JONES LANG LASALLE INC - 10-Q Quarterly Report

Back to GetFilings.com

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

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 July 23, 2004
----- ------------------

Common Stock ($0.01 par value) 32,544,647

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

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

Consolidated Balance Sheets as of
June 30, 2004 and December 31, 2003 . . . . . . . . 3

Consolidated Statements of Earnings and
Comprehensive Income for the three and six months
ended June 30, 2004 and 2003. . . . . . . . . . . . 5

Consolidated Statements of Stockholders' Equity
for the six months ended June 30, 2004. . . . . . . 7

Consolidated Statements of Cash Flows for the
six months ended June 30, 2004 and 2003 . . . . . . 9

Notes to Consolidated Financial Statements. . . . . 11

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . 29

Item 3. Quantitative and Qualitative Disclosures
about Market Risk . . . . . . . . . . . . . . . . . 49

Item 4. Controls and Procedures . . . . . . . . . . . . . . 50

PART II OTHER INFORMATION

Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 50

Item 2. Share Repurchase. . . . . . . . . . . . . . . . . . 51

Item 4. Submission of Matters to a Vote of Security Holders 52

Item 5. Other Information . . . . . . . . . . . . . . . . . 52

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

JUNE 30, 2004 AND DECEMBER 31, 2003
($ in thousands, except share data)

JUNE 30,
2004 DECEMBER 31,
(Unaudited) 2003
------------ -----------
ASSETS
- ------

Current assets:
Cash and cash equivalents . . . . . . . . $ 24,462 63,105
Trade receivables, net of allowances
of $5,966 and $4,790 in 2004
and 2003, respectively. . . . . . . . . 230,538 253,126
Notes receivable. . . . . . . . . . . . . 2,814 3,698
Other receivables . . . . . . . . . . . . 8,567 8,317
Prepaid expenses. . . . . . . . . . . . . 26,584 18,866
Deferred tax assets . . . . . . . . . . . 23,428 18,097
Other assets. . . . . . . . . . . . . . . 5,790 7,731
---------- ---------
Total current assets. . . . . . . 322,183 372,940

Property and equipment, at cost, less
accumulated depreciation of $144,569
and $140,520 in 2004 and 2003,
respectively. . . . . . . . . . . . . . . 67,486 71,621
Goodwill, with indefinite useful lives,
at cost, less accumulated amortization
of $38,002 and $38,169 in 2004
and 2003, respectively. . . . . . . . . . 331,837 334,154
Identified intangibles, with definite
useful lives, at cost, less accumulated
amortization of $37,797 and $35,196
in 2004 and 2003, respectively. . . . . . 10,760 13,454
Investments in and loans to real estate
ventures. . . . . . . . . . . . . . . . . 66,437 71,335
Long-term receivables, net. . . . . . . . . 10,954 13,007
Prepaid pension asset . . . . . . . . . . . 13,229 11,920
Deferred tax assets . . . . . . . . . . . . 45,888 43,252
Debt issuance costs, net. . . . . . . . . . 2,110 4,113
Other assets, net . . . . . . . . . . . . . 11,742 7,144
--------- ----------

$ 882,626 942,940
========= ==========

JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED

JUNE 30, 2004 AND DECEMBER 31, 2003
($ in thousands, except share data)

JUNE 30,
2004 DECEMBER 31,
(Unaudited) 2003
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------

Current liabilities:
Accounts payable and accrued
liabilities . . . . . . . . . . . . . . $ 83,294 96,466
Accrued compensation. . . . . . . . . . . 98,773 154,317
Short-term borrowings . . . . . . . . . . 14,473 3,592
Deferred tax liabilities. . . . . . . . . 2,466 2,623
Other liabilities . . . . . . . . . . . . 43,626 28,414
--------- ----------
Total current liabilities . . . . 242,632 285,412

Long-term liabilities:
Credit facilities . . . . . . . . . . . . 186,990 --
9% Senior Euro Notes, due 2007. . . . . . -- 207,816
Deferred tax liabilities. . . . . . . . . 4,348 761
Other . . . . . . . . . . . . . . . . . . 23,282 17,960
--------- ----------
Total liabilities . . . . . . . . 457,252 511,949

Commitments and contingencies

Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
32,178,613 and 31,762,077 shares
issued and outstanding as of
June 30, 2004 and December 31,
2003, respectively. . . . . . . . . . . 322 318
Additional paid-in capital. . . . . . . . 532,803 519,438
Deferred stock compensation . . . . . . . (21,021) (21,649)
Retained deficit. . . . . . . . . . . . . (60,365) (59,346)
Stock held by subsidiary. . . . . . . . . (33,062) (12,846)
Stock held in trust . . . . . . . . . . . (230) (460)
Accumulated other comprehensive income. . 6,927 5,536
--------- ----------
Total stockholders' equity. . . . 425,374 430,991
--------- ----------
$ 882,626 942,940
========= ==========

See accompanying notes to consolidated financial statements.

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
($ in thousands, except share data)
(UNAUDITED)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

SIX MONTHS ENDED JUNE 30, 2004
($ in thousands, except share data)
(UNAUDITED)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2004 AND 2003
($ in thousands)
(UNAUDITED)

2004 2003
---------- ----------
Cash flows from operating activities:
Cash flows from earnings:
Net loss. . . . . . . . . . . . . . . . . $ (1,019) (8,662)
Reconciliation of net loss to
net cash provided by earnings:
Depreciation and amortization . . . . . 16,243 18,976
Equity in (earnings) loss . . . . . . . (9,039) 205
Operating distributions from real
estate ventures . . . . . . . . . . . 6,721 1,619
Provision for loss on receivables and
other assets. . . . . . . . . . . . . (170) 6,012
Amortization of deferred compensation . 7,936 6,157
Amortization of debt issuance costs . . 2,040 800
---------- ----------
Net cash provided by earnings . . . . 22,712 25,107

Cash flows from changes in
working capital:
Receivables . . . . . . . . . . . . . . 25,665 41,314
Prepaid expenses and other assets . . . (8,100) (11,799)
Deferred tax assets . . . . . . . . . . (8,966) (2,122)
Accounts payable, accrued liabilities
and accrued compensation. . . . . . . (47,448) (62,605)
---------- ----------
Net cash flows from changes in
working capital . . . . . . . . . . (38,849) (35,212)
---------- ----------

Net cash used in operating
activities. . . . . . . . . . . . . (16,137) (10,105)

Cash flows used in investing activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . . (10,441) (9,035)
Other acquisitions and investments,
net of cash balances assumed. . . . . . -- (1,100)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures . . . . . . . . . (4,800) (1,783)
Distributions, repayments of advances
and sale of investments. . . . . . . . 11,383 4,534
---------- ----------
Net cash used in investing
activities. . . . . . . . . . . . . (3,858) (7,384)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

