JONES LANG LASALLE INC - 10-Q Quarterly Report

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

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 November 2, 2004
----- ----------------

Common Stock ($0.01 par value) 32,833,436

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

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

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

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

Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 2004 . . . . . 7

Consolidated Statements of Cash Flows for the
nine months ended September 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. . . . . 32

Item 3. Quantitative and Qualitative Disclosures
about Market Risk. . . . . . . . . . . . . . . . . . . 53

Item 4. Controls and Procedures. . . . . . . . . . . . . . . . 54

PART II OTHER INFORMATION

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 55

Item 2. Share Repurchase . . . . . . . . . . . . . . . . . . . 56

Item 5. Other Information. . . . . . . . . . . . . . . . . . . 57

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 58

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS

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

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

Current assets:
Cash and cash equivalents. . . . . . . . . $ 21,628 63,105
Trade receivables, net of allowances
of $6,488 and $4,790 in 2004
and 2003, respectively . . . . . . . . . 233,332 253,126
Notes receivable . . . . . . . . . . . . . 2,315 3,698
Other receivables. . . . . . . . . . . . . 13,626 8,317
Prepaid expenses . . . . . . . . . . . . . 23,585 18,866
Deferred tax assets. . . . . . . . . . . . 18,730 18,097
Other current assets . . . . . . . . . . . 13,949 7,731
---------- ---------
Total current assets . . . . . . . 327,165 372,940

Property and equipment, at cost, less
accumulated depreciation of $156,076
and $140,520 in 2004 and 2003,
respectively . . . . . . . . . . . . . . . 67,017 71,621
Goodwill, with indefinite useful lives,
at cost, less accumulated amortization
of $38,258 and $38,169 in 2004
and 2003, respectively . . . . . . . . . . 335,270 334,154
Identified intangibles, with definite
useful lives, at cost, less accumulated
amortization of $39,209 and $35,196
in 2004 and 2003, respectively . . . . . . 11,524 13,454
Investments in and loans to real estate
ventures . . . . . . . . . . . . . . . . . 90,965 71,335
Long-term receivables, net . . . . . . . . . 13,568 13,007
Prepaid pension asset. . . . . . . . . . . . 13,884 11,920
Deferred tax assets. . . . . . . . . . . . . 45,924 43,252
Debt issuance costs, net . . . . . . . . . . 1,906 4,113
Other assets, net. . . . . . . . . . . . . . 11,137 7,144
---------- ----------

$ 918,360 942,940
========== ==========

JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED

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

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

Current liabilities:
Accounts payable and accrued
liabilities. . . . . . . . . . . . . . . $ 81,303 96,466
Accrued compensation . . . . . . . . . . . 133,802 154,317
Short-term borrowings. . . . . . . . . . . 27,210 3,592
Deferred tax liabilities . . . . . . . . . 3,498 2,623
Other current liabilities. . . . . . . . . 43,616 28,414
---------- ----------
Total current liabilities. . . . . 289,429 285,412

Long-term liabilities:
Credit facilities. . . . . . . . . . . . . 160,820 --
9% Senior Euro Notes, due 2007 . . . . . . -- 207,816
Deferred tax liabilities . . . . . . . . . 4,711 761
Other liabilities. . . . . . . . . . . . . 29,434 17,960
---------- ----------
Total liabilities. . . . . . . . . 484,394 511,949

Commitments and contingencies

Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
32,803,655 and 31,762,077 shares
issued and outstanding as of
September 30, 2004 and December 31,
2003, respectively . . . . . . . . . . . 328 318
Additional paid-in capital . . . . . . . . 539,184 519,438
Deferred stock compensation. . . . . . . . (20,151) (21,649)
Retained deficit . . . . . . . . . . . . . (45,060) (59,346)
Stock held by subsidiary . . . . . . . . . (48,683) (12,846)
Stock held in trust. . . . . . . . . . . . (551) (460)
Accumulated other comprehensive income . . 8,899 5,536
---------- ----------
Total stockholders' equity . . . . 433,966 430,991
---------- ----------
$ 918,360 942,940
========== ==========

See accompanying notes to consolidated financial statements.

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

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

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2004
($ in thousands, except share data)
(UNAUDITED)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
($ in thousands)
(UNAUDITED)

2004 2003
---------- ----------
Cash flows from operating activities:
Cash flows from earnings:
Net income (loss). . . . . . . . . . . . . . $ 14,286 (1,251)
Reconciliation of net income (loss) to
net cash provided by earnings:
Depreciation and amortization. . . . . . . 24,678 28,058
Equity in (earnings) loss. . . . . . . . . (10,071) 282
Operating distributions from real
estate ventures. . . . . . . . . . . . . 7,487 3,118
Provision for loss on receivables and
other assets . . . . . . . . . . . . . . 2,378 6,468
Amortization of deferred compensation. . . 10,642 8,660
Amortization of debt issuance costs. . . . 2,244 1,126
---------- ----------
Net cash provided by earnings. . . . . . 51,644 46,461

Cash flows from changes in
working capital:
Receivables. . . . . . . . . . . . . . . . 15,404 44,915
Prepaid expenses and other assets. . . . . (14,010) (4,783)
Deferred tax assets . . . . . . . . . . . (586) (2,334)
Accounts payable, accrued liabilities
and accrued compensation . . . . . . . . (15,996) (48,918)
---------- ----------
Net cash flows from changes in
working capital. . . . . . . . . . . . (15,188) (11,120)
---------- ----------

Net cash provided by
operating activities . . . . . . . . . 36,456 35,341

Cash flows used in investing activities:
Net capital additions - property and
equipment. . . . . . . . . . . . . . . . . (15,582) (12,444)
Other acquisitions and investments,
net of cash balances assumed . . . . . . . (509) (1,100)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures. . . . . . . . . . . (32,284) (4,282)
Distributions, repayments of advances
and sale of investments . . . . . . . . . 12,984 10,187
---------- ----------
Net cash used in investing
activities . . . . . . . . . . . . . . (35,391) (7,639)

JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
($ in thousands)
(UNAUDITED)

2004 2003
---------- ----------
Cash flows used in financing activities:
Proceeds from borrowings under credit
facilities . . . . . . . . . . . . . . . . . 420,013 276,634
Repayments of borrowings under credit
facilities . . . . . . . . . . . . . . . . . (235,575) (303,584)
Redemption of Euro Notes, net of costs . . . . (203,209) --
Shares repurchased for payment of
taxes on stock awards. . . . . . . . . . . . (4,210) (3,330)
Shares repurchased under share repurchase
program. . . . . . . . . . . . . . . . . . . (35,837) --
Common stock issued under stock option
plan and stock purchase programs . . . . . . 16,276 2,525
---------- ----------
Net cash used in
financing activities . . . . . . . . . (42,542) (27,755)
---------- ----------
Net decrease in cash and
cash equivalents . . . . . . . . . . . (41,477) (53)

Cash and cash equivalents,
beginning of period. . . . . . . . . . . . . . 63,105 13,654
---------- ----------
Cash and cash equivalents, end of period . . . . $ 21,628 13,601
========== ==========

Supplemental disclosure of cash flow
information:

Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . $ 9,037 10,972
Taxes, net of refunds. . . . . . . . . . . . 7,977 7,707

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 September 30, 2004 and
for the three and nine months ended September 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 September 30, 2004 and 2003
are not indicative of the results to be obtained for the full fiscal
year. 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.

