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United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
Form
10-K
Annual
Report Pursuant to Section 13 or 15(d)
of the
Securities Act of 1934
|
For
the fiscal year ended December 31, 2004 |
|
Commission
File Number 1-13145
Jones
Lang LaSalle Incorporated
(Exact
name of registrant as specified
in its
charter)
Maryland
(State or
other jurisdiction of incorporation or organization)
36-4150422
(I.R.S.
Employer Identification No.)
200
East Randolph Drive, Chicago, IL 60601
(Address
of principal executive offices) (Zip
Code)
Registrant's
telephone number, including area code: 312/782-5800
Securities
registered pursuant to Section 12(b) of the Act:
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|
Name
of each exchange on |
|
Title
of each class |
which
registered |
|
Common
Stock ($.01 par value) |
New
York Stock Exchange |
Securities
registered pursuant to Section 12(g) of the Act: None
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
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes x No
o
The
aggregate market value of the voting stock (common stock) held by non-affiliates
of the registrant as of the close of business on June 30, 2004 was
$818,612,437.
The
number of shares outstanding of the registrant's common stock (par value $0.01)
as of the close of business on March 3, 2005 was 33,812,650, which includes
2,300,000 shares held by a subsidiary of the registrant.
Portions
of the Registrant's Proxy Statement for its 2005 Annual Meeting of Shareholders
to be held on May 26, 2005 are incorporated by reference in Part III of this
report.
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Table
of Contents |
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Part
I |
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|
Item
1. |
Business |
1 |
|
Item
2. |
Properties |
14 |
|
Item
3. |
Legal
Proceedings |
14 |
|
Item
4. |
Submission
of Matters to a Vote of Security Holders |
14 |
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|
Part
II |
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Item
5. |
Market
for the Registrant's Common Equity and Related Shareholder
Matters |
15 |
|
Item
6. |
Selected
Financial Data |
17 |
|
Item
7. |
Management's
Discussion and Analysis of Financial Condition and Results of
Operations |
20 |
|
Item
7A. |
Quantitative
and Qualitative Disclosures About Market Risk |
39 |
|
Item
8. |
Financial
Statements and Supplementary Data |
40 |
|
Item
9. |
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure |
79 |
|
Item
9A. |
Controls
and Procedures |
79 |
| Item
9B. |
Other
Information |
79 |
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|
Part
III |
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Item
10. |
Directors
and Executive Officers of the Registrant |
80 |
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Item
11. |
Executive
Compensation |
80 |
|
Item
12. |
Security
Ownership of Certain Beneficial Owners and Management |
80 |
|
Item
13. |
Certain
Relationships and Related Transactions |
80 |
|
Item
14. |
Principal
Accounting Fees and Services |
80 |
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Part
IV |
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Item
15. |
Exhibits
and Financial Statement Schedules |
81 |
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|
Cautionary Note
Regarding Forward-Looking Statements |
82 |
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Power
of Attorney and Signatures |
83 |
| |
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| Exhibit
Index |
84 |
i
Part
I
Item
1. Business
Company
Overview
Jones
Lang LaSalle Incorporated ("Jones Lang LaSalle", which may be referred to as we,
us, our, the Company or the Firm) was incorporated in 1997. We are the global
leader in real estate services and money management. We serve our clients' real
estate needs locally, regionally and globally in over 100 markets in over 35
countries on five continents, with approximately 19,300 employees, including
approximately 9,700 directly reimbursable property maintenance employees. We
believe that our combination of local market presence and wholly-owned and
integrated global reach differentiates our firm from other real estate service
providers.
Our full
range of services includes: agency leasing; property management; project and
development services; valuations; capital markets; buying and selling
properties, corporate finance, hotel advisory, space acquisition and disposition
(tenant representation); facilities management (corporate property services);
strategic consulting; and outsourcing. We provide money management on a global
basis for both public and private assets through LaSalle Investment Management.
Our services are enhanced by our integrated global business model, industry
leading research capabilities, client relationship management focus, consistent
worldwide service delivery and strong brand.
We have
grown by expanding both our client base and the range of our services and
products, as well as through a series of strategic acquisitions and a merger.
Our extensive global platform and in-depth knowledge of local real estate
markets enable us to serve as a single source provider of solutions for our
clients' full range of real estate needs. We solidified this network of services
around the globe through the merger of the businesses of the Jones Lang Wootton
companies ("JLW") (founded in 1783) with those of LaSalle Partners Incorporated
("LaSalle Partners") (founded in 1968) effective March 11, 1999.
Jones
Lang LaSalle History
Prior to
our incorporation in Maryland on April 15, 1997 and our initial public offering
(the "Offering") of 4,000,000 shares of common stock on July 22, 1997, Jones
Lang LaSalle conducted business as LaSalle Partners Limited Partnership and
LaSalle Partners Management Limited Partnership (collectively, the "Predecessor
Partnerships"). Immediately prior to the Offering, the general and limited
partners of the Predecessor Partnerships contributed all of their partnership
interests in the Predecessor Partnerships in exchange for an aggregate of
12,200,000 shares of common stock.
In
October 1998, we acquired all of the common stock of the COMPASS group of real
estate service companies (collectively referred to as "COMPASS") from Lend Lease
Corporation Limited. The acquisition of COMPASS made us the largest property
management services company in the United States and expanded our international
presence into Australia and South America.
On March
11, 1999, LaSalle Partners merged its business with that of JLW and changed its
name to Jones Lang LaSalle Incorporated. In connection with the merger, we
issued 14.3 million shares of common stock and paid cash consideration of $6.2
million.
Our
Value Model—Performing Consistently and Maximizing Growth
Articulating
our range of services and approach to business, our Value Model offers a
graphical definition of our mission:
To
deliver exceptional strategic, fully integrated services and solutions for real
estate owners, occupiers and investors worldwide.
The model
describes how we serve clients with four broad sets of services:
We
believe this combination of services, skills and expertise sets us apart from
our competitors. Consultancy practices typically do not share our implementation
capability and market awareness. Investment banking and investment management
competitors generally possess neither our local market knowledge nor our real
estate service capabilities. Traditional real estate firms lack our financial
expertise and operating consistency.
Five key
value drivers distinguish our business activities (see "Competitive Advantages"
below):
|
• |
Our
integrated global services platform, |
|
• |
The
quality and worldwide reach of our research
function, |
|
• |
Our
focus on client relationship management as a means to provide superior
client service, |
|
• |
Our
reputation for consistent worldwide service delivery, as measured by best
practices and the skills and experience of our people,
and |
|
• |
The
strength of our brand. |
We have
designed our business model to create value: for our clients, our shareholders
and our employees. Based on our established presence in, and intimate knowledge
of real estate and capital markets worldwide, and supported by our investments
in thought leadership and technology, we believe that we create value for
clients by addressing not only their local, regional and global real estate
needs, but also their broader business, strategic, operating and financial
goals. We believe that the ability to create and deliver value drives our own
ability to grow our business and improve profitability and shareholder value. In
doing so, we enable our people to demonstrate their technical competence and
advance their careers by taking on new and increasing responsibilities as our
business expands.
Business
Segments
We report
our operations as four business segments: we manage our Investor and Occupier
Services ("IOS") product offerings geographically as (i) Americas, (ii) Europe
and (iii) Asia Pacific, and our money management business globally as (iv)
LaSalle Investment Management. See "Results of Operations" within Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, as well as Note 7 of Notes to Consolidated Financial Statements, for
financial information discussed by segment.
Value
Delivery - IOS Americas, Europe and Asia Pacific
To
address the needs of real estate investors and occupiers, we provide a full
range of integrated property, project management and transaction services
locally, regionally and globally through our regional operating segments of the
Americas, Europe and Asia Pacific. Services are delivered through multiple
delivery teams.
Agency
Leasing Services executes
marketing and leasing programs on behalf of investors, developers, property
companies and public bodies to secure tenants and negotiate leases with terms
that reflect our client's best interests. In 2004 we completed approximately
8,000 agency leasing transactions representing approximately 72 million square
feet of space.
Agency
leasing fees are typically based on a percentage of the value of the lease
revenue commitment for leases consummated.
Property
Management Services provides
on-site management services to real estate investors for office, industrial,
retail and specialty properties. We seek to leverage our market share and buying
power to deliver superior service for clients. Our goal is to enhance our
clients' property values through aggressive day-to-day management focused on
maintaining high levels of occupancy and tenant satisfaction, while lowering
property operating costs. During 2004 we provided on-site Property Management
Services for office, retail, mixed-use and industrial properties totaling
approximately 535 million square feet.
Property
management services are typically provided by an on-site general manager and
staff who are supported by regional supervisory teams and central resources in
such areas as training, technical and environmental services, accounting,
marketing and human resources. Our general managers are responsible for property
management activities, client satisfaction and financial results. We do not
compensate them by commissions, but rather through a combination of base salary
and a performance bonus that is directly linked to results produced for their
clients. Increasingly, management agreements provide for incentive compensation
relating to operating expense reductions, gross revenue or occupancy objectives,
or tenant satisfaction levels. Consistent with industry custom, management
contract terms typically range from one to three years, but may be canceled at
any time following a short notice period, usually 30 to 60 days.
Project
and Development Services units provide a variety of services—including
interior build-out and conversion management, move management and strategic
occupancy planning services—to tenants of leased space, owners in self-occupied
buildings and owners of real estate investments. Project and Development
Management Service units frequently manage relocation and build-out initiatives
for clients of our Property Management Services, Corporate Property Services and
Tenant Representation Services units. Project and Development Management
Services will also manage all aspects of development and renovation of
commercial projects for our clients. Beginning in 2003 we continued to expand
this service to the public sector, particularly to the military services and
educational institutions.
Project
and Development Services units are typically compensated on the basis of
negotiated fees. Client contracts are typically multi-year in duration and may
govern a number of discrete projects, with individual projects being completed
in less than one year.
Valuation
Services provides
clients with professional valuation services, helping them determine accurate
values for office, retail, industrial and mixed-use properties. Such services
may involve valuing a single property or a global portfolio of multiple property
types. Valuations, which typically involve commercial property, are completed
for a variety of purposes including acquisitions, dispositions, debt and equity
financings, mergers and acquisitions, securities offerings and privatization
initiatives. Clients include occupiers, investors and financing sources from the
public and private sectors. Our valuation specialists provide valuation services
to clients in nearly every developed country. During 2004 we performed over
22,000 valuations of properties with an aggregate value of approximately $273
billion.
Compensation
for valuation services is generally negotiated for each assignment based on its
scale and complexity, and typically relates in part to the value of the
underlying assets.
Capital
Markets Services includes
institutional property sales and acquisitions, real estate financings, private
equity placements, portfolio advisory activities, and corporate finance advice
and execution. As more and more real estate assets are marketed internationally,
and as a growing number of clients are investing outside their home markets, our
Capital Markets Services teams combine local market knowledge with our access to
global capital sources to provide clients with superior execution in raising
capital for their real estate assets. By researching, developing and introducing
innovative new financial products and strategies, our Capital Markets Services
units are integral to the business development efforts of our other businesses.
In 2004 we completed institutional property sales and acquisitions, debt
financings and equity placements on assets and portfolios valued at
approximately $28 billion.
Capital
Markets Services units are typically compensated on the basis of the value of
transactions completed or securities placed. In certain circumstances, we
receive retainer fees for portfolio advisory services.
Tenant
Representation Services seeks to
develop strategic alliances with clients to deliver ongoing assistance to meet
their real estate needs and to help clients evaluate and execute transactions to
meet their occupancy requirements. We assist clients by defining space
requirements, identifying suitable alternatives, recommending appropriate
occupancy solutions and negotiating lease and ownership terms with third
parties. We seek to help our clients lower real estate costs, minimize real
estate occupancy risks, improve occupancy control and flexibility, and create
more productive office environments. We employ a multidisciplinary approach to
develop occupancy strategies linked to our clients' core business objectives. In
2004 we completed over 2,800 tenant representation transactions involving
approximately 49 million square feet.
Compensation
for Tenant Representation Services is generally determined on a negotiated fee
basis. Such fees often involve performance measures related to targets that we
and our clients establish prior to engagement or, in the case of strategic
alliances, at annual intervals thereafter. Quantitative and qualitative
measurements are used to assess performance relative to these goals, and we are
compensated accordingly, with incentive fees awarded for superior
performance.
Corporate
Property Services provides
comprehensive portfolio and property management ("facilities management")
services to corporations and institutions that outsource the management of their
occupied real estate. Properties under management range from corporate
headquarters to industrial complexes. During 2004, the Corporate Property
Services units provided facilities management services for approximately 300
million square feet of real estate. Our target clients typically have large
portfolios (usually over one million square feet) that offer significant
opportunities to reduce costs and improve service delivery. The competitive
trends of globalization, outsourcing and offshoring are prompting many of these
clients to demand consistent service delivery worldwide and a single point of
contact from their real estate service providers. Performance measures are
generally developed to quantify progress made toward mutually determined goals
and objectives. Depending on client needs, the Corporate Property Services
units, either alone or partnering with other business units, provide services
that include portfolio planning, property management, leasing, tenant
representation, acquisition, finance, disposition, project management,
development management and land advisory services.
The
Corporate Property Services units are compensated on the basis of negotiated
fees that are typically structured to include a base fee and performance bonus.
We base performance bonus compensation on a quantitative evaluation of progress
toward performance measures and regularly scheduled client satisfaction surveys.
Corporate Property Services agreements are typically three to five years in
duration, but also are cancelable at any time upon a short notice period,
usually 30 to 60 days, as is typical in the industry.
Strategic
Consulting provides
clients with specialized, value-added real estate consulting services and
strategies in such areas as mergers and acquisitions, privatization, development
and asset strategy, occupier portfolio strategy, organizational strategy and
work-process design. Strategic Consulting professionals focus on translating
global best practices into local real estate solutions for clients.
Value
Delivery - Money Management
Our
global money management business operates under the name of LaSalle Investment
Management. LaSalle Investment Management shapes its strategy around three
priorities:
|
• |
Developing
and executing customized investment strategies that meet the specific
investment objectives of each of our
clients, |
|
• |
Providing
superior investment performance, and |
|
• |
Delivering
uniformly high levels of services. |
We
provide money management services to institutional investors and high net-worth
individuals. We seek to establish and maintain relationships with sophisticated
investors who value our global platform and extensive local market knowledge. As
of December 31, 2004, LaSalle Investment Management managed approximately $24
billion of public and private real estate assets, making us one of the world's
largest managers of institutional capital invested in real estate assets and
securities.
LaSalle
Investment Management serves clients with a broad range of real estate
investment products and services in the public and private capital markets. We
design these products and services to meet the differing strategic, risk/return
and liquidity requirements of individual clients. LaSalle Investment Management
offers its clients a range of investment alternatives, including private
investments in multiple real estate property types (namely, office, retail,
industrial, hotels and residential), either through investment funds that
LaSalle Investment Management manages or through single client account
relationships ("separate accounts"). We also offer investments in publicly
traded Real Estate Investment Trusts ("REITs") and other real estate
equities.
We
believe the success of our money management business comes from our
industry-leading research capabilities, innovative investment strategies, global
presence and local market knowledge, and a strong client focus. We maintain an
extensive real estate research department whose dedicated professionals monitor
real estate and capital market conditions around the world to enhance current
investment decisions and identify future opportunities. In addition to drawing
on public sources for information, our research department utilizes the
extensive local presence of Jones Lang LaSalle professionals throughout the
world to gather and share proprietary insight into local market
conditions.
The
investment and capital origination activities of our money management business
have grown increasingly global. As of December 31, 2004, 53% of LaSalle
Investment Management's assets under management were invested outside the United
States. We have invested in property in 19 countries around the globe, as well
as in public real estate companies traded in all major stock exchanges. We
expect money management activities outside the United States, both fund raising
and investing, to increase as a proportion of total capital raised and invested,
and we see a growing trend of cross-border capital movement.
Private
Investments in Real Estate Properties. To serve
our money management clients, LaSalle Investment Management oversees the
acquisition, management, leasing, financing and divestiture of real estate
investments across a broad range of real estate property types. LaSalle
Investment Management introduced its first institutional investment fund in 1979
and currently has a series of commingled investment funds, including seven funds
that invest in assets in North America, five funds that invest in assets located
in Europe and two funds that invest in assets in Asia Pacific. LaSalle
Investment Management also maintains separate account relationships with
investors for whom LaSalle Investment Management manages private real estate
investments. As of December 31, 2004 LaSalle Investment Management had
approximately $20 billion in assets under management in these funds and separate
accounts.
Some
investors prefer to partner with money managers willing to co-invest their own
funds to more closely align the interests of the investor and the investment
manager. We believe that our ability to co-invest funds alongside the
investments of clients' funds will continue to be an important factor in
maintaining and continually improving our competitive position. We also believe
that our co-investment strategy will greatly strengthen our ability to continue
to raise capital for new investment funds. By creating new investment funds, and
thereby increasing assets under management, we also gain the opportunity to
provide additional services related to the acquisition, financing, property
management, leasing and disposition of such assets. At December 31, 2004, we had
a total of $74 million of investments in, and loans to,
co-investments.
LaSalle
Investment Management conducts its operations with teams of professionals
dedicated to achieving specific client objectives. LaSalle Investment Management
establishes investment committees within each region whose members have
specialized knowledge applicable to underlying investment strategies. These
committees must approve all investment decisions for private market investments.
We employ the investment committee approval process for LaSalle Investment
Management's investment funds and for all separate account
relationships.
LaSalle
Investment Management is generally compensated for money management services for
private equity investments based on initial capital invested and managed, with
additional fees tied to investment performance above benchmark levels. The terms
of contracts vary by the form of investment vehicle involved and the type of
service provided. Our investment funds have various life spans, typically
ranging between five and ten years. Separate account advisory agreements
generally have three-year terms with "at will" termination provisions, and they
may include compensation arrangements that are linked to the market value of the
assets under management.
Investments
in Public Equity and Debt Securities. LaSalle
Investment Management also offers clients the ability to invest in separate
accounts or funds focused on public real estate equity and debt securities. We
invest the capital of these clients principally in publicly traded securities of
REITs and property company equities. As of December 31, 2004, LaSalle Investment
Management had approximately $4 billion of assets under management in these
types of investments. LaSalle Investment Management is typically compensated by
securities investment clients on the basis of the market value of assets under
management.
Competitive
Advantages
We
believe that the five value drivers articulated in the Jones Lang LaSalle Value
Model create several competitive advantages that have established us as a leader
in the real estate services and real estate money management
industries.
Integrated
Global Services. By
combining a wide range of high quality, complementary services - and delivering
them at consistently high service levels globally - we can develop and implement
real estate strategies that meet the increasingly complex and far-reaching needs
of our clients. We also believe that we have secured an established business
presence in the world's principal real estate markets, with the result that we
can grow revenues without a substantial increase in infrastructure costs. With
offices in over 100 markets in 34 countries on five continents, we have in-depth
knowledge of local and regional markets and can provide a full range of real
estate services around the globe. This geographic coverage positions us to serve
our multinational clients and manage investment capital on a global basis. In
addition, our cross-selling potential across geographies and product lines
creates revenue sources for multiple business units within Jones Lang
LaSalle.
Industry-leading
Research and Knowledge Building. We invest
in and rely on comprehensive top-down and bottom-up research to support and
guide the development of real estate and investment strategy. Our Global
Research Committee oversees and coordinates the activities of more than 150
research professionals who cover market and economic conditions in approximately
150 metropolitan areas in 35 countries around the world. Research also
plays a key role in keeping colleagues throughout the organization attuned to
important events and changing conditions in world markets. Dissemination of this
information to colleagues is facilitated through our company-wide
intranet.
Client
Relationship Management. We
believe that our ability to deliver superior service to our clients is supported
by our ongoing investments in Client Relationship Management and Account
Management. Our goal is to provide each client with a single point of contact at
our firm, an individual who is answerable to, and accountable for, all the
activities we undertake for the client. We believe that we enhance superior
client service through best practices in Client Relationship Management, the
practice of seeking and acting on regular client feedback, and recognizing each
client's definition of excellence.
Our
client-driven focus enables us to develop long-term relationships with real
estate investors and occupiers. By developing these relationships, we are able
to generate repeat business and create recurring revenue sources. In many cases,
we establish strategic alliances with clients whose ongoing service needs mesh
with our ability to deliver fully integrated real estate services across
multiple business units and office locations. Our relationship focus is
supported by an employee compensation system that we believe is unique in the
real estate industry. We compensate our professionals through a salary and bonus
plan designed to reward client relationship building, teamwork and quality
performance, rather than on a commission basis, which is typical in the
industry.
Consistent
Service Delivery. We
believe that our investments in research, technology, people and innovation
enable us to develop, share and continually evaluate best practices across our
global organization. As a result, we believe that we are able to deliver the
same, consistently high levels of client service and operational excellence
wherever our clients' real estate investment and services needs take
them.
Based on
our general industry knowledge and specific client feedback, we believe we are
recognized as an industry leader in technology. We possess the capability to
provide sophisticated information technology systems on a global basis to serve
our clients and support our employees. For example, the purpose of Delphi+
sm, our
client extranet technology, is to provide clients with a detailed and
comprehensive insight into their portfolios, the markets in which they operate
and the services we provide to them. Delphi sm, our
intranet technology, offers our employees easy access to the firm's policies and
its collective thinking regarding our experience, skills and best
practices.
We
believe that our investments in research, technology, people and thought
leadership position our firm as a leading innovator in our industry. Major
research initiatives, such as our "World Winning Cities" program, our offshoring
index, "Deciding Where to Offshore" and our "Global Real Estate Transparency
Index," investigate emerging trends and therefore help us anticipate future
conditions and shape new services to benefit our clients. Professionals in our
Strategic Consulting practice identify and address shifting market and business
trends to address changing client needs and opportunities. LaSalle Investment
Management relies on our comprehensive investigation of global real estate and
capital markets to develop new investment products and services tailored to the
specific investment goals and risk/return objectives of our clients. We believe
that our commitment to innovation helps us secure and maintain profitable
long-term relationships with the clients we target: the world's leading real
estate owners, occupiers and investors.
Strong
Brand. Based on
our industry knowledge, commissioned marketing surveys, coverage in top-tier
business publications and our number of long-standing client relationships, we
believe that large corporations and institutional investors and occupiers of
real estate generally recognize us as a provider of high quality, professional
real estate and money management services. We believe that the strength of the
Jones Lang LaSalle brand and our reputation for quality service delivery
represent significant advantages when we pursue new business
opportunities.
Industry
Trends
Increasing
Demand for Global Services; Globalization of Capital Flows. Many
corporations based in countries around the world have pursued growth
opportunities in international markets. Many are striving to control costs by
outsourcing or offshoring non-core business activities. Both trends have
increased the demand for global real estate services, including corporate
property services, tenant representation and leasing and property management. We
believe that this trend will favor real estate service providers with the
capability to provide services — and consistently high service levels — in
multiple markets around the world. Additionally, real estate capital flows have
become increasingly global, as more assets are marketed internationally and as
more investors seek real estate investment opportunities beyond their own
borders. This trend has created new markets for investment managers equipped to
facilitate international real estate capital flows and execute cross-border real
estate transactions.
Consolidation. The real
estate services industry has experienced significant consolidation in recent
years. We believe that as a result of substantial existing infrastructure
investments and the ability to spread fixed costs over a broader base of
business, it is possible to recognize incrementally higher margins on property
management and corporate property services assignments as the amount of square
footage under management increases.
Large
users of commercial real estate services continue to demonstrate a preference to
work with single-source service providers able to operate across local, regional
and global markets. The ability to offer a full range of services on this scale
requires significant corporate infrastructure investment, including information
technology and personnel training. Smaller regional and local real estate
service firms, with limited resources, are less able to make such
investments.
Growth
of Outsourcing. In recent
years, on a global level, outsourcing of professional real estate services has
increased substantially, as corporations have focused corporate resources,
including capital, on core competencies. In addition, public and other
non-corporate users of real estate, including government agencies and health and
educational institutions, have begun to outsource real estate activities as a
means of reducing costs. As a result, we believe there are significant growth
opportunities for firms like ours that can provide integrated real estate
services across many geographic markets.
Alignment
of Interests of Investors and Investment Managers.
Institutional investors continue to allocate significant portions of their
investment capital to real estate, and many investors have shown a desire to
commit their capital to investment managers willing to co-invest their own funds
in specific real estate investments or real estate funds. In addition, investors
are increasingly requiring that fees paid to investment managers be more closely
aligned with investment performance. As a result, we believe that investment
managers with co-investment capital, like LaSalle Investment Management, will
have an advantage in attracting real estate investment capital. In addition,
co-investment typically brings with it the opportunity to provide additional
services related to the acquisition, financing, property management, leasing and
disposition of such investments.
Growth
Strategy
We intend
to capitalize on our competitive advantages, the opportunities created by our
global platform and broad product and service lines, and our solutions approach
to the marketplace and the industry trends we have described above by pursuing
the following growth strategies:
Expanding
Client Relationships. Based on
our ability to deliver high-quality real estate services, we have been able to
leverage discrete client assignments successfully into comprehensive
relationships that engage several or all of our business groups. Current
industry trends, particularly the globalization of corporate clients and the
increased outsourcing of real estate services on a global basis, provide a
favorable environment for us to increase the scope of our current client
relationships and develop new relationships through our broad array of services.
We are successfully expanding the strategic alliance approach to our business
units worldwide.
Strengthening
International Presence. Because
our strength as a global competitor is ultimately the sum of our strengths in
local markets around the world, we work continually to strengthen our local
market presence. Supported by our extensive global platform, we plan to add and
expand services that are well developed in particular regions and business units
to our other regions and business units. In particular, we have identified
markets in Asia that offer new client and product growth.
Providing
Consistent, High Quality Service. The
objective of our Global Client Services unit is to ensure that worldwide
operations interact with each other at the consistently high levels our clients
have come to expect. Through the delivery of high quality service, we aim to
expand current client relationships, grow our business organically and further
strengthen our brand and reputation. Global Client Services also ensures that
our worldwide operations interact efficiently to effect the delivery of our
differentiated value drivers. In addition, Global Client Services acts as a
catalyst to assist professionals across all groups as they market the multiple
services of the firm to existing and prospective clients.
Pursuing
Co-investment Opportunities. We
believe that an important growth driver of our business is our ability to
co-invest our funds alongside those of clients. Some investors favor money
managers who co-invest their own funds in newly formed investment vehicles to
more closely align the interests of the investor and the investment manager.
Also, by creating new investment funds, and thereby increasing our assets under
management, we gain the opportunity to provide additional services related to
the acquisition, financing, property management, leasing and disposition of such
assets.
Continuing
to Develop Technology. Our
technology strategy is to provide truly integrated, high-value-added information
and tools to our clients and employees worldwide by using proven technology
architecture and advancing innovative technology solutions.
Employees
With the
help of aggressive goal and performance measurements, we attempt to instill in
all of our people the commitment to be the best. Our goal is to be the real
estate advisor of choice for clients and the employer of choice in our industry.
Our objective is to invest in and continue to attract, motivate and retain the
best people. The following table details our respective headcounts at December
31, 2004 and 2003:
|
|
|
2004 |
|
2003 |
|
|
Professional |
|
|
8,000 |
|
|
6,600 |
|
|
Support |
|
|
1,600 |
|
|
1,500 |
|
| |
|
|
9,600
|
|
|
8,100 |
|
|
Directly
reimbursable property maintenance |
|
|
9,700 |
|
|
9,200 |
|
|
Total
Employees |
|
|
19,300 |
|
|
17,300 |
|
| |
|
|
|
|
|
|
|
|
Directly
reimbursable project management employees included as professionals
above |
|
|
3,000 |
|
|
2,100 |
|
The
increase in headcount in 2004 was driven by increased outsourcing engagements as
well as investments in our growing businesses in India and China.
Directly
reimbursable project management employees work with clients that have a
contracted fee structure comprised of a fixed management fee and a separate
component which allows for scheduled reimbursable personnel and other expenses
to be billed directly to the client.
Approximately
6,700 and 5,100 of our professional and support staff in 2004 and 2003,
respectively, were based in countries other than the United States.
Approximately 6,300 and 6,200 of our directly reimbursable property maintenance
workers in 2004 and 2003, respectively, were based in countries other than the
United States. None of our employees are members of any labor union with the
exception of approximately 600 of our directly reimbursable property maintenance
employees in the United States. We have generally had satisfactory relations
with our employees.
Company
Web Site; Corporate Governance and Other Available
Information
Jones
Lang LaSalle's Web site address is www.joneslanglasalle.com, where
we make available, free of charge, our Form 10-K, 10-Q and 8-K reports, and our
proxy statements, as soon as reasonably practicable after we file them
electronically with the United States Securities and Exchange Commission
("SEC"). You may also read and copy any document we file with the SEC at its
public reference room at 450 Fifth Street, NW, Washington, DC 20549. You may
call the SEC at 1.800.SEC.0330 for information about its public reference room.
The SEC maintains an internet site that contains annual quarterly and current
reports, proxy statements and other information that we file electronically with
the SEC. The SEC's internet site is www.sec.gov.
The
Company's Code of Business Ethics, which applies to all employees of the
Company, including our Chief Executive Officer, Chief Operating and Financial
Officer, Global Controller and the members of our Board of Directors, can also
be found on our Web site under Investor Relations/Board of Directors and
Corporate Governance. In addition, the Company intends to post any amendment or
waiver of the Code of Business Ethics with respect to a member of our Board of
Directors or any of our executive officers.
Our Web
site also includes information about our corporate governance, and you may
access, in addition to other information, our following materials, which we will
make available in print to any shareholder who so requests:
|
• |
Corporate
Governance Guidelines |
|
• |
Charters
for our Audit, Compensation and Nominating and Governance
Committees |
|
• |
Statement
of Qualifications for Members of the Board of
Directors |
|
• |
Complaint
Procedures for Accounting and Auditing
Matters |
|
• |
Statements
of Beneficial Ownership of our Equity Securities by our Directors and
Officers |
Risks
to Our Business
One of
the challenges of a global business such as ours is to be able to determine in a
sophisticated manner the risks that in fact exist and then to determine how best
to employ available resources to prevent, mitigate, and/or minimize those risks
having the greatest potential to occur and to cause significant damage from an
operational, financial or reputational standpoint. An important dynamic that
must also be considered and appropriately managed is how much and what types of
commercial insurance to obtain and how much potential liability may remain
uninsured consistent with the infrastructure that is in place within the
organization to identify and properly manage it. While we attempt to approach
these issues in an increasingly sophisticated and coordinated manner across the
globe, our failure to identify or manage the risks that exist in our business,
and which are in fact realized when adverse situations occur, could result in a
material adverse effect on our business, results of operations and/or financial
condition.
General
economic conditions and real estate market conditions can have a negative impact
on our business. We have
experienced in recent years, and expect in the future, to be negatively impacted
by periods of economic slowdown or recession, and corresponding declines in the
demand for real estate and related services, within one or more of the markets
in which we operate. Each real estate market tends to be cyclical and related to
the condition of its corresponding economy as a whole or, at least, to the
perceptions of investors and users as to the relevant economic outlook. For
example, corporations may be hesitant to expand space or enter into long-term
commitments if they are concerned with the economic environment. Negative
economic conditions and declines in the demand for real estate and related
services in several markets or in significant markets could have a material
adverse effect on our business, results of operations and/or financial
condition, including as a result of the following factors:
•
Decline
in Leasing Activity
A decline
in leasing activity can lead to a reduction in fees and commissions for
arranging leases, both on behalf of owners and tenants. Additionally, a decline
in leasing activity can lead to a reduction in the demand for, and fees earned
from, other real estate services, such as Project Development Services (managing
the build-out of space) and Corporate Property Services (managing space occupied
by clients).
•
Decline
in Acquisition and Disposition Activity
A decline
in acquisition and disposition activity can lead to a reduction in fees and
commissions for arranging such transactions as well as fees and commissions for
arranging financing for acquirers.
•
Decline
in Real Estate Investment Activity
A decline
in real estate investment activity can lead to a reduction in investment
management fees on the acquisition of property for clients, as well as in fees
and commissions for arranging acquisitions, dispositions and
financings.
•
Decline
in the Value and Performance of Real Estate and Rental
Rates
A decline
in the value and performance of real estate and in rental rates can lead to a
reduction in investment management fees (the most significant portion of which
generally are based upon the performance of investments) and the value of
co-investments we make with our investment management clients. Additionally,
such declines can lead to a reduction of fees and commissions which are based
upon the value of, or revenues produced by, the properties with respect to which
services are provided, including fees and commissions for property management
and valuations and for arranging acquisitions, dispositions, leasing and
financings.
Concentrations
of business with corporate clients increases credit risk and the impact from the
loss of certain clients. While
our client base remains diversified across industries and geographies, we do
value the expansion of business relationships with individual corporate clients
and the increased efficiency and economics (both to our clients and our firm)
that can result from developing repeat business from the same client and from
performing an increasingly broad range of services for the same client. At the
same time, having increasingly large and concentrated clients can also lead to
greater or more concentrated risks of loss if, among other possibilities, such a
client (1) experiences its own financial problems, which can lead to larger
individual credit risks, (2) decides to reduce its operations or its real estate
facilities, (3) changes its real estate strategy, for example by no longer
outsourcing its real estate operations, (4) decides to change its providers of
real estate services or (5) merges with another corporation or otherwise
undergoes a change of control as the result of which new management may take
over with a different real estate philosophy or with different relationships
with other real estate providers. Additionally, increasingly large clients may,
and sometimes do, attempt to leverage the extent of their relationship with us
during the course of contract negotiations or in connection with disputes or
potential litigation.
The
international scope of our operations, and our operations in particular regions
and countries, involve a number of risks for our business. The fact
that we operate in over 35 countries presents risks for our business in a number
of ways. If those risks, including the following, associated with the
international scope of our operations and our operations in particular regions
and countries cannot be or are not successfully managed, our business, operating
results and/or financial condition could be materially and adversely
affected.
•
Difficulties
and Costs of Staffing and Managing International Operations; Noncompliance with
Policies; Communications and Enforcement of Our Policies and Our Code of
Business Ethics; Conflicts of Interest
The
coordination and management of international operations poses additional costs
and difficulties. We must manage operations in many time zones and that involve
people with language and cultural differences. Our success depends on finding
and retaining people capable of dealing with these challenges effectively and
who will represent the Company with the highest levels of integrity. If we are
unable to attract and retain qualified personnel, our growth may be limited and
our business and operating results could suffer.
Among the
challenges we face in retaining our people is maintaining a compensation system
that rewards our people consistent with local markets and also consistent with
our profitability, which can be especially difficult where competitors may be
attempting to gain market share by hiring our best people at rates of
compensation that are well above the market. We have committed resources to
effectively coordinate our business activities around the world to meet our
clients' needs, whether they be local, regional or global. We are also in the
process of enhancing the organization and communication of corporate policies,
particularly where we determine that the nature of our business poses the
greatest risk of noncompliance. The failure of our people to carry out their
responsibilities in accordance with our client contracts, our corporate and
operating policies or our standard operating procedures, or their negligence in
doing so, could result in liability to clients or other third parties, which
could have a material adverse effect on our business, operating results and/or
financial condition.
When
addressing staffing in connection with a restructuring of our organization or a
downturn in economic conditions or activity, we must take into account the
employment laws of the countries in which actions are contemplated, which in
some cases can result in significant costs and/or time delays in implementing
headcount reductions. Our ability to manage such operational fluctuations and to
maintain adequate long-term strategies in the face of such developments will be
critical to our continued growth and profitability.
The
geographical and cultural diversity in our organization makes it more
challenging to communicate the importance of adherence to our Code of Business
Ethics, to monitor and enforce compliance with its provisions on a world-wide
basis and in order to ensure local compliance with United States laws that apply
globally, such as the Foreign Corrupt Practices Act, the Patriot Act and the
Sarbanes-Oxley Act of 2002. We have introduced an Ethics Everywhere program to
address these challenges and to attempt to maintain a high level of awareness
about, and compliance with, our Code of Business Ethics. Breaches of our Code of
Business Ethics, particularly by our executive management, could have a material
adverse effect on our business, operating results and/or financial
condition.
All
providers of professional services to clients, including our firm, must manage
potential conflicts of interest that may arise, principally where the primary
duty of loyalty owed to one client is somehow potentially weakened or
compromised by a relationship also maintained with a third party. While the
Company has policies in place to identify, disclose and resolve potential
conflicts of interest, the failure or inability to do so in a significant
situation could have a material adverse effect on our business, operating
results and/or financial condition.
•
Currency
Restrictions and Exchange Rate Fluctuations
We
produce positive flows of cash in various countries and currencies which can be
most effectively used to fund operations in other countries or to repay our
indebtedness, which is primarily denominated in euros and U.S. dollars. We face
restrictions in certain countries which limit or prevent the transfer of funds
to other countries or the exchange of the local currency to other currencies. We
also face risks associated with fluctuations in currency exchange rates which
may lead to a decline in the value of the funds produced in certain
jurisdictions.
Additionally,
although we operate globally, we report our results in U.S. dollars and thus our
reported results may be positively or negatively impacted by the strengthening
or weakening of currencies against the U.S. dollar. As an example, the euro, the
pound sterling and the Australian dollar, each a currency used in a significant
portion of our operations, weakened significantly against the U.S. dollar in
2001 but gradually strengthened during 2002 and 2003 and has remained strong in
2004. For the year ended December 31, 2004, 40% of our operating income was
attributable to operations with U.S. dollars as their functional currency, and
60% was attributable to operations having other functional currencies. In
addition to the potential negative impact on reported earnings, fluctuations in
currencies relative to the U.S. dollar may make it more difficult to perform
period-to-period comparisons of the reported results of operations.
We are
authorized to use currency-hedging instruments, including foreign currency
forward contracts, purchased currency options and borrowings in foreign
currency. There can be no assurance that such hedging will be effective, and an
ineffective hedging instrument may expose us to currency losses. We do not use
hedging instruments for speculative purposes.
