated benefit obligation exceeded the
fair value of plan assets, which meant that, in the first quarter of
2003, 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. At
December 31, 2003, as a result of the return on plan assets and our
pound sterling 1 million ($1.8 million) contribution to the plan, the
fair value of the United Kingdom pension plan assets were greater
than our accumulated benefit obligation under the plan. As required,
we removed our minimum pension liability.

(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 FASB Statement
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), when evaluating these investments for
impairment, including impairment evaluations of the individual assets
held by the investment funds. We have recorded impairment charges to
equity earnings of $228,000 for the three months ended March 31,
2004, representing our equity share of the impairment charge against
individual assets held by these funds. There were no similar charges
for the three months ended March 31, 2003.

(8) SHARE REPURCHASE

On February 27, 2004, we announced that our Board of Directors had
approved a share repurchase program. Under the program, we are
authorized to repurchase up to 1.5 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. We repurchased 294,800 shares under this program
in the first quarter of 2004 at an average share price of $25.35.

The 2004 repurchase program replaces a program put in place in
October 2002, under which we were authorized to repurchase up to 1
million shares. We repurchased 700,000 shares under the 2002
repurchase program.

The repurchase of shares is primarily intended to offset dilution
resulting from both stock and stock option grants made under the
Firm's existing stock plans. Given that shares repurchased under
these programs are not cancelled, but are held by one of our
subsidiaries, we include them in our equity account. However, these
shares are excluded from our share count for purposes of calculating
earnings per share.

(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"). On May 4, 2004, we issued an irrevocable
Notice of Redemption to the holders of the Euro Notes to redeem on
June 15, 2004 all of the outstanding Euro Notes at a redemption price
of 104.5% of principal. 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 March 31, 2004 and December 31, 2003, Condensed Consolidating
Statement of Earnings for the three months ended March 31, 2004 and
2003, and Condensed Consolidating Statement of Cash Flows for the
three months ended March 31, 2004 and 2003 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 we believe that separate financial
statements and other disclosures regarding the Guarantor Subsidiaries
are not material to investors. In general, historically, we have
entered into third party borrowings, financing our 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.

JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2004
($ in thousands)

CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2003
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

For the Three Months Ended March 31, 2004
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

For the Three Months Ended March 31, 2003
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Three Months Ended March 31, 2004
($ in thousands)

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Three Months Ended March 31, 2003
($ 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 months
ended March 31, 2004, included herein, and Jones Lang LaSalle's audited
consolidated financial statements and notes thereto for the fiscal year
ended December 31, 2003, which have been filed with the United States
Securities and Exchange Commission as part of our 2003 Annual Report on
Form 10-K and are also available on our website (www.joneslang
lasalle.com).

Management's Discussion and Analysis is presented in the following
six sections:

. Executive summary, including how we create value for our
stakeholders,

. Summary of critical accounting policies and estimates,

. Certain items affecting comparability of results,

. Analysis of the results of operations, first on a consolidated
basis and then for each of our business segments,

. Analysis of our consolidated cash flows and

. Liquidity and capital resources

EXECUTIVE SUMMARY

BUSINESS OBJECTIVES AND STRATEGIES

We define our stakeholders as the clients we serve, the people we
employ and the shareholders who invest in our Company. We create value for
these stakeholders by utilizing the expertise of our employees to deliver
services to our clients that are acknowledged as adding value, as witnessed
by the repeat or expanded product requests they make and the strategic
alliances we have formed. The services we provide require "on the ground"
expertise in local real estate markets - expertise provided by research of
market conditions and trends, expertise in buildings and locations, and
expertise in competitive conditions. This real estate expertise is at the
heart of the history and strength of the Jones Lang LaSalle brand. We
enhance this local market expertise with a global team of research
professionals, with the best practice processes we have developed and
delivered repetitively for our clients and by the technology investments
that support these best practices. Our key differentiating factor is our
global reach and service footprint.

Our principal asset is the talent and the expertise of our people.
We seek to support our service based culture through a compensation system
that (1) rewards superior client service performance, not just transaction
activity, and (2) includes a meaningful long-term compensation component.
We invest in training and believe in optimizing our talent base by internal
advancement. We believe that our people deliver our services with the
experience and expertise to maintain a balance of strong profit margins for
the Firm and competitive value-added pricing for our clients, while
achieving competitive compensation levels.

Our business is services, and therefore we are not capital intensive.

As a result, our profits also produce strong cash returns for our
shareholders. Over the last three years, we have used this cash primarily
(1) to significantly pay down debt; (2) to invest for growth in important
markets in New York, central and southern Europe, India and North Asia; and
(3) to ensure that appropriate compensation levels are maintained in our
more developed markets. We believe value is enhanced by investing
appropriately in growth opportunities, maintaining our market position in
developed markets and in keeping our balance sheet strong.

The services we deliver are managed as business strategies to enhance
the synergies and expertise of our people. The principal businesses we are
involved in are:

. Real Estate Investor Services

. Real Estate Occupier Services

. Real Estate Capital Markets

. Real Estate Money Management

The market knowledge we develop in our real estate services and real
estate capital markets helps us identify investment opportunities and
capital sources for our money management clients. Consistent with our
fiduciary responsibilities, the investments we make or structure on behalf
of our money management clients helps us identify new business
opportunities for our real estate services and real estate capital markets
businesses.

BUSINESSES

REAL ESTATE INVESTOR SERVICES - The real estate services we offer
range from critical but basic process services, such as property
management, to sophisticated and complex transactional services, such as
leasing, that realize real estate values. The skill set required to
succeed in this environment includes financial knowledge coupled with the
delivery of market and property operating organizations, on-going
technology investment, and strong cash controls, as the business is a
fiduciary for client funds. The revenue streams associated with basic
process services have annuity characteristics and tend to be less impacted
by underlying economic conditions. The revenue stream associated with
sophisticated and complex transactional services is generally transaction-
specific and conditioned upon the successful completion of the transaction.