EARNINGS PER SHARE

For the three months ended September 30 2004, we calculated basic
earnings per share using basic weighted average shares outstanding of
30.9 million and diluted earnings per share using diluted weighted
average shares outstanding of 32.9 million. For the three months
ended September 30, 2003, we calculated basic earnings per share
using basic weighted average shares outstanding of 31.2 million and

diluted earnings per share using diluted weighted average shares
outstanding of 32.4 million. The increase of 2.0 million and 1.2
million in diluted weighted average shares outstanding in 2004 and
2003, respectively, 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 market price of our stock
during this period.

For the nine months ended September 30, 2004, we calculated basic
earnings per share using basic weighted average shares outstanding of
30.9 million and diluted earnings per share using diluted weighted
average shares outstanding of 32.9 million. For the nine months
ended September 30, 2003, we calculated the basic and diluted loss
per share using basic weighted average shares outstanding of 30.9
million. As a result of the net loss incurred in the nine months
ended September 30, 2003, the diluted weighted average shares
outstanding for this period do not give effect to common stock
equivalents, since to do so would be anti-dilutive.

In accordance with our share repurchase program, shares repurchased
are not cancelled but are held by one of our subsidiaries. We have
repurchased shares in our equity account, but we exclude them 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 1,305,400

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:

. our geographic mix of income,

. legislative actions on statutory tax rates,

. the impact of tax planning to reduce losses in jurisdictions
where we cannot recognize the tax benefit of those losses, and

. 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 nine
months ended September 30, 2003, we used an estimated effective tax
rate of 32% 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") 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 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 Nine Months Ended
September 30, September 30,
------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net income (loss),
as reported. . . . . . $ 15,305 7,411 14,286 (1,251)
Add: Stock-based employee
compensation expense
included in reported
net income (loss),
net of related tax
effects. . . . . . . . 3,505 1,740 9,662 5,493
Deduct: Total stock-
based employee
compensation expense
determined under fair
value based method
for all awards,
net of related tax
effects. . . . . . . . (1,914) (2,132) (9,124) (6,802)
-------- -------- -------- --------
Pro forma net income
(loss) . . . . . . . . $ 16,896 7,019 14,824 (2,560)
======== ======== ======== ========
Net income (loss)
per share:
Basic - as reported. . $ 0.49 0.24 0.46 (0.04)
======== ======== ======== ========
Basic - pro forma. . . $ 0.55 0.23 0.48 (0.08)
======== ======== ======== ========

Diluted - as reported. $ 0.47 0.23 0.43 (0.04)
======== ======== ======== ========
Diluted - pro forma. . $ 0.51 0.22 0.45 (0.08)
======== ======== ======== ========

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 September 30, 2004, we had forward exchange
contracts in effect with a gross notional value of $240.7 million
($188.3 million on a net basis) and a market and carrying gain of
approximately $2.2 million.

In the past, we have used interest rate swap agreements to limit the
impact of changes in interest rates on earnings and cash flows. We
did not use any interest rate swap agreements in 2003 or in the first
nine months of 2004 and there were no such agreements outstanding as
of September 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 nine months ended September 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. We will account for the contract on a net basis when the
fee structure is comprised of at least two distinct elements, namely:

. the fixed management fee and

. a separate component which allows for scheduled reimbursable
personnel or other expenses to be billed directly to the
client.

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:

. the property owner generally has the authority over hiring
practices and the approval of payroll prior to payment by Jones
Lang LaSalle;

. 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;

. reimbursement to Jones Lang LaSalle is generally completed
simultaneously with payment of payroll or soon thereafter; and

. 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 $109.4 million and $94.5 million for
the three months ended September 30, 2004 and 2003, respectively.
Such costs aggregated $316.3 million and $285.4 million for the nine
months ended September 30, 2004 and 2003, respectively. This
treatment has no impact on operating income (loss), net income (loss)
or cash flows.

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 generally
relate to the provision of services by us in the normal course of our
business. 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 postponed the trial date previously set for November 29, 2004 to
allow additional time for mediation and as of the date of this report
has not set a new date. 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 continue
with 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 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. Analysis of claim expense run-off was
performed related to the 2002 and 2003 health insurance reserves
which resulted in a decision being made that we should release
$679,000 to the income statement in the third quarter of 2004. This
compared to an adjustment of $780,000 in the third quarter of 2003.
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 $6,000 at September 30, 2004. The reserve balance for the
2003 program at September 30, 2004 is $241,225.

The actuary provides a range of potential exposure related to
workers' compensation costs and we reserve within that range. We
accrue for the estimated adjustment to revenues for the difference
between the actuarial estimate and our reserve on a periodic basis.
The credit taken to revenue for the three and nine months ended
September 30, 2004 was $2.2 million and $3.2 million, respectively.
The credit taken to revenue for the three and nine months ended
September 30, 2003 was $1.6 million and $2.5 million, respectively.

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. A review of prior year insurance claims has resulted in the

strengthening of certain reserves in the third quarter of 2004 by
$1.6 million. This strengthening of the claim reserves increased the
historic loss ratio that is the basis of the reserve for the current
year exposures which resulted in an incremental $300,000 of expense
being recorded in the third quarter of 2004.

Jones Lang LaSalle and certain of our subsidiaries guarantee our
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 subsidiaries fails to repay its borrowing on an
overdraft facility. We have provided guarantees of $28.1 million
related to the local overdraft facilities, as well as guarantees
related to our $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.

At September 30, 2004 we had capital commitments of $135.2 million
for future fundings of co-investments. These commitments are to
LaSalle Investment Limited Partnership, referred to as LaSalle
Investment Company ("LIC"). We expect that LIC will draw down on our
commitments over the next five to seven years as it enters into new
coinvestments.

(2) BUSINESS SEGMENTS

We manage our business along a combination of functional and
geographic lines. We report our operations as four business segments:

. Investment Management, which offers Real Estate Money
Management services on a global basis,

and the three geographic regions of Investor and Occupier Services
("IOS"):

. Americas,

. Europe and

. 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 plan revenue of each segment.

Our measure of segment operating results excludes non-recurring and
restructuring charges because we have determined that it is not
meaningful to investors to allocate these charges to our segments.
See Note 3 for a detailed discussion of these charges. 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 nine months ended September 30,
2004 and 2003 ($ in thousands):

SEGMENT OPERATING RESULTS
-----------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
INVESTOR AND OCCUPIER
SERVICES -
AMERICAS
Revenue:
Implementation
services . . . . . $ 36,763 25,503 98,756 70,882
Management services. 44,774 41,389 124,070 119,709
Equity earnings. . . -- -- 467 --
Other services . . . 1,871 1,308 4,613 3,495
Intersegment
revenue. . . . . . 234 93 615 432
-------- -------- -------- --------
83,642 68,293 228,521 194,518
Operating expenses:
Compensation,
operating and
administrative
expenses . . . . . 70,385 55,951 201,425 171,822
Depreciation and
amortization . . . 3,495 4,508 10,519 13,717
-------- -------- -------- --------
Operating
income . . . . $ 9,762 7,834 16,577 8,979
======== ======== ======== ========

EUROPE
Revenue:
Implementation
services . . . . . $ 73,108 57,854 214,710 162,742
Management services. 23,166 20,678 69,890 65,594
Other services . . . 3,235 3,352 7,191 6,862
-------- -------- -------- --------
99,509 81,884 291,791 235,198
Operating expenses:
Compensation,
operating and
administrative
expenses . . . . . 94,046 76,539 277,702 223,345
Depreciation and
amortization . . . 2,543 2,785 7,998 8,331
-------- -------- -------- --------
Operating
income . . . . $ 2,920 2,560 6,091 3,522
======== ======== ======== ========