The
following table sets forth the revenues derived from our most significant
currencies (based upon 2004 revenues, $ in millions). The euro revenues include
our businesses in France, Germany, Italy, Ireland, Spain, Portugal, Holland,
Belgium and Luxembourg.
Most
Significant Currencies on a Revenue Basis
| |
|
2004 |
|
2003 |
|
|
United
States Dollar |
|
$ |
421.5 |
|
|
360.3 |
|
|
United
Kingdom Pound |
|
|
259.6 |
|
|
196.5 |
|
|
Euro |
|
|
191.4 |
|
|
164.4 |
|
|
Australian
Dollar |
|
|
94.9 |
|
|
77.8 |
|
|
Other
currencies |
|
|
199.6 |
|
|
142.9 |
|
|
Total
Revenues |
|
$ |
1,167.0 |
|
|
941.9 |
|
• Potentially
Adverse Tax Consequences
Moving
funds between countries can produce adverse tax consequences in the countries
from which and to which funds are transferred as well as in other countries,
such as the United States, in which we have operations. Additionally, as our
operations are global, we face challenges in effectively gaining a tax benefit
for costs incurred in one country which benefit our operations in other
countries.
• Burden
of Complying with Multiple and Potentially Conflicting Laws and Regulations and
Dealing with Changes in Legal and Regulatory Requirements; Licensing; Regulatory
and Contractual Liabilities
We face a
broad range of legal and regulatory environments in the countries in which we do
business. Coordinating our activities to deal with these requirements presents
challenges. As an example, in the United Kingdom, the Financial Services
Authority (FSA) regulates the conduct of investment businesses and the Royal
Institute of Chartered Surveyors (RICS) regulates the profession of Chartered
Surveyors, which is the professional qualification required for certain of the
services we provide in the United Kingdom, through upholding standards of
competence and conduct. As another example, in the United States, various
activities of our LaSalle Investment Management are regulated by the SEC, and as
a publicly traded company, we are subject to various corporate governance and
other requirements established by statute, pursuant to SEC regulations or under
the rules of the New York Stock Exchange. Additionally, changes in legal and
regulatory requirements can impact our ability to engage in business in certain
jurisdictions or increase the cost of doing so.
The
brokerage of real estate sales and leasing transactions requires us to maintain
licenses in various jurisdictions in which we operate. If we fail to maintain
our licenses or conduct brokerage activities without a license, we may be
required to pay fines or return commissions received or have licenses suspended.
In addition, because the size and scope of real estate sales transactions have
increased significantly during the past several years, both the difficulty of
ensuring compliance with the numerous licensing regimes and the possible loss
resulting from noncompliance have increased. Furthermore, the laws and
regulations applicable to our business, both in the United States and in foreign
countries, also may change in ways that materially increase the costs of
compliance.
As a
licensed real estate service provider in various jurisdictions, we and our
licensed employees may be subject to various due diligence, disclosure,
standard-of-care, anti-money laundering and other obligations in the
jurisdictions in which we operate. Failure to fulfill these obligations could
subject us to litigation from parties who purchased, sold or leased properties
we brokered or managed. We could become subject to claims by participants in
real estate sales or other services claiming that we did not fulfill our
obligations as a service provider or broker (including, for example, with
respect to conflicts of interests where we are acting, or are perceived to be
acting, for two or more different clients with potentially contrary
interests).
In
addition, we may, on behalf of our clients, hire and supervise third-party
contractors to provide construction, engineering and various other services for
our managed properties. Depending upon the terms of our contracts with clients,
we may be subjected to, or become liable for, claims for construction defects,
negligent performance of work or other similar actions by third parties whom we
do not control. Adverse outcomes of property management disputes or litigation
could negatively impact our business, financial condition and/or results of
operations.
• Greater
Difficulty in Collecting Accounts Receivable in Certain Countries and
Regions
We face
challenges to our ability to efficiently and/or effectively collect accounts
receivable in certain countries and regions. For example, in Asia, many
countries have underdeveloped insolvency laws and clients often are slow to pay,
and in Europe, clients in some countries, particularly Spain, Italy and France,
also tend to delay payments, reflecting a different business
culture.
• Political
and Economic Instability
We
operate in over 35 countries with varying degrees of political and economic
stability. For example, certain Asian, Eastern European and South American
countries have experienced serious political and economic instability within the
last few years and such instability will likely continue to arise from time to
time in countries in which we have operations, as the result of which our
ability to operate our business in the ordinary course may be disrupted in one
way or another, with corresponding reductions in revenues, increases in expenses
or other material adverse effects.
Real
estate services markets are highly competitive. We
provide a broad range of commercial real estate services and there is
significant competition, on an international, regional and local level, with
respect to many of these services and in commercial real estate services
generally. Depending on the service, we face competition from other real estate
service providers, institutional lenders, insurance companies, investment
banking firms, investment managers, accounting firms, technology firms, firms
providing outsourcing services and companies bringing their real estate services
in-house (any of which may be a global, regional or local firm). Many of our
competitors are local or regional firms, which, although substantially smaller
in overall size, may be larger in a specific local or regional market. Some of
our competitors are expanding the services they offer in an attempt to gain
additional business. Some of our competitors may have greater financial,
technical and marketing resources, larger customer bases and more established
relationships with their customers and suppliers than we have. Larger or more
well-capitalized competitors may be able to respond faster to the need for
technological changes, price their services more aggressively, compete more
effectively for skilled professionals, finance acquisitions more easily and
generally compete more aggressively for market share.
New
competitors or alliances among competitors which increase their ability to
service clients could emerge and gain market share, develop a lower cost
structure, adopt more aggressive pricing policies or provide services that gain
greater market acceptance than the services we offer. In order to respond to
increased competition and pricing pressure, we may have to lower our prices,
which would have an adverse effect on our revenues and profit
margins.
We are
substantially dependent on long-term client relationships and on revenue
received for services under various service agreements. Many of these agreements
are cancelable by the client for any reason on as little as 30 to 60 days'
notice, as is typical in the industry. In this competitive market, if we are
unable to maintain these relationships or we are otherwise unable to retain
existing clients and develop new clients, our business, results of operations
and financial condition will be materially adversely affected.
The
seasonality of our business exposes us to risks and to volatility in our stock
price. Our
revenues and profits tend to be significantly higher in the fourth quarter of
each year than the other three quarters. This is a result of a general focus in
the real estate industry on completing or documenting transactions by
calendar-year-end and the fact that certain expenses are constant through the
year. Historically, we have reported a small loss in the first quarter, a small
profit or loss in the second and third quarters and a relatively large profit in
the fourth quarter, excluding the recognition of investment generated
performance fees and co-investment equity gains (both of which can be
particularly unpredictable). The seasonality of our business makes it difficult
to determine during the course of the year whether plan results will be
achieved, and thus to adjust to changes in expectations. Additionally, negative
economic or other conditions which arise at a time when they impact performance
in the fourth quarter, such as the particular timing of when larger transactions
close, may have a more significant impact than if they occurred earlier in the
year. To the extent we are not able to identify and adjust for changes in
expectations or we are confronted with negative conditions which impact
inordinately on the fourth quarter of a year, this could have a material adverse
effect on our business, results of operations and/or financial condition. This
may in turn lead to volatility in our stock price.
We
may face liability with respect to environmental issues occurring at properties
which we manage or in which we invest. Various
laws and regulations impose liability on current or previous real property
owners or operators for the cost of investigating, cleaning up or removing
contamination caused by hazardous or toxic substances at the property. We may
face liability under these laws as a result of our role as an on-site property
manager. In addition, we may face liability if such laws are applied to expand
our limited liability with respect to our co-investments in real estate as
discussed below.
Co-investment
activities subject us to real estate investment risks and potential liabilities.
An
important part of our investment strategy includes investing in real estate
along with our money management clients. Investing in this manner exposes us to
a number of risks which could have a material adverse effect on our business,
results of operations and/or financial condition, including as a result of the
following risks:
|
• |
We
may lose some or all of the capital which we invest if the investments
perform poorly. |
|
• |
We
will have fluctuations in earnings and cash flow as we recognize gains or
losses, and receive cash, upon the disposition of investments, the timing
of which is geared towards the benefit of our
clients. |
|
• |
We
generally hold our investments in real estate through subsidiaries with
limited liability; however, in certain circumstances it is possible that
this limited exposure may be expanded in the future based upon, among
other things, changes in applicable laws or the application of existing or
new laws. To the extent this occurs, our liability could exceed the amount
we have invested. |
|
• |
We
make co-investments in real estate in many countries and this presents
risks as described above in "The International Scope of Our Operations,
and Our Operations in Particular Regions and Countries, Involve a Number
of Risks for Our Business". |
We
may have indebtedness with fixed or variable interest rates and certain
covenants with which we must comply. At
December 31, 2004 (subsequent to the June 2004 redemption of the Euro Notes
described in the "Liquidity and Capital Resources" section of Item 7,
Management's Discussion & Analysis), we had $58.9 million of indebtedness on
a consolidated basis, principally under a revolving credit facility from a
syndicate of lenders. Our average outstanding borrowings under the revolving
credit facility were $91.0 million
during 2004, and the effective interest rate on that facility was
3.5%.
We would
need approximately $1.3 million
annually to make required interest payments on the borrowings outstanding under
our revolving credit facility at December 31, 2004 (at current market rates of
interest). The revolving credit facility has a variable rate based on the
market, plus a margin. The variable rate and margin features of the revolving
credit facility could result in higher borrowing costs if market interest rates
or the margin rise. An increase of 50 basis points in the 2004 average interest
rate on the revolving credit facility would have resulted in a $455,000 increase
in our borrowing costs.
The terms
of our debt contain a number of covenants that could restrict our flexibility to
finance future operations or capital needs or to engage in other business
activities that may be in our best interest. The debt covenants limit us in,
among other things:
|
• |
Encumbering
or disposing of assets; |
|
• |
Incurring
indebtedness; and |
|
• |
Engaging
in acquisitions. |
In
addition, with respect to the revolving credit facility, we must maintain a
consolidated net worth of at least $392 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.
If we are
unable to make required payments under the revolving credit facility or if we
breach any of the debt covenants, we will be in default under the terms of the
revolving credit facility. A default under the facility could cause acceleration
of repayment of those amounts as well as defaults under other existing and
future debt obligations.
The
charter and the amended bylaws of Jones Lang LaSalle and the Maryland general
corporate law could delay, defer or prevent a change of control.
The
charter and bylaws of Jones Lang LaSalle include provisions that may discourage,
delay, defer or prevent a takeover attempt that may be in the best interest of
shareholders of Jones Lang LaSalle and may adversely affect the market price of
our common stock.
Pursuant
to the charter of Jones Lang LaSalle, we have a classified Board of Directors,
pursuant to which Directors are divided into three classes, with three-year
staggered terms. The classified board provision could increase the likelihood
that, in the event an outside party acquired a controlling block of our capital
stock or initiated a proxy contest, incumbent directors nevertheless would
retain their positions for a substantial period, which may have the effect of
discouraging, delaying or preventing a change in control of Jones Lang LaSalle.
Our Board of Directors has announced that it will propose that the Company's
charter be amended at its 2005 Annual Meeting of Shareholders in order to
declassify the Board of Directors. The affirmative vote of 80% of the total
number of outstanding shares will be required to effect this approval, and there
can be no assurance that the required number of votes will be obtained.
In
addition, the charter and bylaws provide for:
|
• |
The
ability of the Board of Directors to establish one or more classes and
series of capital stock including the ability to issue up to 10,000,000
shares of preferred stock, and to determine the price, rights, preferences
and privileges of such capital stock without any further shareholder
approval; |
|
• |
A
requirement that any shareholder action taken without a meeting be
pursuant to unanimous written consent; and |
|
• |
Certain
advance notice procedures for Jones Lang LaSalle shareholders nominating
candidates for election to the Jones Lang LaSalle Board of
Directors. |
Under the
Maryland General Corporate Law (the "MGCL"), certain "Business Combinations"
(including a merger, consolidation, share exchange or, in certain circumstances,
an asset transfer or issuance or reclassification of equity securities) between
a Maryland corporation and any person who beneficially owns 10% or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Shareholder") or an affiliate of
the Interested Shareholder are prohibited for five years after the most recent
date on which the Interested Shareholder became an Interested Shareholder.
Thereafter, any such Business Combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at least
(1) 80% of the votes entitled to be cast by holders of outstanding voting shares
of the corporation and (2) 66-2/3% of the votes entitled to be cast by holders
of outstanding voting shares of the corporation other than shares held by the
Interested Shareholder with whom the Business Combination is to be effected,
unless, among other things, the corporation's shareholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its shares. Pursuant to the MGCL, these provisions also do not
apply to Business Combinations which are approved or exempted by the board of
directors of the corporation prior to the time that the Interested Shareholder
becomes an Interested Shareholder.
Claims
and Investigations; Performance Under Client Contracts; Litigation Management.
Substantial
legal liability or a significant regulatory action against the Company could
have a material adverse financial effect or cause us significant reputational
harm, which in turn could seriously harm our business prospects.
We
generally provide our services to our clients under contracts, and in certain
cases we are subject to regulatory and/or fiduciary obligations (which may
relate to, among other matters, the decisions we may make on behalf of a client
with respect to purchasing products or services from third parties or from other
divisions within our firm). We face legal and reputational risks in the event we
do not perform, or are perceived to have not performed, under those contracts or
in accordance with those regulations or obligations, and the precautions we take
to prevent these types of occurrences, which we believe do represent a
significant commitment of corporate resources, may nevertheless not be effective
in all cases. Unexpected costs or delays could make our client contracts or
engagements less profitable than anticipated. Any increased or unexpected costs
or unanticipated delays in connection with the performance of these engagements,
including delays caused by factors outside our control, could have an adverse
effect on profit margins.
Since any
disputes we have with third parties must generally be adjudicated within the
jurisdiction in which the dispute arose, our ability to resolve our disputes
successfully depends on the local laws that apply and the operation of the local
judicial system, the timeliness, quality and sophistication of which varies
widely from one jurisdiction to the next. Our geographical diversity therefore
makes it unusually challenging to resolve any such disputes efficiently and/or
effectively.
Infrastructure
Disruptions. Our
ability to conduct a global business may be adversely impacted by disruptions to
the infrastructure that supports our businesses and the communities in which
they are located. This may include disruptions involving electrical,
communications, transportation or other services used by Jones Lang LaSalle or
third parties with which we conduct business or disruptions as the result of
natural disasters (such as earthquakes), political instability or terrorist
attacks. These disruptions may occur, for example, as a result of events that
affect only the buildings in which we operate (such as fires) or such third
parties, or as a result of events with a broader impact on the cities where
those buildings are located. Nearly all of our employees in our primary
locations, including Chicago, London, Singapore and Sydney, work in close
proximity to each other, in one or more buildings. If a disruption occurs in one
location and our employees in that location are unable to communicate with or
travel to other locations, our ability to service and interact with our clients
may suffer and we may not be able to successfully implement contingency plans
that depend on communication or travel. The infrastructure disruptions described
above may also disrupt our ability to manage real estate for clients or may
adversely affect the value of real estate investments we make on behalf of
clients. While we have disaster recovery and crisis management procedures in
place, there can be no assurance that they will suffice in any particular
situation to avoid a significant loss.
Computer
and Information Systems. Our
business is highly dependent on our ability to process transactions across
numerous and diverse markets in many currencies. If any of our financial,
accounting or other data processing, e-mail, or electronic information
management systems do not operate properly or are disabled (including as the
result of computer viruses, problems with the internet or sabotage), we could
suffer a disruption of our businesses, liability to clients, loss of client
data, regulatory intervention or reputational damage. These systems may fail to
operate properly or become disabled as a result of events that are wholly or
partially beyond our control, including disruptions of electrical or
communications services, disruptions caused by natural disasters, political
instability or terrorist attacks or our inability to occupy one or more of our
buildings.
The
development of new software systems used to operate one or more aspects of our
business, particularly on a customized basis, is complicated and may result in
costs that cannot be recuperated in the event of the failure to complete a
planned software development. A new software system that has defects may cause
reputational issues and client or employee dissatisfaction, with business lost
as a result. The acquisition or development of software systems is often
dependent to one degree or another on the quality, ability and/or financial
stability of one or more third-party vendors, over which we may not have control
beyond the rights we negotiate in our contracts.
Our
business is also dependent, in part, on our ability to deliver to our clients
the efficiencies and convenience afforded by technology. The effort to gain
technological expertise and develop or acquire new technologies requires us to
incur significant expenses. If we cannot offer new technologies as quickly as
our competitors do, we could lose market share.
Risks
Inherent in Making Acquisitions. We have
made in the past, and anticipate that we may make in the future, acquisitions of
businesses or business lines. Any such acquisitions may subject us to a number
of risks, including, among others:
|
· |
Diversion
of management attention; |
|
· |
Inability
to retain the management, key personnel and other employees of the
acquired business; |
|
· |
Inability
to retain clients of the acquired business; |
|
· |
Exposure
to legal claims for activities of the acquired business prior to
acquisition; |
|
· |
Inability
to effectively integrate the acquired business and its employees;
and |
|
· |
Potential
impairment of intangible assets, which could adversely affect our reported
results. |
Ability
to Protect Intellectual Property; Infringement of Third-Party Intellectual
Property Rights. Our
business depends, in part, on our ability to identify and protect proprietary
information and other intellectual property (such as our service marks, client
lists and information and business methods). Existing laws of some countries in
which we provide or intend to provide services may offer only limited
protections of our intellectual property rights. We rely on a combination of
trade secrets, confidentiality policies, non-disclosure and other contractual
arrangements and on copyright and trademark laws to protect our intellectual
property rights, and our inability to detect unauthorized use or take
appropriate or timely steps to enforce our intellectual property rights may have
an adverse effect on our business.
We cannot
be sure that the services we offer to clients do not infringe on the
intellectual property rights of third parties, and we may have infringement
claims asserted against us or against our clients. These claims may harm our
reputation, cost us money and prevent us from offering some
services.
Employee
Misconduct. Like any
business, we run the risk that employee fraud or other misconduct could occur.
It is not always possible to deter employee misconduct and the precautions we
take to prevent and detect this activity may not be effective in all cases. We
do have a strong ethics policy, which is articulated in our Code of Business
Ethics. We reinforce our commitment to sound ethics through employee
communication and we are increasing our training efforts in this
area.
Ability
to Continue to Maintain Satisfactory Internal Controls and Procedures.
If we are
not able to continue to successfully implement the requirements of Section 404
of the United States Sarbanes-Oxley Act of 2002, our reputation, financial
results and the market price of our stock could suffer. While we believe that we
have adequate internal control procedures in place, we may be exposed to
potential risks from the recent legislation requiring companies to evaluate
their internal controls and have their controls attested to by their independent
auditors on an annual basis. We have evaluated our internal control systems in
order to allow our management to report on, and our independent auditors to
attest to, our internal controls as required for purposes of this Annual Report
on Form 10-K for the year ended December 31, 2004. However, there can be no
assurance that we will continue to receive a positive attestation in future
years, particularly since there is no precedent available with which to measure
compliance adequacy, as the result of which the standards may change over time.
If we identify one or more material weaknesses in our internal controls in the
future that we cannot remediate in a timely fashion, we may be unable to receive
a positive attestation at some time in the future from our independent auditors
with respect to our internal controls.
Item
2. Properties
Our
principal corporate holding company headquarters are located at 200 East
Randolph Drive, Chicago, Illinois, where we currently occupy over 125,000 square
feet of office space pursuant to a lease that expires in February 2016. Our
regional headquarters for our Americas, Europe and Asia Pacific businesses are
located in Chicago, London and Singapore, respectively. We have 114 local
offices worldwide located in most major cities and metropolitan areas as
follows: 37 offices in 6 countries in the Americas (including 28 in the United
States), 46 offices in 16 countries in Europe and 31 offices in 12 countries in
Asia Pacific. Our offices are each leased pursuant to agreements with terms
ranging from month-to-month to ten years. In addition, we have on-site property
and other offices located throughout the world. On-site property management
offices are generally located within properties that we manage and are provided
to us without cost.
Item
3. 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 (including insurance provided through a captive insurance company),
although they may nevertheless be subject to large deductibles or retentions and
the amounts being claimed may exceed the available insurance. Although the
ultimate liability for these matters cannot be determined, based upon
information currently available, we believe the ultimate resolution of such
claims and litigation will not have a material adverse effect on our financial
position, results of operations or liquidity.
On
November 8, 2002, Bank One N.A. ("Bank One") filed suit against the Company and
certain of its subsidiaries in the Circuit Court of Cook County, Illinois with
regard to services provided in 1999 and 2000 under 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 $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 that Bank One owes 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 filed 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. In November 2004, in response to the Company's motion for Partial
Summary Judgment, the court dismissed six of the ten counts of Bank One's
amended complaint, including claims of breach of fiduciary duty. Remaining are
counts for breach of contract, fraudulent misrepresentation and fraudulent
concealment. The Company continues to aggressively defend the remaining
counts of the suit and pursue its claims. While there can be no assurance,
the Company continues to believe that the remaining counts of the amended
complaint are without merit and, as such, will not have a material adverse
impact on our financial position, results of operations, or liquidity. In
addition, as a result of the recent rulings and information produced in
discovery, any recoverable damages claims are substantially reduced from Bank
One's initial claims. As of the date of this report, no trial date has
been set. 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
4. Submission of Matters to a Vote of Security Holders
There
were no matters submitted to a vote of Jones Lang LaSalle's shareholders during
the fourth quarter of 2004.
Part
II
Item
5. Market for Registrant's Common Equity and Related Shareholder
Matters
Our
Common Stock is listed for trading on the New York Stock Exchange under the
symbol "JLL."
As of
February 15, 2005, there were approximately 3,500 beneficial holders of our
Common Stock.
The
following table sets forth the high and low sale prices of our Common Stock as
reported on the New York Stock Exchange.
| |
|
High |
|
Low |
|
2004 |
|
|
|
|
|
|
First
Quarter |
|
$ |
25.98 |
|
$ |
20.46 |
|
|
Second
Quarter |
|
$ |
27.20 |
|
$ |
22.65 |
|
|
Third
Quarter |
|
$ |
33.25 |
|
$ |
26.61 |
|
|
Fourth
Quarter |
|
$ |
37.97 |
|
$ |
30.54 |
|
| |
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
First
Quarter |
|
$ |
16.01 |
|
$ |
12.90 |
|
|
Second
Quarter |
|
$ |
17.43 |
|
$ |
13.52 |
|
|
Third
Quarter |
|
$ |
18.91 |
|
$ |
15.75 |
|
|
Fourth
Quarter |
|
$ |
21.50 |
|
$ |
18.00 |
|
We have
not paid cash dividends on our common stock to date, as we historically have
retained our earnings to support the expansion of the business and continue to
pay down debt levels. Any payment of future dividends and the amounts thereof
will be at the discretion of the Board of Directors and will depend upon our
financial condition, earnings and other facts deemed relevant by the Board of
Directors at the time of its consideration of this issue.
Transfer
Agent
Mellon
Investor Services LLC
85
Challenger Road
Ridgefield
Park, NJ 07760
Equity
Compensation Plan Information
For
information regarding our equity compensation plans, including both shareholder
approved plans and plans not approved by shareholders, see Item 12. Security
Ownership of Certain Beneficial Owners and Management.
Share
Repurchases
The
following table provides information with respect to approved share repurchase
programs for Jones Lang LaSalle:
| |
|
|
|
|
|
Total
number |
|
|
|
| |
|
|
|
|
|
of
shares |
|
|
|
| |
|
|
|
|
|
purchased |
|
Shares |
|
| |
|
|
|
|
|
as
part |
|
remaining |
|
| |
|
Total
number |
|
Average
price |
|
of
publicly |
|
to
be |
|
| |
|
of
shares |
|
paid
per |
|
announced |
|
purchased |
|
|
|
|
purchased |
|
share
(1) |
|
plans |
|
under
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 |
|
|
- |
|
|
- |
|
|
806,600 |
|
|
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 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
1, 2004 - October 31, 2004 |
|
|
- |
|
|
- |
|
|
1,305,400 |
|
|
194,600 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
1, 2004 - November 30, 2004 |
|
|
194,600 |
|
$ |
33.27 |
|
|
1,500,000 |
|
|
1,500,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
1, 2004 - December
31, 2004 |
|
|
100,000 |
|
$ |
37.39 |
|
|
100,000 |
|
|
1,400,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,600,000 |
|
$ |
28.78 |
|
|
|
|
|
|
|
(1)
Total average price paid per share is a weighted average for the twelve month
period.
(2)
Since October 2002, our Board of Directors has approved three share repurchase
programs. Each succeeding program has replaced the prior repurchase program,
such that the program approved on November 29, 2004 is the only repurchase
program in effect as of December 31, 2004. We are authorized under each of the
programs to repurchase a specified number of 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 repurchase of
shares is primarily intended to offset dilution resulting from both stock and
stock option grants made under the firm's existing stock plans. Given that
shares repurchased under each of the programs are not cancelled, but are held by
one of our subsidiaries, we include them in our equity account. However, these
shares are excluded from our share count for purposes of calculating earnings
per share. The following table details the activities for each of our approved
share repurchase programs:
| |
|
Shares |
|
Shares
Repurchased |
|
| |
|
Approved
for |
|
through |
|
|
Repurchase
Plan Approval Date |
|
Repurchase |
|
December
31, 2004 |
|
| |
|
|
|
|
|
|
October
30, 2002 |
|
|
1,000,000 |
|
|
700,000 |
|
|
February
27, 2004 |
|
|
1,500,000 |
|
|
1,500,000 |
|
|
November
29, 2004 |
|
|
1,500,000 |
|
|
100,000 |
|
| |
|
|
|
|
|
2,300,000 |
|
Item
6. Selected Financial Data (Unaudited)
The
following table sets forth our summary historical consolidated financial data.
The information should be read in conjunction with our consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere
herein.
| |
|
Year
Ended December 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
| |
|
(in
thousands, except share data) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Statement
of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue (1) |
|
$ |
1,166,958 |
|
|
941,894 |
|
|
859,990 |
|
|
896,889 |
|
|
925,831 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) (1) |
|
|
89,521 |
|
|
54,235 |
|
|
52,114 |
|
|
4,399 |
|
|
(10,290 |
) |
|
Interest
expense, net of interest income |
|
|
9,292 |
|
|
17,861 |
|
|
17,024 |
|
|
20,156 |
|
|
27,182 |
|
|
Loss
on extinguishment of Euro Notes |
|
|
11,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings from unconsolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ventures
(1) |
|
|
17,447 |
|
|
7,951 |
|
|
2,581 |
|
|
8,560 |
|
|
16,693 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) before provision for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes and minority interest |
|
|
86,115 |
|
|
44,325 |
|
|
37,671 |
|
|
(7,197 |
) |
|
(20,779 |
) |
|
Net
provision for income taxes |
|
|
21,873 |
|
|
8,260 |
|
|
11,037 |
|
|
7,986 |
|
|
22,053 |
|
|
Minority
interest in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(losses)
of subsidiaries |
|
|
— |
|
|
— |
|
|
711 |
|
|
228 |
|
|
(21 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) before extraordinary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
item
and cumulative effect of change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
accounting principle |
|
|
64,242 |
|
|
36,065 |
|
|
25,923 |
|
|
(15,411 |
) |
|
(42,811 |
) |
|
Extraordinary
gain on the acquisition of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
minority
interest, net of tax (2) |
|
|
— |
|
|
— |
|
|
341 |
|
|
— |
|
|
— |
|
|
Cumulative
effect of change in accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
principle
(3) |
|
|
— |
|
|
— |
|
|
846 |
|
|
— |
|
|
(14,249 |
) |
|
Net
income (loss) |
|
$ |
64,242 |
|
|
36,065 |
|
|
27,110 |
|
|
(15,411 |
) |
|
(57,060 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
extraordinary item and cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effect
of change in accounting principle |
|
$ |
2.08 |
|
|
1.17 |
|
|
0.85 |
|
|
(0.51 |
) |
|
(1.72 |
) |
|
Extraordinary
gain on the acquisition of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
minority
interest, net of tax (2) |
|
|
— |
|
|
— |
|
|
0.01 |
|
|
— |
|
|
— |
|
|
Cumulative
effect of change in accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
principle
(3) |
|
|
— |
|
|
— |
|
|
0.03 |
|
|
— |
|
|
(0.58 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share |
|
$ |
2.08 |
|
|
1.17 |
|
|
0.89 |
|
|
(0.51 |
) |
|
(2.30 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding |
|
|
30,887,868 |
|
|
30,951,563 |
|
|
30,486,842 |
|
|
30,016,122 |
|
|
24,851,823 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
extraordinary item and cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effect
of change in accounting principle |
|
$ |
1.96 |
|
|
1.12 |
|
|
0.81 |
|
|
(0.51 |
) |
|
(1.72 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extraordinary
gain on the acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
minority interest, net of tax (2) |
|
|
— |
|
|
— |
|
|
0.01 |
|
|
— |
|
|
— |
|
|
Cumulative
effect of change in accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
principle
(3) |
|
|
— |
|
|
— |
|
|
0.03 |
|
|
— |
|
|
(0.58 |
) |
|
Diluted
earnings (loss) per common share |
|
$ |
1.96 |
|
|
1.12 |
|
|
0.85 |
|
|
(0.51 |
) |
|
(2.30 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding |
|
|
|
|
|
32,226,306 |
|
|
31,854,397 |
|
|
30,016,122 |
|
|
24,851,823 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(4) |
|
$ |
128,788 |
|
|
99,130 |
|
|
92,296 |
|
|
60,151 |
|
|
35,301 |
|
|
Ratio
of earnings to fixed charges (5) |
|
|
3.90X |
|
|
2.15X |
|
|
2.06X |
|
|
0.80X |
|
|
0.19X |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities |
|
$ |
161,478 |
|
|
110,045 |
|
|
68,369 |
|
|
54,103 |
|
|
140,340 |
|
|
Investing
activities |
|
$ |
(27,565 |
) |
|
(15,282 |
) |
|
(26,340 |
) |
|
(32,549 |
) |
|
(66,590 |
) |
|
Financing
activities |
|
$ |
(166,875 |
) |
|
(45,312 |
) |
|
(38,821 |
) |
|
(29,951 |
) |
|
(78,215 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
30,143 |
|
|
63,105 |
|
|
13,654 |
|
|
10,446 |
|
|
18,843 |
|
|
Total
assets |
|
|
1,012,377 |
|
|
942,940 |
|
|
852,516 |
|
|
835,727 |
|
|
914,045 |
|
|
Total
debt |
|
|
58,911 |
|
|
211,408 |
|
|
215,008 |
|
|
222,886 |
|
|
249,947 |
|
|
Total
liabilities |
|
|
504,397 |
|
|
511,949 |
|
|
485,558 |
|
|
521,346 |
|
|
581,707 |
|
|
Total
stockholders' equity |
|
|
507,980 |
|
|
430,991 |
|
|
366,958 |
|
|
314,381 |
|
|
332,338 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
under management (6) |
|
$ |
24,100,000 |
|
|
23,000,000 |
|
|
23,200,000 |
|
|
22,200,000 |
|
|
22,500,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
square feet under management |
|
|
835,000 |
|
|
725,000 |
|
|
735,000 |
|
|
725,000 |
|
|
700,000 |
|
(1) Certain
prior year amounts were reclassified to conform to the current
presentation.
Beginning
in January 2002, we began accounting for the revenues of our Strategic
Consulting unit on a gross basis, as opposed to netting these revenues into
expenses.
Beginning
in December 2002, pursuant to Emerging Issues Task Force ("EITF") Issue No.
01-14, "Income Statement Characterization of Reimbursements Received for
'Out-of-Pocket' Expenses Incurred", we have reclassified reimbursements received
for out-of-pocket expenses to revenues in the income statement, as opposed to
being shown as a reduction of expenses. These out-of-pocket expenses amounted to
$8.1 million and $5.4 million for the years ended December 31, 2004 and 2003,
respectively.
Beginning
in December 2002, we have reclassified as revenue our recovery of indirect costs
related to our management services business, as opposed to being classified as a
reduction of expenses in the income statement. This recovery of indirect costs
for the years ended December 31, 2004 and 2003 totaled $29.6 million and $37.8
million, respectively. The amounts related to the recovery of these indirect
costs in our Asia Pacific region were not available for the years ended December
31, 2001 and 2000 given that it would have been necessary to reconfigure the
reporting systems in this region to separate these costs. Therefore, no
reclassification has been made for these years.
Beginning
in December 2004, we reclassified ‘Equity in earnings from unconsolidated
ventures’ from ‘Total revenue’ to a separate
line on the consolidated statement of earnings after ‘Operating income (loss)’.
This change has the effect of reducing the amount of ‘Total revenue’ and
‘Operating income (loss)’ originally reported by the amounts of those equity
earnings.
The
following table lists total revenue and expenses as originally reported in the
annual reports for each of the years ended December 31, 2000 through 2003, and
lists the reclassifications as discussed above, as well as the reclassified
amounts ($ in thousands):
| |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
Total
revenue: |
|
|
|
|
|
|
|
|
|
|
As
originally reported |
|
$ |
949,845 |
|
|
840,429 |
|
|
881,676 |
|
|
925,823 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic
consulting |
|
|
N/A |
|
|
N/A |
|
|
10,421 |
|
|
6,113 |
|
|
Out-of-pocket
expenses |
|
|
N/A |
|
|
1,350 |
|
|
4,023 |
|
|
3,245 |
|
|
Indirect
costs |
|
|
N/A |
|
|
20,792 |
|
|
9,329 |
|
|
7,343 |
|
|
Equity
in earnings from unconsolidated ventures |
|
|
(7,951 |
) |
|
(2,581 |
) |
|
(8,560 |
) |
|
(16,693 |
) |
|
As
reclassified |
|
|
941,894 |
|
|
859,990 |
|
|
896,889 |
|
|
925,831 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
originally reported |
|
|
887,659 |
|
|
785,734 |
|
|
868,717 |
|
|
919,420 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic
consulting |
|
|
N/A |
|
|
N/A |
|
|
10,421 |
|
|
6,113 |
|
|
Out-of-pocket
expenses |
|
|
N/A |
|
|
1,350 |
|
|
4,023 |
|
|
3,245 |
|
|
Indirect
costs |
|
|
N/A |
|
|
20,792 |
|
|
9,329 |
|
|
7,343 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reclassified |
|
|
887,659 |
|
|
807,876 |
|
|
892,490 |
|
|
936,121 |
|
|
Operating
income (loss) |
|
$ |
54,235 |
|
|
52,114 |
|
|
4,399 |
|
|
(10,290 |
) |
(2) In
December 2002, we exercised our option to purchase the remaining 45% interest in
the joint venture company Jones Lang LaSalle Asset Management Services, which
exclusively provides asset management services for all Skandia Life properties
in Sweden. The purchase price was below the fair value of the assets acquired,
resulting in an after-tax extraordinary gain of $341,000.
(3) The
cumulative effect of change in accounting principle in 2000 relates to our
adoption of the United States Securities and Exchange Commission's issuance of
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). Effective January 1, 2000, we recorded a one-time, non-cash
cumulative effect of change in accounting principle of $14.2 million, net of
$8.7 million of taxes. The adjustment represents revenues of $22.9 million that
had been recognized prior to January 1, 2000 that would not have been recognized
if the new accounting policy had been in effect in prior years. The adjustment
had no impact on our cash flows received.
The
cumulative effect of change in accounting principle in 2002 is the result of our
adoption of Statement No. 142, "Goodwill and Other Intangible Assets," ("SFAS
142"). As a result of adopting SFAS 142 on January 1, 2002, we credited $846,000
to the income statement, as the cumulative effect of a change in accounting
principle, which represented our negative goodwill balance at January 1,
2002.
(4) EBITDA
represents earnings before interest expense, income taxes, depreciation and
amortization. Although EBITDA is a non-GAAP financial measure, our management
believes that EBITDA is a useful analytical tool, that it is useful to investors
as one of the primary metrics for evaluating operating performance and
liquidity, and that an increase in EBITDA is an indicator of improved ability to
service existing debt, to sustain potential future increases in debt and to
satisfy capital requirements. EBITDA also is used in the calculation of certain
covenants related to our revolving credit facility. However, EBITDA should not
be considered as an alternative either to net income (loss) or net cash provided
by operating activities, both of which are determined in accordance with GAAP.
Because EBITDA is not calculated under GAAP, our EBITDA may not be comparable to
similarly titled measures used by other companies.
Below is
a reconciliation of our EBITDA to net income (loss) ($ in
thousands):
| |
|
Year
Ended December 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
|
|
|
36,065 |
|
|
27,110 |
|
|
(15,411 |
) |
|
(57,060 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net of interest income |
|
|
9,292 |
|
|
17,861 |
|
|
17,024 |
|
|
20,156 |
|
|
27,182 |
|
|
Net
provision for income taxes |
|
|
21,873 |
|
|
8,260 |
|
|
11,037 |
|
|
7,986 |
|
|
22,053 |
|
|
Depreciation
and amortization |
|
|
33,381 |
|
|
36,944 |
|
|
37,125 |
|
|
47,420 |
|
|
43,126 |
|
|
EBITDA
|
|
$ |
128,788 |
|
|
99,130 |
|
|
92,296 |
|
|
60,151 |
|
|
35,301 |
|
Below is
a reconciliation of our EBITDA to net cash provided by operating activities, the
most comparable cash flow measure on the statements of cash flows ($ in
thousands):
| |
|
Year
Ended December 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities |
|
$ |
161,478 |
|
|
110,045 |
|
|
68,369 |
|
|
54,103 |
|
|
140,340 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net of interest income |
|
|
9,292 |
|
|
17,861 |
|
|
17,024 |
|
|
20,156 |
|
|
27,182 |
|
|
Net
provision for income taxes |
|
|
21,873 |
|
|
8,260 |
|
|
11,037 |
|
|
7,986 |
|
|
22,053 |
|
|
Change
in working capital and non-cash expenses |
|
|
(63,855 |
) |
|
(37,036 |
) |
|
(4,134 |
) |
|
(22,094 |
) |
|
(154,274 |
) |
|
EBITDA
|
|
$ |
128,788 |
|
|
99,130 |
|
|
92,296 |
|
|
60,151 |
|
|
35,301 |
|
(5) For
purposes of computing the ratio of earnings to fixed charges, "earnings"
represents net earnings (loss) before income taxes plus fixed charges, less
capitalized interest. Fixed charges consist of interest expense, including
amortization of debt discount and financing costs, capitalized interest and
one-third of rental expense, which we believe is representative of the interest
component of rental expense.