SIX MONTHS ENDED JUNE 30, 2004 AND 2003
($ in thousands)
(UNAUDITED)

2004 2003
---------- ----------
Cash flows provided by (used in) financing
activities:
Proceeds from borrowings under credit
facilities. . . . . . . . . . . . . . . . 310,031 212,107
Repayments of borrowings under credit
facilities. . . . . . . . . . . . . . . . (112,160) (195,792)
Redemption of Euro Notes, net of costs. . . (203,209) --
Shares repurchased for payment of
taxes on stock awards . . . . . . . . . . -- (767)
Shares repurchased under share repurchase
program . . . . . . . . . . . . . . . . . (20,216) --
Common stock issued under stock option
plan and stock purchase programs. . . . . 6,906 1,462
---------- ----------
Net cash provided by (used in)
financing activities. . . . . . . . (18,648) 17,010
---------- ----------
Net decrease in cash and
cash equivalents. . . . . . . . . . (38,643) (479)

Cash and cash equivalents,
beginning of period . . . . . . . . . . . . 63,105 13,654
---------- ----------
Cash and cash equivalents, end of period. . . $ 24,462 13,175
========== ==========

Supplemental disclosure of cash flow
information:

Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . $ 8,340 10,230
Taxes, net of refunds . . . . . . . . . . 4,468 7,507

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 June 30, 2004 and for the
three and six months ended June 30, 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 June 30, 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 June 30 2004, we calculated basic earnings
per share using basic weighted average shares outstanding of 30.4 million
and diluted earnings per share using diluted weighted average shares
outstanding of 32.7 million. The increase of 2.3 million in weighted
average shares outstanding reflects the dilutive effect of common stock
equivalents, which include shares to be issued under our employee stock
compensation programs and outstanding stock options whose exercise price
was less than the average price of our stock during the period. For the
three months ended June 30, 2003, we calculated the basic and diluted loss
per share using basic weighted average shares outstanding of 30.7 million.
As a result of the net loss incurred in this period last year, diluted
weighted average shares outstanding do not give effect to common stock
equivalents, as to do so would be anti-dilutive.

For the six months ended June 30, 2004 and 2003, we calculated basic
and diluted losses per common share using basic weighted average shares
outstanding of 30.9 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 accordance with our share repurchase program, shares repurchased
are not cancelled but are held by one of our subsidiaries. Repurchased
shares are included in our equity account, but are excluded from our
earnings per share calculation. As such, we did not include in weighted
average shares outstanding shares repurchased in the following periods:

2002 300,000
2003 400,000
2004 806,600

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, since 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
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 six months ended June 30, 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.

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 income (loss) and pro forma net income (loss) per common
share as if the fair value based method had been applied to all awards ($
in thousands, except share data):

Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net income (loss),
as reported . . . . . $ 5,067 (1,415) (1,019) (8,662)
Add: Stock-based employee
compensation expense
included in reported
net income (loss),
net of related tax
effects . . . . . . . 3,687 1,958 6,157 3,753
Deduct: Total stock-
based employee
compensation expense
determined under fair
value based method
for all awards,
net of related tax
effects . . . . . . . (4,529) (2,496) (7,210) (4,670)
-------- -------- -------- --------
Pro forma net income
(loss). . . . . . . . $ 4,225 (1,953) (2,072) (9,579)
======== ======== ======== ========
Net income (loss)
per share:
Basic - as reported . $ 0.17 (0.05) (0.03) (0.28)
======== ======== ======== ========
Basic - pro forma . . $ 0.14 (0.06) (0.07) (0.31)
======== ======== ======== ========

Diluted - as reported $ 0.16 (0.05) (0.03) (0.28)
======== ======== ======== ========
Diluted - pro forma . $ 0.13 (0.06) (0.07) (0.31)
======== ======== ======== ========

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 June 30,
2004, we had forward exchange contracts in effect with a gross notional
value of $261.1 million ($190.0 million on a net basis) and a market and
carrying loss of approximately $55,000.

In the past, we have used interest rate swap agreements to limit the
impact of changes in interest rates on earnings and cash flows. We did not
use any interest rate swap agreements in 2003 or in the first six months of
2004 and there were no such agreements outstanding as of June 30, 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 and six months
ended June 30, 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 determined 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 in certain
situations 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 $101.7 million and
$93.0 million for the three months ended June 30, 2004 and 2003,
respectively. Such costs aggregated $206.9 million and $190.9 million for
the six months ended June 30, 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 June 30, 2004, $0.5 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 and
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 and six months ended June 30, 2004 and 2003
($ in thousands):

SEGMENT OPERATING RESULTS
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
INVESTOR AND OCCUPIER
SERVICES -
AMERICAS
Revenue:
Implementation
services. . . . . $ 37,917 23,778 61,993 45,379
Management services 41,305 41,352 79,296 78,320
Equity earnings . . -- -- 467 --
Other services. . . 1,465 1,301 2,742 2,187
Intersegment
revenue . . . . . 299 270 381 339
-------- -------- -------- --------
80,986 66,701 144,879 126,225

SEGMENT OPERATING RESULTS
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Operating expenses:
Compensation,
operating and
administrative
expenses. . . . . 69,925 59,455 131,040 115,871
Depreciation and
amortization. . . 3,361 4,550 7,024 9,209
-------- -------- -------- --------
Operating
income . . . $ 7,700 2,696 6,815 1,145
======== ======== ======== ========

EUROPE
Revenue:
Implementation
services. . . . . $ 75,971 56,099 141,602 104,888
Management services 24,326 23,996 46,724 44,916
Other services. . . 2,077 1,917 3,956 3,510
-------- -------- -------- --------
102,374 82,012 192,282 153,314
Operating expenses:
Compensation,
operating and
administrative
expenses. . . . . 94,626 76,825 183,656 146,806
Depreciation and
amortization. . . 2,676 2,781 5,455 5,546
-------- -------- -------- --------
Operating
income. . . . $ 5,072 2,406 3,171 962
======== ======== ======== ========

ASIA PACIFIC
Revenue:
Implementation
services. . . . . $ 30,233 22,062 49,406 37,067
Management services 21,271 18,839 41,933 35,934
Other services. . . 409 341 757 804
-------- -------- -------- --------
51,913 41,242 92,096 73,805
Operating expenses:
Compensation,
operating and
administrative
expenses. . . . . 49,238 39,238 92,432 75,095
Depreciation and
amortization. . . 1,587 1,635 3,143 3,579
-------- -------- -------- --------
Operating
income (loss) $ 1,088 369 (3,479) (4,869)
======== ======== ======== ========