SEGMENT OPERATING RESULTS
-----------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
ASIA PACIFIC
Revenue:
Implementation
services . . . . . $ 33,151 23,316 82,557 60,383
Management services. 22,613 18,509 64,546 54,443
Other services . . . 469 306 1,226 1,110
-------- -------- -------- --------
56,233 42,131 148,329 115,936
Operating expenses:
Compensation,
operating and
administrative
expenses . . . . . 52,403 41,084 144,835 116,179
Depreciation and
amortization . . . 2,104 1,519 5,247 5,098
-------- -------- -------- --------
Operating
income
(loss) . . . . $ 1,726 (472) (1,753) (5,341)
======== ======== ======== ========

INVESTMENT MANAGEMENT -
Revenue:
Implementation and
other services . . $ 3,094 996 8,012 3,324
Advisory fees. . . . 24,615 23,585 74,636 69,348
Incentive fees . . . 3,058 1,356 4,369 1,934
Equity earnings
(loss) . . . . . . 1,034 (77) 9,604 (282)
-------- -------- -------- --------
31,801 25,860 96,621 74,324
Operating expenses:
Compensation,
operating and
administrative
expenses . . . . . 25,049 20,971 79,083 65,985
Depreciation and
amortization . . . 294 270 915 912
-------- -------- -------- --------
Operating
income . . . . $ 6,458 4,619 16,623 7,427
======== ======== ======== ========

Total segment revenue. . $271,185 218,168 765,262 619,976
Intersegment revenue
eliminations . . . . . (234) (93) (615) (432)
-------- -------- -------- --------
Total revenue. . $270,951 218,075 764,647 619,544
======== ======== ======== ========

SEGMENT OPERATING RESULTS
-----------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Total segment operating
expenses . . . . . . . $250,319 203,627 727,724 605,389
Intersegment operating
expense eliminations . (234) (93) (615) (432)
-------- -------- -------- --------
Total operating
expenses before
non-recurring
charges. . . . $250,085 203,534 727,109 604,957
======== ======== ======== ========
Non-recurring
charges
(credits). . . $ (1,408) (1,451) (2,338) 2,702
======== ======== ======== ========

Operating
income . . . . $ 22,274 15,992 39,876 11,885
======== ======== ======== ========

(3) NON-RECURRING AND RESTRUCTURING CHARGES

For the three and nine months ended September 30, 2004, we recorded
credits of $1.4 million and $2.3 million, respectively, to non-
recurring expense. For the three and nine months ended September 30,
2003, we recorded a credit of $1.5 million and a charge of $2.7
million, respectively, to non-recurring expense. This activity
consists of the following elements ($ in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Non-Recurring &
Restructuring
----------------
Land Investment and
Development Group. . . $ 1,852 -- 573 --

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

Abandonment of Property
Management Accounting
System:
Compensation &
Benefits . . . . . . (2) -- 74 113
Operating, Adminis-
trative & Other. . . (3,848) 97 (3,495) 4,919

2001 Global Restructuring
Program:
Compensation &
Benefits . . . . . . (3) 15 (41) 97
Operating, Adminis-
trative & Other. . . -- -- -- --

Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------

2002 Global Restructuring
Program:
Compensation &
Benefits . . . . . . -- (1,491) (175) (2,273)
Operating, Adminis-
trative & Other. . . 593 (72) 726 452
-------- -------- -------- --------
Total Non-Recurring &
Restructuring (Credit)/
Expense. . . . . . . . $ (1,408) (1,451) (2,338) 2,702
======== ======== ======== ========

LAND INVESTMENT GROUP

We closed the non-strategic residential land business ("Land
Investment Group") in the Americas region of the Investment
Management segment in 2001. These assets are currently managed by a
third party asset manager who provides us with cash flow projections
on an annual basis. We had a net impairment expense during the three
months ended September 30, 2004 for the Land Investment Group assets
of $1.9 million which represented a new impairment charge of $2
million offset by cash proceeds, related to previously fully written
down assets, of approximately $150,000. We received updated cash
flow projections for one of the investments in the three months ended
September 30, 2004 which indicated a decline in expected cash
proceeds and an increase in expected expenses associated with this
investment. As a result of this, an impairment charge of
approximately $2 million was recorded to non-recurring and
restructuring expense. This means that the net book value of the
three Land Investment Group investments included in investments in
and loans to real estate ventures at September 30, 2004 was $0, as
compared with approximately $2 million at December 31, 2003.

We have provided guarantees associated with this investment portfolio
of approximately $750,000, which we currently do not expect to be
required to fund. We expect these investments to be liquidated by
the end of 2007. We received cash proceeds of approximately $150,000
during the three months ended September 30, 2004 related to the
partial liquidation of the other two Land Investment Group assets
which had previously been fully written down. These proceeds were
recorded as a credit to non-recurring and restructuring expense.
Future credits relating to the liquidation process will be recorded
if further cash is received.

There were no similar transactions for the three and nine months
ended September 30, 2003.

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.

There were no similar transactions for the three and nine months
ended September 30, 2003.

INSOLVENT INSURANCE PROVIDERS

As a result of two of our insurance providers becoming insolvent in
2001, we recorded a provision of $1.9 million, of which $1.6 million
related to approximately 30 claims that were covered by an insolvent
Australian insurance provider, HIH Insurance Limited ("HIH"). In the
second quarter of 2003 we reduced the reserve by $0.6 million because
of favorable developments in claim settlement. This credit was
recorded to non-recurring expense. As of September 30, 2004, $0.5
million of the reserve established remains to cover claims which
would have been covered by the insurance provided by HIH. The open
claims relate to personal injury matters. 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 three months ending September 30, 2004 we settled the
litigation we were pursuing with regard to the unsuccessful
implementation of an Australian property management accounting system
discussed in the paragraph following. Under the settlement
agreement, which was executed on September 27, 2004, we are scheduled
to receive a total of AUS$9.8 million ($7.1 million) in cash, in
installments as follows: (1) AUS$6.0 million ($4.3 million) on or
before October 22, 2004, (2) AUS$2.0 million ($1.5 million) on or
before March 31, 2005, (3) AUS$1.0 million ($0.7 million) on or
before September 30, 2005 and (4) AUS$0.8 million ($0.6 million) on
or before December 31, 2005. We received the AUS$6.0 million payment
on October 22, 2004. In connection with the agreement, each of
parties has released the other from further liabilities with respect
to the underlying dispute and has agreed to certain other terms
typical for a settlement agreement of this kind. We have recognized
the AUS$6.0 million ($4.3 million) recovery as a credit of $4.3
million to non-recurring and restructuring expense in the three
months ending September 30, 2004 offset by legal expenses of $370,000
associated with the settlement process. We intend to account for the
remaining installments on a cash basis due to the conditions of the
settlement. The installments received will be recognized in non-
recurring and restructuring.

We completed a feasibility analysis of a property management
accounting system that was in the process of being implemented in
Australia in the second quarter of 2003. 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 nine months ended
September 30, 2004, we recorded an additional $370,000 and $723,000,
respectively, to non-recurring expense for legal expenses incurred in
connection with this matter. In addition, we incurred $74,000 in the
nine months ended September 30, 2004 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), $41.9 million had been paid at September 30,
2004, with a further $0.5 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), $10.2 million had been paid at September 30, 2004,
with the remaining $0.2 million to be paid by the end of 2004.