(6) Investments
under management represent the aggregate fair market value or cost basis (where
an appraisal is not available) of assets managed by our Investment Management
segment as of the end of the periods reflected.
Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion and analysis should be read in conjunction with our
Selected Financial Data and Consolidated Financial Statements, including the
notes thereto, appearing elsewhere in this Form 10-K. The following discussion
and analysis contains certain forward-looking statements which are generally
identified by the words anticipates, believes, estimates, expects, plans,
intends and other similar expressions. 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.
See the Cautionary Note Regarding Forward-Looking Statements after Part IV, Item
15. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
Our
Management's Discussion and Analysis is presented in six sections, as follows:
(1) An
executive summary, including how we create value for our stakeholders,
(2) A
summary of our critical accounting policies and estimates,
(3)
Certain items affecting the comparability of results and certain market and
other risks that we face,
(4) The
Results of our Operations, first on a consolidated basis and then for each of
our business segments,
(5)
Consolidated Cash Flows, and
(6)
Liquidity and Capital Resources.
Executive
Summary
Business
Objectives and Strategies
We define
our stakeholders as:
|
• |
The
people we employ, and |
|
• |
The
shareholders who invest in our Company. |
We create
value for these stakeholders by enabling and motivating our employees to apply
their expertise to deliver services that our clients acknowledge as adding value
to their real estate and business operations. We believe that this ability to
add value is demonstrated by our clients' repeat or expanded service requests
and by the strategic alliances we have formed with them.
The services we provide require "on the ground" expertise in local
real estate markets. Such expertise is the product of research into 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. One of our key
differentiating factors, as a result, is our global reach and service imprint in
local markets around the world.
We
enhance our local market expertise with a global team of research professionals,
with the best practice processes we have developed and delivered repeatedly for
our clients, and with
the technology investments that support these best practices.
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 rewards
superior client service performance, not just transaction activity, and that
includes a meaningful long-term compensation component. We invest in training
and believe in optimizing our talent base through 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.
Because
we are a services business, we are not capital intensive. As a result, our
profits also produce strong cash returns. Over the last three years, we have
used this cash strategically to:
|
• |
Significantly
pay down our debt, resulting in significantly reduced interest
expense; |
|
• |
Purchase
shares under our share repurchase programs; |
|
• |
Invest
for growth in important markets throughout the world;
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 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:
The
market knowledge we develop in our services and capital markets businesses 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 services and capital markets
businesses.
Businesses
Local
Market Services
The
services we offer to real estate investors in local markets around the world
range from client-critical 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, ongoing 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 by way of new products and
services.
Occupier
Services
Our
occupier services product offerings have leveraged our local market real estate
services into best practice operations and process capabilities that we offer to
corporate clients. The value added for these clients is the 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
focus drives our business success, as delivery of one product successfully sells
the next and subsequent 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 that include our integrated
global platform, our research capability, our technology platform, and our
ability to innovate through 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 coordinated multi-national occupier
services by global corporations increase, and we expect this trend to continue
as these businesses refocus on core competencies. Consequently, we are focused
on continuing to enhance our ability to deliver our services across all
geographies globally in a seamless and coordinated fashion that best leverages
our expertise for our clients' benefit.
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, research capability, technology platform,
and ability to innovate as demonstrated through the creation of new
products and services.
Because
of the success we have had with our capital markets business, particularly in
Europe and also with our global Hotels business, and because we expect the
trans-border flow of real estate investments to remain strong, we are focused on
enhancing our ability to provide capital markets services in an increasingly
global fashion. This success leverages our regional market knowledge for clients
who seek to benefit from a truly global capital markets platform.
Money
Management
LaSalle
Investment Management provides money management services for large institutions,
both in specialized funds and separate account vehicles, as well as for managers
of institutional and, increasingly, retail, real estate funds. Investing money
on behalf of clients requires not just asset selection, but also asset value
activities that 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), realization of
value through disposition and investor relations. Our competitors in this area
tend to be investment banks, fund managers and other financial services firms.
They commonly lack the "on-the-ground" real estate expertise that our global
market presence provides.
We are
compensated for our services through a combination of recurring advisory fees
that are asset-based, together with incentive fees based on underlying
investment return to our clients, which are generally recognized when agreed
upon events or milestones are reached, 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. We also have increasingly been seeking to form alliances with
distributors of real estate investment funds to retail clients where we provide
the real estate investment expertise. In 2004, these funds, which exist in all
three global regions, attracted over $600 million in investments, bringing the
total we have under management in these funds to over $1.0 billion.
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.
Principles
of Consolidation and Investments in Real Estate Ventures
Our
financial statements include the accounts of Jones Lang LaSalle and its
majority-owned-and-controlled subsidiaries. All material intercompany balances
and transactions have been eliminated in consolidation.
We invest
in certain real estate ventures that own and operate commercial real estate.
Typically, these are co-investments in funds that our Investment Management
business establishes in the ordinary course of business for its clients. These
investments include non-controlling ownership interests generally ranging from
less than 1% to 47.85% of the respective ventures. We apply the provisions of
FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51" ("FIN 46-R"), AICPA
Statement of Position 78-9, "Accounting for Investments in Real Estate Ventures"
("SOP 78-9"), Accounting Principles Board ("APB") Opinion No. 18, "The Equity
Method of Accounting for Investments in Common Stock" ("APB 18"), and EITF Topic
No. D-46, "Accounting for Limited Partnership Investments" ("EITF D-46") when
accounting for these interests. The application of FIN 46-R, SOP 78-9, APB 18
and EITF D-46 generally results in accounting for these interests under the
equity method in the accompanying Consolidated Financial Statements due to the
nature of our non-controlling ownership.
For real
estate limited partnerships in which the Company is a general partner, we apply
the guidance set forth in FIN 46-R and SOP 78-9 in evaluating the control the
Company has over the limited partnership. These entities are generally
well-capitalized and provide for key decisions to be made by the owners of the
entities. Also, the real estate limited partnership agreements grant the limited
partners important rights, such as the right to replace the general partner
without cause, approve the sale or refinancing of the principal partnership
assets, or approve the acquisition of principal partnership assets. These rights
indicate that the Company, as general partner, does not have a controlling
interest in the limited partnership and accordingly, such general partner
interests are accounted for under the equity method.
For real
estate limited partnerships in which the Company is a limited partner, the
Company is a co-investment partner, and based on applying the guidelines set
forth in FIN 46-R and SOP 78-9, has concluded that it does not
have a controlling interest in the limited partnership. When we have an asset
advisory contract with the real estate limited partnership, the combination of
our limited partner interest and the advisory agreement provides us with
significant influence over the real estate limited partnership venture.
Accordingly, we account for such investments under the equity method. When the
Company does not have an asset advisory contract with the limited partnership,
rather only a limited partner interest without significant influence, and our
interest in the partnership is considered "minor" under EITF D-46 (i.e., not
more than 3 to 5 percent), we account for such investments under the cost
method.
For
investments in unconsolidated affiliates accounted for under the equity method,
we maintain an investment account, which is increased by contributions made and
our share of net income of the unconsolidated affiliates, and decreased by
distributions received and our share of net losses of the unconsolidated
affiliates. Our share of each unconsolidated affiliate's net income or loss,
including gains and losses from capital transactions, is reflected in our
statement of earnings as "equity in earnings from unconsolidated ventures." For
investments in unconsolidated affiliates accounted for under the cost method,
our investment account is increased by contributions made and decreased by
distributions representing return of capital. Distributions of income are
reflected in our statement of earnings in "equity in earnings from
unconsolidated ventures."
Revenue
Recognition
The
United States 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. Additionally, Emerging Issues Task Force ("EITF")
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"), provides guidance on the application of generally accepted accounting
principles to revenue transactions with multiple deliverables.
In Item
1. Business, we describe the services that we provide. We recognize revenue from
these services as advisory and management fees, transaction commissions and
project and development management fees. We recognize advisory and management
fees related to property management services, valuation services, corporate
property services, strategic consulting and money management as income in the
period in which we perform the related services. We recognize transaction
commissions related to agency leasing services, capital markets services and
tenant representation services as income when we provide the related service
unless future contingencies exist. If future contingencies exist, we defer
recognition of this revenue until the respective contingencies have been
satisfied. Project and development management fees are recognized applying the
"percentage of completion" method of accounting. We use the efforts expended
method to determine the extent of progress towards completion.
Certain
contractual arrangements for services provide for the delivery of multiple
services. We evaluate revenue recognition for each service to be rendered under
these arrangements using criteria set forth in EITF 00-21. For services that
meet the separability criteria, revenue is recognized separately. For services
that do not meet those criteria, revenue is recognized on a combined
basis.
Reimbursable
expenses -
We follow
the guidance of EITF Issue No. 01-14, "Income Statement Characterization of
Reimbursements Received for ‘Out-of-Pocket' Expenses Incurred" ("EITF 01-14").
Accordingly, we have recorded these reimbursements as revenues in the income
statement, as opposed to being shown as a reduction of expenses.
In
certain of our businesses, primarily those involving management services, we are
reimbursed by our clients for expenses incurred on their behalf. The treatment
of reimbursable expenses for financial reporting purposes is based upon the fee
structure of the underlying contracts. We follow the guidance of EITF Issue No.
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent" ("EITF
99-19"), when accounting for reimbursable personnel and other costs. 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. When accounting on a gross basis, 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:
| |
• |
A
fixed management fee, and |
| |
• |
A
separate component which allows for scheduled reimbursable personnel or
other expenses to be billed directly to the
client. |
When
accounting on a net basis, we include the fixed management fee in reported
revenues and net the reimbursement against expenses. We base this
characterization on the following factors which define us as an agent rather
than a principal:
|
(i) |
The
property owner, with ultimate approval rights relating to the employment
and compensation of onsite personnel, and bearing all of the economic
costs of such personnel, is determined to be the primary obligor in the
arrangement; |
| |
(ii) |
Reimbursement
to Jones Lang LaSalle is generally completed simultaneously with payment
of payroll or soon thereafter; |
| |
(iii) |
Because
the property owner is contractually obligated to fund all operating costs
of the property from existing cash flow or direct funding to its building
operating account, Jones Lang LaSalle bears little or no credit risk under
the terms of the management contract; and |
| |
(iv) |
Jones
Lang LaSalle generally earns no margin in the reimbursement aspect of the
arrangement, obtaining reimbursement only for actual costs incurred.
|
Most 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 approximately
$430 million, $385 million and $360 million in 2004, 2003 and 2002,
respectively. This treatment has no impact on operating income, net income or
cash flows.
Allowance
for Uncollectible Accounts Receivable
We
estimate the allowance necessary to provide for uncollectible accounts
receivable. This estimate includes specific accounts for which payment has
become unlikely. We also base this estimate on historical experience, combined
with a careful review of current developments and with a strong focus on credit
quality. The process by which we calculate the allowance begins in the
individual business units where specific problem accounts are identified and
reserved as part of an overall reserve that is formulaic and driven by the age
profile of the receivables. These reserves are then reviewed on a quarterly
basis by regional and global management to ensure they are appropriate. As part
of this review, we develop a range of potential reserves on a consistent
formulaic basis. We would normally expect that the allowance would fall within
this range.
Over the
last three years we have placed considerable focus on working capital management
and in particular, collecting our receivables more timely. With the exception of
two specific disputes in 2004 described after the table below, the range of
potential reserves has narrowed and our bad debt expense as a percentage of
revenues has been reduced as we have been successful in working capital
management and collecting receivables more timely. The table below sets out
certain information regarding our accounts receivable, allowance for
uncollectible accounts receivable, range of possible allowance and the bad debt
expense we incurred by segment for the last three years ($ in
millions).
| |
|
|
|
Accounts |
|
Allowance |
|
|
|
|
|
|
|
| |
|
|
|
Receivable |
|
for
Uncol- |
|
|
|
|
|
|
|
| |
|
Gross |
|
More
Than |
|
lectible |
|
|
|
|
|
|
|
| |
|
Accounts |
|
90
Days |
|
Accounts |
|
Maximum |
|
Minimum |
|
Bad
Debt |
|
| |
|
Receivable |
|
Past
Due |
|
Receivable |
|
Allowance |
|
Allowance |
|
Expense |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
IOS |
|
$ |
111.5 |
|
|
0.9 |
|
|
0.5 |
|
|
0.6 |
|
|
0.3 |
|
|
0.5 |
|
|
Europe
IOS |
|
|
140.1 |
|
|
4.0 |
|
|
2.6 |
|
|
3.3 |
|
|
1.6 |
|
|
0.7 |
|
|
Asia
Pacific IOS |
|
|
53.7 |
|
|
2.9 |
|
|
1.7 |
|
|
2.4 |
|
|
1.2 |
|
|
1.0 |
|
|
Investment
Management |
|
|
30.2 |
|
|
1.3 |
|
|
1.8 |
|
|
1.3 |
|
|
0.7 |
|
|
1.6 |
|
|
Consolidated |
|
$ |
335.5 |
|
|
9.1 |
|
|
6.6 |
|
|
7.6 |
|
|
3.8 |
|
|
3.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
IOS |
|
$ |
87.8 |
|
|
0.8 |
|
|
0.6 |
|
|
0.6 |
|
|
0.3 |
|
|
— |
|
|
Europe
IOS |
|
|
104.3 |
|
|
4.0 |
|
|
2.7 |
|
|
3.6 |
|
|
1.8 |
|
|
0.6 |
|
|
Asia
Pacific IOS |
|
|
42.2 |
|
|
2.7 |
|
|
1.3 |
|
|
2.3 |
|
|
1.2 |
|
|
0.9 |
|
|
Investment
Management |
|
|
23.6 |
|
|
0.4 |
|
|
0.2 |
|
|
0.3 |
|
|
0.1 |
|
|
0.1 |
|
|
Consolidated |
|
$ |
257.9 |
|
|
7.9 |
|
|
4.8 |
|
|
6.8 |
|
|
3.4 |
|
|
1.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
IOS |
|
$ |
76.9 |
|
|
1.6 |
|
|
1.4 |
|
|
1.5 |
|
|
0.8 |
|
|
1.1 |
|
|
Europe
IOS |
|
|
78.4 |
|
|
2.9 |
|
|
2.1 |
|
|
2.5 |
|
|
1.3 |
|
|
0.4 |
|
|
Asia
Pacific IOS |
|
|
32.8 |
|
|
2.6 |
|
|
1.5 |
|
|
2.4 |
|
|
1.2 |
|
|
1.3 |
|
|
Investment
Management |
|
|
44.4 |
|
|
0.5 |
|
|
— |
|
|
0.5 |
|
|
0.2 |
|
|
(0.5 |
) |
|
Consolidated |
|
$ |
232.5 |
|
|
7.6 |
|
|
5.0 |
|
|
6.9 |
|
|
3.5 |
|
|
2.3 |
|
The bad
debt expense recorded for 2004 includes the settlement of a disputed receivable
in Europe in which a settlement expense of $0.7 million was incurred in the
second quarter, as well as a $1.6 million charge in the fourth quarter relative
to a single counterparty attempting to renegotiate an incentive fee from an
Investment Management transaction. With the exception of these two specific
significant events, the change in bad debt expense from 2003 to 2004 is
reflective of our focus on working capital management and collecting our
receivables more timely, in turn narrowing the range of potential reserves and
reducing our bad debt expense as a percentage of revenues.
Asset
Impairments
Within
our balances of property and equipment, we record computer equipment and
software; leasehold improvements; furniture, fixtures and equipment;
automobiles; land and artwork used in our business. The largest assets on our
balance sheet are goodwill and other intangibles resulting from a series of
acquisitions and one substantial merger, and consistent with the services nature
of our business. We also invest in certain real estate ventures that own and
operate commercial real estate. Typically, these are co-investments in funds
that our Investment Management business establishes in the ordinary course of
business for its clients. 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 our non-controlling ownership.
• Property
and Equipment - We apply Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), to recognize and measure impairment of property and equipment owned or
under capital lease. We review property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
group may not be recoverable. 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 the estimated fair value. We did not
recognize an impairment loss related to property and equipment in either 2004 or
2003.
• Goodwill
and Other Intangible Assets - We apply SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), when accounting for goodwill and other
intangible assets. SFAS 142 requires that goodwill and intangible assets with
indefinite useful lives not be amortized, but instead evaluated for impairment
at least annually. 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. Under SFAS 142, we define reporting units as
Investment Management, Americas IOS, Australia IOS, Asia IOS, and by country
groupings in Europe IOS. We then 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 2004 and 2003 evaluations was
that the fair value of each reporting unit exceeded its carrying amount, and
therefore we did not recognize an impairment loss in either year.
• Investments
in Real Estate Ventures - We apply the provisions of APB 18, SEC Staff
Accounting Bulletin Topic 5-M, "Other Than Temporary Impairment Of Certain
Investments In Debt And Equity Securities" ("SAB 59"), and SFAS 144 when
evaluating investments in real estate ventures for impairment, including
impairment evaluations of the individual assets underlying our investments.
We review
investments in real estate ventures on a quarterly basis for an indication of
whether the carrying value of the real estate assets underlying our investments
in ventures 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
underlying assets. When an "other than temporary" impairment has been identified
related to a real estate asset underlying one of our investments in ventures, a
discounted cash flow approach is used to determine the fair value of the asset
in computing the amount of the impairment. We then record the portion of the
impairment loss related to our investment in the reporting period.
We have
recorded impairment charges in equity earnings of $1.1 million in 2004,
representing our equity share of the impairment charge against individual assets
held by these ventures. There were $4.1 million of such charges to equity
earnings in 2003, but no such charges in 2002.
Additionally,
since the 2001 closing of our Land Investment Group and sale of our Development
Group, we have recorded net impairment charges related to investments originated
by these groups to non-recurring and restructuring expense. There were $0.5
million of net charges in 2004 related to the partial liquidation of two Land
Investment Group assets, the writedown of a third Land Investment Group asset,
and the liquidation of our final Development Group investment. There were no
such charges in 2003, and $3.0 million of such charges recorded to non-recurring
expense in 2002. For a further discussion of these non-recurring charges, see
the Land Investment Group and Development Group sections in Note 6 of Notes to
Consolidated Financial Statements.
Income
Taxes
We
account for income taxes under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
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 on net earnings and include the provision of taxes on substantively all
differences between accounting principles generally accepted in the United
States of America and tax accounting, excluding certain non-deductible items and
permanent differences.
Our
global effective tax rate is sensitive to the complexity of our operations as
well as to changes in the mix of our geographic profitability, as local
statutory tax rates range from 10% to 42% in the countries in which we have
significant operations. We evaluate our estimated effective tax rate on a
quarterly basis to reflect forecast changes in:
| |
(i) |
Our
geographic mix of income, |
| |
(ii) |
Legislative
actions on statutory tax rates, |
| |
(iii) |
The
impact of tax planning to reduce losses in jurisdictions where we cannot
recognize the tax benefit of those losses, and
|
| |
(iv) |
Tax
planning for jurisdictions affected by double taxation.
|
We
continuously seek to develop and implement potential strategies and/or actions
that would reduce our overall effective tax rate. We reflect the benefit from
tax planning actions when we believe it is probable that they will be
successful, which usually requires that certain actions have been initiated. We
provide for the effects of income taxes on interim financial statements based on
our estimate of the effective tax rate for the full year.
We
achieved an effective tax rate of 25.4% in 2004, which reflected our continued
disciplined management of the global tax position. The 2004 effective tax rate
of 25.4% applied to both recurring operations and to non-recurring and
restructuring items.
The 2003
effective tax rate of 27.7% on recurring operations excluded:
| |
(i) |
A
specific tax benefit of $2.2 million related to non-recurring and
restructuring items, and |
| |
(ii) |
A
tax benefit of $3.0 million related to a write-down of an e-commerce
investment taken as a restructuring action in 2001, which not originally
expected to be deductible, was deemed deductible as a result of actions
undertaken in 2003. |
Based on
our historical experience and future business plans, including analysis of the
foreign earnings repatriation provision within the American Jobs Creation Act of
2004, we do not expect to repatriate our foreign source earnings to the United
States. As a result, we have not provided deferred taxes on such earnings or the
difference between tax rates in the United States and the various foreign
jurisdictions where such amounts were earned. Further, there are various
limitations on our ability to utilize foreign tax credits on such earnings when
repatriated. As such, we may incur taxes in the United States upon repatriation
without credits for foreign taxes paid on such earnings.
We have
established valuation allowances against the possible future tax benefits of
current losses where expected future taxable income does not support the
realization of the deferred tax assets. We formally assess the likelihood of
being able to utilize current tax losses in the future on a country-by-country
basis, with the determination of each quarter's income tax provision; and we
establish or increase valuation reserves upon specific indications that the
carrying value of a tax asset may not be recoverable, or alternatively we reduce
valuation reserves upon specific indications that the carrying value of the tax
asset is more likely than not recoverable or upon the implementation of tax
planning strategies allowing an asset previously determined not realizable to be
viewed as realizable. The table below summarizes certain information regarding
the gross deferred tax assets and valuation allowance for the last three years
($ in millions):
| |
|
December
31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
|
Gross
Deferred Tax Asset |
|
$ |
95.0 |
|
|
84.4 |
|
|
70.0 |
|
|
Valuation
Allowance |
|
$ |
9.3 |
|
|
9.0 |
|
|
12.2 |
|
The
increase in gross deferred tax assets from 2003 to 2004 was the result of growth
in expense accruals not yet deductible, taxable income recognition on certain
intercompany transactions, and currency fluctuation. The increase in gross
deferred tax assets from 2002 to 2003 was the result of tax loss carryovers in
all regions, write downs of investments, other differences in the timing of
income recognition on investments, and currency fluctuation. Gross deferred
asset growth in 2003 included a significant loss in a previously profitable
jurisdiction for which a valuation reserve was not provided at that time, and
which has since had taxable income.
We
evaluate our segment operating performance before tax, and do not consider it
meaningful to allocate tax by segment. Estimations and judgments relevant to the
determination of tax expense, assets, and liabilities require analysis of the
tax environment and the future profitability, for tax purposes, of local
statutory legal entities rather than business segments. Our statutory legal
entity structure generally does not mirror the way that we organize, manage and
report our business operations. For example, the same legal entity may include
both Investment Management and IOS businesses in a particular
country.
Accounting
for Incentive Compensation
An
important part of our overall compensation package is incentive compensation,
which is typically paid out to our employees in the first quarter of the year
after it is earned.
We have a
stock ownership program for certain of our employees pursuant to which they
receive a portion of their annual incentive compensation in the form of
restricted stock units of our common stock. We enhanced the number of shares by
20% with respect to the 1999 plan year, and by 25% with respect to plan years
beginning in 2000. These restricted units vest in two parts: 50% at 18 months
and 50% at 30 months, in each case from the date of grant (i.e., vesting starts
in 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 twelve 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.
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 certain information regarding
this stock ownership program ($ in millions, except employee data):
| |
|
Year
Ended December 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Number
of employees qualified for the stock ownership program |
|
|
800 |
|
|
700 |
|
|
700 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Deferral
of compensation |
|
$ |
(18.4 |
) |
|
(11.5 |
) |
|
(8.8 |
) |
|
Enhancement
of deferred compensation |
|
|
(4.4 |
) |
|
(2.9 |
) |
|
(2.2 |
) |
|
Decrease
to deferred compensation in the first quarter |
|
|
|
|
|
|
|
|
|
|
|
of
the following year |
|
|
N/A |
|
|
0.4 |
|
|
0.4 |
|
|
Total
deferred compensation |
|
$ |
(22.8 |
) |
|
(14.0 |
) |
|
(10.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense amortization recognized with regard to the |
|
|
|
|
|
|
|
|
|
|
|
current
year stock ownership program |
|
$ |
7.8 |
|
|
4.8 |
|
|
3.8 |
|
|
Compensation
expense amortization recognized with regard to the |
|
|
|
|
|
|
|
|
|
|
|
prior
years' stock ownership programs |
|
|
7.0 |
|
|
5.8 |
|
|
4.9 |
|
|
Total
compensation expense amortization with regard to the |
|
|
|
|
|
|
|
|
|
|
|
stock
ownership programs |
|
$ |
14.8 |
|
|
10.6 |
|
|
8.7 |
|
Accounting
for Self-insurance Programs
In our
Americas business, and 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 coverage 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 by
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 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 to credit
$679,000 to the income statement in the third quarter of 2004, 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 balances for the 2002, 2003 and 2004 programs are
$6,000, $234,000 and $4.1
million, respectively, at December 31, 2004.
The table
below sets out certain information related to the cost of this program for the
years ended December 31, 2004, 2003 and 2002 ($ in millions):
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Expense
to company |
|
$ |
14.5 |
|
|
12.0 |
|
|
12.2 |
|
|
Employee
contributions |
|
|
3.3 |
|
|
3.0 |
|
|
2.5 |
|
|
Adjustment
to prior year reserve |
|
|
(0.7 |
) |
|
(0.8 |
) |
|
— |
|
|
Total
program cost |
|
$ |
17.1 |
|
|
14.2 |
|
|
14.7 |
|
• 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 worker's 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 differences between the actuarial estimate and
our reserve on a periodic basis. The credit taken to revenue for the years ended
December 31, 2004 and 2003 was $3.6 million and $3.0 million,
respectively.
The table
below sets out the range and our actual reserve for the last three years ($ in
millions):
| |
|
Maximum |
|
Minimum |
|
Actual |
|
| |
|
Reserve |
|
Reserve |
|
Reserve |
|
| |
|
|
|
|
|
|
|
|
December
31, 2004 |
|
$ |
6.8 |
|
|
6.2 |
|
|
6.8 |
|
|
December
31, 2003 |
|
$ |
6.8 |
|
|
5.3 |
|
|
6.8 |
|
|
December
31, 2002 |
|
$ |
6.4 |
|
|
4.9 |
|
|
6.1 |
|
Given the
uncertain nature of claim reporting and settlement patterns associated with
workers' compensation insurance, we have accrued at the higher end of the
range.
• 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 the captive insurer 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 professional indemnity 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 we update 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 we would expect that the amount 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 $1.6 million, which
was charged to operating expense. This strengthening of the claim reserves
increased the historic loss ratio that is the basis of the reserve for the
current insurance year exposures, as well.
The table
below provides details of the year-end reserves, which can relate to multiple
years, that we have established as of ($ in millions):
| |
|
Reserve
at Year-End |
|
|
December
31, 2004 |
|
$ |
6.7 |
|
|
December
31, 2003 |
|
$ |
2.7 |
|
|
December
31, 2002 |
|
$ |
1.7 |
|
Items
Affecting Comparability
Non-Recurring
and Restructuring Charges
We have
incurred significant non-recurring and restructuring charges for the years ended
December 31, 2004, 2003 and 2002. These charges are made up of the following ($
in millions):
| |
|
2004 |
|
2003 |
|
2002 |
|
Non-Recurring
& Restructuring Charges |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Impairment
of E-commerce Investments |
|
$ |
— |
|
|
— |
|
|
(0.3 |
) |
|
Land
Investment & Development Group Impairment Charges |
|
|
0.5 |
|
|
— |
|
|
3.0 |
|
|
Insolvent
Insurance Providers |
|
|
0.1 |
|
|
(0.6 |
) |
|
— |
|
|
Abandonment
of Property Management Accounting System: |
|
|
|
|
|
|
|
|
|
|
|
Compensation
and Benefits |
|
|
0.6 |
|
|
0.1 |
|
|
— |
|
|
Operating,
Administrative and Other |
|
|
(3.3 |
) |
|
5.0 |
|
|
— |
|
|
Merger
Related Stock Compensation |
|
|
— |
|
|
(2.5 |
) |
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
2001
Global Restructuring Program: |
|
|
|
|
|
|
|
|
|
|
Compensation
& Benefits |
|
|
(0.1 |
) |
|
(0.1 |
) |
|
(1.3 |
) |
|
Operating,
Administrative & Other |
|
|
— |
|
|
— |
|
|
0.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
2002
Global Restructuring Program: |
|
|
|
|
|
|
|
|
|
|
|
Compensation
& Benefits |
|
|
(0.2 |
) |
|
(2.1 |
) |
|
12.7 |
|
|
Operating,
Administrative & Other |
|
|
0.5 |
|
|
4.6 |
|
|
0.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
2004
Global Restructuring Program: |
|
|
|
|
|
|
|
|
|
|
|
Compensation
& Benefits |
|
|
4.5 |
|
|
— |
|
|
— |
|
|
Operating,
Administrative & Other |
|
|
— |
|
|
— |
|
|
— |
|
|
Total
Non-Recurring & Restructuring Charges |
|
$ |
2.6 |
|
|
4.4 |
|
|
14.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
tax benefit for current year charges |
|
$ |
0.7 |
|
|
2.2 |
|
|
5.0 |
|
|
Net
tax benefit for prior year charges |
|
|
— |
|
|
3.0 |
|
|
1.8 |
|
| |
|
$ |
0.7 |
|
|
5.2 |
|
|
6.8 |
|
See Note
6 to Notes to Consolidated Financial Statements for a detailed discussion of
these non-recurring and restructuring items.
LaSalle
Investment Management Revenues
Our Money
Management business is in part compensated through the receipt of incentive fees
where investment performance exceeds agreed benchmark levels. Depending upon
performance, these fees can be significant and will generally be recognized when
agreed events or milestones are reached. Equity earnings from unconsolidated
ventures may also vary substantially from period to period for a variety of
reasons, including as a result of: (i) impairment charges, (ii) realized gains
on asset dispositions, or (iii) incentive fees recorded as equity earnings. The
timing of recognition of these items may impact comparability between quarters,
in any one year, or compared to a prior year. The comparability of these items
can be seen in Note 7 to Notes to Consolidated Financial Statements and is
discussed further in Segment Operating Results included herein.
Foreign
Currency
We
operate in a variety of currencies in over 35 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 U.S. dollar 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, weakened significantly against the U.S. dollar in
2001 but gradually strengthened over the last nine months of 2002 and has
remained strong through 2004. This means that for those businesses located in
jurisdictions that utilize these currencies, the reported U.S. dollar revenues
and expenses in 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, we set out below guidance as
to the key currencies in which the Company does business and their significance
to reported revenues and operating results. The operating results sourced in
U.S. dollars and pounds sterling understate the profitability of the businesses
in America and the United Kingdom because they include the locally incurred
expenses of our global office in Chicago and 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).
| |
|
Pounds |
|
|
|
|
|
US |
|
|
|
|
|
| |
|
Sterling |
|
Euro |
|
Dollar |
|
Dollar |
|
Other |
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Q1,
2004 |
|
$ |
50.5 |
|
|
43.1 |
|
|
17.6 |
|
|
76.2 |
|
|
33.2 |
|
|
220.6 |
|
|
Q2,
2004 |
|
|
56.2 |
|
|
48.7 |
|
|
23.4 |
|
|
86.9 |
|
|
48.9 |
|
|
264.1 |
|
|
Q3,
2004 |
|
|
59.6 |
|
|
40.7 |
|
|
23.9 |
|
|
101.1 |
|
|
44.6 |
|
|
269.9 |
|
|
Q4,
2004 |
|
|
93.3 |
|
|
58.9 |
|
|
30.0 |
|
|
157.3 |
|
|
72.9 |
|
|
412.4 |
|
| |
|
$ |
259.6 |
|
|
191.4 |
|
|
94.9 |
|
|
421.5 |
|
|
199.6 |
|
|
1,167.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1,
2003 |
|
$ |
37.7 |
|
|
37.3 |
|
|
13.7 |
|
|
69.9 |
|
|
29.3 |
|
|
187.9 |
|
|
Q2,
2003 |
|
|
43.9 |
|
|
37.3 |
|
|
18.7 |
|
|
75.4 |
|
|
38.6 |
|
|
213.9 |
|
|
Q3,
2003 |
|
|
50.7 |
|
|
36.0 |
|
|
19.6 |
|
|
84.8 |
|
|
27.1 |
|
|
218.2 |
|
|
Q4,
2003 |
|
|
64.2 |
|
|
53.8 |
|
|
25.8 |
|
|
130.2 |
|
|
47.9 |
|
|
321.9 |
|
| |
|
$ |
196.5 |
|
|
164.4 |
|
|
77.8 |
|
|
360.3 |
|
|
142.9 |
|
|
941.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (Loss) |
|
Q1,
2004 |
|
$ |
(2.5 |
) |
|
4.4 |
|
|
(1.5 |
) |
|
(5.1 |
) |
|
(2.0 |
) |
|
(6.7 |
) |
|
Q2,
2004 |
|
|
1.6 |
|
|
5.4 |
|
|
2.2 |
|
|
1.8 |
|
|
4.3 |
|
|
15.3 |
|
|
Q3,
2004 |
|
|
4.5 |
|
|
(0.5 |
) |
|
6.2 |
|
|
7.5 |
|
|
3.5 |
|
|
21.2 |
|
|
Q4,
2004 |
|
|
12.8 |
|
|
2.9 |
|
|
0.0 |
|
|
31.5 |
|
|
12.5 |
|
|
59.7 |
|
| |
|
$ |
16.4 |
|
|
12.2 |
|
|
6.9 |
|
|
35.7 |
|
|
18.3 |
|
|
89.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1,
2003 |
|
$ |
(2.6 |
) |
|
3.0 |
|
|
(1.4 |
) |
|
(2.5 |
) |
|
(3.4 |
) |
|
(6.9 |
) |
|
Q2,
2003 |
|
|
(0.4 |
) |
|
0.9 |
|
|
(4.1 |
) |
|
1.4 |
|
|
5.3 |
|
|
3.1 |
|
|
Q3,
2003 |
|
|
4.8 |
|
|
1.2 |
|
|
0.7 |
|
|
8.2 |
|
|
1.2 |
|
|
16.1 |
|
|
Q4,
2003 |
|
|
7.1 |
|
|
3.9 |
|
|
2.4 |
|
|
22.8 |
|
|
5.8 |
|
|
42.0 |
|
| |
|
$ |
8.9 |
|
|
9.0 |
|
|
(2.4 |
) |
|
29.9 |
|
|
8.9 |
|
|
54.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Exchange Rates (U.S. dollar equivalent of one foreign currency
unit) |
|
Q1,
2004 |
|
|
1.842 |
|
|
1.246 |
|
|
0.764 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
Q2,
2004 |
|
|
1.811 |
|
|
1.206 |
|
|
0.710 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
Q3,
2004 |
|
|
1.817 |
|
|
1.223 |
|
|
0.710 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
Q4,
2004 |
|
|
1.891 |
|
|
1.325 |
|
|
0.761 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1,
2003 |
|
|
1.600 |
|
|
1.075 |
|
|
0.595 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
Q2,
2003 |
|
|
1.624 |
|
|
1.140 |
|
|
0.644 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
Q3,
2003 |
|
|
1.617 |
|
|
1.130 |
|
|
0.656 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
Q4,
2003 |
|
|
1.718 |
|
|
1.202 |
|
|
0.718 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
Defined
Benefit Pension Plan Disclosures
In
December 2003, SFAS No. 132 (revised), "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("SFAS 132-R"), was issued. SFAS 132-R
revises the employers' disclosure requirements regarding defined benefit pension
plans contained in the original SFAS 132; it does not change the measurement or
recognition of those plans. SFAS 132-R also requires additional disclosures
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 plans, the additional disclosures required under SFAS 132-R
are required in this annual report for the year ended December 31,
2004.
Consolidation
of Variable Interest Entities
In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51" ("FIN 46"). FIN 46 addressed
the consolidation by business enterprises of variable interest entities as
defined. FIN 46 applied immediately to variable interests in variable interest
entities created after January 31, 2003. We have not invested in any variable
interest entities created after January 31, 2003. For public enterprises with a
variable interest entity created before February 1, 2003, the FASB modified the
application date of FIN 46 to no later than the end of the interim or annual
period ending after December 15, 2003 as it prepared to issue additional
guidance.
In
December 2003, the FASB issued FIN 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 FIN 46. FIN 46-R
has had no impact on our consolidated financial statements as of December 31,
2004.
Accounting
for "Share-Based" Compensation
SFAS No.
123 (revised 2004), "Share-Based Payment" ("SFAS 123-R"), a revision of SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), was issued in
December 2004. SFAS 123-R supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and its related implementation guidance. SFAS
123-R is effective as of the beginning of the first interim or annual reporting
period that begins after June 15, 2005.
SFAS
123-R eliminates the alternative to use APB 25's intrinsic value method of
accounting that was provided in SFAS 123 as originally issued. Under APB 25,
issuing stock options to employees generally has resulted in recognition of no
compensation cost. However, SFAS 123-R will require us to recognize expense for
the grant-date fair value of stock options and other equity-based compensation
issued to employees. That cost will be recognized over the employee's requisite
service period.
Employee
share purchase plans ("ESPPs") result in recognition of compensation cost if
defined as "compensatory," which under SFAS 123-R includes (1) plans that
contain a "look-back" feature, or (2) plans that contain a purchase price
discount larger than five percent, which SFAS 123-R views as the per-share
amount of issuance costs that would have been incurred to raise a significant
amount of capital by a public offering.