We compete in this area with traditional real estate and property firms.
We differentiate ourselves on the basis of qualities such as our local
presence aligned with our global platform, our research capability, our
technology platform, and our ability to innovate via new products and
services.

REAL ESTATE OCCUPIER SERVICES - Our Occupier Services product
offerings have leveraged our real estate services into best practice
operations and process capabilities that we can offer corporate clients.
The value added to clients is a transformation of their real estate assets
into an integral part of their core business strategies, delivered at more
effective cost. The Firm's client relationship model drives the business
success as delivery of one product successfully sells the next and on-going
services. The skill set required to succeed in this environment includes
financial and project management, and for some products, engineering. We
compete in this area with traditional real estate and property firms. We
differentiate ourselves on the basis of qualities such as our global
platform, our research capability, our technology platform, and our ability
to innovate via new products and services. Our strong strategic focus also
provides a highly effective point of differentiation to our competitors.
We have seen the demand for occupier services by global corporations
increase, and we expect this trend to continue as these businesses seek to
refocus on their core competencies.

REAL ESTATE CAPITAL MARKETS - Our capital markets product offerings
include institutional property sales and acquisitions, real estate
financings, private equity placements, portfolio advisory activities, and
corporate finance advice and execution. The skill set required to succeed
in this environment includes knowledge of real estate value and financial
knowledge coupled with delivery of local market expertise. Our investment
banking services require client relationship skills and consulting
capabilities as we act as our client's trusted advisor. The level of demand

for these services is impacted by general economic conditions. Our fee
structure is generally transaction-specific and conditioned upon the
successful completion of the transaction. We compete with consulting and
investment banking firms for corporate finance and capital markets
transactions. We differentiate ourselves on the basis of qualities such as
our global platform, our research capability, our technology platform, and
our ability to innovate new products and services.

MONEY MANAGEMENT - LaSalle Investment Management provides real estate
money management services for large institutions, both in specialized funds
and separate account vehicles, as well as for managers of funds. Investing
money on behalf of clients requires not just asset selection, but also
asset value activities to enhance the asset's performance. The skill set
required to succeed in this environment includes knowledge of real estate
values - opportunity identification (research), individual asset selection
(acquisitions), asset value creation (portfolio management), and investor
relations. Our competitors in this area tend to be quite different -
investment banks, fund managers and other financial services firms - but
they commonly lack the "on the ground" real estate expertise that our
global platform provides. We are compensated for our services through a
combination of recurring advisory fees that are asset-based, together with
incentive fees based on underlying investment return to our clients, which
are generally recognized when agreed upon events or milestones are reached.

We have been successful in transitioning the mix of our fees for this
business to the more annuity revenue category of advisory fees.
Additionally, our strengthened balance sheet, and continued cash
generation, position us for expansion in co-investment activity, which we
believe will accelerate our growth in assets under management.

SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

An understanding of our accounting policies is necessary for a
complete analysis of our results, financial position, liquidity and trends.
The preparation of our financial statements requires management to make
certain critical accounting estimates that impact the stated amount of
assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amount of revenues
and expenses during the reporting periods. These accounting estimates are
based on management's judgment and are considered to be critical because of
their significance to the financial statements and the possibility that
future events may differ from current judgments, or that the use of
different assumptions could result in materially different estimates. We
review these estimates on a periodic basis to ensure reasonableness.
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"), as amended
by SAB 104, 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, as amended by SAB 104.

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 which define us as an
agent rather than a principal: (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 $105.2 million and $97.9 million for the three months
ended March 31, 2004 and 2003, respectively. This treatment has no impact
on operating income (loss), net income (loss) or cash flows.

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, 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. 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 three
months ended March 31, 2004 and 2003 ($ in millions).

Allowance
Accounts for Year-
Receivable Uncollec- to-Date
Gross More Than tible Bad
Accounts 90 Days Accounts Maximum Minimum Debt
Receivable Past Due Receivable Allowance Allowance Expense
---------- ---------- ---------- --------- --------- -------
March 31,
2004 $ 246.6 10.3 6.1 8.7 4.3 1.2

March 31,
2003 $ 199.8 7.2 5.0 6.3 3.2 0.8

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. We
continue to refine our global incentive compensation program to provide our
employees an increased "line of sight" between their performance and
incentive compensation.

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 stock units vest in two parts: 50% at 18 months and 50%
at 30 months from the date of grant (January of the year following that for
which the bonus was earned). 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 relates, plus
the periods over which the stock vests. 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.

Previously we accounted for the current year impact of this program
in the fourth quarter (namely, the enhancement, the deferral and the
related amortization) because of the uncertainty around the terms and
conditions of the stock ownership program and because the majority of our
incentive compensation is accrued in the fourth quarter. Due to the
maturity of the program and the commitment to its terms and conditions by
the Company and the Compensation Committee of the Board of Directors, we
decided to begin accounting for the earned portion of this compensation
program on a quarterly basis, starting in the third quarter of 2003. We
recognize the benefit of the stock ownership program in a manner consistent
with the accrual of the underlying incentive compensation expense. As
such, we reduced accrued incentive compensation expense by a net $913,000
in the first quarter of 2004, reflecting the earned portion of the stock
ownership program for the first three months of 2004. There was no similar
reduction of accrued incentive compensation for the three months ended
March 31, 2003.