SEGMENT OPERATING RESULTS
------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
INVESTMENT MANAGEMENT -
Revenue:
Implementation and
other services. . $ 3,454 531 4,918 2,328
Advisory fees . . . 24,325 23,609 50,021 45,763
Incentive fees. . . 1,243 17 1,311 578
Equity earnings . . 6,914 (285) 8,570 (205)
-------- -------- -------- --------
35,936 23,872 64,820 48,464
Operating expenses:
Compensation,
operating and
administrative
expenses. . . . . 28,149 22,136 54,034 45,014
Depreciation and
amortization. . . 317 320 621 642
-------- -------- -------- --------
Operating
income. . . . $ 7,470 1,416 10,165 2,808
======== ======== ======== ========

Total segment revenue . $271,209 213,827 494,077 401,808
Intersegment revenue
eliminations. . . . . (299) (270) (381) (339)
-------- -------- -------- --------
Total revenue . $270,910 213,557 493,696 401,469
======== ======== ======== ========

Total segment operating
expenses. . . . . . . $249,879 206,940 477,405 401,762
Intersegment operating
expense eliminations. (299) (270) (381) (339)
-------- -------- -------- --------
Total operating
expenses before
non-recurring
charges . . . $249,580 206,670 477,024 401,423
======== ======== ======== ========
Non-recurring
charges
(credits) . . $ (910) 4,097 (930) 4,153
======== ======== ======== ========

Operating
income (loss) $ 22,240 2,790 17,602 (4,107)
======== ======== ======== ========

(3) NON-RECURRING AND RESTRUCTURING CHARGES

For the three and six months ended June 30, 2004, we recorded credits
of $910,000 and $930,000, respectively, to non-recurring expense. For the
three and six months ended June 30, 2003, we recorded charges of $4.1
million and $4.2 million, respectively, to non-recurring expense. This
activity consists of the following elements ($ in thousands):

Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Non-Recurring &
Restructuring
----------------
Land Investment and
Development Group . . $ (1,279) -- (1,279) --

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

Abandonment of Property
Management Accounting
System:
Compensation &
Benefits. . . . . . 76 113 76 113
Operating, Adminis-
trative & Other . . 163 4,822 353 4,822

2001 Global Restructuring
Program:
Compensation &
Benefits. . . . . . (3) 82 (38) 82
Operating, Adminis-
trative & Other . . -- -- -- --

2002 Global Restructuring
Program:
Compensation &
Benefits. . . . . . -- (338) (175) (782)
Operating, Adminis-
trative & Other . . 133 24 133 524
-------- -------- -------- --------
Total Non-Recurring &
Restructuring . . . . $ (910) 4,097 (930) 4,153
======== ======== ======== ========

LAND INVESTMENT AND DEVELOPMENT GROUP

As part of our broad based business restructuring in the second half
of 2001, we disposed of our Americas Development Group, although we
retained an interest in certain investments the group had originated. In
the second quarter of 2004 we liquidated the final Development Group
investment and recorded a gain of $1.3 million to non-recurring expense. It
is possible that future credits may be recorded relating to this disposal,
dependent upon future business performance. However, we do not believe that
there will be any future charges related to this disposal. There were no
similar transactions for the three and six months ended June 30, 2003.

Included in investments in and loans to real estate ventures at
June 30, 2004 and December 31, 2003 is the net book value of the three
remaining Land Investment Group investments of $2.0 million. We have
provided guarantees associated with this investment portfolio of $738,000,
which we currently do not expect to be required to fund. We expect to
liquidate these investments by the end of 2006.

INSOLVENT INSURANCE PROVIDERS

As part of our broad based business restructuring in the second half
of 2001, we recorded $1.9 million against our exposure to insolvent
insurance providers, of which $1.6 million related to approximately 30
claims that were covered by an insolvent Australian insurance provider, HIH
Insurance Limited ("HIH"). As a result of favorable developments, in the
second quarter of 2003 we reduced the reserve by $0.6 million. This credit
was recorded to non-recurring expense in the second quarter of 2003. As of
June 30, 2004, $0.5 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.

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. For the three and six months ended June
30, 2004, we recorded an additional $163,000 and $353,000, respectively, 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. In addition, we incurred $76,000 in the same periods for
additional severance costs. 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 $42.5
million for reasons stated below), $41.8 million had been paid at June 30,
2004, with a further $0.7 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
$10.4 million in 2003 for reasons stated below), $9.7 million had been paid
at June 30, 2004, with the remaining $0.7 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 recorded an additional expense of $130,000 to
non-recurring for the three months ended June 30, 2004 and for the six
months ended June 30, 2004 have recorded a credit of $80,000 back to non-
recurring.

As mentioned in Note 2, our measure and discussion of segment
operating results excludes non-recurring and restructuring charges. The
following table displays the net charges (credits) by segment for the three
and six months ended June 30, 2004 and 2003 ($ in thousands):

Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Non-Recurring &
Restructuring
---------------
Investor and Occupier
Services:
Americas. . . . . . . $ (1,282) -- (1,457) --
Europe. . . . . . . . 40 (352) 5 (296)
Asia Pacific. . . . . 332 4,449 522 4,449
Investment Management . -- -- -- --
Corporate . . . . . . . -- -- -- --
-------- -------- -------- --------
Total Non-Recurring &
Restructuring. . . . . $ (910) 4,097 (930) 4,153
======== ======== ======== ========

(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 $342.6 million of unamortized intangibles and goodwill as of
June 30, 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 $342.6 million of unamortized
intangibles and goodwill, $331.8 million represents goodwill with
indefinite useful lives, which we ceased amortizing January 1, 2002. The
remaining $10.8 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. . . . (74) 344 (3,216) 462 (2,484)
-------- -------- -------- -------- --------
Balance as of
June 30, 2004 . . . .$179,280 65,544 90,361 34,654 369,839

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

Impact of exchange
rate movements. . . . 69 (59) 232 (75) 167
-------- -------- -------- -------- --------
Balance as of
June 30, 2004 . . . .$(15,462) (5,313) (6,387) (10,840) (38,002)

Net book value as
of June 30, 2004. . .$163,818 60,231 83,974 23,814 331,837
======== ======== ======== ======== ========

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 . . . . -- 18 (214) 103 (93)
-------- -------- -------- -------- --------
Balance as of
June 30, 2004. . . . .$ 39,364 929 2,843 5,421 48,557

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)
- Q2 . . . . . . . . . (1,189) (29) (91) -- (1,309)
Impact of exchange
rate movements . . . . (11) (12) 152 (103) 26
-------- -------- -------- -------- --------
Balance as of
June 30, 2004. . . . .$(29,666) (668) (2,042) (5,421) (37,797)

Net book value as
of June 30, 2004 . . .$ 9,698 261 801 -- 10,760
======== ======== ======== ======== ========

ESTIMATED ANNUAL AMORTIZATION EXPENSE
Remaining 2004 Amortization $2.6 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
and six months ended June 30, 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 were applied as
required to all entities subject to the Interpretation effective the
beginning of the quarter ended June 30, 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.