SFAS
123-R applies to all awards granted after the required effective date and to
awards modified, repurchased, or cancelled after that date. The cumulative
effect of initially applying SFAS 123-R also will be recognized as of the
required effective date. Management has not yet determined the impact that the
application of SFAS 123-R will have on our business.
Accounting
for General Partner Interests in a Limited Partnership
(Proposed)
At its
November 17-18, 2004 meeting, the Emerging Issues Task Force ("EITF") reached a
tentative conclusion on a framework for assessing when a sole general partner
should consolidate its investment in a limited partnership. The proposed
framework and proposed effective date and transition provisions are included in
proposed EITF Issue No. 04-5, "Investor's Accounting for an Investment in a
Limited Partnership When the Investor Is the Sole General Partner and the
Limited Partners Have Certain Rights" ("EITF 04-5"). If EITF
04-5 is approved as currently drafted, it could result in the consolidation of
limited partnerships currently accounted for on the equity method, which would
result in a material increase in the amount of assets and liabilities reported
in our Consolidated Balance Sheet. Management has not yet determined the impact
that the proposed EITF would have on our business.
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 our multi-currency credit facility;
and |
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 foreign currency forward contracts. We do not
enter into derivative transactions for trading or speculative
purposes.
Interest
Rates
We
centrally manage our debt, considering investment opportunities and risks, tax
consequences and overall financing strategies. We are primarily exposed to
interest rate risk on the $325 million revolving multi-currency credit facility
due in 2007 that is available for working capital, investments, capital
expenditures and acquisitions. Our average outstanding borrowings under the
revolving credit facility were $91.0 million
during 2004, and the effective interest rate on that facility was 3.5%. As of
December 31, 2004, we had $40.6 million outstanding under the revolving credit
facility. 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 the years ended
December 31, 2004 and 2003, and we had no such agreements outstanding at
December 31, 2004.
The
effective interest rate on our debt was 6.3% in 2004, compared to 8.2% in 2003.
The decrease in the effective interest rate is due to a change in the mix of our
average borrowings being less heavily weighted towards the higher coupon Euro
Notes, as the Euro Notes were redeemed in June 2004. Overall, the continued
strong cash flow of the company is being used to reduce borrowings at higher
market interest rates.
A 50
basis point increase in the effective interest rate on the revolving credit
facility would have increased our net interest expense by $455,000 in 2004 and
$135,000 in 2003, mostly due to higher average borrowings under the revolving
credit facility in 2004 compared to 2003.
Foreign
Exchange
Our
revenues outside of the United States totaled 64% of our total revenues in 2004
and 62% in 2003. Operating in international markets means that we are exposed to
movements in these foreign exchange rates, primarily the British pound (22% of
2004 revenues and 21% of 2003 revenues) and the euro (16% of 2004 revenues and
17% of 2003 revenues). Changes in these foreign exchange rates would have the
largest impact on translating the results of our international operations into
U.S. dollars.
The
British pound expenses incurred as a result of our European region headquarters
being located in London act as a partial operational hedge against our
translation exposure to the British pound. A 10% change in the average exchange
rate for the British pound in 2004 and in 2003 would have impacted our pretax
net operating income by approximately $150,000 and $900,000,
respectively.
We enter
into forward foreign currency exchange contracts to manage currency risks
associated with intercompany loan balances. At December 31, 2004, we had forward
exchange contracts in effect with a gross notional value of $290.8 million
($263.5 million on a net basis) with a market and carrying gain of $0.7
million.
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 our
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.
Results
of Operations
Reclassifications
Beginning
in December 2004, we reclassified ‘equity in earnings from unconsolidated
ventures’ from ‘revenue’ to a separate line on the consolidated statement of
earnings after ‘interest and other costs’ and before ‘income before provision
for income taxes’. For segment reporting we continue to show ‘equity in earnings
from unconsolidated ventures’ within ‘revenue’ since it is a very integral part
of our Investment Management segment.
Year
Ended December 31, 2004 Compared to Year Ended December 31,
2003
We
operate in a variety of currencies, but report our results in U.S. dollars,
which means that our reported results may be positively or negatively impacted
by the volatility of those currencies against the U.S. dollar. This volatility
means that the reported U.S. dollar revenues and expenses in 2004, as compared
to 2003, demonstrate an apparent growth rate that may not be consistent with the
real underlying growth rate in the local operations. In order to provide more
meaningful year-to-year comparisons of the reported results, we have included
the table below which details the movements in certain reported U.S. dollar
lines of the Consolidated Statement of Earnings
($ in millions) (nm=not
meaningful).
| |
|
2004 |
|
2003 |
|
Increase
(Decrease) |
|
%
Change
in
U.S. Dollars |
|
%
Change
in Local
Currency |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue |
|
$ |
1,167.0 |
|
$ |
941.9 |
|
$ |
225.1 |
|
|
23.9 |
% |
|
17.2 |
% |
|
Compensation
& benefits |
|
|
761.4 |
|
|
612.4 |
|
|
149.0 |
|
|
24.3 |
% |
|
17.7 |
% |
|
Operating,
administrative & other |
|
|
280.0 |
|
|
234.0 |
|
|
46.0 |
|
|
19.7 |
% |
|
13.0 |
% |
|
Depreciation
& amortization |
|
|
33.4 |
|
|
36.9 |
|
|
(3.5 |
) |
|
(9.5 |
%) |
|
(14.3 |
%) |
|
Non-recurring |
|
|
2.6 |
|
|
4.4 |
|
|
(1.8 |
) |
|
(40.9 |
%) |
|
(49.0 |
%) |
|
Total
operating expenses |
|
|
1,077.4 |
|
|
887.7 |
|
|
189.7 |
|
|
21.4 |
% |
|
14.6 |
% |
|
Operating
income |
|
$ |
89.5 |
|
$ |
54.2 |
|
$ |
35.3 |
|
|
65.1 |
% |
|
69.6 |
% |
Revenue
The 17.2%
local currency increase in revenues in 2004 reflects strong revenue performance
across all of our business segments. See below for additional discussion of our
segment operating results. The revenue growth resulted from a strong increase in
transaction activity across the Investor and Occupier Services businesses of
leasing and capital markets, driven by continued economic and business
improvement worldwide as well as investor demand for real estate as an asset
category. This investor demand also increased opportunities for LaSalle
Investment Management, our Money Management business, to realize value for
clients. LaSalle Investment Management generated incentive fees, as well as
significant equity earnings where the firm has co-invested alongside clients, as
we continued to deliver investment performance exceeding client targeted
returns.
Operating
Expenses
The
increase in U.S. dollar operating expenses in 2004 reflects the general
strengthening of our key currencies against the U.S. dollar. Excluding the
impact of movements in foreign currency exchange rates, the increase is
primarily due to compensation and benefits as a result of the stronger
year-over-year revenue and profit performance. Compensation and benefits
increased from 2003 by 17.7%, in local currencies. Operating, administrative and
other expenses also increased 13.0% for the year in local currencies as
revenue-generation-related costs supported the increased business activity.
The
non-recurring and restructuring charges for 2004 included a charge recorded by
our Europe IOS business in the fourth quarter for $4.5 million, primarily
related to severance in Germany and northern European markets, where new
restructuring efforts have been initiated to realign resources in the region
away from underperforming sectors and further consolidate the German
business in light of continuing difficult economic conditions. Also included is
a credit of $4.3 million for cash received as part of the settlement of
litigation related to the 2003 abandonment of a property management system in
our Australian business. The $4.3 million of cash received is the first
installment of a total settlement amount of $7.1 million, with the remaining
amounts to be received in installments in 2005. Each of these future
installments will be recorded as a credit to non-recurring and restructuring
expense when the cash is received. Partially offsetting the $4.3 million credit
is approximately $1.5 million of charges related to legal expense and other
costs, and severance. Also included in non-recurring and restructuring charges
was a net charge of $0.5 million for impairment of investments made by the
closed residential land business and a net charge of $0.3 million related to
excess lease space as a result of the 2002 restructuring program.
In 2003,
$5.1 million of non-recurring and restructuring charges related to the
abandonment of the property management accounting system and $4.4 million
related to excess leased space. Partially offsetting these charges was the
reversal of a reserve of $2.5 million for potential social tax liabilities
originally established with regard to compensation connected with the merger
with Jones Lang Wootton. In addition, the combination of new client wins and
expanded assignments for existing clients in the Americas IOS business resulted
in a permanent reevaluation of planned headcount reductions, resulting in the
reversal of certain reserves established as part of the 2002 global
restructuring program. See Note 6 to Notes to Consolidated Financial Statements
for a further discussion of non-recurring and restructuring
charges.
Operating
Income
Operating
income increased 65.1% in 2004 compared to 2003, as revenue increased $225.1
million while operating expenses increased $189.7 million. The increase in
operating margin resulted from Operating, administrative and other costs
increasing at a lower rate than revenues when compared to the prior year (19.7%
compared to 23.9%), and we also incurred approximately $1.8 million less in
non-recurring and restructuring charges in 2004.
Interest
and Other Costs
Total
interest and other costs increased $3.0 million to $20.9 million in 2004 from
$17.9 million in 2003. The expense of $20.9 million includes $11.6 million for
the premium paid for the early redemption of the Euro Notes ("Euro Notes") in
June 2004 and associated accelerated debt issuance costs. Interest expense, net
of interest income decreased $8.6 million reflecting the continued pay-down of
debt and the early redemption of the Euro Notes. Net debt as of December 31,
2004 was $28.8 million, a $119.5 million reduction from the prior
year.
Provision
for Income Taxes
The
provision for income taxes was $21.9 million in 2004 as compared to $8.3 million
in 2003. The increase in the tax provision is primarily due to increased
business performance, offset by a decreased effective tax rate in 2004 as
compared to 2003. The current-year tax expense of $21.9 million reflects a 25.4%
effective tax rate for 2004. The prior-year tax expense of $8.3 million included
a one-time credit of $3.0 million from the reversal of a reserve from an
e-commerce investment write-down. The 2004 effective tax rate is more favorable
than what was ultimately achieved for 2003 reflecting continued disciplined
management of the global tax position.
On an
operational basis, excluding non-recurring and restructuring charges which are
separately tax-effected, we achieved a 25.4% effective tax rate in 2004 as
compared to a rate of 27.7% in 2003. The decrease in our effective tax rate is
primarily due to effective tax planning to (i) reduce the impact of losses in
jurisdictions where we cannot recognize tax benefits, (ii) reduce the incidence
of double taxation of earnings and other tax inefficiencies and (iii) planning
steps to reduce the effective rate of taxation on international earnings. The
2003 effective tax rate of 27.7% excludes a one-time tax benefit of $3.0
million. The tax benefit related to certain costs incurred in restructuring
actions taken in 2001 that were not originally thought to be deductible for tax
purposes; however as a result of subsequent actions, these costs are now
considered deductible. Including this one-time tax benefit, we achieved an
effective tax rate of 18.6% in 2003.
See Note
11 to Notes to Consolidated Financial Statements for a further discussion of our
effective tax rate.
Net
Income
Net
income of $64.2 million for 2004 represented an increase of 78% over the prior
year's net income of $36.1 million. For comparison purposes, the 2004 results
included non-recurring and restructuring charges of $2.6 million, while 2003
included charges of $4.4 million. The 2004 results also included an expense of
$11.6 million associated with the early redemption of the Euro
Notes.
Segment
Operating Results
We manage
and report our operations as four business segments:
| |
(i) |
Investment Management, which offers money management
services on a global basis, and |
| |
|
The three geographic regions of Investor and Occupier
Services ("IOS"): |
The
Investment Management segment provides money management services to
institutional investors and high-net-worth individuals. Each geographic region
offers our full range of Investor Services, Capital Markets and Occupier
Services. 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 management 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. Also, for segment reporting we continue to show equity
earnings from unconsolidated ventures within our revenue line, especially since
it is a very integral part of our Investment Management segment.
Investor
and Occupier Services
Americas
| |
|
|
2004 |
|
|
2003 |
|
|
Increase
(Decrease) |
|
|
%
Change |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
371.2 |
|
$ |
313.5 |
|
$ |
57.7 |
|
|
18.4 |
% |
|
Operating
expense |
|
|
317.7 |
|
|
275.7 |
|
|
42.0 |
|
|
15.2 |
% |
|
Operating
income |
|
$ |
53.5 |
|
$ |
37.8 |
|
$ |
15.7 |
|
|
41.5 |
% |
The
improved revenue performance in our Americas region can be attributed to the
favorable execution of core businesses, which together with performance of
strategic investments in New York, resulted in strength across all business
lines. Revenues increased 18% compared to the prior year. Revenue from
transactions, reported as implementation services, was the main driver of the
growth, increasing 32% when compared to 2003. The revenue performance of our New
York business confirmed the effectiveness of the strategic investments the firm
has made in that market, first in 2002 for an expanded markets team and then in
2004 for expanded project and development capabilities by acquiring Quartararo
& Associates, a 40-person consultative project management firm. New York
revenues were up 88% year to date. The Occupier Services business, marketed as
Corporate Solutions, which generates over 51% of the Americas' revenue,
continued its strength into 2004 by posting revenue gains of 9% over the prior
year. The non-U.S. businesses in the region, namely Canada, Mexico, and South
America, had increased revenue in excess of 85% over the prior year. The
Americas Hotels business, benefiting from a strong world wide trading market in
the hotel asset class, continued its strong performance, ending the full year
with revenues more than doubling from last year.
Total
operating expenses, excluding non-recurring and restructuring charges, increased
15.2% in 2004 over 2003. Increases were mainly due to an increase in incentive
compensation expense, which was the result of the region's improved revenue and
profit performance. Operating income for the year was $53.5 million compared to
$37.8 million in 2003.
In the
third quarter of 2004, the Americas' commitment to its people strategies was
validated, as the firm was named 15th in
Chicago magazine's listing of the 25 Best Places to Work.
Europe
| |
|
|
|
|
|
|
|
|
|
%
Change |
|
| |
|
|
|
|
|
|
|
%
Change |
|
in
Local |
|
| |
|
2004 |
|
2003 |
|
Increase (Decrease) |
|
in U.S. dollars |
|
Currency |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
442.6 |
|
$ |
351.1 |
|
$ |
91.5 |
|
|
26.1 |
% |
|
14.2 |
% |
|
Operating
expense |
|
|
424.4 |
|
|
338.1 |
|
|
86.3 |
|
|
25.5 |
% |
|
13.9 |
% |
|
Operating
income |
|
$ |
18.2 |
|
$ |
13.0 |
|
$ |
5.2 |
|
|
40.0 |
% |
|
21.3 |
% |
The
European region continued the positive revenue momentum started in mid-2004
through the remainder of the year. In U.S. dollars, revenue for the full year
increased 26%. In local currencies, revenue for the full year increased 14%. The
main increase in revenue was seen in transaction activities reported as
implementation services, which increased 33% in U.S. dollars. Increasing
activity in the leasing markets in France and England, together with strong
capital markets performance, contributed to this growth. The growth markets of
Russia, Italy, Spain and Central Europe, locations where significant additional
resources have been invested in the last two years, continued to see strong
growth.
Total
operating expenses, excluding non-recurring and restructuring charges increased
26% in U.S. dollars and 14% in local currency compared to 2003. The most
significant component of the increase was increased incentive compensation,
which was the result of the region's improved revenue and profit performance.
Operating income of $18.2 million for the year increased from $13.0 million in
2003.
Asia
Pacific
| |
|
|
|
|
|
|
|
|
|
%
Change |
|
| |
|
|
|
|
|
|
|
%
Change |
|
in
Local |
|
| |
|
2004 |
|
2003 |
|
Increase (Decrease) |
|
in U.S. dollars |
|
Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
221.3 |
|
$ |
172.7 |
|
$ |
48.6 |
|
|
28.1 |
% |
|
20.6 |
% |
|
Operating
expense |
|
|
215.3 |
|
|
175.4 |
|
|
39.9 |
|
|
22.7 |
% |
|
15.2 |
% |
|
Operating
income (loss) |
|
$ |
6.0 |
|
$ |
(2.7 |
) |
$ |
8.7 |
|
|
nm |
|
|
nm |
|
Performance
for our Asia Pacific region confirmed the commitment the firm has made to that
portion of our business over the past five years, with revenue increasing 28.1%
in U.S. dollars for the full year. In local currencies, revenue increased 20.6%
in 2004. The growth was driven primarily by transaction activity, reported as
implementation services, which increased by 36% in U.S. dollars in 2004. The
growth markets of Japan, China and India finished the year strong, with
increases in revenue, in aggregate, of approximately 74% in local currencies for
2004. 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. Our
Asian Hotels business had strong performance, particularly in the core market of
Australia, where revenues increased over 73% in local currency compared to 2003.
Total
operating expenses, excluding non-recurring and restructuring charges, increased
22.7% in U.S dollars and 15.2% in local currencies compared to 2003. The
increases were driven by increases in incentive compensation expense, reflecting
the region's improved revenue and profit performance as well as continued
investment in people and technology in the growth markets of China, India and
Japan. With a very strong fourth quarter and operating income of $7.8 million,
operating income for the full year was $6.0 million, a significant improvement
over the prior year's operating loss of $2.7 million.
Investment
Management
| |
|
|
|
|
|
|
|
|
|
%
Change |
|
| |
|
|
|
|
|
|
|
%
Change |
|
in
Local |
|
| |
|
2004 |
|
2003 |
|
Increase (Decrease) |
|
in U.S. dollars |
|
Currency |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
133.4 |
|
$ |
105.3 |
|
$ |
28.1 |
|
|
26.7 |
% |
|
19.6 |
% |
|
Equity
earnings |
|
|
17.0 |
|
|
8.0 |
|
|
9.0 |
|
|
112.5 |
% |
|
113.9 |
% |
|
Total
revenue |
|
|
150.4 |
|
|
113.3 |
|
|
37.1 |
|
|
32.7 |
% |
|
25.9 |
% |
|
Operating
expense |
|
|
118.6 |
|
|
94.9 |
|
|
23.7 |
|
|
25.0 |
% |
|
18.5 |
% |
|
Operating
income |
|
$ |
31.8 |
|
$ |
18.4 |
|
$ |
13.4 |
|
|
72.8 |
% |
|
64.0 |
% |
Investment
Management revenues increased 32.7% in U.S. dollars and 25.9% in local
currencies in 2004. The business continued to emphasize growth in the annuity
revenues of advisory fees, which increased 9% in U.S. dollars in 2004. These
increases were realized through expansion of our retail alliances, the launch of
our second fund in Asia, and the introduction of our new core open end fund in
the United States. Further enhancing the profit potential of the business and
driving the revenue increases for the year were incentive fees from investment
performance and equity earnings from firm co-investments made alongside our
clients, demonstrating support for our investment advice. During the fourth
quarter, the sale of an asset in one of our funds triggered a large incentive
fee, as the fund already had exceeded its base return level to investors. The
favorable impact of this sale, together with the strength of the real estate
capital markets which in turn has led to higher than originally targeted
investment returns in other clients' accounts, increased incentive fees to $20.0
million for 2004 as compared to the prior year of $4.7 million. This level of
incentive fees is above ordinary levels, as this fund is currently expected to
significantly outperform the fund's return targets. Also, strong asset sale
performance throughout the year has resulted in equity earnings of $17.0 million
in 2004 as compared to $8.0 million in 2003.
Total
operating expenses have increased 25% in U.S. dollars and 19% in local
currencies, compared to 2003. The increase is driven primarily by compensation
and benefits, reflecting both team-share bonuses from incentive performance as
well as the strong profit performance of the overall business. Another
contributing factor is an increase in acquisition staff to deploy the increased
commitments to funds under management.
Year
Ended December 31, 2003 Compared to Year Ended December 31,
2002
We
operate in a variety of currencies, but report our results in U.S. dollars,
which means that our reported results may be positively or negatively impacted
by the volatility of those currencies against the U.S. dollar. This volatility
means that the reported U.S. dollar revenues and expenses in 2003, as compared
to 2002, demonstrate an apparent growth rate that may not be consistent with the
real underlying growth rate in the local operations. In order to provide more
meaningful period-to-period comparisons of the reported results, we have
included the below table which details the movements in certain reported U.S.
dollar lines of the Consolidated Statement of Earnings ($ in millions) (nm = not
meaningful).
| |
|
|
|
|
|
|
|
|
|
%
Change |
|
| |
|
|
|
|
|
|
|
%
Change |
|
in
Local |
|
| |
|
2003 |
|
2002 |
|
Increase (Decrease) |
|
in U.S. dollars |
|
Currency |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue |
|
$ |
941.9 |
|
$ |
860.0 |
|
$ |
81.9 |
|
|
9.5 |
% |
|
2.0 |
% |
|
Compensation
& benefits |
|
|
612.4 |
|
|
543.0 |
|
|
69.4 |
|
|
12.8 |
% |
|
5.2 |
% |
|
Operating,
administrative & other |
|
|
234.0 |
|
|
212.9 |
|
|
21.1 |
|
|
9.9 |
% |
|
1.9 |
% |
|
Depreciation
& amortization |
|
|
36.9 |
|
|
37.1 |
|
|
(0.2 |
) |
|
(0.5 |
%) |
|
(6.3 |
%) |
|
Non-recurring |
|
|
4.4 |
|
|
14.9 |
|
|
(10.5 |
) |
|
nm |
|
|
nm |
|
|
Total
operating expenses |
|
|
887.7 |
|
|
807.9 |
|
|
79.8 |
|
|
9.9 |
% |
|
2.5 |
% |
|
Operating
income |
|
$ |
54.2 |
|
$ |
52.1 |
|
$ |
2.1 |
|
|
4.0 |
% |
|
12.2 |
% |
Revenue
The 2.0%
local currency increase in revenues in 2003 reflected strong revenue performance
in our Americas and Asia Pacific IOS businesses as modest economic recoveries
started to restore client activity, offset by weakness in Europe IOS as the
economic slowdown continued during that year. See below for additional
discussion of our segment operating results.
Operating
Expenses
The
increase in U.S. dollar operating expenses in 2003 reflected the general
strengthening of our key currencies against the U.S. dollar. Excluding the
impact of movements in foreign currency exchange rates, the increase primarily
related to compensation and benefits, which was a result of positive operational
performance in certain markets, investments in people in growth markets and to
maintain market position in core markets, and an increase in payroll/social
taxes as governments (particularly in Europe) sought to raise their revenues to
lower budget deficits. The improved revenue performance in Americas resulted in
increased incentive compensation in 2003 when compared to 2002. The increase
also included salary and related payroll and social taxes as we implemented a
strategic growth plan in our North Asia business and supported new fund
activities and products in our Investment Management business through increased
staffing.
We
continued our successful efforts to control operating, administrative and other
costs, which were up only 1.9% in local currency terms. The 1.9% increase in
local currency terms also includes the impact of increases in costs that are not
entirely under our control, such as the $3.0 million increase in insurance cost
we experienced in 2003, which reflected the continuing market tightening of cost
and availability. Finally, operating, administrative and other expense in 2002
benefited from a credit of $2.0 million relating to the reversal of a specific
bad debt reserve originally established in 1995.
The
non-recurring expense for 2003 included a charge of $5.1 million related to the
abandonment of a property management accounting system that was in the process
of being implemented in Australia, and a charge of $4.4 million for excess
leased space where we have decided to utilize our existing space rather than
relocating to new space as originally intended. Partially offsetting these
charges was the reversal of a reserve of $2.5 million for potential social tax
liabilities originally established with regard to compensation connected with
the merger with Jones Lang Wootton. In addition, the combination of new client
wins and expanded assignments for existing clients in the Americas IOS business
has resulted in a permanent reevaluation of planned headcount reductions such
that we reversed certain reserves established in 2002 for the global
restructuring program. Non-recurring expense in 2002 included $12.7 million
related to the compensation and benefits expense of a reduction in force,
approximately $0.5 million for the future lease cost of excess space and $3.0
million of impairment charges related to investments made by business exited in
2001. See Note 6 to Notes to Consolidated Financial Statements for a further
discussion of non-recurring items.
Operating
Income
The
increase in operating income in 2003 was due to the fact that 2002 included
$14.9 million in non-recurring expense compared with $4.4 million in 2003.
Excluding this expense, operating income is slightly lower than when compared to
2002, due mostly to compensation and benefits expense increasing at a higher
percentage from prior year than total revenue (12.8% compared to
9.5%).
Interest
Expense
Interest
expense, net of interest income, increased $0.9 million to $17.9 million in 2003
from $17.0 million in 2002. This increase was primarily the result of the impact
of the strengthening euro on the U.S. dollar value of reported interest expense
on the Euro Notes.
Provision
for Income Taxes
The
provision for income taxes was $8.3 million in 2003 as compared to $11.0 million
in 2002. The decrease in the tax provision was primarily due to a decreased
effective tax rate in 2003 as compared to 2002.
On an
operational basis, excluding non-recurring and restructuring charges which are
separately tax-effected, we achieved a 27.7% effective tax rate in 2003 as
compared to a rate of 34% in 2002. The decrease in our effective tax rate was
primarily due to effective tax planning to (i) reduce the impact of losses in
jurisdictions where we cannot recognize tax benefits, (ii) reduce the incidence
of double taxation of earnings and other tax inefficiencies and (iii) planning
steps to reduce the effective rate of taxation on international earnings. The
2003 effective tax rate of 27.7% excluded a one-time tax benefit of $3.0
million, and the 2002 effective tax rate of 34% excluded a one-time tax benefit
of $1.8 million. In both situations these tax benefits related to certain costs
incurred in restructuring actions taken in 2001 that were not originally thought
to be deductible for tax purposes; however as a result of subsequent actions,
these costs are now considered deductible. Including these one-time tax
benefits, we achieved an effective tax rate of 18.6% in 2003 and 29.3% in 2002.
See Note
11 to Notes to Consolidated Financial Statements for a further discussion of our
effective tax rate.
Net
Income
Net
income before the extraordinary item and cumulative change in accounting
principle increased to $36.1 million in 2003 from $25.9 million in 2002.
Including the extraordinary gain on the acquisition of minority interest (a net
benefit of $341,000) and the cumulative change in accounting principle related
to the adoption of SFAS 142 (a net benefit of $846,000), our net income for 2002
was $27.1 million.
Segment
Operating Results
We manage
and report our operations as four business segments:
| |
(i) |
Investment
Management, which offers money management services on a global basis, and
|
The three
geographic regions of Investor and Occupier Services ("IOS"):
The
Investment Management segment provides money management services to
institutional investors and high-net-worth individuals. Each geographic region
offers our full range of Investor Services, Capital Markets and Occupier
Services. 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 management 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. Also, for segment reporting we continue to show equity
earnings from unconsolidated ventures within our revenue line, especially since
it is a very integral part of our Investment Management segment.
Investor
and Occupier Services
Americas
| |
|
2003 |
|
2002 |
|
Increase
(Decrease) |
|
%
change |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
|
|
313.5 |
|
|
290.9 |
|
|
22.6 |
|
|
7.8 |
% |
| Operating
expense |
|
|
275.7 |
|
|
258.9 |
|
|
16.8 |
|
|
6.5 |
% |
| Operating
income |
|
|
37.8 |
|
|
32.0 |
|
|
5.8 |
|
|
18.1 |
% |
The
American market began to experience recovery in 2003. Results in most business
lines improved when compared to 2002, the exception being our New York
operations where economic conditions in the leasing market impacted our
results.
Overall,
we improved our market position in the New York market and are well-positioned
to benefit from any increased activity. Highlighting the increase in revenues
was our Project and Development Services unit which expanded several multi-site
engagements and also increased the level of its privatization services, which
provide public and private transaction and advisory services to public
institutions. A significant contribution was also made by our Tenant
Representation unit, which experienced increased transaction flow with strategic
alliance clients, as well as by the strong performance of our Hotels
business.
The
increase in operating expense in 2003 primarily related to incentive
compensation and other business and revenue generation related costs matching
increased business activity. Also contributing to the increase in expenses was
an investment in headcount that was made to improve our position in the Canadian
market. A focus on maintaining the quality of our client base, together with
aggressive management of our accounts receivable, resulted in a reduction of bad
debt expense of $1.1 million. The rising cost of health insurance prompted us to
begin self-insuring our health benefits in the Americas in 2002, which allowed
us to stabilize this cost through 2003.
Europe
| |
|
|
|
|
|
|
|
|
|
%
Change |
|
| |
|
|
|
|
|
|
|
%
Change |
|
in
Local |
|
| |
|
2003 |
|
2002 |
|
Increase (Decrease) |
|
in U.S. dollars |
|
Currency |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
351.1 |
|
$ |
317.8 |
|
$ |
33.3 |
|
|
10.5 |
% |
|
(3.3 |
%) |
|
Operating
expense |
|
|
338.1 |
|
|
300.0 |
|
|
38.1 |
|
|
12.7 |
% |
|
(1.1 |
%) |
|
Operating
income |
|
$ |
13.0 |
|
$ |
17.8 |
|
$ |
(4.8 |
) |
|
(27.0 |
%) |
|
(38.5 |
%) |
Europe
Results
We began
to first see the full impact of challenging economic conditions on our revenues
in Europe in the second half of 2002. These economic conditions continued into
2003, although on a country by country basis we have seen a mix of positives
offsetting negatives. The core European markets of Germany, France, Belgium and
Holland experienced continued revenue declines throughout 2003. Partially
offsetting these declines were continued positive revenue performances
throughout 2003 in the growth markets of Italy, Spain, Portugal, Sweden and
Central Europe. The England market began to show signs of recovery with positive
revenue performance in the fourth quarter. In addition, the European Hotels
business performed strongly, and achieved record revenue levels in 2003, helped
by several large transactions. The most significant impact on revenues was the
continuing decline of leasing revenues, which in local currency terms were down
15% year-over-year. The Capital Markets business, particularly cross border,
remained stable, supported by the low interest rate environment and strong
appetite for real estate as an investment option.
At this
stage in the economic cycle, we were protecting our market position,
particularly in leasing, since there was limited capacity to flex our cost
structure, especially with regard to compensation cost. These costs were flat in
local currency terms year-over-year as restructuring savings offset statutory
salary increases as well as increased social taxes. Operating and administrative
costs were down in local currency terms year-on-year, reflecting discipline and
focus across the business in controlling costs in a difficult economic
environment.
Asia
Pacific
| |
|
|
|
|
|
|
|
|
|
%
Change |
|
| |
|
|
|
|
|
|
|
%
Change |
|
in
Local |
|
| |
|
2003 |
|
2002 |
|
Increase (Decrease) |
|
in U.S. dollars |
|
Currency |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
172.7 |
|
$ |
145.4 |
|
$ |
27.3 |
|
|
18.8 |
% |
|
9.3 |
% |
|
Operating
expense |
|
|
175.4 |
|
|
145.6 |
|
|
29.8 |
|
|
20.5 |
% |
|
12.2 |
% |
|
Operating
loss |
|
$ |
(2.7 |
) |
$ |
(0.2 |
) |
$ |
(2.5 |
) |
|
nm |
|
|
nm |
|
Revenue
performance in Asia Pacific was positive, but was held back by economic
conditions in certain markets and the impact of SARS on the first nine months of
the year. Showing signs of recovery, our Hong Kong business experienced a strong
finish to the year. Our North Asia business continued a trend of positive
performance, especially in the growth markets of Japan, Korea and China. Our
India business, benefiting from the growth market of that country, recorded its
first profitable year on revenues that grew more than $2.8 million, a 120%
increase over last year as we saw global corporate clients invest in this
market.
Because
of the importance of Asia Pacific to our global corporate clients, we have
invested in headcount related costs to maintain service levels in key markets,
particularly North Asia and India. This investment will continue as we seek to
capitalize on the potential of these growing markets. We have also been required
to invest to maintain our market position in core markets such as
Australia.
Investment
Management
| |
|
|
|
|
|
|
|
|
|
%
Change |
|
| |
|
|
|
|
|
|
|
%
Change |
|
in
Local |
|
| |
|
2003 |
|
2002 |
|
Increase (Decrease) |
|
in U.S. dollars |
|
Currency |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
105.3 |
|
$ |
106.4 |
|
$ |
(1.1 |
) |
|
(1.0 |
%) |
|
(6.2 |
%) |
|
Equity
earnings |
|
|
8.0 |
|
|
2.6 |
|
|
5.4 |
|
|
207.7 |
% |
|
213.0 |
% |
|
Total
revenue |
|
|
113.3 |
|
|
109.0 |
|
|
4.3 |
|
|
3.9 |
% |
|
(1.3 |
%) |
|
Operating
expense |
|
|
94.9 |
|
|
89.0 |
|
|
5.9 |
|
|
6.6 |
% |
|
0.7 |
% |
|
Operating
income |
|
$ |
18.4 |
|
$ |
20.0 |
|
$ |
(1.6 |
) |
|
(8.0 |
%) |
|
(10.3 |
%) |
The
decrease in revenues for our Investment Management business in local currency
terms can be attributed to the timing of incentive fees, as 2002 included a
large incentive fee related to the performance of an investment portfolio in
which we have a co-investment. There were no similarly sized incentive fees in
2003. Partially offsetting the timing difference was an increase in equity
earnings as market conditions and the increased demand for higher quality
institutional real estate prompted us to accelerate the pace of dispositions in
order to respond to capital market trends and lock in gains for ourselves and on
behalf of our clients. In addition, advisory fees increased 12% as we continued
to perform against our goal of improving the advisory fee base of this business.
Revenue in the American markets was in line with 2002. We continued with
expansion initiatives in Canada, which closed its first fund in 2003. Europe
continued to feel the impact of economic difficulties in continental Europe
(particularly Germany) which resulted in us recording an impairment charge of
$4.1 million to equity earnings, representing our equity share of an impairment
charge against individual assets held by funds in this region. Asia Pacific
continued to see growth in 2003 with the first separate account mandate in this
region and development of additional fund products that we expect to crystallize
in 2004.
The
slight increase in operating expense in local currencies can be attributed to an
increase in operating, administrative and other expense partially offset by a
decrease in incentive compensation. Both movements can be attributed to timing
as 2002 included incentive compensation related to the large incentive fee
mentioned above and the benefit of a $2.0 million credit for the reduction of a
bad debt reserve originally established in 1995. As we continue to expand in the
Asia Pacific and Canadian markets, we will continue to invest the necessary
resources to deliver satisfactory results.
Consolidated
Cash Flows
Cash
Flows From Operating Activities
During
2004, cash flows provided by operating activities totaled $161.5 million
compared to $110.0 million in 2003. The cash flows from operating earnings can
be further divided into cash generated from operations of $120.0 million
(compared to $100.0 million in 2003) and cash generated from balance sheet
movements, primarily working capital, of $41.4 million (compared to $10.0
million provided in 2003). The increase in cash flows generated from operations
of $20.0 million reflected continued improved business performance in 2004. The
increase in cash flows from changes in working capital of $31.4 million is
primarily because of an increase in the level of accrued compensation recorded
at December 31, 2004 partially offset by an increase in
receivables.
During
2003, cash flows provided by operating activities totaled $110.0 million
compared to $68.4 million in 2002. The cash flows from operating earnings can be
further divided into cash generated from operations of $100.0 million (compared
to $83.4 million in 2002) and cash generated from balance sheet movements,
primarily working capital, of $10.0 million (compared to $15.0 million used in
2002). The increase in cash flows generated from operations reflected improved
business performance in 2003, together with the fact that 2002 included
significant non-recurring and restructuring charges associated with the
realignment of our business. The increase in cash flows from changes in working
capital of $25.0 million is primarily because of an increase in the level of
accrued compensation recorded at December 31, 2003 driven by the timing of
payroll as well as increased incentive compensation.
Cash
Flows Used in Investing Activities
We used
$27.6 million in investing activities in 2004, which was an increase in cash
used of $12.3 million from the $15.3 million used in 2003. This increase is
primarily due to increases over 2003 in net capital additions and cash used in
other acquisitions and investments. Our net return from co-investment was
largely consistent with the prior year, as significant increases in capital
contributions to real estate ventures from the prior year were offset by
significant increases in distributions from such co-investments over the same
period. Market conditions and demand for higher quality institutional real
estate in 2004 caused us to continue efforts begun in 2003 to accelerate the
pace of dispositions to respond to capital market trends and lock in gains on
behalf of ourselves and our clients.
We used
$15.3 million in investing activities in 2003, which was a reduction in cash
used of $11.0 million from the $26.3 million used in 2002. This reduction is
primarily due to a change from net capital contributions to real estate ventures
in 2002 to net distributions from such co-investments in 2003. Market conditions
and the increased demand for higher quality institutional real estate in 2003
prompted us to accelerate the pace of dispositions in order to respond to
capital market trends and lock in gains on behalf of ourselves and our
clients.
Cash
Flows Used in Financing Activities
We used
$166.9 million in financing activities in 2004 compared with $45.3 million and
$38.8 million used in 2003 and 2002, respectively. The significant increase in
cash used in financing activities in 2004 was driven by the June 2004 redemption
of our Euro Notes. Cash provided by borrowings under our credit facilities
partially offset the cash used in redemption of the Euro Notes. We also
increased the level of repurchases of shares of our common stock in 2004, which
was partially offset by issuances of common stock under option plans and stock
purchase plans.
Liquidity and
Capital Resources
Historically,
we have financed our operations, acquisitions and co-investment activities with
internally generated funds, our common stock and borrowings under our credit
facilities. On April 13, 2004, we renegotiated our unsecured revolving credit
facility agreement, increasing the facility from $225 million to $325 million
and extending 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; the pricing will decrease to
LIBOR plus 100 basis points on March 30, 2005. 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 104.50% 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). The redemption of the Euro Notes provided
savings of approximately $6.1 million in 2004, as the credit facility's pricing
was favorable compared to the Euro Notes, which carried a 9% interest
rate.