We determine, announce and pay incentive compensation in the first
quarter of the year following that to which the incentive compensation
relates, at which point we true-up the estimated stock ownership program
deferral and related amortization. We believe our methodology in estimating
this deferral produces satisfactory results. The table below sets forth
the deferral estimated at year-end and the adjustment made in the first
quarter of the following year to true-up the deferral and related
amortization ($ in millions):
December 31, December 31,
2003 2002
------------ ------------
Deferral net of related
amortization expense . . . . . . . . . . . $6.7 $5.0

Increase (decrease) to deferred
compensation in the first quarter
of the following year. . . . . . . . . . . (0.4) (0.4)

The table below sets out the amortization expense related to the
stock ownership program for the three months ended March 31, 2004 and 2003
($ in millions):

THREE MONTHS ENDED
MARCH 31,
------------------
2004 2003
---- ----
Current compensation expense amortization for
prior year programs. . . . . . . . . . . . . . . . $2.0 $1.6

Current deferral net of related amortization . . . . (0.9) --

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
impairment evaluations of the individual assets held by the investment
funds. We have recorded impairment charges in equity earnings of $228,000
for the three months ended March 31, 2004, representing our equity share of
the impairment charge against individual assets held by these funds. There
were no similar charges for the three months ended March 31, 2003.

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 IOS, Australia IOS, Asia IOS, and by country groups in Europe IOS.
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 2003 evaluation performed in the third
quarter of 2003 was that the fair value of each reporting unit exceeded its
carrying amount and therefore no impairment loss was recognized. There
were no triggering events in the fourth quarter of 2003 or the first
quarter of 2004 that would have required an impairment evaluation. We
anticipate completing the 2004 annual impairment evaluation in the third
quarter of 2004.

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 for
taxes in each tax jurisdiction in which we operate based on local tax
regulations and rules. Such taxes are provided for 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.

Our global effective tax rate is sensitive to the complexity of our
operations as well as to changes in the mix of our geographic
profitability, as local statutory tax rates range from 10% to 42% in the
countries in which we have significant operations. We evaluate our
estimated full year effective tax rate on a quarterly basis to reflect
forecast changes in (i) our geographic mix of income, (ii) legislative
actions on statutory tax rates, (iii) the impact of tax planning to reduce
losses in jurisdictions where we cannot recognize the tax benefit of those
losses, and (iv) tax planning for jurisdictions affected by double
taxation. We continuously seek to develop and implement potential
strategies and/or actions that would reduce our overall effective tax rate.
We reflect the benefit from tax planning actions when we believe it is
probable that they will be successful, which usually requires that certain
actions have been initiated. We provide for the effects of income taxes on
interim financial statements based on our estimate of the effective tax
rate for the full year. Based on our forecasted results we have estimated
an effective tax rate of 28% for 2004. While there can be no assurance that
we will achieve an effective tax rate of 28% in 2004, we believe that this
is an achievable rate due to the impact of consistent and effective tax
planning. For the three months ended March 31, 2003, we used an estimated
effective tax rate of 34% on recurring operations. We ultimately achieved
an effective tax rate of 27.7% on recurring operations in 2003, which
excluded; (i) a specific tax benefit of $2.2 million related to non-
recurring and restructuring items, and (ii) a tax benefit of $3.0 million
related to a write-down of an e-commerce investment taken as a
restructuring action in 2001, which was not originally expected to be
deductible, but which, as a result of actions undertaken in 2003, was
deemed deductible.

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 - We chose to self-insure our health benefits for
all U.S. based employees for the first time in 2002, although we did
purchase stop loss coverage to limit our exposure. We made this
decision because we believed that on the basis of our historic claims
experience, the demographics of our workforce and trends in the
health insurance industry, we would incur reduced expense self-
insuring our health benefits as opposed to purchasing health
insurance through a third-party. We engage an actuary who
specializes in health insurance to estimate our likely full-year cost
at the beginning of the year and expense this cost on a straight-line
basis throughout the year. In the fourth quarter, we employ the same
actuary to estimate the required reserve for unpaid health costs for
the current year that 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 24
months for claims to be processed and recorded. The reserve balance
for the 2002 program is $332,000 at March 31, 2004. The reserve
balance for the 2003 program at March 31, 2004 is $1.2 million. The
table below sets out certain information related to the cost of this
program for the three months ended March 31, 2004 and 2003 ($ in
millions):
THREE MONTHS ENDED
MARCH 31,
------------------
2004 2003
------ ------
Expense to Company . . . . . . . . . . . . . . $ 2.2 1.9
Employee contributions . . . . . . . . . . . . 0.5 0.4
------ ------
Total program cost . . . . . . . . . . . . . . $ 2.7 2.3
====== ======

.. WORKERS' COMPENSATION INSURANCE - Given our belief, based on
historical experience, that our workforce has experienced lower costs
than is normal for our industry, we have been self-insured for
workers' compensation insurance for a number of years. 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. Given the
significant judgemental issues involved in this evaluation, the
actuary provides us a range of potential exposure and we reserve
within that range. 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 through the three months ended March 31, 2004 and
2003 was $500,000 and $433,000, respectively. Due to the nature of
workers' compensation claims, it may take several years for claims to
be settled. The table below provides the reserve balance by plan
year that we have established ($ in millions):

March 31, December 31,
2004 2003
--------- ------------
2004 . . . . . . . . . . . . . $ 0.6 na
2003 . . . . . . . . . . . . . 4.0 4.5
2002 and prior . . . . . . . . 2.3 2.6
----- -----
$ 6.9 7.1
===== =====