In 2003 we established a reserve for excess lease space of $4.4
million as a result of the 2002 restructuring. We had established
$452,000 of this reserve by September 30, 2003 with the balance
expensed in the fourth quarter of 2003. This reserve related to new
space that we no longer intended to occupy, but where we were
committed to a long term lease. Through September 30, 2004, $0.6
million of this reserve had been utilized against lease payments for
this space. On September 29, 2004, the Company entered into a
modified lease agreement with more favorable terms for this space and
now plans to take occupation of approximately two thirds of this
space in the first quarter of 2005. As a result of this change in
circumstances, a net amount of $2.4 million of this reserve is no
longer required and has been reversed to non-recurring and
restructuring expense in the three months ending September 30, 2004.
The remaining reserve of $1.4 million is for excess space in the new
building which we are seeking to sublet. We have made certain
assumptions regarding the terms of any sublet in estimating the
required reserve and it is possible that additional charges or
credits will be recorded with regard to this space as a sublet
agreement is finalized. The lease for the space that we currently
occupy runs through January, 2007 and is considered excess given our
decision to occupy space in the new building. An expense of $3.0
million for this excess space has been recorded to non-recurring and
restructuring expense in the three months ending September 30, 2004.
The net charge to non-recurring and restructuring expense for the
excess space in the third quarter is $0.6 million. The balance of
the reserve for this excess space at the end of the period is $2.9
million.

In general, the actual costs incurred related to these business
restructurings have varied from our original estimates for a variety
of reasons, including the identification of additional facts and
circumstances, the complexity of international labor law,
developments in the underlying business resulting in the unforeseen
reallocation of resources and better or worse than expected
settlement discussions. We record such variances to non-recurring
and restructuring charges in the quarter they are identified. As a
result of the above, we recorded an additional credit of $1.5 million

to non-recurring for the three months ended September 30, 2003 and
for the nine months ended September 30, 2003 recorded a credit of
$2.2 million to non-recurring. Given the passage of time, there has
been minimal activity in the three and nine months ending
September 30, 2004 with a net credit of $3,000 and $216,000,
respectively.

As discussed 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 nine months ended September 30, 2004 and 2003 ($ in
thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Non-Recurring &
Restructuring
---------------
Investor and Occupier
Services:
Americas . . . . . . . $ 43 (1,772) (135) (1,772)
Europe . . . . . . . . 553 76 558 (220)
Asia Pacific . . . . . (3,856) (51) (3,334) 4,398
Investment Management. . 1,852 353 573 353
Corporate. . . . . . . . -- (57) -- (57)
-------- -------- -------- --------
Total Non-Recurring &
Restructuring . . . . . $ (1,408) (1,451) (2,338) 2,702
======== ======== ======== ========

(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 finalizing the formal 2004
annual impairment evaluation in the fourth quarter of 2004.

We have $346.8 million of unamortized intangibles and goodwill as of
September 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 $346.8
million of unamortized intangibles and goodwill, $335.3 million
represents goodwill with indefinite useful lives, which we ceased
amortizing January 1, 2002. The remaining $11.5 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 Americas IOS business has completed two acquisitions during the
nine months ended September 30, 2004. As a result of these
acquisitions we have paid purchase consideration of $509,000,
recorded liabilities for future purchase consideration of $3.6
million and recorded $2.0 million of goodwill with indefinite useful
lives and $2.1 million of intangibles with definite useful lives,
which represents the value of contracts acquired as part of the
business acquisition. The acquisitions include certain earn-out and
retention provisions that may ultimately impact the actual amounts
that will be paid.

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

Acquisitions . . . . . . 2,032 -- -- -- 2,032

Impact of exchange
rate movements . . . . (75) 463 (1,584) 369 (827)
-------- -------- -------- -------- --------
Balance as of
September 30,
2004 . . . . . . . . .$181,311 65,663 91,993 34,561 373,528

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

Impact of exchange
rate movements . . . . 61 (110) 22 (62) (89)
-------- -------- -------- -------- --------
Balance as of
September 30,
2004 . . . . . . . . .$(15,470) (5,364) (6,597) (10,827) (38,258)

Net book value as
of September 30,
2004 . . . . . . . . .$165,841 60,299 85,396 23,734 335,270
======== ======== ======== ======== ========

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

Acquisitions . . . . . . 2,090 -- -- -- 2,090

Impact of exchange
rate movements. . . . . -- 14 (99) 78 (7)
-------- -------- -------- -------- --------
Balance as of
September 30,
2004. . . . . . . . . .$ 41,454 925 2,958 5,396 50,733

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)
- Q3. . . . . . . . . . (1,363) (29) (90) -- (1,482)
Impact of exchange
rate movements. . . . . (5) 21 158 (78) 96
-------- -------- -------- -------- --------
Balance as of
September 30,
2004. . . . . . . . . .$(31,023) (664) (2,126) (5,396) (39,209)

Net book value as
of September 30,
2004. . . . . . . . . .$ 10,431 261 832 -- 11,524
======== ======== ======== ======== ========

ESTIMATED ANNUAL AMORTIZATION EXPENSE
Remaining 2004 Amortization $1.4 million
For Year Ended 12/31/05 $5.2 million
For Year Ended 12/31/06 $3.7 million
For Year Ended 12/31/07 $500,000
For Year Ended 12/31/08 $500,000
For Year Ended 12/31/09 $200,000

(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 did not have 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 did not have 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 nine months ended
September 30, 2004. Guarantees covered by the disclosure provisions
of FIN 45 are discussed in Note 3, 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:

. a mandatorily redeemable financial instrument,

. an obligation to repurchase the issuer's equity, and

. 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 $0.7 million was contributed
by September 30, 2003. Our estimated contributions to these plans
for the twelve months ended December 31, 2004 are $4.0 million, $2.7
million of which has been contributed at September 30, 2004. The
following table details the components of our net periodic pension
cost.

Nine Months Ended
September 30,
------------------
2004 2003
------ ------
Net periodic pension cost:
Employer service cost. . . . . . . . . . . . . $2,097 1,627
Interest cost on projected benefit
obligations. . . . . . . . . . . . . . . . . 5,363 4,514
Expected return on plan assets . . . . . . . . (6,587) (4,926)
Net amortization/deferrals . . . . . . . . . . 26 23
Recognized actual loss . . . . . . . . . . . . -- 379
------ ------
Total net periodic pension cost. . . . . . $ 899 1,617
====== ======

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
under accounting principals generally accepted in the United States,
we removed our minimum pension liability.

We maintain a contributory defined benefit plan in Ireland to provide
retirement benefits to eligible employees. In the third quarter of
2003 we identified that the accumulated benefit obligation of this
plan exceeded the fair value of the plan assets by $700,000. The
minimum pension liability was equal to the excess accumulated benefit
obligation of $700,000 plus the value of the prepaid pension asset of
$1.6 million, net of an intangible asset of $400,000 established to
record the unrecognized prior service cost. The adjustment to reflect
the required minimum pension liability of $1.9 million, net of
associated tax benefit of $290,000, was recorded through other
comprehensive income in the three and nine months ended September 30,
2003. At December 31, 2003, the fair value of this plan's assets
were greater than the accumulated benefit obligation, therefore, no
minimum pension liability was required and all amounts were reversed
in the fourth quarter.

(7) INVESTMENTS IN REAL ESTATE VENTURES

We invest in certain 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.
During the three months ended September 30, 2004, the Company
borrowed $18.0 million on a short-term basis to fund capital
contributions to LaSalle Investment Company ("LIC") which used the
funds to acquire specific assets in anticipation of a new fund
launch. The $18.0 million of outstanding borrowings is included in
the short-term borrowings and investment in and loans to real estate
ventures lines of our consolidated balance sheet. 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 $187,000 and $415,000 for
the three and nine months ended September 30, 2004, representing our
equity share of the impairment charge against individual assets held
by these funds. Additional impairment charges recorded for the three
months ended September 30, 2004 included certain costs related to the
exiting of our Land Investment Group and were recorded to non-
recurring expense. For a further discussion of these non-recurring
charges see Note 3. For the three and nine months ended September
30, 2003, we recorded impairment charges of $2.6 million and $3.7
million in equity earnings, respectively, representing our equity
share of the impairment charge against individual assets held by the
investment funds 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 498,800 shares under this program
in the third quarter of 2004 at an average share price of $31.32. We
repurchased 1,305,400 shares under this program in the first nine
months of 2004 at an average share price of $27.45.