DEFINED BENEFIT PENSION PLAN DISCLOSURES

In December 2003, the FASB issued Statement No. 132 (revised),
"Employers' Disclosures about Pensions and Other Postretirement Benefits"
("SFAS 132-R"). SFAS 132-R revises the employers' disclosure requirements
regarding defined benefit pension plans contained in the original FASB
Statement No. 132; it does not change the measurement or recognition of
those plans. SFAS 132-R also requires additional disclosure about the
assets, obligations, cash flows, and net periodic benefit cost of these
plans. SFAS 132-R is generally effective for fiscal years ending after
December 15, 2003 for U.S. based plans, and applies to non-U.S. based plans
for fiscal years ending after June 15, 2004. As our defined benefit pension
plans are non-U.S. based, the additional disclosure required under SFAS
132-R will be required in our annual report for the year ended December 31,
2004.

(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 $3.0 million of
contributions to these plans, of which $0.5 million was contributed by June
30, 2003. Our estimated contributions to these plans for the twelve months
ended December 31, 2004 are $4.0 million, $1.6 million of which has been
contributed at June 30, 2004. The following table details the components
of our net periodic pension cost.

Six Months Ended
June 30,
------------------
2004 2003
------ ------
Net periodic pension cost:
Employer service cost . . . . . . . . . . . $1,399 1,084
Interest cost on projected benefit
obligations . . . . . . . . . . . . . . . 3,579 3,010
Expected return on plan assets. . . . . . . (4,395) (3,284)
Net amortization/deferrals. . . . . . . . . 17 16
Recognized actual loss. . . . . . . . . . . -- 252
------ ------
Total net periodic pension cost . . . . $ 600 1,078
====== ======

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 recorded impairment charges to equity earnings
of $228,000 in the first quarter of 2004, representing our equity share of
the impairment charge against individual assets held by these funds. There
were no similar charges in the second quarter of 2004. For the three and
six months ended June 30, 2003, we recorded an impairment charge of $1.1
million in equity earnings, representing our equity share of the impairment
in the period.

(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 806,600
shares under this program in the first six months of 2004 at an average
share price of $25.06.

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. In accordance with our share repurchase program,
shares repurchased are not cancelled but are held by one of our
subsidiaries. Repurchased shares are included equity account, but are
excluded from our earnings per share calculation. As such, we did not
include in weighted average shares outstanding shares repurchased in the
following periods:

2002 300,000
2003 400,000
2004 806,600

(9) REDEMPTION OF EURO NOTES

On July 26, 2000, Jones Lang LaSalle Finance B.V., 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 June 15, 2004, we redeemed all of the outstanding Euro Notes
at a redemption price of 104.5% of principal. As a result of this
redemption we incurred pre-tax expense of $11.6 million in the second
quarter of 2004 consisting of the following ($ in thousands):

Call premium paid on Euro Notes . . . . . . . $ 9,012
Acceleration of unamortized debt
issuance costs. . . . . . . . . . . . . . . $ 2,463
Other costs . . . . . . . . . . . . . . . . . $ 86
--------
Total Expense of Redemption of Euro Notes . . $ 11,561
========

Given the redemption of the Euro Notes, we are no longer required to
include Supplemental Condensed Consolidating Financial Statements within
these financial statements.

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

The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto for the three and six
months ended June 30, 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,

. Results of Operations

. 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 strategically used this
cash primarily to: (1) significantly pay down debt; (2) purchase shares
under our current share repurchase program; (3) invest for growth in
important markets in New York, central and southern Europe, India and North
Asia; and (4) co-invest in LaSalle Investment Management sponsored and
managed funds. 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 client-critical basic best practice process services, such as
property management, to sophisticated and complex transactional services,
such as leasing, that maximize 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 process
services have annuity characteristics and tend to be less impacted by
underlying economic conditions. The revenue stream associated with the
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 more technical
skills such as engineering. We compete in this area with traditional real
estate and property firms. We differentiate ourselves on the basis of
qualities such as our integrated global platform, our research capability,
our technology platform, and our ability to innovate via best practice
products and services. Our strong strategic focus also provides a highly
effective point of differentiation from 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 as well as
connections across geographic borders. 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 the underlying investment return to our clients,
which are generally recognized when agreed upon events or milestones are
reached, and equity earnings realized at the exit of individual investments
within funds. 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 in certain
situations 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 $101.7 million and
$93.0 million for the three months ended June 30, 2004 and 2003,
respectively. Such costs aggregated $206.9 million and $190.9 million for
the six months ended June 30, 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 six months
ended June 30, 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
---------- ---------- ---------- --------- --------- -------

June 30,
2004 . . $ 236.5 8.0 6.0 7.0 3.5 2.3

June 30,
2003 . . $ 193.6 8.5 5.3 7.7 3.8 1.3

The increase in bad debt expense recorded year-to-date when compared
to last year relates to a disputed receivable in Europe in which a
settlement of $700,000 was reached in the second quarter of 2004.

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 the majority of our incentive
compensation 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 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 $2.6
million and $3.5 million for the three and six months ended June 30, 2004,
respectively, reflecting the earned portion of the stock ownership program
during this time. There was no similar reduction of accrued incentive
compensation for the three and six months ended June 30, 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

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 and six months ended June 30, 2004
and 2003 ($ in millions):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Current compensation expense
amortization for prior
year programs . . . . . . . $ 2.2 1.7 4.2 3.3

Current deferral net of
related amortization. . . . (2.6) -- (3.5) --

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 recorded impairment charges in equity earnings of $228,000 in
the first quarter of 2004, representing our equity share of the impairment
charge against individual assets held by these funds. There were no
similar charges in the second quarter of 2004. For the three and six
months ended June 30, 2003, we recorded an impairment charge of $1.1
million in equity earnings representing our equity share of the impairment
in the period.