As of
December 31, 2004, we had $40.6 million outstanding under the revolving credit
facility. The average borrowing rate on the revolving credit agreement and the
Euro Notes was 6.3% in 2004 versus 8.2% in 2003. We also had short-term
borrowings (including capital lease obligations) of $18.3 million outstanding at
December 31, 2004. The short-term borrowings are primarily borrowings by
subsidiaries on various interest-bearing overdraft facilities. As of December
31, 2004, $10.8 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 and
local overdraft facilities do not meet the recognition provisions, but do meet
the disclosure requirements of FIN 45. We have local overdraft facilities
totaling $38.6 million, of which $10.8 million was outstanding as of December
31, 2004. We have provided guarantees of $28.5 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 a
consolidated net worth of at least $392 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 in 2004,
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 December 31, 2004. Additionally, we are
restricted from, among other things, incurring certain levels of indebtedness to
lenders outside of the Facilities and disposing of a significant portion of our
assets. Lender approval is required for certain levels of co-investment as well
as capital 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 during 2004 or 2003 and none were outstanding as of December 31,
2004.
We
believe that the revolving credit facility, together with 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.
With
respect to our co-investment activity, we had total investments and loans of
$73.6 million as of December 31, 2004 in approximately 20 separate property or
fund co-investments. Within this $73.6 million, loans of $4.9 million to real
estate ventures bear interest rates ranging from 7.25% to 8.0% and are to be
repaid by 2008. With respect to certain co-investment indebtedness, we also had
repayment guarantees outstanding at December 31, 2004 of $0.7 million.
LaSalle
Investment Company ("LIC"), our investment vehicle for substantially all new
co-investments has, and will continue to, invest in certain real estate ventures
that own and operate commercial real estate. Our capital commitment to LIC is
euro 150 million. Through December 31, 2004, we have funded euro 43.4 million.
Therefore, we have a remaining unfunded commitment of euro 106.6 million ($144.5
million) as of December 31, 2004. We have an effective 47.85% ownership interest
in LIC; primarily institutional investors hold the remaining 52.15% interest in
LIC. In addition, a non-executive Director of Jones Lang LaSalle is an investor
in LIC on equivalent terms to other investors. Our investment in LIC is
accounted for under the equity method of accounting in the accompanying
Consolidated Financial Statements. At December 31, 2004, LIC has unfunded
capital commitments of $120.1 million, of which our 47.85% share is $57.5
million, for future fundings of co-investments. 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
co-investment capital in particular situations to control or bridge finance
existing real estate assets or portfolios to seed future investment products.
Approvals are handled consistently with those of the Firm's co-investment
capital. The purpose of this is to accelerate capital raising and growth in
assets under management.
For the
year ended December 31, 2004, we received a net $3.4 million as the return of
capital from co-investments exceeded funded co-investments, even as performance
on capital in the form of equity earnings exceeded operating distributions,
increasing investments in and loans to real estate ventures by $2.2 million to
$73.6 million. 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. The net co-investment funding for 2005 is anticipated to
be between $25 and $35 million (planned co-investment less return of capital
from liquidated co-investments).
In the
third quarter of 2003, LIC entered into a euro 35 million ($47.4 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 ($67.8 million), and then to euro 75 million ($101.7 million) during
December 2004. 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,
which is the limit of our liability. The maximum exposure to Jones Lang LaSalle,
assuming that the LIC Facility were fully drawn, would be euro 35.9 million
($48.6 million). As of December 31, 2004, LIC had euro 10.3 million ($14.0
million) of outstanding borrowings on the LIC Facility.
At
September 30, 2004, LIC had euro 36.2 million ($45.0 million) of outstanding
borrowings on the LIC Facility. Certain of these outstanding borrowings were
related to bridge financing of a seed portfolio 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. Due to the closing of this new fund during the fourth
quarter of 2004, the borrowings were repaid, and as such, these $18.0 million
amounts were not recorded in our Consolidated Balance Sheet at December 31,
2004.
Since
October 2002, our Board of Directors has approved three share repurchase
programs. Each succeeding program has replaced the prior repurchase program,
such that the program approved on November 29, 2004 is the only repurchase
program in effect as of December 31, 2004. We are authorized under each of the
programs to repurchase a specified number of 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 repurchase of
shares is primarily intended to offset dilution resulting from both stock and
stock option grants made under the firm's existing stock plans. Given that
shares repurchased under each of the programs are not cancelled, but are held by
one of our subsidiaries, we include them in our equity account. However, these
shares are excluded from our share count for purposes of calculating earnings
per share. The following table details the activities for each of our approved
share repurchase programs:
| |
|
Shares |
|
Shares
Repurchased |
|
| |
|
Approved
for |
|
through |
|
|
Repurchase
Plan Approval Date |
|
Repurchase |
|
December
31, 2004 |
|
| |
|
|
|
|
|
|
October
30, 2002 |
|
|
1,000,000 |
|
|
700,000 |
|
|
February
27, 2004 |
|
|
1,500,000 |
|
|
1,500,000 |
|
|
November
29, 2004 |
|
|
1,500,000 |
|
|
100,000 |
|
| |
|
|
|
|
|
2,300,000 |
|
We
repurchased 1,600,000 shares in 2004 at an average price of $28.78 per
share. See Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters for additional information regarding share repurchases
throughout 2004.
Capital
expenditures for 2004 were $31.5 million, up from $20.5 million in 2003,
primarily for ongoing improvements to computer hardware and information systems.
Capital expenditures are anticipated to be between $30 and $35 million for 2005,
primarily for ongoing improvements to computer hardware and information
systems.
We have
obligations and commitments to make future payments under contracts in the
normal course of business. These include:
• Future
minimum lease payments, as follows, due in each of the next five years ended
December 31 and thereafter ($ in thousands):
| |
|
Operating |
|
Capital |
|
| |
|
Leases |
|
Leases |
|
| |
|
|
|
|
|
|
2005 |
|
$ |
55,931 |
|
|
428 |
|
|
2006 |
|
|
48,714 |
|
|
219 |
|
|
2007 |
|
|
40,459 |
|
|
69 |
|
|
2008 |
|
|
31,756 |
|
|
52 |
|
|
2009 |
|
|
14,683 |
|
|
49 |
|
|
Thereafter |
|
|
27,968 |
|
|
27 |
|
| |
|
$ |
219,511 |
|
|
844 |
|
As of
December 31, 2004, we have reserves related to excess lease space of $6.3
million, which were identified as part of our restructuring in 2001 and 2002.
The total of minimum rentals to be received in the future under noncancelable
operating subleases as of December 31, 2004 was $4.1 million.
• Interest
and principal payments on outstanding borrowings against our $325 million
revolving credit facility fluctuate based on our level of borrowing needs. There
is no set repayment schedule with respect to the revolving credit facility;
however, this facility expires in April 2007.
Contractual
Obligations
Following
is a table summarizing our minimum contractual obligations as of December 31,
2004 ($ in millions):
| |
|
Payments
due by period |
|
| |
|
|
|
|
|
|
|
|
|
More
than |
|
|
Contractual
obligations |
|
Total |
|
1
year |
|
years
|
|
years
|
|
5
years |
|
|
Long-term
debt obligations |
|
$ |
40.6 |
|
|
— |
|
|
40.6
|
|
|
—
|
|
|
— |
|
|
Capital
lease obligations |
|
|
0.8 |
|
|
0.4 |
|
|
0.3
|
|
|
0.1
|
|
|
— |
|
|
Operating
lease obligations |
|
|
219.5 |
|
|
55.9 |
|
|
89.2
|
|
|
46.4
|
|
|
28.0 |
|
|
Purchase
obligations |
|
|
28.2 |
|
|
12.5 |
|
|
12.8
|
|
|
2.9
|
|
|
— |
|
|
Total |
|
$ |
289.1 |
|
|
68.8 |
|
|
142.9
|
|
|
49.4
|
|
|
28.0 |
|
As of
December 31, 2004, we had $40.6 million outstanding under our revolving credit
facility, which expires in 2007. Because the pricing on the revolving credit
facility is at variable rates, any potential interest related to borrowings
under the facility is excluded from this contractual obligations table. Our
lease obligations include operating leases of office space in various buildings
for our own use, as well as the use of equipment under both operating and
capital lease arrangements. Our other purchase obligations are related to
various information technology servicing agreements, telephone communications,
and other administrative support functions.
In the
Notes to Consolidated Financial Statements, see Note 9 for additional
information on long-term debt obligations, and see Note 10 for additional
information on lease obligations.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
Information
regarding market risk is included in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations under the caption
"Market and Other Risk Factors" and is incorporated by reference
herein.
Disclosure
of Limitations
As the
information presented above includes only those exposures that exist as of
December 31, 2004, it does not consider those exposures or positions which could
arise after that date. The information represented herein has limited predictive
value. As a result, the ultimate realized gain or loss with respect to interest
rate and foreign currency fluctuations will depend on the exposures that arise
during the period, the hedging strategies at the time and interest and foreign
currency rates.
Item
8. Financial Statements and Supplementary Data
Index
to Consolidated Financial Statements
| |
|
Page |
| |
|
|
|
Jones
Lang LaSalle Incorporated Consolidated Financial
Statements |
|
|
| |
|
|
|
Report
of Independent Registered Public Accounting Firm, KPMG LLP, on
Consolidated Financial Statements |
|
|
|
and
Financial Statement Schedule |
|
41 |
| Report
of Independent Registered Public Accounting Firm, KPMG LLP, on Internal
Control Over Financial Reporting |
|
42 |
|
Consolidated
Balance Sheets as of December 31, 2004 and 2003 |
|
43 |
|
Consolidated
Statements of Earnings For the Years Ended December 31, 2004, 2003 and
2002 |
|
44 |
|
Consolidated
Statements of Stockholders' Equity For the Years Ended December 31, 2004,
2003 and 2002 |
|
45-47 |
|
Consolidated
Statements of Cash Flows For the Years Ended December 31, 2004, 2003 and
2002 |
|
48 |
|
Notes
to Consolidated Financial Statements |
|
49-74 |
|
Quarterly
Results of Operations (Unaudited) |
|
75 |
| |
|
|
|
Schedules
Supporting the Consolidated Financial Statements: |
|
|
| |
|
|
|
II
- Valuation and Qualifying Accounts |
|
78 |
All other
schedules have been omitted since the required information is presented in the
financial statements and related notes or is not applicable.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders
Jones
Lang LaSalle Incorporated:
We have
audited the consolidated financial statements of Jones Lang LaSalle Incorporated
and subsidiaries (the Company) as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Jones Lang LaSalle
Incorporated and subsidiaries as of December 31, 2004 and 2003, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2004, in conformity with U.S. generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Jones Lang LaSalle
Incorporated and subsidiaries' internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal
Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 11, 2005 expressed an unqualified opinion on
management's assessment of, and the effective operation of, internal control
over financial reporting.
/s/ KPMG
LLP
Chicago,
Illinois
March 11,
2005
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
Jones
Lang LaSalle Incorporated:
We have
audited management's assessment, included in the accompanying Management's
Report on Internal Control Over Financial Reporting, that
Jones Lang LaSalle Incorporated and subsidiaries (the Company) maintained
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in
Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Jones Lang LaSalle Incorporated and subsidiaries' management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company's internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
company's assets
that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, management's assessment that Jones Lang LaSalle Incorporated and
subsidiaries maintained effective internal control over financial reporting as
of December 31, 2004, is fairly stated, in all material respects, based on
criteria established in Internal
Control—Integrated Framework issued by
COSO.
Also, in
our opinion, Jones Lang LaSalle Incorporated and subsidiaries maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2004, based on criteria
established in
Internal Control—Integrated Framework issued by
COSO.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements of Jones
Lang LaSalle Incorporated and subsidiaries, and the related financial statement
schedule, as listed in the accompanying index, and our report dated March
11, 2005 expressed an unqualified opinion on those consolidated financial
statements and schedule.
/s/ KPMG LLP
Chicago,
Illinois
March 11,
2005
JONES
LANG LASALLE INCORPORATED
Consolidated
Balance Sheets
December
31, 2004 and 2003
($ in
thousands, except share data)
|
Assets |
|
2004 |
|
2003 |
|
Current
assets: |
|
|
|
|
|
| |
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
30,143 |
|
|
63,105 |
|
|
Trade
receivables, net of allowances of $6,660 and $4,790 |
|
|
|
|
|
|
|
|
in
2004 and 2003, respectively |
|
|
328,876 |
|
|
253,126 |
|
|
Notes
receivable |
|
|
2,911 |
|
|
3,698 |
|
|
Other
receivables |
|
|
11,432 |
|
|
8,317 |
|
|
Prepaid
expenses |
|
|
22,279 |
|
|
18,866 |
|
|
Deferred
tax assets |
|
|
28,427 |
|
|
18,097 |
|
|
Other
assets |
|
|
12,189 |
|
|
7,731 |
|
|
Total
current assets |
|
|
436,257 |
|
|
372,940 |
|
| |
|
|
|
|
|
|
|
|
Property
and equipment, at cost, less accumulated depreciation of |
|
|
|
|
|
|
|
|
$163,667
and $140,520 in 2004 and 2003, respectively |
|
|
75,531 |
|
|
71,621 |
|
|
Goodwill,
with indefinite useful lives, at cost, less accumulated |
|
|
|
|
|
|
|
|
amortization
of $38,390 and $38,169 in 2004 and 2003, respectively |
|
|
343,314 |
|
|
334,154 |
|
|
Identified
intangibles, with definite useful lives, at cost, less
accumulated |
|
|
|
|
|
|
|
|
amortization
of $41,242 and $35,196 in 2004 and 2003, respectively |
|
|
8,350 |
|
|
13,454 |
|
|
Investments
in and loans to real estate ventures |
|
|
73,570 |
|
|
71,335 |
|
|
Long-term
receivables, net |
|
|
16,179 |
|
|
13,007 |
|
|
Prepaid
pension asset |
|
|
2,253 |
|
|
11,920 |
|
|
Deferred
tax assets |
|
|
43,202 |
|
|
43,252 |
|
|
Debt
issuance costs, net |
|
|
1,704 |
|
|
4,113 |
|
|
Other
assets, net |
|
|
12,017 |
|
|
7,144 |
|
| |
|
$ |
1,012,377 |
|
|
942,940 |
|
| |
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity |
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities |
|
$ |
130,489 |
|
|
96,466 |
|
|
Accrued
compensation |
|
|
244,659 |
|
|
161,438 |
|
|
Short-term
borrowings |
|
|
18,326 |
|
|
3,592 |
|
|
Deferred
tax liabilities |
|
|
262 |
|
|
2,623 |
|
|
Deferred
income |
|
|
16,106 |
|
|
4,567 |
|
|
Other
liabilities |
|
|
17,221 |
|
|
16,726 |
|
|
Total
current liabilities |
|
|
427,063 |
|
|
285,412 |
|
|
Long-term
liabilities: |
|
|
|
|
|
|
|
|
Credit
facilities |
|
|
40,585 |
|
|
— |
|
|
9%
Senior Euro Notes, due 2007 |
|
|
— |
|
|
207,816 |
|
|
Deferred
tax liabilities |
|
|
671 |
|
|
761 |
|
|
Deferred
compensation |
|
|
8,948 |
|
|
4,709 |
|
|
Minimum
pension liability |
|
|
3,040 |
|
|
— |
|
|
Other |
|
|
24,090 |
|
|
13,251 |
|
|
Total
liabilities |
|
|
504,397 |
|
|
511,949 |
|
| |
|
|
|
|
|
|
|
|
Commitments
and contingencies |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Stockholders'
equity: |
|
|
|
|
|
|
|
|
Common
stock, $.01 par value per share, 100,000,000 shares
authorized; |
|
|
|
|
|
|
|
|
33,243,527
and 31,762,077 shares issued and outstanding as of |
|
|
|
|
|
|
|
|
December
31, 2004 and December 31, 2003, respectively |
|
|
332 |
|
|
318 |
|
|
Additional
paid-in capital |
|
|
575,862 |
|
|
519,438 |
|
|
Deferred
stock compensation |
|
|
(34,064 |
) |
|
(21,649 |
) |
|
Retained
earnings (deficit) |
|
|
4,896 |
|
|
(59,346 |
) |
|
Stock
held by subsidiary |
|
|
(58,898 |
) |
|
(12,846 |
) |
|
Stock
held in trust |
|
|
(530 |
) |
|
(460 |
) |
|
Accumulated
other comprehensive income |
|
|
20,382 |
|
|
5,536 |
|
|
Total
stockholders' equity |
|
|
507,980 |
|
|
430,991 |
|
| |
|
$ |
1,012,377 |
|
|
942,940 |
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Earnings
Years
Ended December 31, 2004, 2003 and 2002
($ in
thousands, except share data)
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Fee
based services |
|
$ |
1,145,456 |
|
|
924,694 |
|
|
846,933 |
|
|
Other
income |
|
|
21,502 |
|
|
17,200 |
|
|
13,057 |
|
|
Total
revenue |
|
|
1,166,958 |
|
|
941,894 |
|
|
859,990 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits, excluding non-recurring and |
|
|
|
|
|
|
|
|
|
|
|
restructuring
charges |
|
|
761,425 |
|
|
612,354 |
|
|
543,003 |
|
|
Operating,
administrative and other, excluding |
|
|
|
|
|
|
|
|
|
|
|
non-recurring
and restructuring charges |
|
|
279,994 |
|
|
234,000 |
|
|
212,877 |
|
|
Depreciation
and amortization |
|
|
33,381 |
|
|
36,944 |
|
|
37,125 |
|
|
Non-recurring
and restructuring charges: |
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits |
|
|
4,874 |
|
|
(4,633 |
) |
|
11,438 |
|
|
Operating,
administrative and other |
|
|
(2,237 |
) |
|
8,994 |
|
|
3,433 |
|
|
Total
operating expenses |
|
|
1,077,437 |
|
|
887,659 |
|
|
807,876 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Operating
income |
|
|
89,521 |
|
|
54,235 |
|
|
52,114 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net of interest income |
|
|
9,292 |
|
|
17,861 |
|
|
17,024 |
|
|
Loss
on extinguishment of Euro Notes |
|
|
11,561 |
|
|
|
|
|
|
|
|
Total
interest and other costs |
|
|
20,853 |
|
|
17,861 |
|
|
17,024 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings from unconsolidated ventures |
|
|
17,447 |
|
|
7,951 |
|
|
2,581 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes and minority interest |
|
|
86,115 |
|
|
44,325 |
|
|
37,671 |
|
|
Net
provision for income taxes |
|
|
21,873 |
|
|
8,260 |
|
|
11,037 |
|
|
Minority
interest in earnings of subsidiaries |
|
|
— |
|
|
— |
|
|
711 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
income before extraordinary item and cumulative |
|
|
|
|
|
|
|
|
|
|
|
effect
of change in accounting principle |
|
|
64,242 |
|
|
36,065 |
|
|
25,923 |
|
|
Extraordinary
gain on the acquisition of minority |
|
|
|
|
|
|
|
|
|
|
|
interest,
net of tax |
|
|
— |
|
|
— |
|
|
341 |
|
|
Cumulative
effect of change in accounting principle |
|
|
— |
|
|
— |
|
|
846 |
|
|
Net
income |
|
$ |
64,242 |
|
|
36,065 |
|
|
27,110 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
| Minimum
pension liability |
|
|
(10,872 |
|
|
— |
|
|
— |
|
|
Foreign
currency translation adjustments |
|
|
25,718 |
|
|
15,319 |
|
|
9,847 |
|
|
Comprehensive
income |
|
$ |
79,088 |
|
|
51,384 |
|
|
36,957 |
|
|
Basic
earnings per common share before extraordinary item |
|
|
|
|
|
|
|
|
|
|
|
and
cumulative effect of change in accounting principle |
|
$ |
2.08 |
|
|
1.17 |
|
|
0.85 |
|
|
Extraordinary
gain on the acquisition of minority |
|
|
|
|
|
|
|
|
|
|
|
interest,
net of tax |
|
|
— |
|
|
— |
|
|
0.01 |
|
|
Cumulative
effect of change in accounting principle |
|
|
— |
|
|
— |
|
|
0.03 |
|
|
Basic
earnings per common share |
|
$ |
2.08 |
|
|
1.17 |
|
|
0.89 |
|
|
Basic
weighted average shares outstanding |
|
|
30,887,868 |
|
|
30,951,563 |
|
|
30,486,842 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share before extraordinary item |
|
|
|
|
|
|
|
|
|
|
|
and
cumulative effect of change in accounting principle |
|
$ |
1.96 |
|
|
1.12 |
|
|
0.81 |
|
|
Extraordinary
gain on the acquisition of minority |
|
|
|
|
|
|
|
|
|
|
|
interest,
net of tax |
|
|
— |
|
|
— |
|
|
0.01 |
|
|
Cumulative
effect of change in accounting principle |
|
|
|
|
|
— |
|
|
0.03 |
|
|
Diluted
earnings per common share |
|
$ |
1.96 |
|
|
1.12 |
|
|
0.85 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding |
|
|
32,845,281 |
|
|
32,226,306 |
|
|
31,854,397 |
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Stockholders' Equity
For
the Years Ended December 31, 2004, 2003 and 2002
($ in
thousands, except share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accu- |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mulated |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Other |
|
|
|
| |
|
|
|
|
|
|
|
Deferred |
|
|
|
Stock |
|
Held
in |
|
Compre- |
|
|
|
| |
|
|
|
|
|
Additional |
|
Stock |
|
Retained |
|
Held
by |
|
Trust |
|
hensive |
|
|
|
| |
|
Common
Stock |
|
Paid-In |
|
Compen- |
|
Earnings |
|
Subsi- |
|
and |
|
Income |
|
|
|
| |
|
Shares |
|
Amount |
|
Capital |
|
sation |
|
(Deficit) |
|
diary |
|
Other |
|
(Loss) |
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2001 |
|
|
30,183,450 |
|
$ |
302 |
|
|
463,926 |
|
|
(6,038 |
) |
|
(122,521 |
) |
|
— |
|
|
(1,658 |
) |
|
(19,630 |
) |
$ |
314,381 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
27,110 |
|
|
— |
|
|
— |
|
|
— |
|
|
27,110 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in connection |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
stock option plan |
|
|
150,943 |
|
|
2 |
|
|
2,656 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,658 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
granted |
|
|
— |
|
|
— |
|
|
9,077 |
|
|
(9,077 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Amortization
of granted shares |
|
|
— |
|
|
— |
|
|
— |
|
|
2,516 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,516 |
|
|
Reduction
in restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
grants
outstanding |
|
|
— |
|
|
— |
|
|
(808 |
) |
|
808 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
purchase programs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued |
|
|
166,304 |
|
|
2 |
|
|
2,674 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,676 |
|
|
Shares
repurchased for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payment
of taxes |
|
|
(6,718 |
) |
|
— |
|
|
(121 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(121 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation programs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
granted |
|
|
— |
|
|
— |
|
|
11,416 |
|
|
(11,416 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Amortization
of granted shares |
|
|
— |
|
|
— |
|
|
— |
|
|
5,886 |
|
|
— |
|
|
— |
|
|
— |
|
|
(2 |
) |
|
5,884 |
|
|
Shares
issued |
|
|
563,443 |
|
|
5 |
|
|
9,392 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
9,397 |
|
|
Shares
repurchased for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payment
of taxes |
|
|
(161,089 |
) |
|
(2 |
) |
|
(3,929 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,931 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
held
in trust |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,198 |
|
|
— |
|
|
1,198 |
|
|
Shares
held by subsidiary |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(4,659 |
) |
|
— |
|
|
— |
|
|
(4,659 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of foreign currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation
adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
9,849 |
|
|
9,849 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2002 |
|
|
30,896,333 |
|
$ |
309 |
|
|
494,283 |
|
|
(17,321 |
) |
|
(95,411 |
) |
|
(4,659 |
) |
|
(460 |
) |
|
(9,783 |
) |
$ |
366,958 |
|
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Stockholders' Equity - Continued
For
the Years Ended December 31, 2004, 2003 and 2002
($ in
thousands, except share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accu- |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mulated |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Other |
|
|
|
| |
|
|
|
|
|
|
|
Deferred |
|
|
|
Stock |
|
Held
in |
|
Compre- |
|
|
|
| |
|
|
|
|
|
Additional |
|
Stock |
|
Retained |
|
Held
by |
|
Trust |
|
hensive |
|
|
|
| |
|
Common
Stock |
|
Paid-In |
|
Compen- |
|
Earnings |
|
Subsi- |
|
and |
|
Income |
|
|
|
| |
|
Shares |
|
Amount |
|
Capital |
|
sation |
|
(Deficit) |
|
diary |
|
Other |
|
(Loss) |
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2002 |
|
|
30,896,333 |
|
$ |
309 |
|
|
494,283 |
|
|
(17,321 |
) |
|
(95,411 |
) |
|
(4,659 |
) |
|
(460 |
) |
|
(9,783 |
) |
$ |
366,958 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
36,065 |
|
|
— |
|
|
— |
|
|
— |
|
|
36,065 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in connection |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
stock option plan |
|
|
202,903 |
|
|
2 |
|
|
2,978 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,980 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
granted |
|
|
— |
|
|
— |
|
|
6,431 |
|
|
(6,431 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Amortization
of granted shares |
|
|
— |
|
|
— |
|
|
— |
|
|
4,285 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,285 |
|
|
Shares
issued |
|
|
218,983 |
|
|
2 |
|
|
(2 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Shares
repurchased for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payment
of taxes |
|
|
(67,309 |
) |
|
(1 |
) |
|
(1,020 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,021 |
) |
|
Reduction
in restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
grants outstanding |
|
|
— |
|
|
— |
|
|
(1,367 |
) |
|
1,367 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
purchase programs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued |
|
|
196,008 |
|
|
2 |
|
|
2,687 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,689 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation programs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
granted |
|
|
— |
|
|
— |
|
|
14,357 |
|
|
(14,357 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Amortization
of granted shares |
|
|
— |
|
|
— |
|
|
— |
|
|
9,768 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
9,768 |
|
|
Reduction
in stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
grants
outstanding |
|
|
— |
|
|
— |
|
|
(1,040 |
) |
|
1,040 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Shares
issued |
|
|
457,242 |
|
|
5 |
|
|
4,397 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,402 |
|
|
Shares
repurchased for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payment
of taxes |
|
|
(142,083 |
) |
|
(1 |
) |
|
(2,266 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,267 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
held by subsidiary |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(8,187 |
) |
|
— |
|
|
— |
|
|
(8,187 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of foreign currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation
adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
15,319 |
|
|
15,319 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
31,762,077 |
|
$ |
318 |
|
|
519,438 |
|
|
(21,649 |
) |
|
(59,346 |
) |
|
(12,846 |
) |
|
(460 |
) |
|
5,536 |
|
$ |
430,991 |
|
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Stockholders' Equity - Continued
For
the Years Ended December 31, 2004, 2003 and 2002
($ in
thousands, except share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accu- |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mulated |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Other |
|
|
|
| |
|
|
|
|
|
|
|
Deferred |
|
|
|
Stock |
|
Held
in |
|
Compre- |
|
|
|
| |
|
|
|
|
|
Additional |
|
Stock |
|
Retained |
|
Held
by |
|
Trust |
|
hensive |
|
|
|
| |
|
Common
Stock |
|
Paid-In |
|
Compen- |
|
Earnings |
|
Subsi- |
|
and |
|
Income |
|
|
|
| |
|
Shares |
|
Amount |
|
Capital |
|
sation |
|
(Deficit) |
|
diary |
|
Other |
|
(Loss) |
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
31,762,077 |
|
$ |
318 |
|
|
519,438 |
|
|
(21,649 |
) |
|
(59,346 |
) |
|
(12,846 |
) |
|
(460 |
) |
|
5,536 |
|
$ |
430,991 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
64,242 |
|
|
— |
|
|
— |
|
|
— |
|
|
64,242 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in connection |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
stock option plan |
|
|
945,114 |
|
|
9 |
|
|
22,282 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
22,291 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
granted |
|
|
— |
|
|
— |
|
|
11,496 |
|
|
(11,496 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Amortization
of granted shares |
|
|
— |
|
|
— |
|
|
— |
|
|
5,399 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,399 |
|
|
Shares
issued |
|
|
48,333 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Shares
repurchased for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payment
of taxes |
|
|
(17,294 |
) |
|
— |
|
|
(546 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(546 |
) |
|
Reduction
in restricted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
grants outstanding |
|
|
— |
|
|
— |
|
|
(683 |
) |
|
683 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
purchase programs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued |
|
|
184,405 |
|
|
2 |
|
|
3,636 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,638 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation programs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
granted |
|
|
— |
|
|
— |
|
|
22,770 |
|
|
(22,770 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Amortization
of granted shares |
|
|
— |
|
|
— |
|
|
— |
|
|
14,252 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
14,252 |
|
|
Reduction
in stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
grants
outstanding |
|
|
— |
|
|
— |
|
|
(1,517 |
) |
|
1,517 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Shares
issued |
|
|
432,180 |
|
|
4 |
|
|
2,645 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,649 |
|
|
Shares
repurchased for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payment
of taxes |
|
|
(130,839 |
) |
|
(1 |
) |
|
(3,659 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,660 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
held in trust |
|
|
19,551 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(300 |
) |
|
— |
|
|
(300 |
) |
|
Distribution
of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
held
in trust |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
230 |
|
|
— |
|
|
230 |
|
|
Shares
held by subsidiary |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(46,052 |
) |
|
— |
|
|
— |
|
|
(46,052 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,872 |
) |
|
(10,872 |
) |
|
Cumulative
effect of foreign currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation
adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
25,718 |
|
|
25,718 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004 |
|
|
33,243,527 |
|
$ |
332 |
|
|
575,862 |
|
|
(34,064 |
) |
|
4,896 |
|
|
(58,898 |
) |
|
(530 |
) |
|
20,382 |
|
$ |
507,980 |
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Consolidated
Statements of Cash Flows
For
the Years Ended December 31, 2004, 2003 and 2002
($ in
thousands)
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
Cash
flows from operating activities: |
|
|
|
|
|
|
|
Cash
flows from earnings: |
|
|
|
|
|
|
|
|
Net
income |
|
$ |
64,242 |
|
|
36,065 |
|
|
27,110 |
|
|
Reconciliation
of net income to net cash provided by earnings: |
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle |
|
|
— |
|
|
— |
|
|
(846 |
) |
|
Minority
interest |
|
|
— |
|
|
— |
|
|
711 |
|
|
Depreciation
and amortization |
|
|
33,136 |
|
|
36,944 |
|
|
37,125 |
|
|
Equity
in earnings from unconsolidated ventures |
|
|
(17,447 |
) |
|
(7,951 |
) |
|
(2,581 |
) |
|
Operating
distributions from real estate ventures |
|
|
11,234 |
|
|
11,428 |
|
|
4,981 |
|
|
Provision
for loss on receivables and other assets |
|
|
4,266 |
|
|
6,243 |
|
|
3,529 |
|
|
Stock
compensation expense |
|
|
— |
|
|
— |
|
|
139 |
|
|
Amortization
of deferred compensation |
|
|
22,161 |
|
|
15,841 |
|
|
11,931 |
|
|
Amortization
of debt issuance costs |
|
|
2,446 |
|
|
1,457 |
|
|
1,303 |
|
|
Net
cash provided by earnings |
|
|
120,038 |
|
|
100,027 |
|
|
83,402 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from changes in working capital: |
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
(82,364 |
) |
|
(27,287 |
) |
|
(9,142 |
) |
|
Prepaid
expenses and other assets |
|
|
(13,722 |
) |
|
(4,233 |
) |
|
4,196 |
|
|
Deferred
tax assets and income tax refund receivable |
|
|
(13,285 |
) |
|
(11,910 |
) |
|
(9,467 |
) |
|
Accounts
payable, accrued liabilities and accrued compensation |
|
|
150,811 |
|
|
53,448 |
|
|
(620 |
) |
|
Net
cash flows from changes in working capital |
|
|
41,440 |
|
|
10,018 |
|
|
(15,033 |
) |
|
Net
cash provided by operating activities |
|
|
161,478 |
|
|
110,045 |
|
|
68,369 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows used in investing activities: |
|
|
|
|
|
|
|
|
|
|
|
Net
capital additions—property and equipment |
|
|
(28,160 |
) |
|
(18,597 |
) |
|
(16,790 |
) |
|
Other
acquisitions and investments, net of cash acquired and |
|
|
|
|
|
|
|
|
|
|
|
transaction
costs |
|
|
(2,810 |
) |
|
(1,100 |
) |
|
(287 |
) |
|
Investments
in real estate ventures: |
|
|
|
|
|
|
|
|
|
|
|
Capital
contributions and advances to real estate ventures |
|
|
(35,148 |
) |
|
(7,320 |
) |
|
(30,010 |
) |
|
Distributions,
repayments of advances and sale of investments |
|
|
38,553 |
|
|
11,735 |
|
|
20,747 |
|
|
Net
cash used in investing activities |
|
|
(27,565 |
) |
|
(15,282 |
) |
|
(26,340 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows used in financing activities: |
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings under credit facilities |
|
|
528,947 |
|
|
292,834 |
|
|
414,223 |
|
|
Repayments
of borrowings under credit facilities |
|
|
(473,628 |
) |
|
(332,244 |
) |
|
(448,461 |
) |
|
Redemption
of Euro Notes, net of costs |
|
|
(203,209 |
) |
|
— |
|
|
— |
|
|
Shares
repurchased for payment of taxes on stock awards |
|
|
(4,210 |
) |
|
(3,288 |
) |
|
(4,052 |
) |
|
Shares
repurchased under share repurchase program |
|
|
(46,052 |
) |
|
(8,187 |
) |
|
(4,659 |
) |
|
Common
stock issued under stock option plan and stock |
|
|
|
|
|
|
|
|
|
|
|
purchase
programs |
|
|
31,277 |
|
|
5,573 |
|
|
4,128 |
|
|
Net
cash used in financing activities |
|
|
(166,875 |
) |
|
(45,312 |
) |
|
(38,821 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents |
|
|
(32,962 |
) |
|
49,451 |
|
|
3,208 |
|
|
Cash
and cash equivalents, January 1 |
|
|
63,105 |
|
|
13,654 |
|
|
10,446 |
|
|
Cash
and cash equivalents, December 31 |
|
$ |
30,143 |
|
|
63,105 |
|
|
13,654 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
10,682 |
|
|
19,386 |
|
|
18,475 |
|
|
Taxes,
net of refunds |
|
|
16,180 |
|
|
11,926 |
|
|
14,144 |
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Notes
to Consolidated Financial Statements
(1)
Organization
Jones
Lang LaSalle Incorporated ("Jones Lang LaSalle", which may be referred to as we,
us, our, the Company or the Firm) was incorporated in 1997. We are the global
leader in real estate services and money management. We serve our clients' real
estate needs locally, regionally and globally from offices in over 100 markets
in over 35 countries on five continents, with approximately 19,300 employees,
including approximately 9,700 directly reimbursable property maintenance
employees. We believe that our combination of local market presence and global
reach differentiates our firm from other real estate service
providers.
Our full
range of services includes: agency leasing; property management; project and
development services; valuations; capital markets; buying and selling
properties; corporate finance; hotel advisory; space acquisition and disposition
(tenant representation; facilities management (corporate property services);
strategic consulting; and outsourcing. We provide money management on a global
basis for both public and private assets through LaSalle Investment Management.
Our services are enhanced by our integrated global business model, industry
leading research capabilities, client relationship management focus, consistent
worldwide service delivery and strong brand.
We have
grown by expanding both our client base and the range of our services and
products, as well as through a series of strategic acquisitions and a merger.
Our extensive global platform and in-depth knowledge of local real estate
markets enable us to serve as a single source provider of solutions for our
clients' full range of real estate needs. We solidified this network of services
around the globe through the merger of the businesses of the Jones Lang Wootton
companies ("JLW") (founded in 1783) with those of LaSalle Partners Incorporated
("LaSalle Partners") (founded in 1968) effective March 11, 1999.
(2)
Summary of Significant Accounting Policies
Principles
of Consolidation
Our
financial statements include the accounts of Jones Lang LaSalle and its
majority-owned-and-controlled subsidiaries. All material intercompany balances
and transactions have been eliminated in consolidation. Investments in
unconsolidated affiliates over which we exercise significant influence, but not
control, are accounted for by the equity method. Under this method we maintain
an investment account, which is increased by contributions made and our share of
net income of the unconsolidated affiliates, and decreased by distributions
received and our share of net losses of the unconsolidated affiliates. Our share
of each unconsolidated affiliate’s net
income or loss, including gains and losses from capital transactions, is
reflected in our statement of earnings as "equity in earnings from
unconsolidated ventures." Investments in unconsolidated affiliates over which we
are not able to exercise significant influence are accounted for under the cost
method. Under the cost method our investment account is increased by
contributions made and decreased by distributions representing return of
capital. Distributions of income are reflected in our statement of earnings in
"equity in earnings from unconsolidated ventures."
See Note
8 for additional information on accounting for investments in real estate
ventures under the equity method and cost method.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of the revenues and expenses during the
reporting periods. Actual results could differ from those estimates. For further
discussion of accounting estimates please refer to the Summary of Critical
Accounting Policies and Estimates section of Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current
presentation.
Beginning
in December 2002, pursuant to Emerging Issues Task Force ("EITF") Issue No.
01-14, "Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket’ Expenses Incurred" ("EITF 01-14"), we have reclassified
reimbursements received for out-of-pocket expenses to revenues in the income
statement, as opposed to being shown as a reduction of expenses. These
out-of-pocket expenses amounted to $8.1 million and $5.4 million for the years
ended December 31, 2004 and 2003, respectively.
Beginning
in December 2002, we have reclassified as revenue our recovery of indirect costs
related to our management services business, as opposed to being classified as a
reduction of expenses in the income statement. This recovery of indirect costs
for the years ended December 31, 2004 and 2003 totaled $29.6 million and $37.8
million, respectively.