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 stock 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 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 1,305,400

(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 nine
months ended September 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
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:

. significantly pay down debt;

. purchase shares under our current share repurchase program;

. invest for growth in important markets in New York, central and
southern Europe, India and North Asia; and

. 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 in
which we are involved 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 help 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.

REAL ESTATE 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. We will account for the contract on
a net basis when the fee structure is comprised of at least two distinct
elements, namely:

. the fixed management fee and

. a separate component which allows for scheduled reimbursable
personnel or other expenses to be billed directly to the
client.

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:

. the property owner generally has the authority over hiring
practices and the approval of payroll prior to payment by Jones
Lang LaSalle;

. 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;

. reimbursement to Jones Lang LaSalle is generally completed
simultaneously with payment of payroll or soon thereafter; and

. 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 $109.4 million and $94.5 million for the three months ended
September 30, 2004 and 2003, respectively. Such costs aggregated $316.3
million and $285.4 million for the nine months ended September 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 nine months
ended September 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
---------- ---------- ---------- --------- --------- -------
Septem-
ber 30,
2004. . . $ 239.8 8.7 6.5 7.6 3.8 3.5

Septem-
ber 30,
2003. . . $ 188.4 8.5 5.6 7.5 3.7 1.8

The bad debt expense recorded for the current year-to-date period
includes the settlement of a disputed receivable in Europe in which a
settlement expense of $700,000 was incurred in the second quarter of 2004.
The additional increase of $1.0 million is due to the timing of certain
receivables falling within the age profile of our methodology.

PERIODIC ACCOUNTING FOR INCENTIVE COMPENSATION - In our interim
statements, we accrue for incentive compensation based on a formulaic
methodology reflective of the payment philosophies of the multiple
underlying incentive compensation plans, which are generally measured
against revenues or profits. The methodology applies actual revenues
recorded as compared to annual forecasted revenues, with the percentages
then applied to the total year forecasted compensation costs, both base
salary and incentive compensation to determine the estimated related
incentive compensation to be accrued. As the majority of the firm's
revenues are recorded in the second half of the year, the impact of this
methodology is that the majority of incentive compensation is also recorded
in the second half of the year. This methodology can create quarterly year
over year variability if actual revenues results are substantially
different in timing than the prior year or in amount to the forecasted
revenue expectations. Actual underlying compensation plan calculations are
made at the completion of the year with reconciliation adjustments made in
the fourth quarter. We exclude from the standard methodology, any
incentive compensation plan that is not subject to performance criteria.
These plans 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 $1.9
million and $5.4 million for the three and nine months ended September 30,
2004, respectively, reflecting the earned portion of the stock ownership
program during this time. We recorded a credit of $2.1 million to the
income statement in the third quarter of 2003, reflecting the earned
portion of the stock ownership program for the first nine months of 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 nine months ended September 30,
2004 and 2003 ($ in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Current compensation expense
amortization for prior
year programs. . . . . . . . $ 1.7 1.7 5.9 4.9

Current deferral net of
related amortization . . . . (1.9) (2.1) (5.4) (2.1)

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 $187,000 and
$415,000 in the three and nine months ending September 30, 2004,
representing our equity share of the impairment charge against individual
assets held by these funds. In the third quarter of 2004, we also recorded
net impairment charges of $2 million in non-recurring and restructuring
expense in regard to a land investment group asset. For a further
discussion of these non-recurring charges see Note 3. For the three and
nine months ended September 30, 2003, we recorded an impairment charge of
$2.6 million and $3.7 million, respectively, in equity earnings
representing our equity share of the impairment charge against individual
assets held by the investment funds 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 finalizing the formal 2004 annual
impairment evaluation in the fourth 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:

. our geographic mix of income,

. legislative actions on statutory tax rates,

. the impact of tax planning to reduce losses in jurisdictions
where we cannot recognize the tax benefit of those losses, and

. 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
nine months ended September 30, 2003, we used an estimated effective tax
rate of 32% 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. Additionally, we supplement our
traditional global insurance program by the use of a captive insurance
company to provide professional indemnity insurance on a "claims made"
basis. As professional indemnity claims can be complex and take a number of
years to resolve we are required to estimate the ultimate cost of claims.

.. 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 the
decision to self-insure 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, in the first year of this program we
accrued a provision for adverse deviation. Analysis of claim expense
run-off was performed related to the 2002 and 2003 reserves which
resulted in a decision being made that we should release $679,000 to

the income statement in the third quarter of 2004. This compared to
an adjustment of $780,000 in the third quarter of 2003. 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 $6,000 at September 30, 2004. The reserve balance for the 2003
program at September 30, 2004 is $241,225.

The table below sets out certain information related to the cost of
this program for the three and nine months ended September 30, 2004
and 2003 ($ in millions):

Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2004 2003 2004 2003
------ ------ ------ ------
Expense to Company . . . $ 4.0 3.2 11.7 9.4
Employee contributions . 0.9 0.8 2.5 2.2
Adjustment to prior
year reserve . . . . . (0.7) (0.8) (0.7) (0.8)
------ ------ ------ ------
Total program cost . . . $ 4.2 3.2 13.5 10.8
====== ====== ====== ======

.. 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. We purchase
stop loss coverage to limit our exposure to large, individual claims.
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 judgmental issues involved in this evaluation,
the actuary provides us a range of potential exposure and we reserve
within that range. We accrue for the estimated adjustment to
revenues for the difference between the actuarial estimate and our
reserve on a periodic basis. The credit taken to revenue for the
three months ended September 30, 2004 and 2003 was $2.2 million and
$1.6 million, respectively. The credit taken to revenue for the nine
months ended September 30, 2004 and 2003 was $3.2 million and $2.5
million, respectively. Due to the nature of workers' compensation
claims, it may take a number of years for claims to be settled.
The table below provides the reserve balance by plan year that we
have established ($ in millions):

September 30, December 31,
2004 2003
------------- ------------
2004 . . . . . . . . . . . . . . $ 4.0 na
2003 and prior . . . . . . . . . 2.2 7.1
----- -----
$ 6.2 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. Our third quarter review of
claims for the insurance years prior to March 31, 2004 found that as
a result of current adverse claim developments, there was a need to
strengthen the claim reserves for certain European claims by $1.6
million, which was charged to operating expense in the three months
ended September 30, 2004. This strengthening of the claim reserves
increased the historic loss ratio that is the basis of the reserve
for the current insurance year exposures which resulted in an
incremental $300,000 of expense being booked in the three months
ending September 30, 2004. The table below provides the reserve
balance, which relates to multiple years, that we have established as
of ($ in millions):

September 30, 2004 . . . . . . . . . . . . . . $5.9 million
September 30, 2003 . . . . . . . . . . . . . . $2.4 million

COMMITMENTS AND CONTINGENCIES - We are subject to various claims and
contingencies related to lawsuits, taxes and environmental matters as well
as commitments under contractual obligations. 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 NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE AND
NINE MONTHS ENDED SEPTEMBER 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:

. realized gains on asset dispositions, or

. incentive fees recorded as equity earnings, or

. 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 nine 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 nine 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
Q3, 2004. . . 59.6 40.7 23.9 102.2 44.5 270.9
------- ------- ------- ------- ------- -------
$ 166.3 132.4 64.9 274.4 126.6 764.6
======= ======= ======= ======= ======= =======

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
Q3, 2003. . . 50.7 36.7 19.6 84.0 27.1 218.1
------- ------- ------- ------- ------- -------
$ 132.3 110.4 52.0 229.9 95.0 619.6
======= ======= ======= ======= ======= =======