.. 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 $1.8
million). Given the nature of these types of claims, it may take several
years for there to be a resolution of the underlying claims and to finalize
the expense. We are required to estimate the ultimate cost of these claims.
This estimate includes specific claim reserves that are developed on the
basis of a review of the circumstances of the individual claim. Given that
the timeframe for these reviews may be lengthy, we also provide a reserve
against the current year exposures on the basis of our historic loss ratio.
The table below provides the reserve balance, which can relate to multiple
years, that we have established as of ($ in millions):

March 31, 2004 . . . . . . . . . . . . . . . $ 3.3
March 31, 2003 . . . . . . . . . . . . . . . $ 1.7

Effective March 31, 2004, we have renewed our global professional
indemnity insurance program. As part of this renewal we have expanded the
scope of the use of the captive such that effective from the second quarter
of 2004 it will provide coverage to our entire operation. In addition, the
maximum level of risk retained by our captive insurance company has
increased to $2.5 million in certain markets.

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. Many of these claims are
covered under our current insurance programs, subject to deductibles. 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 MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2003

ITEMS AFFECTING COMPARABILITY

LASALLE INVESTMENT MANAGEMENT REVENUES

Our real estate money 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. Equity earnings from unconsolidated ventures may
also vary substantially from period to period for a variety of reasons,
including as a result of; (i) impairment charges, (ii) realized gains on
asset dispositions, or (iii) incentive fees recorded as equity earnings.
The timing of recognition may impact comparability between quarters, in any
one year, or compared to a prior year.

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, were all
considerably stronger during the first three months of 2004 compared to the
same period in 2003. This means that for those businesses located in
jurisdictions that utilize these currencies, the U.S. dollar reported
revenues and expenses in the first quarter of 2004 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 U.S. dollars understates the profitability of the
businesses in the United Kingdom and the United States of 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 IOS segments. In particular, as incentive fees are earned by
this business, there may be significant shifts in the geographic mix of
revenues and operating income. The following table sets forth revenues and
operating income (loss) derived from our most significant currencies ($ in
millions, except for exchange rates).

Austra-
Pound lian US
Sterling Euro Dollar Dollar Other Total
-------- ------- ------- ------- ------- -------
REVENUES
Q1, 2004. . . $ 50.5 43.5 17.6 77.9 33.3 222.8
Q1, 2003. . . $ 37.7 37.2 13.7 70.0 29.3 187.9

OPERATING
INCOME (LOSS)
Q1, 2004. . . $ (2.5) 4.8 (1.5) (3.4) (2.0) (4.6)
Q1, 2003. . . $ (2.6) 2.9 (1.4) (2.4) (3.4) (6.9)

Austra-
Pound lian US
Sterling Euro Dollar Dollar Other Total
-------- ------- ------- ------- ------- -------
AVERAGE
EXCHANGE
RATES
Q1, 2004. . . 1.842 1.246 0.764 N/A N/A N/A
Q1, 2003. . . 1.600 1.075 0.595 N/A N/A N/A

In order to provide more meaningful period-to-period comparison of
the reported results, we have included the below table which details the
movements in certain reported U.S. dollar lines of the Consolidated
Statement of Earnings ($ in millions) (nm = not meaningful).

Increase/ % Change
(Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------

Total revenue. . . . $222.8 187.9 34.9 18.6% 8.5%
Compensation &
benefits . . . . 155.1 130.6 24.5 18.8% 8.8%
Operating,
administrative
& other. . . . . 64.0 54.4 9.6 17.6% 8.1%
Depreciation &
amortization . . 8.3 9.7 (1.4) (14.4%) (20.9%)
Non-recurring. . . 0.0 0.1 (0.1) nm nm
Total operating
expenses. . . . . . 227.4 194.8 32.6 16.7% 7.1%
------ ----- ----- ----- ------

Operating loss . . . $ (4.6) (6.9) 2.3 33.3% 38.5%
====== ===== ===== ===== ======

REVENUE

The 8.5% increase in local currency revenues in the first quarter of
2004 reflects consistently improved revenue performance across our
businesses as a modest economic recovery continues to restore client
activity, although there was more variable performance across business
lines and countries within our regional IOS businesses. See below for
additional discussion of our segment operating results.

OPERATING EXPENSE

The increase in U.S. dollar operating expenses in the first quarter
of 2004 reflects the general strengthening of our key currencies against
the U.S. dollar. Excluding the impact of movements in foreign currency
exchange rates, the increase was 7.1%. The increase in compensation and
benefits was a result of investments made in growth markets as we continue
to build on and strengthen our market presence. In addition, the improved
revenue performance in all regions resulted in increased incentive
compensation being accrued for the first three months of 2004 when compared
to the same period of 2003.

The increase in operating, administrative and other expense,
exclusive of movements in foreign currency exchange rates, of 8.1% can be
attributed to business and revenue generation related costs matching
increased business activity.

INTEREST EXPENSE

Interest expense, net of interest income, decreased $300,000 to $3.8
million in the first three months of 2004 from $4.1 million for the same
period of 2003 reflecting the continued paydown of debt and a generally
lower interest rate environment, partially offset by the strengthening of
the Euro.

BENEFIT FOR INCOME TAXES

The benefit for income taxes was $2.4 million for the three months
ended March 31, 2004 as compared to $3.7 million for the same period of
2003. The decrease in the tax benefit is due to the lower operating loss
and a decreased effective tax rate for the first three months of 2004 as
compared to the first three months of 2003. Our estimated effective tax
rate for the first quarter of 2004 was 28%, as compared to 34% for the same
period last year. This rate improvement will favorably affect the full
year's projected results, but when applied to the seasonal net loss it
negatively impacts the first quarter results year-over-year by $0.5
million. See the Income Tax Provision section of Note 1 to Notes to
Consolidated Financial Statements for a further discussion of our effective
tax rate.