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 since that evaluation 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 six months ended June 30, 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 continue to purchase
stop loss insurance on an annual basis. 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 $351,000 at June 30,
2004. The reserve balance for the 2003 program at June 30, 2004 is $1.4
million. The table below sets out certain information related to the cost
of this program for the three and six months ended June 30, 2004 and 2003
($ in millions):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2004 2003 2004 2003
------ ------ ------ ------
Expense to Company. . . $ 3.9 3.2 7.7 6.2
Employee contributions. 0.8 0.7 1.6 1.4
------ ------ ------ ------
Total program cost. . . $ 4.7 3.9 9.3 7.6
====== ====== ====== ======

.. 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
for the three months ended June 30, 2004 and 2003 was $500,000 and
$433,000, respectively. The credit taken to revenue for the six months
ended June 30, 2004 and 2003 was $1.0 million and $866,000, respectively.
Due to the nature of workers' compensation claims, it may take several
years for claims to be settled. The table below provides the reserve
balance by plan year that we have established ($ in millions):

June 30, December 31,
2004 2003
-------- ------------
2004. . . . . . . . . . . . . $ 2.6 na
2003. . . . . . . . . . . . . 2.7 4.5
2002 and prior. . . . . . . . 2.0 2.6
----- -----
$ 7.3 7.1
===== =====

.. CAPTIVE INSURANCE COMPANY - In order to better manage our global
insurance program, and support our risk management efforts, we supplement
our traditional insurance program by the use of a captive insurance company
to provide professional indemnity insurance coverage on a "claims made"
basis. In the past, we have utilized this in certain of our international
operations, but effective March 31, 2004, as part of the renewal of our
global professional indemnity insurance program, we expanded the scope of
the use of the captive to provide coverage to our entire business. This
expansion has increased the level of risk retained by our captive to up to
$2.5 million per claim (dependent upon location) and up to $12.5 million in
the aggregate. Professional indemnity insurance claims can be complex and
take a number of years to resolve. We are required to estimate the
ultimate cost of these claims. This estimate includes specific claim
reserves that are developed on the basis of a review of the circumstances
of the individual claim, which are updated on a periodic basis. In
addition, given that the timeframe for these reviews may be lengthy, we
also provide a reserve against the current year exposures on the basis of
our historic loss ratio. The increase in the level of risk retained by the
captive means that we would expect that the quantum and the volatility of
our estimate of reserves will be increased over time. The table below
provides the reserve balance, which relates to multiple years, that we have
established as of ($ in millions):

June 30, 2004 . . . . . . . . . . . . . . . $ 3.9
June 30, 2003 . . . . . . . . . . . . . . . $ 1.9

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 AND SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE AND SIX
MONTHS ENDED JUNE 30, 2003

ITEMS AFFECTING COMPARABILITY OF RESULTS

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) realized gains on asset dispositions, or (ii)
incentive fees recorded as equity earnings, or (iii) impairment charges.
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 six 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 six months 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
Q2, 2004 . . 56.2 48.2 23.4 94.3 48.8 270.9
------- ------- ------- ------- ------- -------
$ 106.7 91.7 41.0 172.2 82.1 493.7
======= ======= ======= ======= ======= =======

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

OPERATING
INCOME (LOSS)
Q1, 2004 . . $ (2.5) 4.8 (1.5) (3.4) (2.0) (4.6)
Q2, 2004 . . 1.6 4.9 2.2 9.2 4.3 22.2
------- ------- ------- ------- ------- -------
$ (0.9) 9.7 0.7 5.8 2.3 17.6
======= ======= ======= ======= ======= =======

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

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

AVERAGE
EXCHANGE
RATES
Q1, 2004 . . 1.842 1.246 0.764 N/A N/A
Q2, 2004 . . 1.829 1.215 0.694 N/A N/A

Q1, 2003 . . 1.600 1.075 0.595 N/A N/A
Q2, 2003 . . 1.624 1.140 0.644 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).

Three Months Ended
June 30, Increase/ % Change
------------------ (Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------

Total revenue . . . $270.9 213.6 57.3 26.8% 21.2%
Compensation &
benefits. . . . 175.4 139.1 36.3 26.1% 19.9%
Operating,
administrative
& other . . . . 66.3 58.3 8.0 13.7% 8.3%
Depreciation &
amortization. . 7.9 9.3 (1.4) (15.1%) (18.6%)
Non-recurring . . (0.9) 4.1 (5.0) nm nm
Total operating
expenses . . . . . 248.7 210.8 37.9 18.0% 12.2%
------ ----- ----- ----- ------

Operating income. . $ 22.2 2.8 19.4 nm nm
====== ===== ===== ===== ======

Six Months Ended
June 30, Increase/ % Change
---------------- (Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------

Total revenue . . . $493.7 401.5 92.2 23% 15.3%
Compensation &
benefits. . . . 330.5 269.8 60.7 22.5% 14.5%
Operating,
administrative
& other . . . . 130.3 112.7 17.6 15.6% 8.1%
Depreciation &
amortization. . 16.2 19.0 (2.8) (14.7%) (19.8%)
Non-recurring . . (0.9) 4.1 (5.0) nm nm
Total operating
expenses . . . . . 476.1 405.6 70.5 17.4% 9.7%
------ ----- ----- ----- ------

Operating income
(loss). . . . . . $ 17.6 (4.1) 21.7 nm nm
====== ===== ===== ===== ======

REVENUE

The increase in local currency revenues of 21.2% and 15.3% for the
three and six months ended June 30, 2004, respectively, continues to
reflect improved revenue performance across our business. This improvement
is a result of increased transaction activity as a trend towards economic
recovery around the world continues to restore client activity. The varying
strength of this recovery means that our revenue performance differs by
business line and region. For example, we continue to experience
significant growth in India, but have yet to see any meaningful recovery in
Germany. The Hotels business delivered excellent performance in all
markets, and record revenues, as its global branding and platform have
positioned it as the "advisor of choice" for key industry participants. In
addition, the continuing strength of real estate as an investment class has
increased opportunities for our investment management business to realize
value for our clients. This has resulted in increased equity earnings
where we co-invest alongside our clients as well as incentive fees. See
below for additional discussion of our segment operating results.

OPERATING EXPENSES

The increase in U.S. dollar operating expenses for the three and six
months ended June 30, 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 in operating expenses
primarily relates compensation and benefits due to the timing impact of
improved revenue performance that has resulted in significantly increased
incentive compensation being accrued in the first half of the year when
compared to the same period of 2003. Compensation and benefits expense has
also increased as we continue to invest in growth markets to build on and
strengthen our market presence.

The increase in operating, administrative and other expense,
exclusive of movements in foreign currency exchange rates, can be
attributed to business and revenue generation related costs matching
increased business activity. In addition, we incurred increased bad debt
expense of about $1.0 million year-to-date when compared to the same period
of 2003, primarily as a result of the settlement of a disputed receivable
in Europe at a cost of $700,000.

The most significant component of our non-recurring and restructuring
expense for the three and six months ended June 30, 2004 is a credit of
$1.3 million being the gain from the sale of the final asset within the
Development Group portfolio, a business that was disposed of in 2001. It is
possible that future credits may be recorded relating to the Development
Group disposal, dependent upon future business performance. However, we do
not believe that there will be any future charges related to the
Development Group disposal. The most significant component of our non-
recurring and restructuring expense for the three and six months ended June
30, 2003 was the abandonment of a property management system in Australia.
The abandonment resulted in charge of $4.9 million, which included $113,000
for severance costs and $158,000 for professional fees associated with
pursuing litigation. This expense was recorded to non-recurring expense in
the second quarter of 2003. Partially offsetting this charge was a credit
of $606,000 related to a reduction in the reserve for insolvent insurance
providers. A further discussion of non-recurring and restructuring charges
can be found in Note 3 to Notes to Consolidated Financial Statements.