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
Q3, 2004. . . 4.5 (0.5) 6.2 8.6 3.5 22.3
------- ------- ------- ------- ------- -------
$ 3.6 9.2 6.9 14.4 5.8 39.9
======= ======= ======= ======= ======= =======

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
Q3, 2003. . . 4.8 1.9 0.7 7.4 1.2 16.0
------- ------- ------- ------- ------- -------
$ 1.8 4.9 (4.8) 6.9 3.1 11.9
======= ======= ======= ======= ======= =======

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. . . 1.811 1.206 0.710 N/A N/A
Q3, 2004. . . 1.817 1.223 0.710 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
Q3, 2003. . . 1.617 1.130 0.656 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
September 30, Increase/ % Change
------------------ (Decrease) in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------

Total revenue. . . . $271.0 218.1 52.9 24.3% 17.4%
Compensation &
benefits . . . . 175.0 137.3 37.7 27.5% 20.3%
Operating,
administrative
& other. . . . . 66.7 57.2 9.5 16.6% 10.6%
Depreciation &
amortization . . 8.4 9.1 (0.7) (7.7%) (11.1%)
Non-recurring. . . (1.4) (1.5) 0.1 nm nm
Total operating
expenses. . . . . . 248.7 202.1 46.6 23.1% 16.3%
------ ----- ----- ----- ------
Operating income . . $ 22.3 16.0 6.3 39.4% 32.0%
====== ===== ===== ===== ======

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

Total revenue. . . . $764.6 619.5 145.1 23.4% 16.0%
Compensation &
benefits . . . . 505.5 407.0 98.5 24.2% 16.4%
Operating,
administrative
& other. . . . . 196.9 169.8 27.1 16.0% 9.0%
Depreciation &
amortization . . 24.7 28.1 (3.4) (12.1%) (16.9%)
Non-recurring. . . (2.4) 2.7 (5.1) nm nm
Total operating
expenses. . . . . . 724.7 607.6 117.1 19.3% 11.9%
------ ----- ----- ------- ------

Operating
income. . . . . . . $ 39.9 11.9 28.0 nm nm
====== ===== ===== ======= ======

REVENUE

The increase in local currency revenues of 17.4% and 16.0% for the
three and nine months ended September 30, 2004, respectively, continues to
reflect improved revenue performance across our businesses globally. This
improvement is a result of increased transaction activity as a trend
towards economic recovery around the world continues to restore client
activity. For example, we are experiencing an increase in both local and
cross border capital markets transactions in Europe. The growth markets of
India and North Asia in Asia Pacific continue to significantly out perform
the prior year and our Americas transaction business continues to deliver
strong performance, capitalizing on a trend towards increased deal volume
and increased deal size. In addition, the Hotels business continues to
deliver on its position as "advisor of choice" for key industry
participants, once again seeing increased revenue when compared to the
prior year. In addition, the strength of real estate as an investment class
has increased opportunities for the Real Estate Money Management business
to realize value for clients. This generated higher equity earnings where
the firm co-invested alongside clients, as well as incentive fees as the
firm continued to deliver investment performance exceeding targeted
returns.

OPERATING EXPENSE

The increase in U.S dollar operating expenses for the three and nine
months ended September 30, 2004 of 23.1% and 19.3%, respectively, 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 of 16.3% and 11.9% for the quarter and the
year-to-date, respectively. The increase in expenses for both the quarter
and year is primarily due to incentive compensation accruals, the timing of
which is the result of the stronger year-over-year revenue performance as
well as the timing of revenue increases. A further discussion of our
periodic accounting for incentive compensation can be found in Summary of
Critical Accounting Policies and Estimates contained herein. 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, of 10.6% and
9.0% for the three and nine months ended September 30, 2004, respectively,
can be attributed to business and revenue generation related costs matching
increased business activity. In addition, insurance expense increased over
the prior year as a third quarter review of our captive insurance claims
found that as a result of current adverse developments, there was a need to
strengthen our reserves for certain prior year claims.

The most significant component of our non-recurring and restructuring
expense for the three and nine months ended September 30, 2004 is a credit
related to the settlement of litigation we were pursuing related to the
abandonment of a property management accounting system in our Australian
business. The credit relates to the first installment payment of the
settlement and is partially offset by legal costs incurred during the three
and nine months ended September 30, 2004 to pursue the litigation. Also
included in non-recurring expense for the third quarter was impairment
related to our Land Investment Group, which we closed in 2001 and costs
related to excess leased space as a result of our 2002 restructuring.

For the three months ended September 30, 2003, the most significant
component of our non-recurring and restructuring expense was a credit
related to our 2002 global restructuring program as a combination of new
client wins and expanded assignments for existing clients resulted in the
permanent reevaluation of planned headcount reductions. For the nine
months ended September 30, 2003 the most significant component of our non-
recurring and restructuring expense was a charge related to the abandonment
of the property management accounting system mentioned above. The charge
was recorded after the completion of a feasibility analysis 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. A further
discussion of non-recurring and restructuring charges and credits can be
found in Note 3 to Notes to Consolidated Financial Statements.

INTEREST EXPENSE

Interest expense, net of interest income, decreased $3.7 million, or
78.7%, for the three months ended September 30, 2004 when compared to the
same period of 2003. For the nine months ended September 30, 2004, interest
expense, net of interest income, decreased $5.3 million, or 38.7%, when
compared to the same period of 2003. The decrease in interest expense, net
of interest income, can be attributed to redemption of the Euro Notes
discussed in the following paragraph and our continued focus on debt
reduction.

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 saving 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 fixed 9%
interest rate.

PROVISION (BENEFIT) FOR INCOME TAXES

For the three months ended September 30, 2004, the provision for
income taxes was $6.0 million as compared to a provision of $3.9 million
for the three months ended September 30, 2003. For the nine months ended
September 30, 2004, the provision for income taxes was $5.6 million as
compared to a benefit of $590,000 for the nine months ended September 30,
2003. The change in income tax is due to improved operating income and net
income (loss) before taxes in both the three and nine months ended
September 30, 2004 when compared to the same periods in 2003. Our estimated
effective tax rate for the nine months ended September 30, 2004 was 28%, as
compared to 32% for the same period last year. This rate improvement has
favorably affected the results for the third quarter and the year-to-date
as we are in a profit position. 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 September 30, 2004, we had a net income of
$15.3 million, an increase of $7.9 million from a net income of $7.4
million for the same period in 2003. For the nine months ended
September 30, 2004, we had a net income of $14.3 million, which is an
improvement of $15.6 million from the net loss of $1.3 million for nine
months ended September 30, 2003.