NET LOSS

Our net loss decreased $1.1 million, or 15.3%, to $6.1 million for
the three months ended March 31, 2004 from $7.2 million for the same period
of 2003.

SEGMENT OPERATING RESULTS

We manage our business along a combination of functional and
geographic lines. We report our operations as four business segments: (i)
Investment Management, which offers Real Estate Money Management services
on a global basis, and the three geographic regions of Investor and
Occupier Services ("IOS"): (ii) Americas, (iii) Europe and (iv) Asia
Pacific, each of which offers our full range of Real Estate Investor
Services, Real Estate Capital Markets and Real Estate Occupier Services.
The Investment Management segment provides Real Estate Money Management
services to institutional investors and high-net-worth individuals. The IOS
business consists primarily of tenant representation and agency leasing,
capital markets and valuation services (collectively "implementation
services") and property management, facilities management services, project
and development services (collectively "management services").

We have not allocated non-recurring and restructuring charges to the
business segments for segment reporting purposes and therefore these costs
are not included in the discussions below.

INVESTOR AND OCCUPIER SERVICES

AMERICAS
Increase/
2004 2003 (Decrease)
------ ------ ---------------

Revenue. . . . . . . . . . $ 63.9 59.5 4.4 7.4%
Operating expense. . . . . 64.8 61.1 3.7 6.1%
Operating loss . . . . . . (0.9) (1.6) 0.7 43.8%

The overall 7.4% increase in revenue was a result of solid gains in
our transactional businesses, particularly leasing where the number of
transactions and the square feet transacted increased by more than 20%
year-on-year, and Hotels, which continues to benefit from investments made
to expand the business. Transaction timing also benefited our Capital
Markets business in the first quarter of 2004. Partially offsetting these
revenue gains were reductions in the Property Management business due to
the churn resulting from a trend in the current marketplace whereby buyers
are increasingly looking to self-manage. The company is also being more
selective in evaluating the underlying profitability of the assignments
that we pursue. This has resulted in the withdrawal from selective
management only assignments.

Operating expenses increased by 6.1% in the Americas region as we
expanded headcount to support the increased business activity together with
the other business and revenue generation related costs. In addition,
expenses for employee benefits increased $1.2 million as we enhanced the
firm's 401k program. These cost increases were partially offset by a
reduction in depreciation expense as a result of reduced capital spending.

EUROPE
Increase/ % Change
(Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Revenue. . . . . . . $ 89.9 71.3 18.6 26.1% 9.8%
Operating expense. . 91.8 72.7 19.1 26.3% 10.5%
Operating loss . . . (1.9) (1.4) (0.5) (35.7%) (55.8%)

The strong revenue performance in Europe was again led by the England
and European Hotels businesses, which continued to build on the positive
revenue momentum in place at the end of 2003. We also saw revenue strength
in our French, Belgium and Central European markets. In addition,
transaction timing benefited our European Corporate Finance business as
several large deals that slipped into the first quarter closed. Revenues in
the German, Dutch and Spanish markets were down compared to the first
quarter of 2003, which had included several large Capital Markets
transactions.

The increase in operating expense is primarily due to increased
incentive compensation as a result of the strong revenue performance
together with other costs associated with the generation of additional
revenues.

ASIA PACIFIC
Increase/ % Change
(Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Revenue. . . . . . . $ 40.2 32.6 7.6 23.3% 7.9%
Operating expense. . 44.8 37.8 7.0 18.5% 3.8%
Operating loss . . . (4.6) (5.2) 0.6 11.5% 28.5%

The 7.9% increase in local currency revenue the first quarter of 2004
demonstrates a continued positive revenue trend in the region. We saw
revenue growth of more than 35% in our growth markets of India and North
Asia, led by our India business as we continued to see the benefit of the
global outsourcing trend that began in 2003.

The 3.8% increase in local currency operating expense for the Asia
Pacific region was driven by compensation costs as we continue to invest in
headcount related costs to build scale and maintain service levels in key
markets, particularly North Asia and India. Operating, administrative and
other expenses were essentially flat with the prior year reflecting
continued strong cost controls.

INVESTMENT MANAGEMENT
Increase/ % Change
(Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Revenue. . . . . . . $ 28.9 24.6 4.3 17.5% 8.3%
Operating expense. . 26.2 23.2 3.0 12.9% 4.7%
Operating income . . 2.7 1.4 1.3 92.9% 61.0%

The increase in revenues for our Investment Management business in
local currency is primarily driven by increased equity earnings from a gain
on the sale of an asset in one of our funds, along with additional advisory
fees related to the successful second closing of the Canadian Income and
Growth Fund.

The increase in operating expenses in local currencies can be
attributed to incentive compensation and other revenue generation related
costs matching increased business activity.

PERFORMANCE OUTLOOK

Given the seasonal character of the business, with the majority of
profits occurring in the second half of the year, the Firm is not providing
full year 2004 guidance. A small profit is anticipated in the second
quarter before the costs associated with the retirement of the Euro Notes,
which are expected to be approximately $11.5 million pre-tax, dependent
upon prevailing exchange rates. As a result, the overall results of the
second quarter will reflect a GAAP net loss.