INTEREST AND OTHER COSTS

Interest expense, net of interest income, decreased $1.3 million, or
26.2%, for the three months ended June 30, 2004 when compared to the same
period of 2003. For the six months ended June 30, 2004, interest expense,
net of interest income decreased $1.6 million, or 17.3%, when compared to
the same period of 2003.

On June 15, 2004, we redeemed all of the outstanding Euro Notes at a
redemption price of 104.5% of principal. We incurred pre-tax expense of
$11.6 million which includes the premiums paid ($9.0 million) to redeem the
Euro Notes and the acceleration of debt issuance cost amortization ($2.5
million). We expect the redemption of the Euro Notes to provide savings of
approximately $5 million to $6 million in 2004, dependent upon prevailing
interest rates and exchange rates. This is due to the favorable credit
facility pricing which ranges from LIBOR plus 100 basis points to LIBOR
plus 225 basis points compared to the Euro Notes which carried a 9%
interest rate.

PROVISION (BENEFIT) FOR INCOME TAXES

For the three months ended June 30, 2004, the provision for income
taxes was $2.0 million as compared to a benefit of $730,000 for the three
months ended June 30, 2003. For the six months ended June 30, 2004, the
benefit for income taxes was $396,000 as compared to a benefit of $4.5
million for the six months ended June 30, 2003. The change in income tax is
due to improved operating income and net income (loss) before taxes in both
the three and six months ended June 30, 2004 when compared to the same
periods in 2003. Our estimated effective tax rate for the six months ended
June 30, 2004 was 28%, as compared to 34% for the same period last year.
This rate improvement has favorably affected the results for the second
quarter as we are in a profit position. The rate improvement when applied
to the seasonal year-to-date net loss negatively impacts results year-over-
year. 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 INCOME (LOSS)

For the three months ended June 30, 2004, we had a net income of $5.1
million, an increase of $6.5 million from a net loss of $1.4 million for
the same period in 2003. For the six months ended June 30, 2004, we had a
net loss of $1.0 million, which is an improvement of $7.7 million from the
net loss of $8.7 million for six months ended June 30, 3004.

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
Three Months Ended
June 30, Increase/
------------------ (Decrease)
2004 2003 in U.S. Dollars
------ ------ ---------------
Total revenue . . . . . . . $ 81.0 66.7 14.3 21.4%
Total operating expense . . 73.3 64.0 9.3 14.5%
Operating income. . . . . . 7.7 2.7 5.0 nm

Six Months Ended
June 30, Increase/
---------------- (Decrease)
2004 2003 in U.S. Dollars
------ ------ ---------------
Total revenue . . . . . . . $144.9 126.2 18.7 14.8%
Total operating expenses. . 138.1 125.1 13.0 10.4%
Operating income. . . . . . 6.8 1.1 5.7 nm

The continuing economic recovery in the Americas region has led to
increased client confidence such that where clients had been delaying real
estate decisions in recent years, we are now seeing clients progressing
with these real estate decisions. As a result, our transaction businesses
delivered strong performance with a trend towards increased deal volume and
increased deal size in many business lines. Revenues were up for the
quarter by 50% in our New York business, 54% in Capital Markets and 28% in
Office Leasing when compared to the second quarter of 2003. Our global
brand, presence and leadership position led to the Hotels business
achieving revenue growth of more than 100% in the same time period.
Revenue increases in our regional operations, particularly Mexico which is
up 40% in revenues for the year-to-date, has been driven by our investment
management business leveraging our IOS presence in these markets. In
general, the management services businesses have experienced flat revenues,
reflecting a shifting focus toward leasing-only assignments as large
property owners undertake more self management. The Corporate Property
Services business, which performs facility management outsourcing for
clients, was up 20% in revenue for the quarter, reflecting its success in
winning new business.

The increase in operating expenses is primarily due to increased
incentive compensation accruals which are a result of the timing of the
strong revenue performance for the three and six months ended June 30, 2004
when compared to the same periods of 2003. Salary and related payroll taxes
have also increased as we have aligned our staffing with the increased
client demand.

EUROPE

Three Months Ended
June 30, Increase/ % Change
------------------ (Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue . . . . $102.4 82.0 20.4 24.9% 15.5%
Total operating
expense. . . . . . . 97.3 79.6 17.7 22.2% 12.9%
Operating income. . . 5.1 2.4 2.7 nm 79.2%

Six Months Ended
June 30, Increase/ % Change
---------------- (Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue . . . . $192.3 153.3 39.0 25.4% 12.7%
Total operating
expenses. . . . . . 189.1 152.3 36.8 24.2% 11.7%
Operating income. . . 3.2 1.0 2.2 nm nm

The strong revenue performance in Europe for the three and six months
ended June 30, 2004 when compared to the same period of 2003 was led by the
French business which, after a long-term effort, closed several significant
capital markets and agency leasing transactions in the quarter. As a
result, second quarter local currency revenues were up 125% when compared
to the prior year period. The English business continues to build on the
positive revenue momentum in place at the end of 2003 as its strong market
positions combined with improving client sentiment around the economy led
to a 17% revenue increase in local currencies. The Hotels business also
continued a strong year with record revenues for the quarter, driven by the
successful closing of a significant portfolio transaction which resulted in
a multi-million dollar fee. There was also revenue strength in the key
growth markets for the region in Italy, Russia and Spain. Revenues
declined in the German business as difficult local economic conditions
persisted.

The increase in operating expense for the three and six months ended
June 30, 2004 is primarily due to the timing of increased incentive
compensation accruals which are a result of strong revenue performance,
together with other costs associated with revenue generation. In addition,
the second quarter of 2004 also included bad debt expense related to a
significant disputed receivable in which a settlement was reached.