SEGMENT OPERATING RESULTS

We manage our business along a combination of functional and
geographic lines. We report our operations as four business segments:

. Investment Management, which offers Real Estate Money
Management services on a global basis,

and the three geographic regions of Investor and Occupier Services ("IOS"):

. Americas,

. Europe and

. 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
September 30,
------------------ Increase
2004 2003 in U.S. Dollars
------ ------ ---------------
Total revenue. . . . . . . . $ 83.6 68.3 15.3 22.4%
Total operating expense. . . 73.8 60.5 13.3 22.0%
Operating income . . . . . . 9.8 7.8 2.0 25.6%

Nine Months Ended
September 30,
----------------- Increase
2004 2003 in U.S. Dollars
------ ------ ---------------
Total revenue. . . . . . . . $228.5 194.5 34.0 17.5%
Total operating expenses . . 211.9 185.5 26.4 14.2%
Operating income . . . . . . 16.6 9.0 7.6 84.4%

The Americas operating performance continued to improve as a result
of the strengthening economy and the favorable execution of its core
businesses and strategic investments, demonstrated by revenues up 22% in
the quarter and 18% year to date. Transactional volumes and related
revenues increased significantly compared to the third quarter of 2003 due
to increased client confidence. Where clients had been delaying real estate
activities in recent years, we are now seeing clients progressing with real
estate decisions to take advantage of lower lease rental rates, high
property values and prospects of growth ahead. The Real Estate Occupier
Services business, marketed as Corporate Solutions, generates over 55% of
the region's income and grew 23% from the prior year's quarter. Within this
business, tenant representation revenues, which are recorded in
implementation services revenues, increased over 60% in what is
traditionally a slow quarter. Also, corporate facility outsourcings
continued to demonstrate strong growth, as evidenced by an increase of
nearly 70 million square feet under management as compared to the prior
year, bringing the total portfolio to approximately 240 million square
feet. During the quarter, strategic investments in New York continued while
the project and development capabilities expanded by acquiring Quartararo &
Associates, a 40-person consultative project management company. Year-to-
date New York performance is up over 35% when compared to the prior year.
Our global brand, market presence and leadership position enabled the
Americas Hotels business to achieve revenue growth of more than 30% year
over year. In the leasing and management group, leasing-only assignments
continue to be emphasized as many large property owners undertake self
management, reducing managed portfolio revenues. Offsetting this trend, the
firm's decision in September to renew its global headquarters location in
Chicago resulted in establishing a new client relationship with Wells Real
Estate Funds, which retained the firm to lease and manage an eight-
property, 4.8-million-square-foot portfolio.

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 nine months ended
September 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.

In the third quarter, the Americas validated its commitment to
quality service and its people strategies by being named 15th in Chicago
magazine's listing of the 25 Best Places to Work.

EUROPE

Three Months Ended
September 30, % Change
------------------ Increase in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue. . . . . $ 99.5 81.9 17.6 21.5% 9.9%
Total operating
expense . . . . . . . 96.6 79.3 17.3 21.8% 10.7%
Operating income . . . 2.9 2.6 0.3 11.5% (11.0%)

Nine Months Ended
September 30, % Change
----------------- Increase in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue. . . . . $291.8 235.2 56.6 24.1% 11.8%
Total operating
expenses . . . . . . 285.7 231.7 54.0 23.3% 11.4%
Operating income . . . 6.1 3.5 2.6 74.3% 33.3%

The European region saw the positive revenue momentum of the first
six months continue in the third quarter. In local currencies, revenue in
the quarter and year to date increased 10 percent and 12 percent,
respectively. Revenue growth was led by increasing activity in the leasing
markets in France and England, together with the continuing strength of
sentiment around property as an investment class driving a strong capital
markets performance, both of which are recorded in implementation services
revenues. Russia and Central Europe, locations where significant
additional resources have been invested in the last two years, continued to
see strong growth. Our ability to serve increasing client demand in these
rapidly growing markets was illustrated by the closure of a significant
capital markets transaction in Prague in the quarter, the largest ever
office investment in the Czech Republic. The Irish and Spanish markets also
experienced revenue strength and the European Hotels business continues to
perform strongly.

The increase in operating expense for the three and nine months ended
September 30, 2004 is primarily due to the timing of increased incentive
compensation accruals which reflects the significantly increased revenues
over the prior year period. Also in the quarter, were $1.6 million of
increased insurance reserves in the English business relating to claims
outstanding from prior insurance years.

ASIA PACIFIC

Three Months Ended
September 30, % Change
------------------ Increase in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue. . . . . $ 56.2 42.1 14.1 33.5% 26.0%
Total operating
expense. . . . . . . 54.5 42.6 11.9 27.9% 21.2%
Operating income
(loss) . . . . . . . 1.7 (0.5) 2.2 nm nm

Nine Months Ended
September 30, % Change
----------------- Increase in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue. . . . . $148.3 115.9 32.4 28.0% 18.8%
Total operating
expenses . . . . . . 150.1 121.2 28.9 23.8% 14.0%
Operating loss . . . . (1.8) (5.3) 3.5 66.0% 74.0%

Our investment in Asia Pacific continues to realize the benefits of
the region's economic recovery which began in 2003, as well as continued
multinational expansion and outsourcing trend. The improved revenue
performance of 26.0% and 18.8% for the three and nine months ended
September 30, 2004, respectively, demonstrates a continued positive revenue
trend for the region. Revenue increases of approximately 50% for the
quarter and year-to-date were dominated by our growth markets of India and
North Asia markets of China and Japan, led by the continuation of
outsourcing and off-shoring trends. The core market of Hong Kong also had
strong revenue growth, reflecting improved sentiment in the local economy
overall and resulting in increased transaction activity levels maximized by
the firm's leading market position. The Asia Pacific Hotels business also
had a very strong performance, particularly in the core market of
Australia.

The increase in local currency operating expense for the three and
nine 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 and other revenue generation
related costs that match increased business activity. Also contributing to
the increase in operating expenses is the timing of incentive compensation
accruals which are a result of strong revenue performance over the prior
year.

Operating income of $1.7 million for the quarter reduced the year-to-
date operating loss to $1.8 million, a significant improvement over the
prior year operating losses of $500,000 and $5.3 million for the quarter
and year-to-date, respectively.

INVESTMENT MANAGEMENT

Three Months Ended
September 30, % Change
------------------- Increase in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue. . . . . $ 31.8 25.9 5.9 22.8% 16.1%
Total operating
expense . . . . . . . 25.3 21.3 4.0 18.8% 12.1%
Operating income . . . 6.5 4.6 1.9 41.3% 35.3%

Nine Months Ended
September 30, % Change
----------------- Increase in Local
2004 2003 in U.S. Dollars Currency
------ ------ ---------------- --------
Total revenue. . . . . $ 96.6 74.3 22.3 30.0% 22.3%
Total operating
expenses. . . . . . . 80.0 66.9 13.1 19.6% 12.3%
Operating income . . . 16.6 7.4 9.2 nm nm

The increase in local currency revenue for both the three and nine
months ended September 30, 2004 is primarily driven by increased
transaction fees, incentive fees and equity earnings realized from asset
sales where performance exceeded expectations. The current real estate
market is attractive for realizing value for clients in a shorter timeframe
than originally planned. As a result, significant incentive fees were
realized for both a high performing separate account portfolio as well as
for the sale of individual assets owned by a commingled fund. Additionally,
equity earnings increased when compared to the prior year due to
recognition of impairment charges of $2.6 million and $3.7 million for the
three and nine months ended September 30, 2003, respectively. Impairment
charges for the three and nine months ended September 30, 2004 totaled
$187,000 and $415,000, respectively. Transaction fees related to favorable
volumes of acquisitions across all three geographic regions also bolstered
revenue levels. Increases of $1.7 million and $3.8 million were realized
for the three and nine months ended September 30, 2004, respectively.

The increase in operating expense for the three and nine months ended
September 30, 2004 is primarily the result of increased incentive
compensation accruals and other revenue generation related costs that match
increased business activity.

Co-investment capital increased $24.6 million in the quarter and
$19.7 million year-to-date as an increase in acquisition activity was
partially offset by asset sales. The $24.6 million included $18.0 million
contributed to LIC which used the funds to acquire specific assets in
anticipation of a new fund launch.

PERFORMANCE OUTLOOK

The strong momentum shown in the firm's results for the year to date
is expected to continue into the seasonally strong fourth quarter. Full
year diluted earnings, excluding the costs of both the early redemption of
the Euro Notes ($0.26 per share) and all non-recurring items, are expected
to exceed $1.60 per share.