CONSOLIDATED CASH FLOWS

The following table presents summarized consolidated statements of
cash flows. For detailed cash flow statements, please reference our full
financial statements contained herein ($ in thousands):

Three Months Ended
March 31,
--------------------
2004 2003
-------- --------
Cash provided by earnings. . . . . . . . . . . $ 6,704 7,178
Cash used in working capital . . . . . . . . . (47,360) (30,984)
-------- --------
Cash used in operating activities. . . . . . . (40,656) (23,806)
Cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . 158 (2,216)
Cash provided by financing activities. . . . . 377 25,853
-------- --------
Net decrease in cash . . . . . . . . . . . . . (40,121) (169)
Cash and cash equivalents,
beginning of period. . . . . . . . . . . . . 63,105 13,654
-------- --------
Cash and cash equivalents,
end of period. . . . . . . . . . . . . . . . $ 22,984 13,485
======== ========

CASH FLOWS USED IN OPERATING ACTIVITIES

During the three months ended March 31, 2004 cash flows used in
operating activities totaled $40.7 million, as compared to $23.8 million
during the three months ended March 31, 2003. The cash flows used in
operating activities for the three months ended March 31, 2004 can be
further divided into cash generated from earnings of $6.7 million (compared
to $7.2 million generated in 2003) and cash used in balance sheet movements
(primarily working capital management) of $47.4 million (compared to a use
of $31.0 million in 2003). Given the seasonality of our business together
with our practice of paying bonuses in the first quarter, we expect to see
negative operating cash flows in the first quarter.

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES

Investing activities provided $158,000 during the three months ended
March 31, 2004, as compared to $2.2 million used during the three months
ended March 31, 2003. This 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 $377,000 during the
three months ended March 31, 2004, as compared to $25.9 million during the
three months ended March 31, 2003. Due to our strong cash generation, we
were able to make annual bonus payments, typically paid in the first
quarter, mainly from cash-on-hand as opposed to borrowing from the
revolving credit facility as we have in prior years.

LIQUIDITY AND CAPITAL RESOURCES

The following table presents our net debt and cash as of the periods
shown ($ in thousands):

March 31, December 31,
2004 2003
--------- ------------

Cash . . . . . . . . . . . . . . . . . . $ 22,984 63,105
Euro Notes . . . . . . . . . . . . . . . 203,214 207,816
Other Debt . . . . . . . . . . . . . . . 9,528 3,592
-------- --------
Net Debt and Cash. . . . . . . . . . . . $189,758 148,303
======== ========

Historically, we have financed our operations, acquisitions and co-
investment activities with internally generated funds, our common stock and
borrowings under our credit facilities. On April 13, 2004, we renegotiated
our unsecured revolving credit facility agreement increasing the facility
from $225 million to $325 million and extended the term to 2007 from its
previous maturity in 2006. There are currently fourteen participating banks
in our revolving credit facility. This amended facility will continue to be
utilized for working capital needs, investments and acquisitions. We
increased this facility so that we could utilize the funds to redeem the
Euro Notes in June 2004. We have outstanding euro 165 million in aggregate
principal amounts of Euro Notes, all of which matures 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. On May 4, 2004, we issued an
irrevocable Notice of Redemption to the holders of the Euro Notes to redeem
on June 15, 2004 all of the outstanding Euro Notes at a redemption price of
104.5% of principal. We will incur pre-tax expense of approximately $11.5
million (dependent upon prevailing exchange rates) related to the
acceleration of debt issuance cost amortization and the premiums paid to
redeem the Euro Notes.

As of March 31, 2004, we did not have any borrowings outstanding
under the revolving credit facility. We had borrowings of euro 165 million
($203.2 million) outstanding under the Euro Notes. The Euro Notes carry a
9% interest rate while our credit facility is priced at LIBOR plus 150
basis points. The average borrowing rate on the facilities during the first
quarter of 2004 was 9.1% versus 8.5% for the same period of 2003. We also
had short-term borrowings (including capital lease obligations) of $9.5
million outstanding at March 31, 2004. The short-term borrowings are
primarily borrowings by subsidiaries on various interest-bearing overdraft
facilities. As of March 31, 2004, $9.2 million of the total short-term
borrowings were attributable to local overdraft facilities. The decrease in
the reported U.S. dollar book value of the Euro Notes of $4.6 million in
the first three months of 2004 was solely as a result of the strengthening
U.S. dollar. No additional Euro Notes have been issued or redeemed. As a

result of the strong cash generation of our business we had $23.0 million
of cash at March 31, 2004 as compared with $13.5 million at March 31, 2003.
The first quarter has traditionally represented the Firm's peak borrowing
requirements in the year as annual bonuses are paid. Reflecting continued
strong business cash flows, an emphasis on receivables management and
reduced capital expenditures, March 31, 2004 was the first time that the
credit facilities had no outstanding balance at the end of the first
quarter since the merger which formed Jones Lang LaSalle.

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 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 $39.0 million, of which
$9.2 million was outstanding as of March 31, 2004. We have provided
guarantees of $29.3 million related to the local overdraft facilities, as
well as guarantees related to the $325 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 amended revolving credit facility, we must
maintain consolidated net worth of at least $360 million and a leverage
ratio not exceeding 3.25 to 1. We must also maintain a minimum interest
coverage ratio of 2.5 to 1. As part of the renegotiation of the revolving
credit facility, the leverage ratio was revised to provide more flexibility
and we eliminated the fixed coverage ratio that existed in the previous
agreement. We are in compliance with all covenants at March 31, 2004.
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 as well as capital expenditure. 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
2003 or in the first three months of 2004 and none were outstanding as of
March 31, 2004.