ASIA PACIFIC

Three Months Ended
June 30, Increase/ % Change
------------------ (Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue . . . . $ 51.9 41.2 10.7 26.0% 19.3%
Total operating
expense . . . . . . 50.8 40.8 10.0 24.5% 16.8%
Operating income. . . 1.1 0.4 0.7 nm nm

Six Months Ended
June 30, Increase/ % Change
---------------- (Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue . . . . $ 92.1 73.8 18.3 24.8% 14.8%
Total operating
expenses. . . . . . 95.6 78.7 16.9 21.5% 10.3%
Operating loss. . . . (3.5) (4.9) 1.4 28.6% 45.5%

The improved revenue performance for the three and six months ended
June 30, 2004, demonstrates a continued positive revenue trend in the
region. Revenue growth of more than 55% for the quarter and more than 45%
year-to-date in our growth markets of India and North Asia was led by our
Indian and Chinese business as we continue to see the benefit of the global
outsourcing trend that began in 2003. Revenue increases in the core
markets of Australia, Hong Kong and Singapore of more than 10% for the
quarter and year-to-date were driven by increased transaction levels in
Hong Kong reflecting improved sentiment in the local economy and towards
real estate in particular.

The increase in local currency operating expense for the three and
six months is primarily related to compensation costs due to our investment
in headcount costs to build scale and maintain service levels in key
markets, particularly North Asia and India. Also contributing to the
increase in operating expenses is the timing incentive compensation
accruals which are a result of strong revenue performance.

INVESTMENT MANAGEMENT

Three Months Ended
June 30, Increase/ % Change
------------------- (Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue . . . . $ 35.9 23.9 12.0 50.2% 44.3%
Total operating
expense. . . . . . . 28.4 22.5 5.9 26.2% 20.5%
Operating income. . . 7.5 1.4 6.1 nm nm

Six Months Ended
June 30, Increase/ % Change
---------------- (Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue . . . . $ 64.8 48.5 16.3 33.6% 25.7%
Total operating
expenses . . . . . . 54.7 45.7 9.0 19.7% 12.4%
Operating income. . . 10.1 2.8 7.3 nm nm

The increase in local currency revenue for the three and six months
ended June 30, 2004 is primarily due to increased equity earnings which
were up $7.2 million for the quarter and $8.9 million for the year-to-date.

The current real estate market is attractive for realizing value for our
clients in a shorter timeframe than originally planned. Accordingly, we
have accelerated the pace of asset disposition to lock in gains for our
clients. Where we co-invest with our clients, the strong investment
performance related to these assets has generated equity gains above levels
earned in the same periods of 2003 which included $1.1 million of
impairment charges. We recorded $228,000 in impairment charges relating to
co-investment in the first quarter of 2004.

The increase in operating expense for the three and six months ended
June 30, 2004, can primarily be attributed to increased incentive
compensation accruals and other revenue generation related costs matching
increased business activity.

PERFORMANCE OUTLOOK

The firm's results continue to be seasonal in character, with the
majority of profits occurring in the second half of the year. Improved
global economic conditions improved market confidence which in turn
benefited higher-margin transaction businesses. The favorable second
quarter financial performance was the result of the earlier timing of
equity gains and fees from transactions anticipated to occur later in the
year, as well as better core business performance fundamentals worldwide.
Although second half prospects will depend on sustained favorable economic
conditions, the firm is confident in its ability to perform in accordance
with the current full year expectations of the analysts covering its
performance, which exclude the Senior Note redemption costs.

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):

Six Months Ended
June 30,
--------------------
2004 2003
-------- --------
Cash provided by earnings . . . . . . . . . . . . $ 22,712 25,107
Cash used in working capital. . . . . . . . . . . (38,849) (35,212)
-------- --------

Six Months Ended
June 30,
--------------------
2004 2003
-------- --------
Cash used in operating activities . . . . . . . . (16,137) (10,105)
Cash used in investing activities . . . . . . . . (3,858) (7,384)
Cash provided by (used in) financing activities . (18,648) 17,010
-------- --------
Net decrease in cash. . . . . . . . . . . . . . . (38,643) (479)
Cash and cash equivalents, beginning of period. . 63,105 13,654
-------- --------
Cash and cash equivalents, end of period. . . . . $ 24,462 13,175
======== ========

CASH FLOWS USED IN OPERATING ACTIVITIES

During the six months ended June 30, 2004 cash flows used in
operating activities totaled $16.1 million, as compared to $10.1 million
during the six months ended June 30, 2003. The cash flows used in
operating activities for the six months ended June 30, 2004 can be further
divided into cash generated from earnings of $22.7 million (compared to
$25.1 million generated in 2003) and cash used in balance sheet movements
(primarily working capital management) of $38.8 million (compared to a use
of $35.2 million in 2003). The most significant factors underlying the
$2.4 million reduction in cash generated by earnings are increased equity
earnings in 2004 together with the $4.9 million non-cash charge in 2003
relating to the abandonment of a property management accounting system.

CASH FLOWS USED IN INVESTING ACTIVITIES

Investing activities used $3.9 during the six months ended June 30,
2004, as compared to $7.4 million used during the six months ended June 30,
2003. This reduction was a result of strong cash flows from our co-
investments driven by increased transaction activity.

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES

Cash flows used in financing activities were $18.6 million during the
six months ended June 30, 2004, as compared to $17.0 million provided
during the six months ended June 30, 2003. During the first six months of
2004 we used $20.2 million to repurchase shares of our common stock where
there were no similar repurchases in the same period in 2003.

LIQUIDITY AND CAPITAL RESOURCES

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

June 30, December 31, June 30,
2004 2003 2003
--------- ------------ ---------

Cash. . . . . . . . . . . . . . . $ 24,462 63,105 13,175
Euro Notes. . . . . . . . . . . . -- 207,816 189,849
Other Debt. . . . . . . . . . . . 201,463 3,592 59,257
-------- -------- --------
Net Debt and Cash . . . . . . . . $177,001 148,303 235,931
======== ======== ========

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. Pricing on this facility ranges from
LIBOR plus 100 basis points to LIBOR plus 225 basis points dependent upon
our leverage ratio. Our current pricing on the revolving credit facility is
LIBOR plus 150 basis points. Our pricing will decrease to LIBOR plus 125
basis points effective August 29, 2004 due to our lower leverage ratio at
June 30, 2004. This amended facility will continue to be utilized for
working capital needs, investments and acquisitions. On June 15, 2004, we
utilized the revolving credit facility to redeem all of the outstanding
Euro Notes at a redemption price of 104.5% of principal. We incurred pre-
tax expense of $11.6 million which includes the premiums paid ($9.0
million) to redeem the Euro Notes and the acceleration of debt issuance
cost amortization ($2.5 million). We expect the redemption of the Euro
Notes to provide savings of approximately $5 million to $6 million in 2004,
dependent upon prevailing interest rates and exchange rates. This savings
is due to the favorable credit facility pricing compared to the Euro Notes
which carried a 9% interest rate.