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):

Nine Months Ended
September 30,
--------------------
2004 2003
-------- --------
Cash provided by earnings. . . . . . . . . . . . . . $ 51.6 46.4
Cash used in working capital . . . . . . . . . . . . (15.2) (11.1)
-------- --------
Cash provided by operating activities. . . . . . . . 36.4 35.3
Cash used in investing activities. . . . . . . . . . (35.4) (7.6)
Cash used in financing activities. . . . . . . . . . (42.5) (27.8)
-------- --------
Net decrease in cash . . . . . . . . . . . . . . . . (41.5) (.1)
Cash and cash equivalents, beginning of period . . . 63.1 13.7
-------- --------
Cash and cash equivalents, end of period . . . . . . $ 21.6 13.6
======== ========

CASH FLOWS USED IN OPERATING ACTIVITIES

During the nine months ended September 30, 2004 cash flows provided
by operating activities totaled $36.4 million, as compared to $35.3 million
during the nine months ended September 30, 2003. The cash flows used in
operating activities for the nine months ended September 30, 2004 can be
further divided into cash generated from earnings of $51.6 million
(compared to $46.4 million generated in 2003) and cash used in balance
sheet movements (primarily working capital management) of $15.2 million
(compared to a use of $11.1 million in 2003).

CASH FLOWS USED IN INVESTING ACTIVITIES

Investing activities used $35.4 million during the nine months ended
September 30, 2004, as compared to $7.6 million used during the nine months
ended September 30, 2003. Included in cash used in investing activities is
$18.0 million which was contributed to LIC which used the funds to purchase
specific assets in anticipation of a new fund launch.

CASH FLOWS USED IN FINANCING ACTIVITIES

Cash flows used in financing activities were $42.5 million during the
nine months ended September 30, 2004, as compared to $27.8 million used
during the nine months ended September 30, 2003. During the first nine
months of 2004 we used $35.8 million to repurchase shares of our common
stock where there were no similar repurchases in the same period in 2003.
In the third quarter of 2004, the Company borrowed $18.0 million on a
short-term basis to fund capital contributions to LIC which used the funds
to acquire specific assets in anticipation of a new fund launch.

LIQUIDITY AND CAPITAL RESOURCES

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

September 30, December 31, September 30,
2004 2003 2003
------------- ------------ -------------
Cash . . . . . . . . . . $ 21,628 63,105 13,601
Euro Notes . . . . . . . -- 207,816 192,323
Other Debt . . . . . . . 188,030 3,592 16,052
-------- -------- --------
Net Debt and Cash. . . . $166,402 148,303 194,774
======== ======== ========

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 125 basis points. 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 September 30, 2004, we had $160.8 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 75 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 nine
months of 2004 was 6.9% versus 8.2% for the same period of 2003. We also
had short-term borrowings (including capital lease obligations) of $27.2
million outstanding at September 30, 2004 which includes outstanding
borrowings related to certain of our co-investments discussed below. As of
September 30, 2004, $7.1 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 $37.5 million, of which $7.1 million was outstanding as of
September 30, 2004. We have provided guarantees of $28.1 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 September 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 nine months of 2004 and none were outstanding as of
September 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 September 30, 2004, we had total investments
and loans of $91.0 million in approximately 20 separate property or fund
co-investments, with additional capital commitments of $135.2 million for
future fundings of co-investments. This includes $18.0 million related to

certain short-term borrowings made by our co-investment vehicle. With
respect to certain co-investment indebtedness, we also had repayment
guarantees outstanding at September 30, 2004 of approximately $750,000.
The $135.2 million capital commitment is a commitment to 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 hold the remaining
52.15% interest in LIC. In addition, our Chairman and another Director of
Jones Lang LaSalle are investors in LIC on equivalent terms to other
investors. Our investment in LIC is accounted for under the equity method
of accounting in the accompanying Consolidated Financial Statements. As of
September 30, 2004, LIC has unfunded capital commitments of $85.3 million,
of which our 47.85% share is $40.8 million, for future fundings of co-
investments.

The net co-investment funding for 2004 is anticipated to be between
$10 and $15 million (planned co-investment less return of capital from
liquidated co-investments). For the nine months ended September 30, 2004,
we funded a net $19.3 million which includes $18 million recorded in
investment in and loans to real estate ventures for the consolidation of
the LIC facility discussed in the paragraph following.

In the third quarter of 2003, LIC entered into a euro 35 million
($43.5 million) revolving credit facility (the "LIC facility") principally
for its working capital needs. The LIC facility was increased during
September 2004 to euro 50 million ($62.2 million). 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 23.9 million
($29.8 million). As of September 30, 2004, LIC had euro 36.2 million ($45.0
million) of outstanding borrowings on this facility. Certain of the
outstanding borrowings have been utilized by LIC to acquire specific assets
in anticipation of a new fund launch. Due to the ownership structure of
LIC, we recorded $18.0 million of these outstanding borrowings in the
short-term borrowings and investments in and loans to real estate ventures
lines of our consolidated balance sheet at September 30, 2004.

On February 27, 2004, we announced that our Board of Directors had
approved a share repurchase program. Under the program, we are authorized
to repurchase up to 1.5 million shares of our outstanding common stock in
the open market and in privately negotiated transactions from time to time,
depending upon market prices and other conditions. We repurchased 1,305,400
shares in the first nine months 2004 at an average price of $27.45 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 1,305,400 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 nine months of 2004, and none were
outstanding as of September 30, 2004.

The average borrowing rate on our debt for the nine months ended
September 30, 2004 was 6.9% 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 125 basis points. This pricing will
fluctuate dependent upon our leverage ratio, and the total borrowing rate
on the facility will increase and decrease with changes to market interest
rates.

FOREIGN EXCHANGE

Revenues outside of the United States were 64% of our total revenues
for the nine months ended September 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 nine months
ended September 30, 2004), the euro (17% of revenues for the nine months
ended September 30, 2004) and the Australian dollar (8% of revenues for the
nine months ended September 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 September 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 September 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 nine 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 postponed the
trial date previously set for November 29, 2004 to allow additional time
for mediation and as of the date of this report has not set a new date.
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 continue with 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.

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

July 1, 2004 -
July 31, 2004 -- -- -- 693,400

August 1, 2004 -
August 31, 2004 330,900 $ 30.65 1,137,500 362,500

September 1, 2004 -
September 30, 2004 167,900 $ 32.62 1,305,400 194,600
--------- -------
Total 1,305,400 $ 27.45
========= =======

(1) Total average price paid per share is a weighted average for
the nine 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 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

The names and titles of our corporate executive officers are as
follows:

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

Colin Dyer (Chairman of the Committee)
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

Stanley Stec
Global Controller and Principal Accounting Officer

Effective November 1, 2004, Stanley Stec joined the Company as Global
Controller and will serve as the Company's principal accounting officer.

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 September 24, 2004, Jones Lang LaSalle filed a
report on Form 8-K announcing the resignation of Nicholas J.
Willmott as Global Controller.

On September 27, 2004, Jones Lang LaSalle filed a
report on Form 8-K announcing an Australia systems settlement
with Capgemini Pty Limited and Q3 Excess space charge.

On October 8, 2004, Jones Lang LaSalle filed a report
on Form 8-K announcing the resignation of Jackson Tai from the
Board of Directors.

On November 1, 2004, Jones Lang LaSalle filed a
report on Form 8-K announcing that Stanley Stec has joined the
firm as Global Controller, in which capacity he will serve as
the Company's principal accounting officer.

On November 4, 2004, Jones Lang LaSalle filed a report
on Form 8-K incorporating a press release announcing earnings
for the quarterly period ended September 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: November 3, 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 Colin Dyer 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 Colin Dyer 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.