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
real estate money management clients in the Americas, Europe and Asia
Pacific. Co-investment remains very important to the continued growth of
Investment Management. As of March 31, 2004, we had total investments and
loans of $67.8 million in approximately 20 separate property or fund co-
investments, with additional capital commitments of $147.8 million for
future fundings of co-investments. With respect to certain co-investment
indebtedness, we also had repayment guarantees outstanding at March 31,
2004 of $4.9 million. The $147.8 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. Additionally, our Board of Directors has endorsed the use of

our capital in particular situations to control or bridge finance existing
real estate assets or portfolios to seed future investment products. The
purpose of this is to accelerate capital raising and assets under
management. We have an effective 47.85% ownership interest in LIC.
Primarily institutional investors, including a significant shareholder in
Jones Lang LaSalle, hold the remaining 52.15% interest in LIC. In addition,
our Chairman and Chief Executive Officer 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. As of March 31, 2004,
LIC has unfunded capital commitments of $64.8 million, of which our 47.85%
share is $31.0 million, for future fundings of co-investments.

The net co-investment funding for 2004 is anticipated to be between
$30 and $40 million (planned co-investment less return of capital from
liquidated co-investments). For the three months ended March 31, 2004, we
received a net $3.2 million as the return of capital from co-investments
exceeded funded co-investments.

In the third quarter of 2003, LIC entered into a euro 35 million
($43.1 million) revolving credit facility (the "LIC facility") principally
for its working capital needs. The LIC facility contains a credit rating
trigger (related to the credit rating of one of LIC's investors who is
unaffiliated with Jones Lang LaSalle) and a material adverse condition
clause. If either the credit rating trigger or the material adverse
condition clause becomes triggered, the LIC Facility would be in default
and would need to be repaid. This would require us to fund our pro-rata
share of the then outstanding balance on the LIC Facility, to which our
liability is limited. The maximum exposure to Jones Lang LaSalle, assuming
that the LIC Facility were fully drawn, would be euro 16.7 million ($20.6
million). As of March 31, 2004, LIC had euro 4.5 million ($5.5 million) of
outstanding borrowings on this facility. Due to the nature of the ownership
structure of LIC, we were required to record $1.4 million of these
outstanding borrowings in the short-term borrowings line of our
consolidated balance sheet at March 31, 2004.

On February 27, 2004, we announced that our Board of Directors had
approved a share repurchase program. Under the program, we are authorized
to repurchase up to 1.5 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. We repurchased 294,800
shares in the first quarter of 2004 at an average price of $25.35 per
share. The 2004 repurchase program replaces a program put in place in
October 2002, under which we were authorized to repurchase up to 1 million
shares. We repurchased 700,000 shares under the 2002 repurchase program.
The repurchase of shares is primarily intended to offset dilution resulting
from both stock and stock option grants made under the Firm's existing
stock plans. Given that shares repurchased under the 2002 and 2004
programs are not cancelled, but are held by one of our subsidiaries, we
include them in our equity account. However, these shares are excluded from
our share count for purposes of calculating earnings per share.

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. Our Investment Management segment earns performance fees on
clients' returns on their real estate investments. Such performance fees
are generally earned when assets are sold, the timing of which is geared
towards the benefit of our clients. Non-variable operating expenses, which
are treated as expenses when they are incurred during the year, are
relatively constant on a quarterly basis.

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. 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

We apply FASB Statement No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"), which 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 of SFAS 146 has not had a material impact on our financial
statements.

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 three
months ended March 31, 2004. 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 December 2003, the FASB issued Interpretation No. 46 (revised
December 2003), "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51" ("FIN 46-R"), which addresses how a business
enterprise should evaluate whether they have a controlling financial
interest in an entity through means other than voting rights, and
accordingly should consolidate the entity. FIN 46-R replaces FASB
Interpretation No. 46 which was issued in January 2003. The provisions of
FIN 46-R are to be applied to all entities subject to the Interpretation
effective the first interim period ending after March 15, 2004. The
adoption of FIN 46-R has not had a material impact on our financial
statements.

ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF
BOTH LIABILITIES AND EQUITY

In May 2003, the FASB issued Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS 150"). SFAS 150 establishes standards for how an issuer
classifies and measures in its statement of financial position certain
financial instruments with characteristics of both liabilities and equity.
SFAS 150 requires issuers to classify as liabilities (or assets in some
circumstances) three classes of freestanding financial instruments that
embody obligations for the issuer; specifically, (i) a mandatorily
redeemable financial instrument, (ii) an obligation to repurchase the
issuer's equity, (iii) certain obligations to issue a variable number of
shares. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. The FASB is in the
process of providing additional guidance related to SFAS 150. At this time
we do not believe that we have any financial instruments that are subject
to the standards of SFAS 150.

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 $325 amended
revolving multi-currency credit facility, due in June 2007, 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 2003 or the first three months of 2004, and none were
outstanding as of March 31, 2004.

The average borrowing rate on our debt for the three months ended
March 31, 2004 was 9.1% as compared to a rate of 8.5% for the same period
of 2003. The increase in the average borrowing rate is due to the mix of
our borrowings being more heavily weighted toward the higher coupon Euro
Notes as a function of the strong cash flow of the company being used to
reduce revolver borrowings which have lower market rates.

FOREIGN EXCHANGE

Revenues outside of the United States were 65% of our total revenues
for the three months ended March 31, 2004. Operating in international
markets means that we are exposed to movements in foreign currency exchange
rates, primarily the British pound (23% of revenues for the three months
ended March 31, 2004), the euro (20% of revenues for the three months ended
March 31, 2004) and the Australian dollar (8% of revenues for the three
months ended March 31, 2004). Changes in these foreign currency exchange
rates 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 has acted as a partial
hedge against our translation exposure on our euro denominated earnings.
We would anticipate that when we redeem these notes in the second quarter
of 2004, we will replace them with euro denominated borrowings on the
revolving credit facility. We enter into forward foreign currency exchange
contracts to manage currency risks associated with intercompany loans. At
March 31, 2004, we had forward exchange contracts in effect with a gross
notional value of $267.0 million ($204.7 million on a net basis) and a
market and carrying gain of approximately $2.6 million. The net impact on
our earnings during the three months ended March 31, 2004 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 March 31, 2004, 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

Jones Lang LaSalle carried out an evaluation, under the supervision
and with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to
Rule 13a-15 under the Exchange Act of 1934 as of March 31, 2004. Based
upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in our periodic SEC filings relating to Jones Lang LaSalle
(including its consolidated subsidiaries).