Beginning
in December 2004, we reclassified ‘Equity in earnings from unconsolidated
ventures’ from ‘Total revenue’ to a separate line on the consolidated statement
of earnings after ‘Operating income’. This change has the effect of reducing the
amount of ‘Total revenue’ and ‘Operating income’ originally reported by the
amounts of those equity earnings. However, for segment reporting purposes, we
continue to reflect ‘Equity in earnings from unconsolidated ventures’ within
‘Total revenue’. See Note 7 for ‘Equity earnings (losses)’ reflected within
revenues for the Americas and Investment Management segments, as well as
discussion of how the Chief Operating Decision Maker measures segment results
with equity earnings from unconsolidated ventures included in segment
revenues.
The following table lists total revenue and expenses as
originally reported in the annual report for the years ended December 31, 2003
and 2002, and lists the reclassifications as discussed above, as well as the
reclassified amounts ($ in thousands):
| |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
Total
revenue: |
|
|
|
|
|
|
As
originally reported |
|
$ |
949,845 |
|
|
840,429 |
|
|
Reclassifications: |
|
|
|
|
|
|
|
|
Out-of-pocket
expenses |
|
|
N/A |
|
|
1,350 |
|
|
Indirect
costs |
|
|
N/A |
|
|
20,792 |
|
|
Equity
in earnings from unconsolidated ventures |
|
|
(7,951 |
) |
|
(2,581 |
) |
|
As
reclassified |
|
|
941,894 |
|
|
859,990 |
|
| |
|
|
|
|
|
|
|
|
Total
operating expenses: |
|
|
|
|
|
|
|
|
As
originally reported |
|
|
887,659 |
|
|
785,734 |
|
|
Reclassifications: |
|
|
|
|
|
|
|
|
Out-of-pocket
expenses |
|
|
N/A |
|
|
1,350 |
|
|
Indirect
costs |
|
|
N/A |
|
|
20,792 |
|
|
As
reclassified |
|
|
887,659 |
|
|
807,876 |
|
|
Operating
income |
|
$ |
54,235 |
|
|
52,114 |
|
Revenue
Recognition
The
United States Securities and Exchange Commission's ("SEC") 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. Additionally, EITF Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables" ("EITF 00-21"), provides guidance on
the application of generally accepted accounting principles to revenue
transactions with multiple deliverables.
In Item
1. Business, we describe the services that we provide. We recognize revenue from
these services as advisory and management fees, transaction commissions and
project and development management fees. We recognize advisory and management
fees related to property management services, valuation services, corporate
property services, strategic consulting and money management as income in the
period in which we perform the related services. We recognize transaction
commissions related to agency leasing services, capital markets services and
tenant representation services as income when we provide the related service
unless future contingencies exist. If future contingencies exist, we defer
recognition of this revenue until the respective contingencies have been
satisfied. Project and development management fees are recognized applying the
"percentage of completion" method of accounting. We use the efforts expended
method to determine the extent of progress towards completion.
Certain
contractual arrangements for services provide for the delivery of multiple
services. We evaluate revenue recognition for each service to be rendered under
these arrangements using criteria set forth in EITF 00-21. For services that
meet the separability criteria, revenue is recognized separately. For services
that do not meet those criteria, revenue is recognized on a combined basis.
Reimbursable
expenses -
We follow
the guidance of EITF 01-14, "Income Statement Characterization of Reimbursements
Received for ‘Out-of-Pocket' Expenses Incurred," when accounting for
reimbursements received. Accordingly, we have recorded these reimbursements as
revenues in the income statement, as opposed to being shown as a reduction of
expenses.
In
certain of our businesses, primarily those involving management services, we are
reimbursed by our clients for expenses incurred on their behalf. The treatment
of reimbursable expenses for financial reporting purposes is based upon the fee
structure of the underlying contracts. We follow the guidance of EITF Issue No.
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent" ("EITF
99-19"), when accounting for reimbursable personnel and other costs. 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. When accounting on a gross basis, 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:
| |
• |
A
fixed management fee, and |
| |
• |
A
separate component which allows for scheduled reimbursable personnel or
other expenses to be billed directly to the
client. |
When
accounting on a net basis, we include the fixed management fee in reported
revenues and net the reimbursement against expenses. We base this accounting on
the following factors which define us as an agent rather than a principal:
| |
(i) |
The
property owner, with ultimate approval rights relating to the employment
and compensation of onsite personnel, and bearing all of the economic
costs of such personnel, is determined to be the primary obligor in the
arrangement; |
| |
(ii) |
Reimbursement
to Jones Lang LaSalle is generally completed simultaneously with payment
of payroll or soon thereafter; |
| |
(iii) |
Because
the property owner is contractually obligated to fund all operating costs
of the property from existing cash flow or direct funding to its building
operating account, Jones Lang LaSalle bears little or no credit risk under
the terms of the management contract; and |
| |
(iv) |
Jones
Lang LaSalle generally earns no margin in the reimbursement aspect of the
arrangement, obtaining reimbursement only for actual costs incurred.
|
Most 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 approximately $430 million, $385
million and $360 million in 2004, 2003 and 2002, respectively. This treatment
has no impact on operating income, net income or cash flows.
Accounts
Receivable
Pursuant
to contractual arrangements, accounts receivable includes unbilled amounts of
$75.4 million and $60.5 million at December 31, 2004 and 2003,
respectively.
We
estimate the allowance necessary to provide for uncollectible accounts
receivable. The estimate includes specific accounts for which payment has become
unlikely. We also base this estimate on historical experience combined with a
careful review of current developments and 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 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. See the Summary
of Critical Accounting Policies and Estimates section of Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations for
additional information on our Allowance for Uncollectible Accounts
Receivable.
Property
and Equipment
We apply
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), to recognize and
measure impairment of property and equipment owned or under capital lease. We
review property and equipment for impairment whenever events or circumstances
indicate that the carrying value of an asset group may not be recoverable. 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 the estimated fair value. We did not recognize an impairment loss
related to property and equipment in either 2004 or 2003.
We
calculate depreciation and amortization on property and equipment for financial
reporting purposes primarily by using the straight-line method based on the
estimated useful lives of our assets. The following table shows the gross value
of each asset category at December 31, 2004 and 2003, respectively, as well as
the standard depreciable life for each asset category ($ in
thousands):
| |
|
December
31, |
|
December
31, |
|
Depreciable |
|
|
Category |
|
2004 |
|
2003 |
|
Life |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Furniture,
fixtures and equipment |
|
$ |
44.0 |
|
$ |
39.5 |
|
|
5
to 10 years |
|
|
Computer
equipment and software |
|
|
140.6 |
|
|
119.7 |
|
|
2
to 7 years |
|
|
Leasehold
Improvements |
|
|
44.7 |
|
|
43.2 |
|
|
1
to 10 years |
|
|
Automobiles |
|
|
7.3 |
|
|
8.8 |
|
|
4
to 5 years |
|
Accounting
for Business Combinations, Goodwill and Other Intangible
Assets
We have
historically grown through a series of acquisitions and one substantial merger.
As a result of this activity, and consistent with the services nature of the
businesses we acquired, the largest assets on our balance sheet are intangibles
resulting from business acquisitions and the JLW merger. Historically we
amortized these intangibles over their estimated useful lives (generally eight
to forty years). Beginning January 1, 2002, pursuant to the issuance of SFAS No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"), we ceased the
amortization of intangibles with indefinite useful lives, which have a net book
value of $343.3 million at December 31, 2004. We will continue to amortize
intangibles with definite useful lives, which primarily represent the value
placed on management contracts that are acquired as part of our acquisition of
another business.
SFAS 142
requires that goodwill and intangible assets with indefinite useful lives not be
amortized, but instead evaluated for impairment at least annually. 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. Under
SFAS 142, we define reporting units as Investment Management, Americas IOS,
Australia IOS, Asia IOS, and by country groupings in Europe IOS. We then
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 2004 and 2003 evaluations was that the fair value of each
reporting unit exceeded its carrying amount, and therefore we did not recognize
an impairment loss in either year.
See Note
15 for additional information on accounting for business combinations, goodwill
and other intangible assets.
Investments
in Real Estate Ventures
We invest
in certain real estate ventures that own and operate commercial real estate.
Typically, these are co-investments in funds that our Investment Management
business establishes in the ordinary course of business for its clients. These
investments include non-controlling ownership interests generally ranging from
less than 1% to 47.85% of the respective ventures. We apply the provisions of
FASB Interpretation No. 46 (revised 2003), "Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51" ("FIN 46-R"), AICPA Statement of
Position 78-9, "Accounting for Investments in Real Estate Ventures" ("SOP
78-9"), Accounting Principles Board ("APB") Opinion No. 18, "The Equity Method
of Accounting for Investments in Common Stock" ("APB 18"), and EITF Topic No.
D-46, "Accounting for Limited Partnership Investments" ("EITF D-46") when
accounting for these interests. The application of FIN 46-R, SOP 78-9, APB 18
and EITF D-46 generally results in accounting for these interests under the
equity method in the accompanying Consolidated Financial Statements due to the
nature of our non-controlling ownership.
We apply
the provisions of APB 18, SEC Staff Accounting Bulletin Topic 5-M, "Other Than
Temporary Impairment Of Certain Investments In Debt And Equity Securities" ("SAB
59"), and SFAS 144 when evaluating investments in real estate ventures for
impairment, including impairment evaluations of the individual assets underlying
our investments.
We review
investments in real estate ventures on a quarterly basis for an indication of
whether the carrying value of the real estate assets underlying our investments
in ventures 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
underlying assets. When an "other than temporary" impairment has been identified
related to a real estate asset underlying one of our investments in ventures, a
discounted cash flow approach is used to determine the fair value of the asset
in computing the amount of the impairment. We then record the portion of the
impairment loss related to our investment in the reporting period.
See Note
8 for additional information on investments in real estate
ventures.
Debt
Issuance Costs
Costs
incurred in connection with the issuance of debt are capitalized and amortized
over the periods to which the underlying debt is outstanding. Amortization
expense related to debt issuance costs, included as interest expense, was $1.1
million, $1.5 million and $1.3 million in 2004, 2003 and 2002,
respectively.
Income
Taxes
We
account for income taxes under the asset and liability method. We recognize
deferred tax assets and liabilities for the future tax consequences attributable
to differences between (1) the financial statement carrying amounts of existing
assets and liabilities and (2) their respective tax bases and operating loss and
tax credit carryforwards. We measure deferred tax assets and liabilities using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. We
recognize in income the effect on deferred tax assets and liabilities of a
change in tax rates in the period that includes the enactment date.
See Note
11 for additional information on income taxes.
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 for other stock awards to eligible employees of Jones Lang
LaSalle. Additionally, we award restricted stock units of our common stock to
certain employees and members of our Board of Directors under the SAIP, and have
plans under which eligible employees have the opportunity to purchase shares of
our common stock at a 15% discount.
We
account for our stock option and stock compensation plans under the provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure" ("SFAS 148"). These provisions allow entities to continue to
apply the intrinsic value-based method under the provisions of APB Opinion No.
25, "Accounting for Stock Issued to Employees," ("APB 25"), and provide
disclosure of 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, and accordingly, recognize no compensation expense for stock
options granted at the market value of our common stock on the date of
grant.
We have
recognized other stock awards (including various grants of restricted stock
units and offerings of discounted stock purchases under employee stock purchase
plans), 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.
See Note
13 for additional information on stock-based compensation.
Accounting
for Self-insurance Programs
In our
Americas business, and 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 coverage 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 by
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 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. Given
the nature of medical claims, it may take up to 24 months for claims to be
processed and recorded.
• 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 worker’s 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 differences between the actuarial estimate and
our reserve on a periodic basis.
• 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 the captive insurer 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 professional indemnity coverage to our entire business.
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 we update 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 we would expect that the amount and the volatility of our estimate of
reserves will be increased over time.
Fair
Value of Financial Instruments
Our
financial instruments include cash and cash equivalents, receivables, accounts
payable, notes payable and foreign currency exchange contracts. The estimated
fair value of cash and cash equivalents, receivables and payables approximates
their carrying amounts due to the short maturity of these instruments. The
estimated fair value of our revolving credit facility and short-term borrowings
approximates their carrying value due to their variable interest rate terms. The
fair values of forward foreign exchange contracts are estimated to be $0.7
million as of December 31, 2004, determined by valuing the net position of the
contracts using the applicable spot rates and forward rates as of the reporting
date.
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 December 31, 2004, we had
forward exchange contracts in effect with a gross notional value of $290.8
million ($263.5 million on a net basis) and a market and carrying gain of $0.7
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 2004 or in 2003, and there were no such agreements
outstanding as of December 31, 2004.
We
require that hedging derivative instruments be effective in reducing the
exposure that they are designated to hedge. This effectiveness is essential to
qualify for hedge accounting treatment. Any derivative instrument used for risk
management that does not meet the hedging criteria is marked-to-market each
period with changes in unrealized gains or losses recognized currently in
earnings.
We hedge
any foreign currency exchange risk resulting from intercompany loans through the
use of foreign currency forward contracts. SFAS 133 requires that unrealized
gains and losses on these derivatives be recognized currently in earnings. The
gain or loss on the re-measurement of the foreign currency transactions being
hedged is also recognized in earnings. The net impact on our earnings of the
unrealized gain on foreign currency contracts, offset by the loss resulting from
remeasurement of foreign currency transactions, for 2004 and 2003 was not
significant.
In
connection with a previous investment in an unconsolidated real estate venture,
we were granted certain residual "Common Share Purchase Rights" giving us the
ability to purchase shares in a publicly traded real estate investment trust at
a fixed price. These rights, which extended through April 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 resulting from the
complexity of this unique derivative. The fair value of these common share
purchase rights was recorded as a gain in equity in earnings from unconsolidated
ventures 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 rights at
December 31, 2003 was $1.4 million, which we included in the investments in
unconsolidated real estate ventures on the Consolidated Balance Sheet. During
the first quarter of 2004, market conditions became favorable for us to begin
disposing of these common share purchase rights, and we made the disposition
during the first and second quarters of 2004. We no longer hold any such rights,
and we do not own any other instruments of this nature.
Foreign
Currency Translation
The
financial statements of our subsidiaries located outside the United States,
except those subsidiaries located in highly inflationary economies, are measured
using the local currency as the functional currency. The assets and liabilities
of these subsidiaries are translated at the rates of exchange at the balance
sheet date with the resulting translation adjustments included in the balance
sheet as a separate component of stockholders' equity (accumulated other
comprehensive income (loss)) and in the statement of earnings (other
comprehensive income foreign currency translation adjustments). Income and
expenses are translated at the average monthly rates of exchange. Gains and
losses from foreign currency transactions are included in net earnings. For
subsidiaries operating in highly inflationary economies, the associated gains
and losses from balance sheet translation adjustments are included in net
earnings.
Statement
of Cash Flows
Cash and
cash equivalents include demand deposits and investments in United States
Treasury instruments (generally held as available for sale) with maturities of
three months or less. The combined carrying value of such investments
(approximating market value) was $42.0 million at December 31, 2003, as we held
such investments in anticipation of redeeming the Euro Notes in June 2004. There
were no such investments included in cash and cash equivalents at December 31,
2004. Total cash and cash equivalents decreased from $63.1 million at December
31, 2003 to $30.1 million at December 31, 2004 as a result of the redemption of
Euro Notes and the use of cash to reduce debt outstanding in 2004.
The
effects of foreign currency translation on cash balances are reflected in cash
flows from operating activities on the Consolidated Statement of Cash
Flows.
Cash
Held for Others
We
control certain cash and cash equivalents as agents for our investment and
property management clients. We do not include such amounts in our consolidated
financial statements.
Commitments
and Contingencies
We are
subject to various claims and contingencies related to lawsuits, taxes and
environmental matters as well as commitments under contractual obligations. Many
of these claims are covered under our current insurance programs, subject to
deductibles. We recognize the liability associated with commitments and
contingencies when a loss is probable and estimable. Our contractual obligations
generally relate to the provision of services by us in the normal course of our
business.
See Note
16 for additional information on commitments and contingencies.
Earnings
Per Share
The
difference between basic weighted average shares outstanding and diluted
weighted average shares outstanding is the dilutive impact of common stock
equivalents. Common stock equivalents consist primarily of shares to be issued
under employee stock compensation programs and outstanding stock options whose
exercise price was less than the average market price of our stock during these
periods.
For the
years ended December 31, 2004, 2003 and 2002, respectively, we did not include
in the weighted average shares outstanding the 2,300,000, 700,000 or 300,000
shares that had been repurchased as of the end of each of those years and which
are held by one of our subsidiaries. See Note 5 for additional information on
share repurchases.
The
following table details the calculation of diluted average shares outstanding ($
in thousands, except share data) for each of the three years ended December
31.
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Net
income |
|
$ |
64,242 |
|
|
36,065 |
|
|
27,110 |
|
|
Basic
weighted average shares outstanding |
|
|
30,887,868 |
|
|
30,951,563 |
|
|
30,486,842 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share |
|
$ |
2.08 |
|
|
1.17 |
|
|
0.89 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income |
|
$ |
64,242 |
|
|
36,065 |
|
|
27,110 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding |
|
|
30,887,868 |
|
|
30,951,563 |
|
|
30,486,842 |
|
|
Dilutive
impact of common stock equivalents: |
|
|
|
|
|
|
|
|
|
|
|
Outstanding
stock options |
|
|
451,865 |
|
|
230,001 |
|
|
354,125 |
|
|
Unvested
stock compensation programs |
|
|
1,505,548 |
|
|
1,044,742 |
|
|
1,013,430 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Dilutive
weighted average shares outstanding |
|
|
32,845,281 |
|
|
32,226,306 |
|
|
31,854,397 |
|
|
Dilutive
earnings per common share |
|
$ |
1.96 |
|
|
1.12 |
|
|
0.85 |
|
New
Accounting Standards
Defined
Benefit Pension Plan Disclosures
In
December 2003, FASB Statement No. 132 (revised), "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132-R"), was issued. 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 disclosures 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 plans, the additional disclosures
required under SFAS 132-R are required in this annual report for the year ended
December 31, 2004.
See Note
12 for our defined benefit plan disclosures.
Consolidation
of Variable Interest Entities
In
January 2003 the FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51" ("FIN 46"). FIN 46 addressed
the consolidation by business enterprises of variable interest entities as
defined. FIN 46 applied immediately to variable interests in variable interest
entities created after January 31, 2003. We have not invested in any variable
interest entities created after January 31, 2003. For public enterprises with a
variable interest entity created before February 1, 2003, the FASB modified the
application date of FIN 46 to no later than the end of the interim or annual
period ending after December 15, 2003 as it prepared to issue additional
guidance.
In
December 2003, the FASB issued FIN 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 FIN 46. FIN 46-R
has had no impact on our consolidated financial statements as of December 31,
2004.
Accounting
for "Share-Based" Compensation
SFAS No.
123 (revised 2004), "Share-Based Payment" ("SFAS 123-R"), a revision of SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), was issued in
December 2004. SFAS 123-R supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and its related implementation guidance. SFAS
123-R is effective as of the beginning of the first interim or annual reporting
period that begins after June 15, 2005.
SFAS
123-R eliminates the alternative to use APB 25's intrinsic value method of
accounting that was provided in SFAS 123 as originally issued. Under APB 25,
issuing stock options to employees generally has resulted in recognition of no
compensation cost. However, SFAS 123-R will require us to recognize expense for
the grant-date fair value of stock options and other equity-based compensation
issued to employees. That cost will be recognized over the employee's requisite
service period.
Employee
share purchase plans ("ESPPs") result in recognition of compensation cost if
defined as "compensatory," which under SFAS 123-R includes (1) plans that
contain a "look-back" feature, or (2) plans that contain a purchase price
discount larger than five percent, which SFAS 123-R views as the per-share
amount of issuance costs that would have been incurred to raise a significant
amount of capital by a public offering.
SFAS
123-R applies to all awards granted after the required effective date and to
awards modified, repurchased, or cancelled after that date. The cumulative
effect of initially applying SFAS 123-R also will be recognized as of the
required effective date. Management has not yet determined the impact that the
application of SFAS 123-R will have on our business.
Accounting
for General Partner Interests in a Limited Partnership
(Proposed)
At its
November 17-18, 2004 meeting, the Emerging Issues Task Force ("EITF") reached a
tentative conclusion on a framework for assessing when a sole general partner
should consolidate its investment in a limited partnership. The proposed
framework and proposed effective date and transition provisions are included in
proposed EITF Issue No. 04-5, "Investor's Accounting for an Investment in a
Limited Partnership When the Investor Is the Sole General Partner and the
Limited Partners Have Certain Rights" ("EITF 04-5"). If EITF
04-5 is approved as currently drafted, it could result in the consolidation of
limited partnerships currently accounted for on the equity method, which would
result in a material increase in the amount of assets and liabilities reported
in our Consolidated Balance Sheet. Management has not yet determined the impact
that the proposed EITF would have on our business.
(3)
Acquisitions
Jones
Lang LaSalle Asset Management Services Acquisition
In
December 2002, Jones Lang LaSalle acquired the 45% minority interest in the
joint venture company Jones Lang LaSalle Asset Management Services, which, since
2000 has exclusively provided Asset Management services for all Skandia Life
properties in Sweden. The purchase price of the minority interest was
approximately $1 million, a discount to the fair value of the net assets
acquired. As a result, we have recorded an after-tax gain of $341,000 as an
extraordinary item in 2002.
2004
Americas IOS Acquisitions
The
Americas IOS business completed two acquisitions during 2004. As a result of
these acquisitions, as of December 31, 2004 we have:
|
• |
Paid
purchase consideration of $0.5 million; |
|
• |
Recorded
liabilities for future purchase consideration of $2.3
million; |
|
• |
Recorded
$2.2 million of goodwill with indefinite useful lives;
and |
|
• |
Recorded
$0.6 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.
See Note
15 for additional information on accounting for business combinations, goodwill
and other intangible assets.
(4)
Disposition
Effective
December 31, 1996, we sold our Construction Management business and certain
related assets to a former member of management for a $9.1 million note. The
note, which is secured by the current and future assets of the business, is due
December 31, 2006 and bears interest at rates of 6.8% to 10.0%, with interest
payments due annually. Annual principal repayments began in January 1998. The
outstanding principal balance of this loan as of December 31, 2004 is $4.4
million. The payments due under the terms of this note are current.
Under the
terms of the Asset Purchase Agreement, Jones Lang LaSalle has the option to
repurchase, at the then current market value, up to 49.9% of the ownership in
the Construction Management business on the earlier of the December 31, 2006 or
the prepayment of the note receivable. The choice to exercise the repurchase
option belongs solely to Jones Lang LaSalle.
(5)
Share Repurchases
Since
October 2002, our Board of Directors has approved three share repurchase
programs. Each succeeding program has replaced the prior repurchase program,
such that the program approved on November 29, 2004 is the only repurchase
program in effect as of December 31, 2004. We are authorized under each of the
programs to repurchase a specified number of 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 repurchase of
shares is primarily intended to offset dilution resulting from both stock and
stock option grants made under the firm's existing stock plans. Given that
shares repurchased under each of the programs are not cancelled, but are held by
one of our subsidiaries, we include them in our equity account. However, these
shares are excluded from our share count for purposes of calculating earnings
per share. The following table details the activities for each of our approved
share repurchase programs:
| |
|
Shares |
|
Shares
Repurchased |
|
| |
|
Approved
for |
|
through |
|
|
Repurchase
Plan Approval Date |
|
Repurchase |
|
December
31, 2004 |
|
| |
|
|
|
|
|
|
October
30, 2002 |
|
|
1,000,000 |
|
|
700,000 |
|
|
February
27, 2004 |
|
|
1,500,000 |
|
|
1,500,000 |
|
|
November
29, 2004 |
|
|
1,500,000 |
|
|
100,000 |
|
| |
|
|
|
|
|
2,300,000 |
|
We
repurchased 1,600,000 shares in 2004 at an average price of $28.78 per share.
See Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters for additional information regarding share repurchases throughout 2004.
(6)
Non-Recurring and Restructuring Charges
For the
years ended December 31, 2004, 2003 and 2002, non-recurring and restructuring
charges totaled $2.6 million, $4.4 million, and $14.9 million, respectively.
These charges and associated tax benefits are made up of the following ($ in
millions):
|
Non-Recurring
& Restructuring Charges |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Impairment
of E-commerce Investments |
|
$ |
— |
|
|
— |
|
|
(0.3 |
) |
|
Land
Investment & Development Group Impairment Charges |
|
|
0.5 |
|
|
— |
|
|
3.0 |
|
|
Insolvent
Insurance Providers |
|
|
0.1 |
|
|
(0.6 |
) |
|
— |
|
|
Abandonment
of Property Management Accounting System: |
|
|
|
|
|
|
|
|
|
|
|
Compensation
and Benefits |
|
|
0.6 |
|
|
0.1 |
|
|
— |
|
|
Operating,
Administrative and Other |
|
|
(3.3 |
) |
|
5.0 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Merger
Related Stock Compensation |
|
|
— |
|
|
(2.5 |
) |
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
2001
Restructuring Program: |
|
|
|
|
|
|
|
|
|
|
|
Compensation
& Benefits |
|
|
(0.1 |
) |
|
(0.1 |
) |
|
(1.3 |
) |
|
Operating,
Administrative & Other |
|
|
— |
|
|
— |
|
|
0.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
2002
Restructuring Program: |
|
|
|
|
|
|
|
|
|
|
|
Compensation
& Benefits |
|
|
(0.2 |
) |
|
(2.1 |
) |
|
12.7 |
|
|
Operating,
Administrative & Other |
|
|
0.5 |
|
|
4.6 |
|
|
0.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
2004
Restructuring Program: |
|
|
|
|
|
|
|
|
|
|
|
Compensation
& Benefits |
|
|
4.5 |
|
|
— |
|
|
— |
|
|
Operating,
Administrative & Other |
|
|
— |
|
|
— |
|
|
— |
|
|
Total
Non-Recurring & Restructuring Charges |
|
$ |
2.6 |
|
|
4.4 |
|
|
14.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
tax benefit for current year charges |
|
$ |
0.7 |
|
|
2.2 |
|
|
5.0 |
|
|
Net
tax benefit for prior year charges |
|
|
— |
|
|
3.0 |
|
|
1.8 |
|
| |
|
$ |
0.7 |
|
|
5.2 |
|
|
6.8 |
|
E-Commerce
Investment
In 2001,
we reviewed our e-commerce investments on an investment-by-investment basis,
evaluating actual business performance against original expectations, projected
future cash flows, and capital needs and availability, and wrote down all such
investments. In 2002, $0.3 million related to an e-commerce venture written-off
in 2001 was recovered and recorded as a credit to non-recurring expense.
However, it is currently our policy to expense any additional investments that
are made into these ventures in the period they are made due to the fact that
recovery of such sums is uncertain, and to record such charges as ordinary
recurring charges. In 2004, 2003 and 2002, we expensed $0.1 million, $0.8
million and $0.3 million, respectively, of such investments.
Land
Investment Group
We closed
the non-strategic residential land investment business ("Land Investment Group")
in the Americas region of the Investment Management segment in 2001. We
determined that we would not fund these investments beyond our contractual
commitments and would seek to manage an exit from this portfolio. These assets
are currently managed by a third party asset manager who provides us with cash
flow projections on an annual basis.
We
included in non-recurring expense in 2002 an impairment provision of $2.8
million to fully write down two residential land co-investments as a result of
adverse performance expectation developments in 2002. In the third quarter of
2003, we sold one of the remaining assets in the Land Investment portfolio for
no gain or loss. In the third quarter of 2004, we received cash proceeds of
approximately $0.2 million from the partial liquidation of the two assets which
had been fully written down in 2002. The cash proceeds were recorded as a credit
to non-recurring expense. Also in the third quarter of 2004, after receiving
updated cash flow projections for one of the investments which indicated a
decline in expected cash proceeds and an increase in expected expenses, we
recorded an impairment charge of $2.0 million to non-recurring expense. As a
result, the net book value of Land Investment Group investments as of December
31, 2004 is $0, compared with approximately $2.0 million at December 31, 2003.
We have
provided guarantees associated with this investment portfolio of $0.7 million,
which we currently do not expect to be required to fund. We expect these
investments to be liquidated by the end of 2007. Future credits relating to the
liquidation process will be recorded if further cash is received.
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 2002 we recorded net
non-recurring expense of $0.2 million related to equity losses and investment
disposals. 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.
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, recording
a credit to non-recurring expense. In the fourth quarter of 2004, we recorded an
additional reserve of $0.1 million as a result of unfavorable developments in
one claim. As of December 31, 2004, $0.6 million of the reserve established
remains to cover claims which relate to the insurance provided by HIH. Although
there can be no assurance, we believe this reserve is adequate to cover the six
remaining claims and expenses resulting from the HIH insolvency. Due to the
nature of the claims covered by this insurance, it is possible that future
claims may be made.
Abandonment
of Property Management Accounting System
In the
third quarter of 2004, we settled litigation we were pursuing related to the
unsuccessful implementation of an Australian property management accounting
system discussed below. Under the settlement agreement executed September 27,
2004, we received AUS$6.0 million ($4.3 million) in October 2004, and are
scheduled to receive AUS$3.8 million in cash in 2005. The schedule of remaining
installments as follows:
|
• |
AUS$2.0
million ($1.6 million at December 31, 2004 rates) on or before March 31,
2005 |
|
• |
AUS$1.0
million ($0.8 million at December 31, 2004 rates) on or before September
30, 2005 |
|
• |
AUS$0.8
million ($0.6 million at December 31, 2004 rates) on or before December
31, 2005 |
In
connection with the agreement, each of the 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 of this kind. We recognized the
AUS$6.0 million recovery as a credit of $4.3 million to non-recurring expense in
the third quarter of 2004. 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 expense.
In the
second quarter of 2003, we completed a feasibility analysis of a property
management accounting system that was in the process of being implemented in
Australia. As a result of the review, we concluded that the potential benefits
from successfully correcting deficiencies in the system to 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 $0.1 million for severance costs of personnel who worked exclusively on
the system and $0.2 million for professional fees associated with pursuing
litigation against the consulting firm that was responsible for the design and
implementation of this system. For the year ended December 31, 2004, we recorded
an additional $0.8 million to non-recurring expense for legal expenses
associated with the settlement process. In addition, we incurred $0.6 million in
the year ended December 31, 2004 for additional severance costs related to this
matter. We implemented a transition plan to an existing alternative system and
have used this system from July 1, 2003.
Merger
Related Stock Compensation
On March
11, 1999, LaSalle Partners merged its business with that of JLW and changed its
name to Jones Lang LaSalle. In connection with this merger we issued shares of
our common stock as consideration. Restrictions on certain of those shares were
removed at December 31, 2000 (See our 2002 Annual Report on Form 10-K for a
detailed discussion of this merger). Included as part of our non-recurring stock
compensation expense for the year ended December 31, 2000, we provided for
potential social tax exposures relating to the issuance of these shares. As a
result of a re-evaluation of these potential exposures and changing
circumstances, we determined that this reserve is no longer required, and
reversed the remaining $2.5 million of this provision in 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 were $40.0 million of severance costs, $3.0 million of
professional fees, and $0.9 million of relocation and other severance related
expenses. Of the estimated $43.9 million (adjusted down to $42.5 million for
reasons stated below), $42.0 million had been paid at December 31, 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 $0.6 million 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 for reasons stated
below), $10.2 million had been paid at December 31, 2004, with the remaining
$0.2 million to be paid as required by labor laws.
In 2003
we charged $4.6 million to non-recurring operating, administrative and other
expenses, the most significant portion of which related to a reserve for excess
lease space of $4.4 million. This reserve related to new space that we no longer
intended to occupy, but where we were committed to a long term lease. Through
December 31, 2004, $0.6 million of this reserve had been utilized against lease
payments for this space. In September 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 restructuring
expense in 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. Additionally, 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. As a
result, an expense of $3.0 million has been recorded to restructuring expense in
2004. The net charge to restructuring expense for excess space in 2004, then, is
$0.6 million. The balance of the reserve for excess space related to these two
lease agreements at the end of the period is $4.4 million.
During
the fourth quarter of 2004, we charged $4.5 million to restructuring
compensation and benefits expense. These charges related to severance in Germany
and northern European markets, where new restructuring efforts have been
initiated to realign resources in the region away from underperforming sectors
and further consolidate the German business in light of continuing difficult
economic conditions. Of the $4.5 million charged to restructuring expense, $4.4
million is expected to be paid in 2005.
Adjusting
estimates to actual - 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 restructuring
expense in the quarter they are identified. As a result of the above, we
recorded a net credit of $0.3 million back to non-recurring compensation and
benefits in 2004, after recording a credit of $2.2 million back to non-recurring
compensation and benefits in 2003.
Non-Recurring
and Restructuring Charges by Segment
The
following table displays the net charges incurred by segment for the years ended
December 31, 2004, 2003 and 2002 ($ in millions):
|
Non-Recurring
& Restructuring Charges |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
Investor
and Occupier Services: |
|
|
|
|
|
|
|
|
Americas |
|
$ |
(0.1 |
) |
|
(1.9 |
) |
|
4.8 |
|
|
Europe |
|
|
4.8 |
|
|
3.5 |
|
|
6.7 |
|
|
Asia
Pacific |
|
|
(2.5 |
) |
|
5.0 |
|
|
0.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Investment
Management |
|
|
0.4 |
|
|
0.3 |
|
|
2.6 |
|
|
Corporate |
|
|
— |
|
|
(2.5 |
) |
|
0.5 |
|
|
Total
Non-Recurring and Restructuring Charges |
|
$ |
2.6 |
|
|
4.4 |
|
|
14.9 |
|
(7)
Business Segments
We manage
and report our operations as four business segments:
| |
(i) |
Investment Management, which offers money management
services on a global basis, and |
| |
|
The three geographic regions of Investor and Occupier
Services ("IOS"): |
The
Investment Management segment provides money management services to
institutional investors and high-net-worth individuals. Each geographic region
offers our full range of Investor Services, Capital Markets and Occupier
Services. 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 management services (collectively "management
services").
Total
revenue by industry segment includes revenue derived from services provided to
other segments. Operating income represents total revenue less direct and
indirect allocable expenses. We allocate all expenses, other than interest and
income taxes, as nearly all expenses incurred benefit one or more of the
segments. Allocated expenses primarily consist of corporate global overhead,
including certain globally managed stock programs. These corporate global
overhead expenses are allocated to the business segments based on the relative
revenue of each segment.
Our
measure of segment operating results excludes non-recurring and restructuring
charges. See Note 6 for a detailed discussion of these non-recurring and
restructuring charges. We have determined that it is not meaningful to investors
to allocate these non-recurring and restructuring charges to our segments. Also,
for segment reporting we continue to show equity earnings from unconsolidated
ventures within our revenue line, especially since it is a very integral part of
our Investment Management segment. The Chief Operating Decision Maker of Jones
Lang LaSalle measures the segment results without non-recurring and
restructuring charges, but with equity earnings from unconsolidated ventures
included in segment revenues. We define the Chief Operating Decision Maker
collectively as our Global Executive Committee, which is comprised of our Global
Chief Executive Officer, Global Chief Operating and Financial Officer and the
Chief Executive Officers of each of our reporting segments.
We have
reclassified certain prior year amounts to conform with the current
presentation. These reclassifications are discussed in Note 2.
Summarized
financial information by business segment for 2004, 2003 and 2002 are as follows
($ in thousands):
|
Investor
and Occupier Services |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
Americas |
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
Implementation
services |
|
$ |
181,405 |
|
|
137,254 |
|
|
135,013 |
|
|
Management
services |
|
|
181,778 |
|
|
170,448 |
|
|
151,306 |
|
|
Equity
earnings (losses) |
|
|
467 |
|
|
— |
|
|
(10 |
) |
|
Other
services |
|
|
6,371 |
|
|
5,056 |
|
|
4,119 |
|
|
Intersegment
revenue |
|
|
1,187 |
|
|
760 |
|
|
476 |
|
| |
|
|
371,208 |
|
|
313,518 |
|
|
290,904 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses |
|
|
303,534 |
|
|
257,824 |
|
|
240,141 |
|
|
Depreciation
and amortization |
|
|
14,161 |
|
|
17,851 |
|
|
18,761 |
|
|
Operating
income |
|
$ |
53,513 |
|
|
37,843 |
|
|
32,002 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
Implementation
services |
|
$ |
334,586 |
|
|
252,109 |
|
|
228,155 |
|
|
Management
services |
|
|
96,671 |
|
|
89,147 |
|
|
82,492 |
|
|
Other
services |
|
|
11,361 |
|
|
9,876 |
|
|
7,123 |
|
| |
|
|
442,618 |
|
|
351,132 |
|
|
317,770 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses |
|
|
413,587 |
|
|
326,946 |
|
|
289,594 |
|
|
Depreciation
and amortization |
|
|
10,792 |
|
|
11,168 |
|
|
10,421 |
|
|
Operating
income |
|
$ |
18,239 |
|
|
13,018 |
|
|
17,755 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Asia
Pacific |
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
Implementation
services |
|
$ |
130,400 |
|
|
95,998 |
|
|
77,329 |
|
|
Management
services |
|
|
88,825 |
|
|
74,894 |
|
|
66,411 |
|
|
Other
services |
|
|
2,132 |
|
|
1,762 |
|
|
1,624 |
|
| |
|
|
221,357 |
|
|
172,654 |
|
|
145,364 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses |
|
|
208,153 |
|
|
168,661 |
|
|
138,922 |
|
|
Depreciation
and amortization |
|
|
7,167 |
|
|
6,734 |
|
|
6,673 |
|
|
Operating
income (loss) |
|
$ |
6,037 |
|
|
(2,741 |
) |
|
(231 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Investment
Management |
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
Implementation
and other services |
|
$ |
12,027 |
|
|
7,416 |
|
|
5,249 |
|
|
Advisory
fees |
|
|
101,382 |
|
|
93,194 |
|
|
83,448 |
|
|
Incentive
fees |
|
|
20,020 |
|
|
4,740 |
|
|
17,721 |
|
|
Equity
earnings |
|
|
16,980 |
|
|
7,951 |
|
|
2,591 |
|
| |
|
|
150,409 |
|
|
113,301 |
|
|
109,009 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses |
|
|
117,332 |
|
|
93,683 |
|
|
87,699 |
|
|
Depreciation
and amortization |
|
|
1,261 |
|
|
1,191 |
|
|
1,270 |
|
|
Operating
income |
|
$ |
31,816 |
|
|
18,427 |
|
|
20,040 |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Segment
Reconciling Items |
|
|
|
|
|
|
|
|
|
|
|
Total
segment revenue |
|
$ |
1,185,592 |
|
|
950,605 |
|
|
863,047 |
|
|
Intersegment
revenue eliminations |
|
|
(1,187 |
) |
|
(760 |
) |
|
(476 |
) |
|
Equity
earnings revenue reclassifications |
|
|
(17,447 |
) |
|
(7,951 |
) |
|
(2,581 |
) |
|
Total
revenue |
|
|
1,166,958 |
|
|
941,894 |
|
|
859,990 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
segment operating expenses |
|
|
1,075,987 |
|
|
884,058 |
|
|
793,481 |
|
|
Intersegment
operating expense eliminations |
|
|
(1,187 |
) |
|
(760 |
) |
|
(476 |
) |
|
Total
operating expenses before non-recurring and |
|
|
|
|
|
|
|
|
|
|
|
restructuring
charges |
|
|
1,074,800 |
|
|
883,298 |
|
|
793,005 |
|
|
Non-recurring
and restructuring charges |
|
|
2,637 |
|
|
4,361 |
|
|
14,871 |
|
|
Operating
income |
|
$ |
89,521 |
|
|
54,235 |
|
|
52,114 |
|
Identifiable
assets by segment are those assets that are used by or are a result of each
segment's business. Corporate assets are principally cash and cash equivalents,
office furniture and computer hardware and software.