As of June 30, 2004, we had $187.0 million outstanding under the
revolving credit facility, primarily a result of redeeming the Euro Notes
on June 15, 2004. A portion of the borrowing on the credit facility was
made in euros (euro 100 million) with the remaining borrowings denominated
in U.S. dollars. The average borrowing rate on the revolving credit
agreement and the Euro Notes ("the facilities") during the first six months
of 2004 was 8.4% versus 8.2% for the same period of 2003. We also had
short-term borrowings (including capital lease obligations) of $14.5
million outstanding at June 30, 2004. As of June 30, 2004, $7.0 million of
the total short-term borrowings were attributable to local overdraft
facilities.

Jones Lang LaSalle and certain of our subsidiaries guarantee the
revolving credit facility. 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 $38.1 million, of which $7.0 million was outstanding as of
June 30, 2004. We have provided guarantees of $28.6 million related to the
local overdraft facilities, as well as guarantees related to the $325
million revolving credit facility, 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 June 30, 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 expenditures. 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 six months of 2004 and none were outstanding as of
June 30, 2004.

We believe that the revolving credit facility, 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 June 30, 2004, we had total investments and
loans of $66.4 million in approximately 20 separate property or fund co-
investments, with additional capital commitments of $142.0 million for
future fundings of co-investments. With respect to certain co-investment
indebtedness, we also had repayment guarantees outstanding at June 30, 2004
of $738,000. The $142.0 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 June 30, 2004, LIC has unfunded
capital commitments of $67.0 million, of which our 47.85% share is $32.1
million, for future fundings of co-investments.

The net co-investment funding for 2004 is anticipated to be between
$20 and $25 million (planned co-investment less return of capital from
liquidated co-investments). For the six months ended June 30, 2004, we
received a net $6.6 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
($42.7 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 ($20.4
million). As of June 30, 2004, LIC had euro 10.4 million ($12.6 million) of
outstanding borrowings on this facility.

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 806,600
shares in the first six months 2004 at an average price of $25.06 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 the 700,000 and 806,600 shares repurchased under
the 2002 and 2004 programs, respectively, 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.

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 million amended
revolving multi-currency credit facility, due in April 2007, that is
available for working capital, investments, capital expenditures and
acquisitions. We utilized the revolving credit facility to redeem all of
the outstanding Euro Notes on June 15, 2004. 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 six months of 2004, and none were
outstanding as of June 30, 2004.

The average borrowing rate on our debt for the six months ended
June 30, 2004 was 8.4% as compared to a rate of 8.2% for the same period of
2003. We expect the redemption of the Euro Notes to lower our average
borrowing rate over the balance of 2004. The expected lower average
borrowing rate is due to the favorable credit facility pricing which ranges
from LIBOR plus 100 basis points to LIBOR plus 225 basis points compared to
the Euro Notes which carried a 9% interest rate. Our current pricing on
the credit facility is LIBOR plus 150 basis points.

FOREIGN EXCHANGE

Revenues outside of the United States were 65% of our total revenues
for the six months ended June 30, 2004. Operating in international markets
means that we are exposed to movements in foreign currency exchange rates,
primarily the British pound (22% of revenues for the six months ended
June 30, 2004), the euro (19% of revenues for the six months ended June 30,
2004) and the Australian dollar (8% of revenues for the three months ended
June 30, 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.

DISCLOSURE OF LIMITATIONS

Since the information presented above includes only those exposures
that exist as of June 30, 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 June 30, 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 six months 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 misrepresenta-
tion, 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 June 30, 2004, $0.5 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 2. SHARE REPURCHASE

The following table provides information with respect to approved
share repurchase programs for Jones Lang LaSalle:

Total
number
of shares
purchased Shares
Total Average as part remaining
number of price of publicly to be
shares paid per announced purchased
purchased share (1) plans plan (2)
---------- ---------- ----------- -----------
January 1, 2004 -
January 31, 2004 -- -- -- 300,000

February 1, 2004 -
February 29, 2004 -- -- -- 1,500,000

March 1, 2004 -
March 31, 2004 294,800 25.32 294,800 1,205,200

April 1, 2004 -
April 30, 2004 -- -- 294,800 1,205,200

May 1, 2004 -
May 31, 2004 251,400 $ 23.69 546,200 953,800

June 1, 2004 -
June 30, 2004 260,400 $ 26.10 806,600 693,400
------- -------
Total 806,600 $ 25.06
======= =======

(1) Total average price paid per share is a weighted average for
the six month period.

(2) 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.

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.

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

At the Annual Meeting of Shareholders held on May 27, 2004, the
following business was conducted:

A. Shareholders elected two directors as follows:

The following two Class I Directors were elected for three-year
terms expiring at the 2007 Annual Meeting of Shareholders:

Henri-Claude de Bettignies: 24,539,089 votes for and
2,855,463 withheld

Darryl Hartley-Leonard: 23,931,455 votes for and
3,463,097 withheld

B. Shareholders ratified the appointment of KPMG LLP as the
Company's independent auditor for the year ending December 31,
2004 as follows:

Votes for: 25,712,084 80.67% of outstanding shares
Votes against: 1,680,992
Votes abstained: 1,476

C. Shareholders approved an amendment to the Jones Lang LaSalle
Employee Stock Purchase Plan to increase the number of shares
available thereunder by 750,000:

Votes for: 24,765,874 77.70% of outstanding shares
Votes against: 355,677
Votes abstained: 17,654

D. Shareholders approved the shareholder proposal to declassify
the Board of Directors of the Company as follows:

Votes for: 18,998,617 59.61% of outstanding shares
Votes against: 6,059,752
Votes abstained: 80,836

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

COLIN DYER NAMED NEW CHIEF EXECUTIVE OFFICER

The Company's Board of Directors has elected Colin Dyer, 51, as
President, Chief Executive Officer and a member of the Board of Directors,
effective September 7, 2004. Mr. Dyer will report to the Board, which is
chaired by Stuart L. Scott. Mr. Dyer is currently the Chief Executive
Officer of WorldWide Retail Exchange, a premier international Internet-
based exchange community owned by 40 of the world's leading retailers and
manufacturers. Before that, he was Chief Executive Officer of Courtaulds
Textiles plc, an international clothing and textile company.

Mr. Dyer, a British citizen currently based in Washington, D.C., will
be principally located in the Company's Chicago office. He will have
overall responsibility for guiding the Company's strategic vision and
future growth as well as for chairing the Company's Global Executive
Committee, its most senior internal management committee.

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 June 24, 2004, Jones Lang LaSalle filed a report on
Form 8-K incorporating its June Investor Relations
Presentation.

On July 21, 2004, Jones Land LaSalle filed a report on
Form 8-K incorporating a press release announcing it has named
Colin Dyer as President, Chief Executive Officer and a member
of its Board of Directors, effective September 7, 2004.

On July 28, 2004, Jones Lang LaSalle filed a report on
Form 8-K incorporating a press release announcing earnings for
the quarterly period ended June 30, 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: August 2, 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
- ------- -----------

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.