There was no change in internal control over financial reporting that
occurred in the first quarter of 2004 that has materially affected or is
reasonably likely to materially affect Jones Lang LaSalle's internal
controls over financial reporting.

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 they may never-the-less be
subject to large deductibles or retentions and the amounts being claimed
may exceed the available insurance. Although the ultimate liability for
these matters cannot be determined, based upon information currently
available, we believe the ultimate resolution of such claims and litigation
will not have a material adverse effect on our financial position, results
of operations or liquidity.

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 alleged negligence, breach of
contract and breach of fiduciary duty on the part of Jones Lang LaSalle and
sought to recover a total of $40 million in compensatory damages and $80
million in punitive damages. On December 16, 2002, the Company filed a
counterclaim for breach of contract seeking payment of approximately $1.2
million for fees due for services provided under the agreements. On
December 16, 2003, the court granted the Company's motion to strike the
complaint because, after completion of significant discovery, Bank One had
been unable to substantiate its allegations that it had suffered damages of
$40 million as it had previously claimed. Bank One was authorized to file
an amended complaint that seeks to recover compensatory damages in an
unspecified amount, plus an unspecified amount of punitive damages. The
amended complaint also includes allegations of fraudulent
misrepresentation, fraudulent concealment and conversion. The court has
currently set November 29, 2004 as the date the trial is to begin. The
Company continues to aggressively defend the suit. While there can be no
assurance, the Company continues to believe 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. As of the date of
this report, we are in the process of discovery. As such, although we
still have not seen or heard anything that leads us to believe that the
suit has merit, 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
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 Jones Lang Wootton 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 of March 31, 2004, $0.6 million of the reserve
established remains 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 5. OTHER INFORMATION

CORPORATE GOVERNANCE

Our policies and practices reflect corporate governance initiatives
that we believe comply with the listing requirements of the New York Stock
Exchange (NYSE), on which our Common Stock is traded, the corporate
governance requirements of the Sarbanes-Oxley Act of 2002 as currently in
effect, various regulations issued by the Securities and Exchange
Commission (SEC) and certain provisions of the General Corporation Law in
the State of Maryland, where Jones Lang LaSalle is incorporated.

We maintain a corporate governance section on our public website
which includes key information about our corporate governance initiatives
such as our Corporate Governance Guidelines, Charters for the three
Committees of our Board of Directors, a Statement of Qualifications of
Members of the Board of Directors and our Code of Business Ethics. The
Board of Directors regularly reviews corporate governance developments and
modifies our Guidelines and Charters as warranted. The corporate
governance section can be found on our website at www.joneslanglasalle.com
by clicking "Investor Relations" and then "Board of Directors and Corporate
Governance."

CORPORATE OFFICERS

Our corporate executive officers are as follows:

Global Executive Committee
--------------------------

Stuart L. Scott
Chairman, President and Global Chief Executive Officer

Peter A. Barge
Chief Executive Officer, Asia Pacific

Lauralee E. Martin
Global Chief Financial Officer

Robert S. Orr
Chief Executive Officer, Europe

Peter C. Roberts
Chief Executive Officer, Americas

Lynn C. Thurber
Chief Executive Officer, LaSalle Investment Management

Additional Corporate Officers
-----------------------------

Brian P. Hake
Global Treasurer

James S. Jasionowski
Global Director of Tax

Molly A. Kelly
Chief Marketing and Communications Officer

Mark J. Ohringer
Global General Counsel and Corporate Secretary

Marissa R. Prizant
Director of Global Internal Audit

Nazneen Razi
Chief Human Resources Officer

John G. Wallerius
Chief Information Officer

Nicholas J. Willmott
Global Controller

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, 2003 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 April 14, 2004, Jones Lang LaSalle filed a Report on
Form 8-K incorporating a press release announcing that it
closed on its Amended and Restated Multicurrency Credit
Agreement.

On May 3, 2004, Jones Lang LaSalle filed a Report on
Form 8-K announcing that it had issued a Notice of Redemption
to holders of its 9% Euro Notes.

On May 5, 2004, Jones Lang LaSalle filed a Report on
Form 8-K incorporating a press release announcing earnings for
the quarterly period ended March 31, 2004.

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: May 6, 2004 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 Amended and Restated Multicurrency Credit Agreement,
dated as of April 13, 2004, attached hereto as
Exhibit 10.1.

10.2 Compromise Agreement with Christopher A. Peacock,
attached hereto as Exhibit 10.2.

10.3 Amended and Restated Stock Award and Incentive Plan,
attached hereto as Exhibit 10.3.

10.4 Senior Executive Services Agreement with Stuart L.
Scott, attached hereto as Exhibit 10.4.

10.5 Amended and Restated Severance Pay Plan, attached hereto
as Exhibit 10.5.

31.1 Certification of Stuart L. Scott pursuant to
Securities Exchange Act Rules 13a-14(a) or 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.

31.2 Certification of Lauralee E. Martin pursuant to
Securities Exchange Act Rules 13a-14(a) or 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.

32.1 Certification of Stuart L. Scott and Lauralee E.
Martin pursuant to Securities Exchange Act Rules
13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63
of Title 18 of the United States Code, pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.