The
following table reconciles segment identifiable assets to consolidated assets,
investments in real estate ventures to consolidated investments in real estate
ventures and fixed asset expenditures to consolidated fixed asset
expenditures.
| |
|
2004 |
|
2003 |
|
2002 |
|
|
($
in thousands) |
|
Identifiable
Assets |
|
Investments
in
Real
Estate
Ventures |
|
Fixed
Asset
Expenditures |
|
Identifiable
Assets |
|
Investments in
Real
Estate
Ventures |
|
Fixed
Asset
Expenditures |
|
Fixed
Asset
Expenditures |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupier
Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
356,398 |
|
|
355 |
|
|
8,507 |
|
|
322,175 |
|
|
401 |
|
|
5,368 |
|
|
4,822 |
|
|
Europe |
|
|
278,365 |
|
|
— |
|
|
10,515 |
|
|
237,265 |
|
|
— |
|
|
9,620 |
|
|
9,434 |
|
|
Asia
Pacific |
|
|
182,298 |
|
|
— |
|
|
6,819 |
|
|
169,064 |
|
|
— |
|
|
4,574 |
|
|
3,751 |
|
|
Investment
Management |
|
|
163,474 |
|
|
73,215 |
|
|
925 |
|
|
146,161 |
|
|
70,934 |
|
|
682 |
|
|
426 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
31,842 |
|
|
— |
|
|
4,723 |
|
|
68,275 |
|
|
— |
|
|
208 |
|
|
1,923 |
|
|
Consolidated |
|
$ |
1,012,377 |
|
|
73,570 |
|
|
31,489 |
|
|
942,940 |
|
|
71,335 |
|
|
20,452 |
|
|
20,356 |
|
The
following table sets forth the 2004 revenues and assets from our most
significant currencies ($ in thousands). The euro revenues and assets include
our businesses in France, Germany, Italy, Ireland, Spain, Portugal, Holland,
Belgium and Luxembourg.
| |
|
Total |
|
Total |
|
| |
|
Revenue |
|
Assets |
|
| |
|
|
|
|
|
|
United
States Dollar |
|
$ |
421,525 |
|
|
455,950 |
|
|
United
Kingdom Pound |
|
|
259,639 |
|
|
199,611 |
|
|
Euro |
|
|
191,395 |
|
|
128,772 |
|
|
Australian
Dollar |
|
|
94,854 |
|
|
80,922 |
|
|
Other
currencies |
|
|
199,545 |
|
|
147,122 |
|
| |
|
$ |
1,166,958 |
|
|
1,012,377 |
|
We face
restrictions in certain countries which limit or prevent the transfer of funds
to other countries or the exchange of the local currency to other
currencies.
(8)
Investments in Real Estate Ventures
We invest
in certain real estate ventures that own and operate commercial real estate.
Typically, these are co-investments in funds that our Investment Management
business establishes in the ordinary course of business for its clients. These
investments include non-controlling ownership interests generally ranging from
less than 1% to 47.85% of the respective ventures. We apply the provisions of
FIN 46-R, SOP 78-9, APB 18 and EITF D-46 when accounting for these interests.
The application of FIN 46-R, SOP 78-9, APB 18 and EITF D-46 generally results in
accounting for these interests under the equity method in the accompanying
Consolidated Financial Statements due to the nature of our non-controlling
ownership. We are generally entitled to operating distributions in accordance
with our respective ownership interests. Our exposure to liabilities and losses
of these ventures is limited to our existing capital contributions and remaining
capital commitments.
For real
estate limited partnerships in which the Company is a general partner, we apply
the guidance set forth in FIN 46-R and SOP 78-9 in evaluating the control the
Company has over the limited partnership. These entities are generally
well-capitalized and provide for key decisions to be made by the owners of the
entities. Also, the real estate limited partnership agreements grant the limited
partners important rights, such as the right to replace the general partner
without cause, approve the sale or refinancing of the principal partnership
assets, or approve the acquisition of principal partnership assets. These rights
indicate that the Company, as general partner, does not have a controlling
interest in the limited partnership and accordingly, such general partner
interests are accounted for under the equity method.
For real
estate limited partnerships in which the Company is a limited partner, the
Company is a co-investment partner, and based on applying the guidance set forth
in FIN 46-R and SOP 78-9, has concluded that it does not have a controlling
interest in the limited partnership. When we have an asset advisory contract
with the real estate limited partnership, the combination of our limited partner
interest and the advisory agreement provides us with significant influence over
the real estate limited partnership venture. Accordingly, we account for such
investments under the equity method. When the Company does not have an asset
advisory contract with the limited partnership, rather only a limited partner
interest without significant influence, and our interest in the partnership is
considered "minor" under EITF D-46 (i.e., not more than 3 to 5 percent), we
account for such investments under the cost method.
As of
December 31, 2004, we had total investments and loans of $73.6 million in
approximately 20 separate property or fund co-investments. With respect to
certain co-investment indebtedness, in the event that the underlying
co-investment loans default, we also had repayment guarantees to third-party
financial institutions of $0.7 million outstanding at December 31,
2004.
Following
is a table summarizing our investments in real estate ventures ($ in
millions):
| |
|
Percent
Ownership of |
|
|
|
|
|
| |
|
Real
Estate Limited |
|
Accounting
|
|
Carrying |
|
|
Type
of Interest |
|
Partnership
Venture |
|
Method
|
|
Value |
|
| |
|
|
|
|
|
|
|
|
General
partner |
|
|
0%
to 1 |
% |
|
Equity |
|
$ |
0.5 |
|
|
Limited
partner with advisory agreements |
|
|
<1%
to 47.85 |
% |
|
Equity
|
|
|
72.3 |
|
|
Equity
method |
|
|
|
|
|
|
|
$ |
72.8 |
|
|
Limited
partner without advisory agreements |
|
|
<1%
to 5 |
% |
|
Cost
|
|
|
0.8 |
|
|
Total |
|
|
|
|
|
|
|
$ |
73.6 |
|
• LaSalle
Investment Company - Effective January 1, 2001, we established LaSalle
Investment Company ("LIC"), formerly referred to as LaSalle Investment Limited
Partnership, a series of four parallel limited partnerships, as our investment
vehicle for substantially all new co-investments. LIC has, and will continue to,
invest in certain real estate ventures that own and operate commercial real
estate. LIC generally invests via limited partnerships and intends to own 20% or
less of the respective ventures. Our capital commitment to LIC is euro 150
million. Through December 31, 2004, we have funded euro 43.4 million. Therefore,
as of December 31, 2004, we have a remaining unfunded commitment of euro 106.6
million ($144.5 million).
We have
an effective 47.85% ownership interest in LIC; primarily institutional investors
hold the remaining 52.15% interest in LIC. In addition, a non-executive Director
of Jones Lang LaSalle is an investor in LIC on equivalent terms to other
investors. Our investment in LIC is accounted for under the equity method of
accounting in the accompanying Consolidated Financial Statements. At December
31, 2004, LIC has unfunded capital commitments of $120.1 million, of which our
47.85% share is $57.5 million, for future fundings of co-investments. We expect
that LIC will draw down on our commitment over the next five to seven years as
it enters into new commitments. Additionally, our Board of Directors has
endorsed the use of our co-investment capital in particular situations to
control or bridge finance existing real estate assets or portfolios to seed
future investment products. Approvals are handled consistently with those of the
Firm's co-investment capital. The purpose of this is to accelerate capital
raising and growth in assets under management.
For the
year ended December 31, 2004, we received a net $3.4 million as the return of
capital from co-investments exceeded funded co-investments, even as performance
on capital in the form of equity earnings exceeded operating distributions,
increasing investments in and loans to real estate ventures by $2.2 million to
$73.6 million. 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. The net co-investment funding for 2005 is anticipated to
be between $25 and $35 million (planned co-investment less return of capital
from liquidated co-investments).
In the
third quarter of 2003, LIC entered into a euro 35 million ($47.4 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 ($67.8 million), and then to euro 75 million ($101.7 million) during
December 2004. 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 35.9 million
($48.6 million). As of December 31, 2004, LIC had euro 10.3 million ($14.0
million) of outstanding borrowings on the LIC Facility.
At
September 30, 2004, LIC had euro 36.2 million ($45.0 million) of outstanding
borrowings on the LIC Facility. Certain of these outstanding borrowings
were related to bridge financing of a seed portfolio 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. Due to the closing of this new fund
during the fourth quarter of 2004, the borrowings were repaid, and as such,
these $18.0 million amounts were not recorded in our Consolidated Balance Sheet
at December 31, 2004.
LIC's
exposure to liabilities and losses of the ventures is limited to its existing
capital contributions and remaining capital commitments.
The
following table summarizes the financial statements of LIC ($ in
thousands):
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
Balance
Sheet: |
|
|
|
|
|
|
|
|
Investments
in real estate |
|
$ |
127,204 |
|
|
64,344 |
|
|
54,050 |
|
|
Total
assets |
|
$ |
132,024 |
|
|
68,829 |
|
|
64,542 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Other
borrowings |
|
$ |
— |
|
|
— |
|
|
— |
|
|
Mortgage
indebtedness |
|
|
14,000 |
|
|
— |
|
|
— |
|
|
Total
liabilities |
|
$ |
14,284 |
|
|
3,589 |
|
|
2,909 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
equity |
|
$ |
117,740 |
|
|
65,240 |
|
|
61,633 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Statement
of Operations: |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
10,388 |
|
|
4,288 |
|
|
721 |
|
|
Net
earnings (loss) |
|
$ |
3,199 |
|
|
(420 |
) |
|
(168 |
) |
The
following table summarizes the combined financial information for the
unconsolidated ventures (including those that are held via LIC), accounted for
under the equity method of accounting ($ in thousands):
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
Balance
Sheet: |
|
|
|
|
|
|
|
Investments
in real estate |
|
$ |
3,552,687 |
|
|
3,773,418 |
|
|
3,180,682 |
|
|
Total
assets |
|
$ |
4,331,576 |
|
|
4,079,530 |
|
|
3,413,917 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Other
borrowings |
|
$ |
14,183 |
|
|
323,566 |
|
|
273,130 |
|
|
Mortgage
indebtedness |
|
|
1,915,820 |
|
|
1,855,824 |
|
|
1,546,680 |
|
|
Total
liabilities |
|
$ |
2,748,386 |
|
|
2,395,883 |
|
|
1,977,677 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
equity |
|
$ |
1,583,189 |
|
|
1,683,647 |
|
|
1,436,240 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Statements
of Operations: |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
547,814 |
|
|
459,722 |
|
|
336,047 |
|
|
Net
earnings |
|
$ |
212,874 |
|
|
37,332 |
|
|
67,955 |
|
| |
|
|
|
|
|
|
|
|
|
|
The
following table shows our interests in these unconsolidated ventures ($ in
thousands):
| |
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Loans
to real estate ventures |
|
$ |
4,904 |
|
|
11,493 |
|
|
9,175 |
|
|
Equity
investments in real estate ventures |
|
|
68,666 |
|
|
59,842 |
|
|
65,819 |
|
|
Total
investments in real estate ventures |
|
$ |
73,570 |
|
|
71,335 |
|
|
74,994 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings from real estate ventures |
|
|
|
|
|
|
|
|
|
|
|
recorded
by Jones Lang LaSalle |
|
$ |
17,447 |
|
|
7,951 |
|
|
2,581 |
|
The loans
of $4.9 million to real estate ventures bear interest rates ranging from 7.25%
to 8.0% and are to be repaid by 2008.
• Impairment
- - We apply the provisions of APB 18, SAB 59, and SFAS 144 when evaluating
investments in real estate ventures for impairment, including impairment
evaluations of the individual assets underlying our investments. We have
recorded impairment charges in equity earnings of $1.1 million in 2004,
representing our equity share of the impairment charge against individual assets
held by these ventures. There were $4.1 million of such charges to equity
earnings in 2003, but no such charges in 2002.
Additionally,
since the 2001 closing of our Land Investment Group and sale of our Development
Group, we have recorded net impairment charges related to investments originated
by these groups to non-recurring and restructuring expense. There were $0.5
million of net charges in 2004 related to the partial liquidation of two Land
Investment Group assets, the writedown of a third Land Investment Group asset,
and the liquidation of our final Development Group investment. There were no net
impairment charges recorded to non-recurring expense in 2003, and $3.0 million
of such charges recorded to non-recurring expense in 2002. See the Land
Investment Group and Development Group discussions in Note 6 for additional
information on these non-recurring charges.
• Common
Share Purchase Rights - LaSalle Hotel Properties ("LHO"), a real estate
investment trust, completed its initial public offering in April 1998. We
provided advisory, acquisition and administrative services to LHO for which we
received a base advisory fee calculated as a percentage of net operating income,
as well as performance fees based on growth in funds from operations on a per
share basis. Such performance fees were paid in the form of LHO common stock or
units, at our option. LHO was formed with 10 hotels, in which we had a nominal
co-investment and investment advisory agreement with nine of these hotels. We
contributed our ownership interests in the hotels as well as the related
performance fees to LHO for an effective ownership interest of approximately
6.4%, which included certain residual "Common Share Purchase Rights" that gave
us the ability to purchase shares in LHO at a fixed price. Effective January 1,
2001, the service agreement with LHO was terminated and LHO became a
self-managed real estate investment trust. As a result of the terminated service
agreement, we changed our method of accounting for LHO to the cost method. On
February 1, 2001, we sold our investment in LHO and recognized a gain of $2.7
million. We exercised the Common Share Purchase Rights during the first and
second quarter of 2004, and no longer hold any such rights. These rights were
derivative financial instruments, and as such, we reflected their fair value in
our financial statements. See "Derivatives and Hedging Activities" in Note 2 for
a detailed discussion of the accounting treatment of these rights.
(9)
Debt
We have
the ability to borrow on our $325 million unsecured revolving credit facility,
with authorization to borrow up to an additional $38.6 million under local
facilities.
On April
13, 2004, we renegotiated our unsecured revolving credit facility agreement,
increasing the facility from $225 million to $325 million and extending 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 104.50% 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). The redemption of the Euro Notes provided
savings of approximately $6.1 million in 2004, as the credit facility's pricing
was favorable compared to the Euro Notes which carried a 9% interest
rate.
As of
December 31, 2004, we had $40.6 million outstanding under the revolving credit
facility. We also had short-term borrowings (including capital lease
obligations) of $18.3 million outstanding at December 31, 2004. The short-term
borrowings are primarily borrowings by subsidiaries on various interest-bearing
overdraft facilities. As of December 31, 2004, $10.8 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 and local overdraft facilities do not meet the recognition provisions,
but do meet the disclosure requirements of FIN 45. We have local overdraft
facilities totaling $38.6 million, of which $10.8 million was outstanding as of
December 31, 2004. We have provided guarantees of $28.5 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 a
consolidated net worth of at least $392 million and a leverage ratio not
exceeding 3.25 to 1. We must also maintain a minimum interest coverage ratio of
2.5 to 1. As part of the renegotiation of the revolving credit facility, the
leverage ratio was revised to provide more flexibility, as we eliminated the
fixed coverage ratio that existed in the previous agreement. We are in
compliance with all covenants at December 31, 2004. Additionally, we are
restricted from, among other things, incurring certain levels of indebtedness to
lenders outside of the Facilities and disposing of a significant portion of our
assets. Lender approval is required for certain levels of co-investment as well
as capital expenditures. The revolving credit facility bears variable rates of
interest based on market rates. We are authorized to use interest rate swaps to
convert a portion of the floating rate indebtedness to a fixed rate, however,
none were used during 2004 or 2003 and none were outstanding as of December 31,
2004.
The
effective interest rate on our debt was 6.3% in 2004, compared to 8.2% in 2003.
The decrease in the effective interest rate is due to a change in the mix of our
average borrowings being less heavily weighted towards the higher coupon Euro
Notes, as the Euro Notes were redeemed in June 2004. Overall, the continued
strong cash flow of the company is being used to reduce borrowings at higher
market interest rates.
(10)
Leases
We lease
office space in various buildings for our own use. The terms of these
non-cancelable operating leases provide for us to pay base rent and a share of
increases in operating expenses and real estate taxes in excess of defined
amounts. We also lease equipment under both operating and capital lease
arrangements.
Minimum
future lease payments (e.g., base rent for leases of office space) due in each
of the next five years ending December 31 and thereafter are as follows ($ in
thousands):
| |
|
Operating |
|
Capital |
|
| |
|
Leases |
|
Leases |
|
|
2005 |
|
$ |
55,931 |
|
|
428 |
|
|
2006 |
|
|
48,714 |
|
|
219 |
|
|
2007 |
|
|
40,459 |
|
|
69 |
|
|
2008 |
|
|
31,756 |
|
|
52 |
|
|
2009 |
|
|
14,683 |
|
|
49 |
|
|
Thereafter |
|
|
27,968 |
|
|
27 |
|
| |
|
$ |
219,511 |
|
|
844 |
|
| |
|
|
|
|
|
|
|
|
Less:
Amount representing interest |
|
|
|
|
|
(86 |
) |
|
Present
value of minimum lease payments |
|
|
|
|
$ |
758 |
|
As of
December 31, 2004, we have reserves related to excess lease space of $6.3
million, which were identified as part of our restructuring charges. The total
of minimum rentals to be received in the future under noncancelable operating
subleases as of December 31, 2004 was $4.1 million.
Assets
recorded under capital leases in our Consolidated Balance Sheet at December 31,
2004 and 2003 are as follows ($ in thousands):
| |
|
2004 |
|
2003 |
|
| |
|
|
|
|
|
|
Furniture,
fixtures and equipment |
|
$ |
1,695 |
|
|
1,892 |
|
|
Computer
equipment and software |
|
|
524 |
|
|
1,426 |
|
|
Automobiles |
|
|
951 |
|
|
1,052 |
|
| |
|
|
3,170 |
|
|
4,370 |
|
| |
|
|
|
|
|
|
|
|
Less:
accumulated depreciation and amortization |
|
|
(2,194 |
) |
|
(3,262 |
) |
|
Net
assets under capital leases |
|
$ |
976 |
|
|
1,108 |
|
Rent
expense was $59.5 million, $56.5 million and $50.4 million during 2004, 2003 and
2002, respectively. Rent expense excludes charges associated with excess lease
space taken as part of restructuring expenses.
(11)
Income Taxes
For the
years ended December 31, 2004, 2003 and 2002, our provision for income taxes
consisted of the following ($ in thousands):
| |
|
Year
Ended December 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
U.S.
Federal: |
|
|
|
|
|
|
|
|
Current |
|
$ |
1,839 |
|
|
3,427 |
|
|
8 |
|
|
Deferred
tax |
|
|
2,137 |
|
|
(3,505 |
) |
|
1,981 |
|
| |
|
|
3,976 |
|
|
(78 |
) |
|
1,989 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
State
and Local: |
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
438 |
|
|
490 |
|
|
— |
|
|
Deferred
tax |
|
|
508 |
|
|
(202 |
) |
|
378 |
|
| |
|
|
946 |
|
|
288 |
|
|
378 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Foreign: |
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
22,339 |
|
|
14,650 |
|
|
17,220 |
|
|
Deferred
tax |
|
|
(5,388 |
) |
|
(6,600 |
) |
|
(8,550 |
) |
| |
|
|
16,951 |
|
|
8,050 |
|
|
8,670 |
|
|
Total |
|
$ |
21,873 |
|
|
8,260 |
|
|
11,037 |
|
In 2004,
2003 and 2002 our current tax expense was reduced by $9.8 million, $4.6 million
and $4.5 million, respectively, due to the utilization of prior years’ net operating loss carryovers.
Income
tax expense for 2004, 2003 and 2002 differed from the amounts computed by
applying the U.S. federal income tax rate of 35% to earnings before provision
for income taxes (income of $86.1 million for the year ended December 31, 2004,
$44.3 million for the year ended December 31, 2003, and $37.7 million for the
year ended December 31, 2002) as a result of the following ($ in
thousands):
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed
"expected" tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense |
|
$ |
30,140 |
|
|
35.0 |
% |
$ |
15,514 |
|
|
35.0 |
% |
$ |
13,185 |
|
|
35.0 |
% |
|
Increase
(reduction) in income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and local income taxes, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
federal income tax benefit |
|
|
615 |
|
|
0.7 |
% |
|
187 |
|
|
0.4 |
% |
|
246 |
|
|
0.7 |
% |
|
Amortization
of goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
other intangibles |
|
|
(1,306 |
) |
|
(1.5 |
%) |
|
(1,556 |
) |
|
(3.5 |
%) |
|
(1,417 |
) |
|
(3.8 |
%) |
|
Nondeductible
expenses |
|
|
3,337 |
|
|
3.9 |
% |
|
1,890 |
|
|
4.2 |
% |
|
1,999 |
|
|
5.3 |
% |
|
Foreign
earnings taxed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
varying rates |
|
|
(10,524 |
) |
|
(12.2 |
%) |
|
(4,805 |
) |
|
(10.8 |
%) |
|
(3,534 |
) |
|
(9.4 |
%) |
|
Valuation
allowances |
|
|
(934 |
) |
|
(1.1 |
%) |
|
1,281 |
|
|
2.9 |
% |
|
411 |
|
|
1.1 |
% |
|
Other,
net |
|
|
545 |
|
|
0.6 |
% |
|
(1,251 |
) |
|
(2.8 |
%) |
|
1,947 |
|
|
5.2 |
% |
|
Additional
tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
2001 restructuring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reserve
actions |
|
|
— |
|
|
— |
|
|
(3,000 |
) |
|
(6.8 |
%) |
|
(1,800 |
) |
|
(4.8 |
%) |
| |
|
$ |
21,873 |
|
|
25.4 |
% |
$ |
8,260 |
|
|
18.6 |
% |
$ |
11,037 |
|
|
29.3 |
% |
For the
years ended December 31, 2004, 2003 and 2002, our income before taxes from
domestic and international sources is as follows ($ in thousands):
| |
|
Year
Ended December 31, |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
12,061 |
|
|
9,768 |
|
|
5,311 |
|
|
International |
|
|
74,054 |
|
|
34,557 |
|
|
32,360 |
|
|
Total |
|
$ |
86,115 |
|
|
44,325 |
|
|
37,671 |
|
The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are presented below ($ in
thousands):
| |
|
December
31, |
|
|
Deferred
tax assets: |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Accrued
expenses |
|
$ |
23,864 |
|
|
20,817 |
|
|
18,754 |
|
|
U.S.
federal and state loss carryforwards |
|
|
20,923 |
|
|
19,367 |
|
|
13,917 |
|
|
Allowances
for uncollectible accounts |
|
|
1,197 |
|
|
902 |
|
|
747 |
|
|
Foreign
tax credit carryforwards |
|
|
— |
|
|
— |
|
|
761 |
|
|
Foreign
loss carryforwards |
|
|
20,001 |
|
|
25,345 |
|
|
17,053 |
|
|
Property
and equipment |
|
|
3,260 |
|
|
2,994 |
|
|
4,383 |
|
|
Investments
in real estate ventures and other investments |
|
|
10,111 |
|
|
12,752 |
|
|
12,596 |
|
|
Pension
liability |
|
|
1,083 |
|
|
— |
|
|
— |
|
|
Other |
|
|
14,592 |
|
|
2,207 |
|
|
1,835 |
|
| |
|
|
95,031 |
|
|
84,384 |
|
|
70,046 |
|
|
Less
valuation allowances |
|
|
(9,311 |
) |
|
(9,002 |
) |
|
(12,223 |
) |
| |
|
$ |
85,720 |
|
|
75,382 |
|
|
57,823 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Prepaid
pension asset |
|
$ |
— |
|
|
2,285 |
|
|
2,311 |
|
|
Intangible
assets |
|
|
12,581 |
|
|
10,687 |
|
|
7,137 |
|
|
Income
deferred for tax purposes |
|
|
1,751 |
|
|
1,873 |
|
|
2,117 |
|
|
Other |
|
|
692 |
|
|
2,572 |
|
|
203 |
|
| |
|
$ |
15,024 |
|
|
17,417 |
|
|
11,768 |
|
A
deferred U.S. tax liability has not been provided on the unremitted earnings of
foreign subsidiaries because it is our intent to permanently reinvest such
earnings outside of the United States. If repatriation of all such earnings were
to occur, and if we were unable to utilize foreign tax credits due to the
limitations of U.S. tax law, we estimate our maximum resulting U.S. tax
liability would be $62.9 million, net of the benefits of utilization of U.S.
Federal and state carryovers.
As of
December 31, 2004, we had available U.S. Federal net operating loss
carryforwards of $41 million which begin to expire after 2019, capital loss
carryovers of $0.6 million which expire after 2008, U.S. state net operating
loss carryforwards of $76 million which expire after 2005 through 2023, and
foreign net operating loss carryforwards of $48 million which begin to expire
after 2005.
As of
December 31, 2004, we believe that it is more likely than not that the net
deferred tax asset of $71 million will be realized based upon our estimates of
future income and the consideration of net operating losses, earnings trends and
tax planning strategies. Valuation allowances have been provided with regard to
the tax benefit of certain foreign net operating loss carryforwards and U.S.
capital loss carryforwards, for which we have concluded that recognition is not
yet appropriate under SFAS No. 109, "Accounting for Income Taxes." In 2004, we
reduced valuation reserves by $4.3 million on net operating losses in some
jurisdictions due to the utilization or expiration of those losses, and we
increased valuation reserves by $4.6 million for other jurisdictions based upon
circumstances which caused us to establish or to continue to provide valuation
reserves on current year losses in addition to those provided in prior
years.
As of
December 31, 2004, our current receivable for income tax was $1.0
million.
(12)
Retirement Plans
Defined
Contribution Plans
We have a
qualified profit sharing plan that incorporates United States Internal Revenue
Code Section 401(k) for our eligible U.S. employees. Contributions under the
qualified profit sharing plan are made via a combination of employer match and
an annual contribution on behalf of eligible employees. Included in the
accompanying Consolidated Statements of Earnings for the years ended December
31, 2004, 2003 and 2002 are employer contributions of $4.3 million, $2.3 million
and $1.5 million, respectively. Related trust assets of the Plan are managed by
trustees and are excluded from the accompanying Consolidated Financial
Statements.
We
maintain several defined contribution retirement plans for our eligible non-U.S.
employees. Our contributions to these plans were approximately $8.8 million,
$7.2 million and $1.9 million for the years ended December 31, 2004, 2003 and
2002, respectively. The increase in contributions in 2003 and 2004 is due to the
January 2003 curtailment of the United Kingdom defined benefit pension plan and
the implementation of a defined contribution plan.
Defined
Benefit Plans
We
maintain contributory defined benefit pension plans in the United Kingdom,
Ireland and Holland to provide retirement benefits to eligible employees. It is
our policy to fund the minimum annual contributions required by applicable
regulations. We use a December 31 measurement date for our plans.
Net
periodic pension cost consisted of the following ($ in thousands):
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Employer
service cost - benefits earned during the year |
|
$ |
2,821 |
|
|
2,254 |
|
|
8,533 |
|
|
Interest
cost on projected benefit obligation |
|
|
7,201 |
|
|
6,230 |
|
|
5,649 |
|
|
Expected
return on plan assets |
|
|
(8,843 |
) |
|
(6,797 |
) |
|
(7,309 |
) |
|
Net
amortization/deferrals |
|
|
35 |
|
|
167 |
|
|
50 |
|
|
Recognized
actual loss |
|
|
— |
|
|
389 |
|
|
— |
|
|
Net
periodic pension cost |
|
$ |
1,214 |
|
|
2,243 |
|
|
6,923 |
|
The
reduction in net periodic pension cost in 2003 and 2004 was as a result of the
curtailment of the UK defined benefit plan, which was replaced with the
implementation of a defined contribution plan effective January 1,
2003.
The
change in benefit obligation and plan assets and reconciliation of funded status
as of December 31, 2004, 2003 and 2002 are as follows ($ in
thousands):
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
Change
in benefit obligation: |
|
|
|
|
|
|
|
|
Projected
benefit obligation at beginning of year |
|
$ |
122,969 |
|
|
114,835 |
|
|
88,598 |
|
|
Service
cost |
|
|
2,821 |
|
|
2,254 |
|
|
8,533 |
|
|
Interest
cost |
|
|
7,201 |
|
|
6,230 |
|
|
5,649 |
|
|
Plan
participants' contributions |
|
|
266 |
|
|
225 |
|
|
232 |
|
|
Benefits
paid |
|
|
(4,529 |
) |
|
(6,374 |
) |
|
(3,589 |
) |
|
Actuarial
loss (gain) |
|
|
14,927 |
|
|
(7,235 |
) |
|
4,569 |
|
|
Changes
in foreign exchange rates |
|
|
10,329 |
|
|
13,350 |
|
|
10,843 |
|
|
Other |
|
|
85 |
|
|
(316 |
) |
|
— |
|
|
Projected
benefit obligation at end of year |
|
$ |
154,069 |
|
|
122,969 |
|
|
114,835 |
|
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
Change
in plan assets: |
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year |
|
$ |
123,450 |
|
|
93,777 |
|
|
95,522 |
|
|
Actual
return on plan assets |
|
|
12,565 |
|
|
20,329 |
|
|
(8,939 |
) |
|
Plan
contributions |
|
|
4,212 |
|
|
3,350 |
|
|
1,284 |
|
|
Benefits
paid |
|
|
(4,529 |
) |
|
(6,374 |
) |
|
(3,589 |
) |
|
Changes
in foreign exchange rates |
|
|
9,842 |
|
|
12,827 |
|
|
9,648 |
|
|
Other |
|
|
85 |
|
|
(459 |
) |
|
(149 |
) |
|
Fair
value of plan assets at end of year |
|
$ |
145,625 |
|
|
123,450 |
|
|
93,777 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of funded status: |
|
|
|
|
|
|
|
|
|
|
|
Funded
status |
|
$ |
(8,444 |
) |
|
481 |
|
|
(21,058 |
) |
|
Unrecognized
actuarial loss |
|
|
22,733 |
|
|
10,105 |
|
|
29,454 |
|
|
Unrecognized
prior service cost |
|
|
459 |
|
|
462 |
|
|
414 |
|
|
Net
amount recognized |
|
$ |
14,748 |
|
|
11,048 |
|
|
8,810 |
|
The
amounts recognized in the accompanying Consolidated Balance Sheet as of December
31, 2004, 2003 and 2002 are as follows ($ in thousands):
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Prepaid
pension asset |
|
$ |
2,253 |
|
|
11,920 |
|
|
9,646 |
|
|
Accrued
pension liability |
|
|
(623 |
) |
|
(872 |
) |
|
(836 |
) |
|
Minimum
pension liability |
|
|
(3,040 |
) |
|
— |
|
|
— |
|
|
Accumulated
other comprehensive income |
|
|
(10,872 |
) |
|
— |
|
|
— |
|
|
Net
amount recognized |
|
$ |
(12,282 |
) |
|
11,048 |
|
|
8,810 |
|
As
highlighted in the table above, an additional minimum pension liability was
recognized in other comprehensive income in 2004, as the accumulated benefit
obligation calculated for the UK exceeded the fair value of UK plan assets
at December 31, 2004. The
accumulated benefit obligation for all defined benefit pension plans was $149.4
million and $118.9 million at December 31, 2004 and 2003, respectively. The
projected benefit obligation, accumulated benefit obligation, and fair value of
plan assets as of December 31, 2004 and 2003 are as follows ($ in
millions):
| |
|
2004 |
|
2003 |
|
| |
|
|
|
|
|
|
Projected
benefit obligation |
|
$ |
154.1 |
|
|
123.0 |
|
|
Accumulated
benefit obligation |
|
|
149.4 |
|
|
118.9 |
|
|
Fair
value of plan assets |
|
|
145.6 |
|
|
123.4 |
|
|
Surplus/(Shortfall)
of plan assets to accumulated benefit obligation |
|
|
(3.8 |
) |
|
4.6 |
|
The
ranges of assumptions used in developing the projected benefit obligation as of
December 31 and in determining net periodic benefit cost for the years ended
December 31 were as follows:
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
Discount
rate used in determining |
|
|
|
|
|
|
|
|
present
values |
|
|
4.50%
to 5.60 |
% |
|
5.25%
to 5.90 |
% |
|
5.50%
to 6.00 |
% |
|
Annual
increase in future |
|
|
|
|
|
|
|
|
|
|
|
compensation
levels |
|
|
2.00%
to 4.30 |
% |
|
2.00%
to 4.10 |
% |
|
2.00%
to 3.80 |
% |
|
Expected
long-term rate of return |
|
|
|
|
|
|
|
|
|
|
|
on
assets |
|
|
4.50%
to 6.80 |
% |
|
5.25%
to 7.20 |
% |
|
5.50%
to 7.50 |
% |
Our
pension plan weighted-average asset allocations at December 31, 2004 and 2003 by
asset category are as follows:
| |
|
|
| |
|
Plan
Assets At December 31 |
| |
|
2004 |
|
2003 |
|
| |
|
|
|
|
|
|
Equity
securities |
|
|
66.2 |
% |
|
78.6 |
% |
|
Debt
securities |
|
|
26.3 |
% |
|
7.8 |
% |
|
Other |
|
|
7.5 |
% |
|
13.6 |
% |
Plan
assets consist of an actively-managed, diversified portfolio of equity
securities and fixed-income investments. With an overall objective of investing
the plan assets such that benefits can be paid when due, the investment policies
for the plans are guided by an overall objective of achieving, over the long
tern, a return on the investments which is consistent with, but not limited by,
the actuarial assumptions made in determining funding of the plans. Recognizing
the value of excess return over long-term interest rates in terms of the
potential for reducing costs and improving benefits, a competitive rate of
return is sought relative to an appropriate level of risk in managing the plan
assets portfolio.
Future
contributions and payments - We expect to contribute $4.4 million to our defined
benefit pension plans in 2005. Additionally, the following pension benefit
payments, which reflect expected future service, as appropriate, are expected to
be paid ($ in millions):
| |
|
Pension |
|
| |
|
Benefit
Payments |
|
|
2005 |
|
$ |
3.4 |
|
|
2006 |
|
|
3.8 |
|
|
2007 |
|
|
4.0 |
|
|
2008 |
|
|
4.3 |
|
|
2009 |
|
|
4.7 |
|
|
Thereafter |
|
|
27.8 |
|
Curtailment
- - On January 1, 2003 we curtailed the United Kingdom defined benefit plan and
implemented a defined contribution plan. No gain or loss was required to be
recognized as a result of the curtailment. The table below shows the impact of
the curtailment on the accumulated benefit obligation, the projected benefit
obligation and the fair value of the plan assets ($ in millions):
| |
|
At |
|
At |
|
| |
|
December
31, |
|
January
1, |
|
| |
|
2002 |
|
2003 |
|
| |
|
|
|
|
|
|
Projected
benefit obligation |
|
$ |
104.2 |
|
|
92.7 |
|
|
Accumulated
benefit obligation |
|
|
82.2 |
|
|
90.1 |
|
|
Fair
value of plan assets |
|
|
85.3 |
|
|
85.3 |
|
|
Surplus/(Shortfall)
of plan assets to accumulated benefit obligation |
|
|
3.1 |
|
|
(4.8 |
) |
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, as compared to December 31, 2002.
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 our UK pension plan assets were greater than our accumulated
benefit obligation under the plan. As required, we removed our minimum pension
liability. Under local laws and regulations we were not currently required to
fund the plan. However, given our current intent to ensure that the plan remains
funded to a reasonable level, we contributed pound sterling 1 million ($1.8
million) to the plan in the fourth quarter of 2003.
In the
third quarter of 2003 we identified that the accumulated benefit obligation of
the Ireland defined benefit plan exceeded the fair value of the plan assets by
$0.7 million. As a result of this, in the third quarter of 2003 we recorded a
minimum pension liability consisting of $0.7 million of excess accumulated
benefit obligation, 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 third quarter of 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 recorded were reversed in the fourth quarter of
2003.
(13)
Stock Option and Stock Compensation Plans
Stock
Award and Incentive Plan
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 for other stock awards to eligible employees of Jones Lang
LaSalle. Under the plan, the total number of shares of common stock available to
be issued is 9,110,000. The options are generally granted at the market value of
common stock at the date of grant. The options vest at such times and conditions
as the Compensation Committee of our Board of Directors determines and sets
forth in the award agreement. Such options granted in 2003 and 2002 vest over a
period of zero to five years. As a result of a change in compensation strategy,
we do not currently use stock option grants as part of our employee compensation
program; therefore, no options were granted in 2004. At December 31, 2004, 2003
and 2002, there were 1.5 million, 1.5 million and 2.4 million shares,
respectively, available for grant under the SAIP.
The per
share weighted-average fair value of options granted during 2003 and 2002 was
$7.85 and $11.61, respectively, on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions:
| |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
Expected
dividend yield |
|
|
0.00 |
% |
|
0.00 |
% |
|
Risk-free
interest rate |
|
|
3.56 |
% |
|
3.51 |
% |
|
Expected
life |
|
|
6
to 9 years |
|
|
6
to 9 years |
|
|
Expected
volatility |
|
|
42.85 |
% |
|
45.31 |
% |
|
Contractual
terms |
|
|
7
to 10 years |
|
|
7
to 10 years |
|
We
account for our stock option and stock compensation plans under the provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure" ("SFAS 148"). These provisions allow entities to continue to
apply the intrinsic value-based method under the provisions of APB Opinion 25,
"Accounting for Stock Issued to Employees," ("APB 25"), and provide disclosure
of pro forma net income and net income per share as if the fair value-based
method, defined in SFAS 123 as amended, had been applied. We have elected to
apply the provisions of APB 25 in accounting for stock options and other stock
awards, and accordingly, recognize no compensation expense for stock options
granted at the market value of our common stock on the date of
grant.
We have
recognized other stock awards, which we granted at prices below the market value
of our common stock on the date of grant, as compensation expense over the
vesting period of those awards pursuant to APB 25.
The
following table provides net income, and pro forma net income per common shares
as if the fair value-based method had been applied to all awards ($ in
thousands, except share data):
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Net
income, as reported |
|
$ |
64,242 |
|
|
36,065 |
|
|
27,110 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Add:
Stock-based employee compensation expense included in |
|
|
|
|
|
|
|
|
|
|
|
reported
net income, net of related tax effects |
|
|
16,280 |
|
|
10,696 |
|
|
7,478 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Deduct:
Total stock-based employee compensation expense |
|
|
|
|
|
|
|
|
|
|
|
determined
under fair-value-based method for all awards, |
|
|
|
|
|
|
|
|
|
|
|
net
of related tax effects |
|
|
(19,098 |
) |
|
(12,473 |
) |
|
(9,424 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net income |
|
$ |
61,424 |
|
|
34,288 |
|
|
25,164 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Basic—as
reported |
|
$ |
2.08 |
|
|
1.17 |
|
|
0.89 |
|
|
Basic—pro
forma |
|
$ |
1.99 |
|
|
1.11 |
|
|
0.83 |
|
|
Diluted—as
reported |
|
$ |
1.96 |
|
|
1.12 |
|
|
0.85 |
|
|
Diluted—pro
forma |
|
$ |
1.87 |
|
|
1.06 |
|
|
0.79 |
|
As
discussed above, we do not currently utilize stock option grants as part of our
employee compensation program. This reduction in use of options as part of our
compensation strategy is reflected in the next two tables below with the
reductions in options granted and outstanding in 2003 and 2004.
Stock
option activity in 2004, 2003 and 2002 is as follows (shares in
thousands):
| |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
Weighted |
|
|
|
Weighted |
|
|
|
Weighted |
|
| |
|
|
|
Average |
|
|
|
Average |
|
|
|
Average |
|
| |
|
|
|
Exercise
|
|
|
|
Exercise |
|
|
|
Exercise |
|
| |
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year |
|
|
3,036.3
|
|
$ |
21.20 |
|
|
3,282.5
|
|
$ |
20.98 |
|
|
3,327.9
|
|
$ |
20.68 |
|
|
Granted
|
|
|
— |
|
|
—
|
|
|
83.2
|
|
|
18.14
|
|
|
593.2
|
|
|
22.16 |
|
|
Exercised
|
|
|
(944.2 |
) |
|
21.58 |
|
|
(201.2 |
) |
|
12.56
|
|
|
(151.0 |
) |
|
13.23 |
|
|
Forfeited
|
|
|
(8.5 |
) |
|
30.51 |
|
|
(128.2 |
) |
|
27.30
|
|
|
(487.6 |
) |
|
22.75 |
|
|
Outstanding
at end of year |
|
|
2,083.6
|
|
$ |
21.92 |
|
|
3,036.3
|
|
$ |
21.20 |
|
|
3,282.5
|
|
$ |
20.98 |
|
The
following tables summarize information about fixed stock options outstanding at
December 31, 2004, 2003 and 2002:
|
Options
Outstanding |
|
Options
Exercisable |
|
| |
|
|
|
Weighted
Average |
|
|
|
|
|
|
|
| |
|
|
|
Remaining |
|
|
|
|
|
|
|
Range
of |
|
Number
|
|
Contractual |
|
Weighted
Average |
|
Number
|
|
Weighted
Average |
|
|
Exercise
Prices |
|
Outstanding
|
|
Life
|
|
Exercise
Price |
|
Exercisable
|
|
Exercise
Price |
|
| |
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
$
9.31-14.75 |
|
|
631,111
|
|
|
2.91
years |
|
$ |
12.77 |
|
|
557,374
|
|
$ |
12.72 |
|
|
$15.00-21.95
|
|
|
172,825
|
|
|
4.93 years
|
|
$ |
17.88 |
|
|
94,679
|
|
$ |
18.14 |
|
|
$23.00-35.06
|
|
|
1,276,638
|
|
|
2.54 years
|
|
$ |
26.95 |
|
|
1,028,584 |
|
$ |
27.86 |
|
|
$38.00-43.88
|
|
|
3,000
|
|
|
3.39
years |
|
$ |
39.00 |
|
|
3,000
|
|
$ |
39.00 |
|
|
$
9.31-43.88 |
|
|
2,083,574
|
|
|
2.85 years
|
|
$ |
21.92 |
|
|
1,683,637
|
|
$ |
22.32 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
9.31-14.75 |
|
|
1,109,585
|
|
|
3.84
years |
|
$ |
12.70 |
|
|
971,927
|
|
$ |
12.64 |
|
|
$15.00-21.95
|
|
|
232,588
|
|
|
5.37
years |
|
$ |
17.38 |
|
|
153,356
|
|
$ |
17.28 |
|
|
$23.00-35.06
|
|
|
1,691,144
|
|
|
3.32
years |
|
$ |
27.27 |
|
|
1,370,947
|
|
$ |
28.22 |
|
|
$38.00-43.88
|
|
|
3,000
|
|
|
4.39
years |
|
$ |
39.00 |
|
|
3,000
|
|
$ |
39.00 |
|
|
$
9.31-43.88 |
|
|
3,036,317
|
|
|
3.67
years |
|
$ |
21.20 |
|
|
2,499,230
|
|
$ |
21.50 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
9.31-14.75 |
|
|
1,320,134
|
|
|
4.78
years |
|
$ |
12.66 |
|
|
755,099
|
|
$ |
12.64 |
|
|
$15.00-21.95
|
|
|
164,530
|
|
|
5.26
years |
|
$ |
16.79 |
|
|
93,456
|
|
$ |
16.90 |
|
|
$23.00-35.06
|
|
|
1,794,877
|
|
|
4.29
years |
|
$ |
27.46 |
|
|
1,279,077
|
|
$ |
29.17 |
|
|
$38.00-43.88
|
|
|
3,000
|
|
|
5.39
years |
|
$ |
39.00 |
|
|
2,400
|
|
$ |
39.00 |
|
|
$
9.31-43.88 |
|
|
3,282,541
|
|
|
4.54
years |
|
$ |
20.98 |
|
|
2,130,032
|
|
$ |
22.78 |
|
Other
Stock Compensation Programs
Stock
Ownership Program - In 1999, we established a stock ownership program
(“SOP”)
for certain of our employees pursuant to which they were paid a portion of their
annual bonus in the form of restricted stock units (“RSUs”) of our common
stock. We enhanced the number of shares by 20% with respect to the 1999 plan
year, and by 25% with respect to plan years beginning in 2000. These restricted
shares are drawn from the SAIP and vest in two parts: 50% at 18 months and 50%
at 30 months, in each case from the date of grant (i.e., vesting starts in
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 twelve months of the year to which the payment of
restricted stock relates, plus the periods over which the stock vests. In 2002,
we expanded the population of employees who qualified for this program as part
of our goal of broadening employee stock ownership.
The
following table sets forth the details of our stock ownership program (in
millions, except Shares/RSUs Issued/Outstanding and Weighted Average Market
Value):
|
As
of December 31, 2004 |
|
|
|
| |
|
Shares/RSUs |
|
Weighted |
|
Deferred |
|
Net
Amortization for |
|
Grant |
|
Issued/ |
|
Average
Market |
|
Compensation |
|
Years
Ending December 31, |
|
|
Year |
|
Outstanding |
|
Value |
|
Expense |
|
2004 |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999
|
|
|
493,204 |
|
$ |
11.31 |
|
$ |
5.8 |
|
$ |
— |
|
|
—
|
|
|
(0.4 |
) |
|
2000
|
|
|
646,865 |
|
$ |
13.50 |
|
$ |
8.2 |
|
|
—
|
|
|
(0.8 |
) |
|
(2.4 |
) |
|
2001
|
|
|
306,542 |
|
$ |
17.80 |
|
$ |
5.8 |
|
|
(0.6 |
) |
|
(1.6 |
) |
|
(2.1 |
) |
|
2002
|
|
|
619,666 |
|
$ |
15.89 |
|
$ |
10.6 |
|
|
(2.1 |
) |
|
(3.4 |
) |
|
(3.8 |
) |
|
2003
|
|
|
635,251 |
|
$ |
20.89 |
|
$ |
14.4 |
|
|
(4.3 |
) |
|
(4.8 |
) |
|
— |
|
|
2004
|
|
|
605,000 |
|
$ |
37.58 |
|
$ |
22.8 |
|
|
(7.8 |
) |
|
—
|
|
|
— |
|
| |
|
|
3,306,528 |
|
|
|
|
|
|
|
$ |
(14.8 |
) |
|
(10.6 |
) |
|
(8.7 |
) |
At
December 31, 2004, all SOP grants from 1999, 2000 and 2001 have vested such that
actual shares of Jones Lang LaSalle common stock are outstanding. Under the 2002
SOP grant, 320,193 shares have vested and been issued while 299,473 RSUs remain
unvested. All RSUs under the 2003 SOP grant remain unvested at December 31,
2004, and the 2004 RSUs in the table above are an estimate of the shares to be
issued under the SOP from 2004 deferred compensatation
calculations.
Restricted
Stock - We award restricted stock units of our common stock to certain of our
employees and members of our Board of Directors. These shares are drawn from the
SAIP. The related compensation cost is amortized to expense over the vesting
period. These shares generally vest 50% at 40 months and 50% at 64 months, in
each case from the date of grant.
The
following table sets forth the details of our restricted stock grants (in
millions, except Shares/RSUs Issued/Outstanding and Weighted Average Market
Value):
|
As
of December 31, 2004 |
|
|
|
|
|
|
|
| |
|
Shares/RSUs |
|
Weighted |
|
Deferred |
|
Net
Amortization for |
|
Grant |
|
Issued/ |
|
Average
Market |
|
Compensation |
|
Years
Ending December 31, |
|
|
Year |
|
Outstanding |
|
Value |
|
Expense |
|
2004 |
|
2003 |
|
2002 |
|
|
2000
|
|
|
305,625 |
|
$ |
12.31 |
|
$ |
3.9 |
|
$ |
(0.3 |
) |
|
(0.2 |
) |
|
(0.7 |
) |
|
2002
|
|
|
402,499 |
|
$ |
19.15 |
|
$ |
8.4 |
|
|
(1.8 |
) |
|
(2.5 |
) |
|
(1.7 |
) |
|
2003
|
|
|
384,748 |
|
$ |
14.08 |
|
$ |
6.1 |
|
|
(1.2 |
) |
|
(1.6 |
) |
|
— |
|
|
2004
|
|
|
396,891 |
|
$ |
23.93 |
|
$ |
10.6 |
|
|
(2.2 |
) |
|
—
|
|
|
— |
|
| |
|
|
1,489,763 |
|
|
|
|
|
|
|
$ |
(5.5 |
) |
|
(4.3 |
) |
|
(2.4 |
) |
Shares
vested and issued in the table above include 165,938 shares granted in 2000,
74,166 shares granted in 2002, and 32,499 shares granted in 2003. All other
shares/RSUs in the table above are RSUs to vest in the future at various
dates.
U.S.
Employee Stock Purchase Plan - In 1998, we adopted an Employee Stock Purchase
Plan ("ESPP") for eligible U.S. based employees. Under this plan, employee
contributions for stock purchases will be enhanced by us through an additional
contribution of a 15% discount on the purchase price. Employee contributions and
our contributions vest immediately. As of December 31, 2004, 1,131,698 shares
have been purchased under this plan. During 2004 and 2003, 182,534 shares and
192,474 shares, respectively, having weighted-average grant-date market values
of $19.81 and $13.47, respectively, were purchased under the program. No
compensation expense is recorded with respect to this
program.
UK SAYE -
In November 2001, we established the Jones Lang LaSalle Savings Related Share
Option (UK) Plan ("Save As You Earn" or "SAYE") for employees of our UK based
operations. Our Compensation Committee approved the reservation of 500,000
shares for the SAYE on May 14, 2001. Under the SAYE Plan, employees had a one
time opportunity to enter into a tax efficient savings program linked to the
option to purchase our stock. The employees' contributions for stock purchases
will be enhanced by Jones Lang LaSalle through an additional contribution of a
15% discount on the purchase price. Both employee and employer contributions
vest over a period of three to five years, with the first vesting to occur in
2005. The SAYE Plan resulted in the issuance of 219,954 options in 2002 at an
exercise price of $13.63. Our contribution of $528,000 is recorded as
compensation expense over the vesting period which began January 1,
2002.
SCA - In
1997 and 1998, we maintained the Stock Compensation Allocation (SCA) programs
for eligible employees. Under these programs, employee contributions for bonuses
for stock purchases were enhanced by us through an additional contribution of a
15% discount on the purchase price. Employee contributions vested immediately
while our contributions were subject to various vesting periods. The related
compensation cost was amortized to expense over the vesting period. 207,022
total shares were paid into this program. As of December 31, 2001, all
compensation expense related to these shares has been recognized, therefore,
there is no such expense after December 31, 2001. As of December 31, 2004,
198,514 shares have been distributed under this program with the remaining
shares to be distributed in the future. This program was suspended in 1999,
therefore no further contributions will be made. The SCA was merged into the
SAIP in 2002.
(14)
Transactions with Affiliates
As part
of our co-investment strategy we have equity interests in real estate ventures,
some of which have certain of our officers as trustees or board of director
members, and from which we earn advisory and management fees. Included in the
accompanying Consolidated Financial Statements are revenues of $65.0 million,
$32.5 million and $53.9 million for 2004, 2003 and 2002, respectively, as well
as receivables of $13.3 million, $6.5 million and $12.3 million at December 31,
2004, 2003 and 2002, respectively, related to these equity
interests.
We also
earn fees and commissions for services rendered to affiliates of Dai-ichi Life
Property Holdings, Inc. and Gothaer Lebensverschenrung A.G., each of which was a
significant shareholder during 2004. Included in the accompanying Consolidated
Financial Statements are revenues from such affiliates of $1.7 million and $4.9
million for 2003 and 2002, respectively, as well as receivables for reimbursable
expenses and revenues as of December 31, 2003 and 2002 of $0.1 million and $0.2
million, respectively. We did not earn fees and commissions for services
rendered to affiliates of Dai-ichi Life Property Holdings, Inc. in 2004.
Gothaer Lebensversicherung A.G. sold all of its interest in Jones Lang
LaSalle during 2004 and is no longer a shareholder.
From time
to time, Directors and executive officers are given the opportunity to invest in
investment vehicles managed by subsidiaries of Jones Lang LaSalle on the same
terms as other affiliated investors. Additionally, executive officers and other
employees have been, and in the future may be, allowed to acquire small
interests in certain investment vehicles in order that these vehicles can
satisfy certain tax requirements; such investments are made on the same terms as
unaffiliated investors in LaSalle Investment Company ("LIC"). Jones Lang LaSalle
uses LIC as the investment vehicle for substantially all of its co-investments
with LaSalle Investment Management clients. LIC is a series of four parallel
limited partnerships of which Jones Lang LaSalle has an effective 47.85%
interest through two of the limited partnerships. Primarily institutional
investors hold the remaining 52.15% interest in LIC. As of December 31, 2004,
Stuart L. Scott, who was a member of our Board of Directors until his retirement
on December 31, 2004, and who was our interim Chief Executive Officer from
January 2004 through August 2004, through an entity owned by Mr. Scott, has
invested euro 723,058 and committed to invest a total of euro 2,500,000 through
LIC. In addition, as of December 31, 2004, Thomas C. Theobold, a non-Executive
Director, and entities affiliated with him, invested euro 1,014,280 and have
committed to invest a total of euro 3,500,000 through LIC. Finally, while
Gothaer Lebensversicherung A.G. sold all of its interest in Jones Lang LaSalle
in 2004, it has retained its investment and commitments to LIC. As of December
31, 2004, Gothaer Lebensversicherung A.G. has invested euro 14,461,154 and has
committed to invest a total of euro 40,000,000 through LIC.
Darryl
Hartley-Leonard and Sir Derek Higgs, who are members of our Board of Directors,
and Jackson P. Tai, who was a member of our Board of Directors until his
resignation in October 2004, are also directors and/or officers of clients of
ours in the ordinary course of business, namely PGI, Inc., British Land Company
PLC, and DBS Bank, respectively. Included in the accompanying Consolidated
Financial Statements are aggregate revenues from such clients of $1.5 million,
$2.4 million and $2.8 million for 2004, 2003 and 2002, respectively, as well as
receivables of $0.1 million, $0.5 million and $1.0 million at December 31, 2004,
2003 and 2002, respectively.
Stuart L.
Scott and an entity affiliated with Mr. Scott are limited partners of Diverse
Real Estate Holdings Limited Partnership ("Diverse"). Diverse has an ownership
interest in and operates investment assets, primarily as the managing general
partner of real estate development ventures. Prior to January 1, 1992, Jones
Lang LaSalle earned fees for providing development advisory services to Diverse
as well as fees for the provision of administrative services. Effective January
1, 1992, Jones Lang LaSalle discontinued charging fees to Diverse for these
services. In 1992, Diverse began the process of discontinuing its operations and
disposing of its assets. Given a projected shortfall in assets, Jones Lang
LaSalle established reserves against its receivable from Diverse in the period
1992 to 1997. At the beginning of 2002, the net receivable due from Diverse in
connection with such fees and interest thereon was $0.7 million. The underlying
collateral security for this receivable was significantly enhanced in 2002. As
such, $2.0 million of bad debt reserves were reversed in 2002. At December 31,
2004, the net receivable due from Diverse was $963,000. Mr. Scott directly holds
an approximately 13.4% partnership interest in Diverse. In addition, the Stuart
Scott Trust, a trust affiliated with Mr. Scott, has a 6.4% partnership interest
in Diverse.
During
2003, each of Mr. Scott and another senior officer of the Company personally
acquired, on the same terms and conditions offered to other investors, preferred
stock convertible into less than 1% of the common stock on a fully-diluted basis
issued by SiteStuff, Inc. ("SiteStuff"). SiteStuff serves clients in the real
estate industry by helping them reduce procurement through discounted volume
purchasing and through streamlined processes for purchasing maintenance, repair
and operating products and services. Jones Lang LaSalle currently holds
approximately 20% of the equity issued by SiteStuff on a fully-diluted basis and
has a representative on the SiteStuff board of directors. Jones Lang LaSalle
also acquires services from SiteStuff in the ordinary course of business for
itself and on behalf of clients. As part of the approval they obtained from our
Board of Directors to make their personal investments, Mr. Scott and our other
officer agreed that, while they remain our employees, they would give Jones Lang
LaSalle their proxy for any SiteStuff matters for which they were eligible to
vote as equity holders.
The
outstanding balance of loans to employees at December 31, 2004 is shown in the
following table ($ in millions). (1)
| |
|
2004 |
|
| |
|
|
|
|
Loans
related to Co-Investments (2) |
|
$ |
1.0 |
|
|
Travel,
relocation and other miscellaneous advances |
|
|
1.9 |
|
| |
|
$ |
2.9 |
|
(1)
The Company has not extended or maintained credit, arranged for the extension of
credit, or renewed the extension of credit, in the form of a personal loan to or
for any Director or executive officer of the Company since the enactment of the
Sarbanes-Oxley Act of 2002.
(2)
These loans have been made to allow employees the ability to participate in
investment fund opportunities. With the exception of approximately $150,000 of
these co-investment related loans, all loans are nonrecourse loans.
(15)
Accounting for Business Combinations, Goodwill and Other Intangible
Assets
We apply
SFAS No. 141, "Business Combinations" ("SFAS 141"), when accounting for business
combinations. SFAS 141 requires that the purchase method of accounting be used
for all business combinations completed after June 30, 2001. SFAS 141 also
specifies that intangible assets acquired in a purchase method business
combination must meet certain criteria to be recognized and reported apart from
goodwill.
The
Americas IOS business completed two acquisitions during 2004. As a result of
these acquisitions, as of December 31, 2004 we have:
| |
• |
Paid
purchase consideration of $0.5 million; |
| |
• |
Recorded
liabilities for future purchase consideration of $2.3
million; |
| |
• |
Recorded
$2.2 million of goodwill with indefinite useful lives;
and |
| |
• |
Recorded
$0.6 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.
We apply
SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), when
accounting for goodwill and other intangible assets. SFAS 142 requires that
goodwill and intangible assets with indefinite useful lives not be amortized,
but instead evaluated for impairment at least annually. 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. Under SFAS 142,
we define reporting units as Investment Management, Americas IOS, Australia IOS,
Asia IOS, and by country groupings in Europe IOS. We then 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 2004
and 2003 evaluations was that the fair value of each reporting unit exceeded its
carrying amount, and therefore we did not recognize an impairment loss in either
year.
We have
$351.7 million of unamortized intangibles and goodwill as of December 31, 2004
that are subject to the provisions of SFAS 142. A significant portion of these
unamortized intangibles and goodwill are denominated in currencies other than
U.S. dollars, which means that a portion of the movements in the reported book
value of these balances are attributable to movements in foreign currency
exchange rates. The tables below set forth further details on the foreign
exchange impact on intangible and goodwill balances. Of the $351.7 million of
unamortized intangibles and goodwill, $343.3 million represents goodwill with
indefinite useful lives, which we ceased amortizing beginning January 1, 2002.
The remaining $8.4 million of identifiable intangibles (principally representing
management contracts acquired) will be amortized over their remaining definite
useful lives.
The
following table sets forth, by reporting segment, the movements in the gross
carrying amount and accumulated amortization of our goodwill with indefinite
useful lives ($ in thousands):
| |
|
Investor
and Occupier Services |
|
|
|
| |
|
|
|
|
|
Asia
|
|
Investment |
|
|
|
| |
|
Americas
|
|
Europe
|
|
Pacific
|
|
Management
|
|
Consolidated |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2003 |
|
$ |
179,335 |
|
|
58,145
|
|
|
82,755
|
|
|
31,640
|
|
|
351,875 |
|
|
Impact
of exchange rate movements |
|
|
19
|
|
|
7,055
|
|
|
10,822
|
|
|
2,552
|
|
|
20,448 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2004 |
|
|
179,354
|
|
|
65,200
|
|
|
93,577
|
|
|
34,192
|
|
|
372,323 |
|
|
Acquisitions
|
|
|
2,249
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,249 |
|
|
Impact
of exchange rate movements |
|
|
(73 |
) |
|
4,059
|
|
|
1,306
|
|
|
1,840
|
|
|
7,132 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2004 |
|
$ |
181,530 |
|
|
69,259
|
|
|
94,883
|
|
|
36,032
|
|
|
381,704 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2003 |
|
$ |
(15,531 |
) |
|
(4,704 |
) |
|
(5,835 |
) |
|
(10,328 |
) |
|
(36,398 |
) |
|
Impact
of exchange rate movements |
|
|
— |
|
|
(550 |
) |
|
(784 |
) |
|
(437 |
) |
|
(1,771 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2004 |
|
|
(15,531 |
) |
|
(5,254 |
) |
|
(6,619 |
) |
|
(10,765 |
) |
|
(38,169 |
) |
|
Impact
of exchange rate movements |
|
|
73
|
|
|
127
|
|
|
(114 |
) |
|
(307 |
) |
|
(221 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2004 |
|
|
(15,458 |
) |
|
(5,127 |
) |
|
(6,733 |
) |
|
(11,072 |
) |
|
(38,390 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value |
|
$ |
166,072 |
|
|
64,132
|
|
|
88,150
|
|
|
24,960
|
|
|
343,314 |
|
The
following table sets forth, by reporting segment, the movements in the gross
carrying amount and accumulated amortization of our intangibles with definite
useful lives ($ in thousands):
| |
|
Investor
and Occupier Services |
|
|
|
| |
|
|
|
|
|
Asia
|
|
Investment |
|
|
|
| |
|
Americas
|
|
Europe
|
|
Pacific
|
|
Management
|
|
Consolidated |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2003 |
|
$ |
39,377 |
|
|
819
|
|
|
2,296
|
|
|
4,780
|
|
|
47,272 |
|
|
Impact
of exchange rate movements |
|
|
(13 |
) |
|
92
|
|
|
761
|
|
|
538
|
|
|
1,378 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2004 |
|
|
39,364
|
|
|
911
|
|
|
3,057
|
|
|
5,318
|
|
|
48,650 |
|
|
Acquisitions
|
|
|
561
|
|
|
—
|
|
|
— |
|
|
— |
|
|
561 |
|
|
Impact
of exchange rate movements |
|
|
— |
|
|
(128 |
) |
|
115
|
|
|
394
|
|
|
381 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2004 |
|
$ |
39,925 |
|
|
783
|
|
|
3,172
|
|
|
5,712
|
|
|
49,592 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2003 |
|
$ |
(22,494 |
) |
|
(435 |
) |
|
(1,219 |
) |
|
(4,780 |
) |
|
(28,928 |
) |
|
Amortization
expense |
|
|
(4,780 |
) |
|
(104 |
) |
|
(331 |
) |
|
—
|
|
|
(5,215 |
) |
|
Impact
of exchange rate movements |
|
|
—
|
|
|
(59 |
) |
|
(456 |
) |
|
(538 |
) |
|
(1,053 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2004 |
|
|
(27,274 |
) |
|
(598 |
) |
|
(2,006 |
) |
|
(5,318 |
) |
|
(35,196 |
) |
|
Amortization
expense |
|
|
(5,150 |
) |
|
(116 |
) |
|
(374 |
) |
|
—
|
|
|
(5,640 |
) |
|
Impact
of exchange rate movements |
|
|
(16 |
) |
|
102
|
|
|
(98 |
) |
|
(394 |
) |
|
(406 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2004 |
|
$ |
(32,440 |
) |
|
(612 |
) |
|
(2,478 |
) |
|
(5,712 |
) |
|
(41,242 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value |
|
$ |
7,485 |
|
|
171
|
|
|
694
|
|
|
—
|
|
|
8,350 |
|
The
following table sets forth the estimated future amortization expense of our
intangibles with definite useful lives:
Estimated
Annual Amortization Expense
For year
ended December 31, 2005 $5.0
million
For year
ended December 31, 2006 $3.4
million
For year
ended December 31, 2007 None
Amortization
of goodwill with indefinite lives was $9.6 million for the twelve months ended
December 31, 2001. As a result of adopting SFAS 142, on January 1, 2002 we
credited $846,000 to the income statement, as the cumulative effect of a change
in accounting principle, which represented our negative goodwill balance at
January 1, 2002. The gross carrying amount of this negative goodwill (which
related to the Americas IOS reporting segment) at January 1, 2002 was $1.4
million with accumulated amortization of $565,000. Other than the prospective
non-amortization of goodwill, which results in a non-cash improvement in our
operating results, the adoption of SFAS 142 did not have a material effect on
our revenue, operating results or liquidity.
In
accordance with SFAS 142, the effect of this accounting change is applied
prospectively. Supplemental comparative disclosure as if the change had been
retroactively applied to the prior periods is as follows ($ in thousands, except
share data):
| |
|
2004
|
|
2003
|
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Reported
net income |
|
$ |
64,242 |
|
|
36,065
|
|
|
27,110 |
|
|
Add
back: Cumulative effect of change in accounting principle |
|
|
—
|
|
|
—
|
|
|
(846 |
) |
|
Adjusted
net income |
|
$ |
64,242 |
|
|
36,065
|
|
|
26,264 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share |
|
$ |
2.08 |
|
|
1.17
|
|
|
0.89 |
|
|
Add
back: Cumulative effect of change in accounting principle |
|
|
—
|
|
|
—
|
|
|
(0.03 |
) |
|
Adjusted
basic earnings per common share |
|
$ |
2.08 |
|
|
1.17
|
|
|
0.86 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share |
|
$ |
1.96 |
|
|
1.12
|
|
|
0.85 |
|
|
Add
back: Cumulative effect of change in accounting principle |
|
|
—
|
|
|
—
|
|
|
(0.03 |
) |
|
Adjusted
diluted earnings per common share |
|
$ |
1.96 |
|
|
1.12
|
|
|
0.82 |
|
(16)
Commitments and Contingencies
As of
December 31, 2004, Jones Lang LaSalle and certain of our subsidiaries had $0.7
million of co-investment indebtedness guarantees outstanding to third-party
lenders. As discussed in Note 8, we apply FIN 45 to recognize and measure the
provisions of these guarantees. The $0.7 million of guarantees represents the
maximum future payments that Jones Lang LaSalle could be required to make under
such guarantees. These guarantees relate to collateralized borrowings by
project-level entities, and certain of the guarantees have terms extending out
until 2007. Repayment could be requested by the third-party lenders in the event
that one of the project level entities fails to repay its borrowing. We do not
expect to incur any material losses under these guarantees.
We are a
defendant in various litigation matters arising in the ordinary course of
business, some of which involve claims for damages that are substantial in
amount. Many of these litigation matters are covered by insurance (including
insurance provided through a captive insurance company), although they may
nevertheless be subject to large deductibles or retentions and the amounts being
claimed may exceed the available insurance. Although the ultimate liability for
these matters cannot be determined, based upon information currently available,
we believe the ultimate resolution of such claims and litigation will not have a
material adverse effect on our financial position, results of operations or
liquidity.
On
November 8, 2002, Bank One N.A. ("Bank One") filed suit against the Company and
certain of its subsidiaries in the Circuit Court of Cook County, Illinois with
regard to services provided in 1999 and 2000 under 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 $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 that Bank One owes 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 filed 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. In November 2004, in response to the Company's
motion for Partial Summary Judgment, the court dismissed six of the ten counts
of Bank One's amended complaint, including claims of breach of
fiduciary duty. Remaining are counts for breach of contract,
fraudulent misrepresentation and fraudulent concealment. The Company
continues to aggressively defend the remaining counts of the suit and pursue its
claims. While there can be no assurance, the Company continues to believe that
the remaining counts of the amended complaint are without merit and, as
such, will not have a material adverse impact on our financial position, results
of operations, or liquidity. In addition, as a result of the recent rulings and
information produced in discovery, any recoverable damages claims are
substantially reduced from Bank One's initial claims. As of the date of
this report, no trial date has been set. 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.
Quarterly
Results of Operations (Unaudited)
The
following table sets forth certain unaudited consolidated statements of earnings
data for each of our last eight quarters. In our opinion, this information has
been presented on the same basis as the audited consolidated financial
statements appearing elsewhere in this report, and includes all adjustments,
consisting only of normal recurring adjustments and accruals, that we consider
necessary for a fair presentation. The unaudited consolidated quarterly
information should be read in conjunction with our Consolidated Financial
Statements and the notes thereto as well as the "Summary of Critical Accounting
Policies and Estimates" section within "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The operating results for any
quarter are not necessarily indicative of the results for any future
period.
We would
note the following points regarding how we prepare and present our financial
statements on a periodic basis.
Periodic
Accounting for Incentive Compensation
An
important part of our overall compensation package is incentive compensation,
which is typically paid out to employees in the first quarter of the year after
it is earned. In our interim financial statements we accrue for incentive
compensation based on the percentage of revenue and compensation costs recorded
to date relative to forecasted revenue and compensation costs for the full year
as substantially all incentive compensation pools are based upon revenues and
profits. The impact of this incentive compensation accrual methodology is that
we accrue very little incentive compensation in the first six months of the
year, with the majority of our incentive compensation accrued in the second half
of the year, particularly in the fourth quarter. We adjust the incentive
compensation accrual in those unusual cases where earned incentive compensation
has been paid to employees.
In
addition, we exclude from the standard accrual methodology incentive
compensation pools that are not subject to the normal performance criteria.
These pools are accrued for on a straight-line basis.
Certain
employees receive a portion of their incentive compensation in the form of
restricted stock units of our common stock. We recognize this compensation over
the vesting period of these restricted stock units, which has the effect of
deferring a portion of current year incentive compensation to later years.
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 began 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.
The
following table reflects the credit recorded to the income statement for the
earned portion of the stock ownership program for each period in 2004 and 2003
($ in millions):
| |
|
2004
|
|
2003 |
|
| |
|
|
|
|
|
|
Three
months ended March 31, |
|
$ |
0.9 |
|
$ |
— |
|
|
Six
months ended June 30, |
|
|
3.5
|
|
|
— |
|
|
Nine
months ended September 30, |
|
|
5.4
|
|
|
2.1 |
|
|
Twelve
months ended December 31, |
|
|
15.0
|
|
|
9.6 |
|
Common
Share Purchase Rights
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 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 rights at January 1, 2001 was $954,000
and the fair value has ranged from $200,000 to $1.4 million in the periods since
that time due to stock market fluctuation. At December 31, 2003, the fair value
of these rights was $1.4 million, which we included in the investments in
unconsolidated real estate ventures on the Consolidated Balance Sheet. We
recorded a pre-tax gain of $1.3 million in equity earnings in the third quarter
of 2003, of which approximately $800,000 represented the impact of correcting
this error. During the first quarter of 2004, market conditions became favorable
for us to begin disposing of these common share purchase rights, and we made the
disposition during the first and second quarters of 2004. We no longer hold any
such rights, and we do not own any other instruments of this nature. We do not
believe that the correction of this error is material to the 2004, 2003 or 2002
consolidated financial statements or in any quarter of these years.
Additionally, we do not believe that the correction of this error is material to
consolidated earnings trends.
Income
Taxes
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. We assess our
effective tax rate on a quarterly basis and reflect the benefit from tax
planning actions when we believe it is probable they will be successful, which
usually requires that certain actions have been initiated. We account for the
cumulative catch-up impact of any change in estimated effective tax rate in the
quarter that a change is made.
The
effective tax rate we applied to recurring operations for 2004 and 2003 was as
follows:
| |
|
2004
|
|
2003 |
|
| |
|
|
|
|
|
|
Three
months ended March 31, |
|
|
28 |
% |
|
34 |
% |
|
Six
months ended June 30, |
|
|
28 |
% |
|
34 |
% |
|
Nine
months ended September 30, |
|
|
28 |
% |
|
32 |
% |
|
Twelve
months ended December 31, |
|
|
25 |
% |
|
28 |
% |
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.
Jones
Lang LaSalle Incorporated Quarterly Information
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
($
in thousands, except share data) |
|
March
31 |
|
June
30 |
|
Sept.
30 |
|
Dec.
31 |
|
Year
2004 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
Investor
& Occupier Services: |
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$ |
63,893 |
|
|
80,986
|
|
|
83,642
|
|
|
142,687
|
|
$ |
371,208 |
|
|
Europe
|
|
|
89,908
|
|
|
102,374
|
|
|
99,509
|
|
|
150,827
|
|
|
442,618 |
|
|
Asia
Pacific |
|
|
40,183
|
|
|
51,913
|
|
|
56,233
|
|
|
73,028
|
|
|
221,357 |
|
|
Investment
Management |
|
|
28,884
|
|
|
35,936
|
|
|
31,801
|
|
|
53,788
|
|
|
150,409 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Intersegment
revenue |
|
|
(82 |
) |
|
(299 |
) |
|
(234 |
) |
|
(572 |
) |
|
(1,187 |
) |
|
Equity
in earnings from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unconsolidated
ventures |
|
|
(2,123 |
) |
|
(6,914 |
) |
|
(1,034 |
) |
|
(7,376 |
) |
|
(17,447 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue |
|
|
220,663
|
|
|
263,996
|
|
|
269,917
|
|
|
412,382
|
|
|
1,166,958 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
& Occupier Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
64,778
|
|
|
73,286
|
|
|
73,880
|
|
|
105,751
|
|
|
317,695 |
|
|
Europe
|
|
|
91,809
|
|
|
97,302
|
|
|
96,589
|
|
|
138,679
|
|
|
424,379 |
|
|
Asia
Pacific |
|
|
44,750
|
|
|
50,825
|
|
|
54,507
|
|
|
65,238
|
|
|
215,320 |
|
|
Investment
Management |
|
|
26,188
|
|
|
28,466
|
|
|
25,343
|
|
|
38,596
|
|
|
118,593 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Intersegment expenses |
|
|
(82 |
) |
|
(299 |
) |
|
(234 |
) |
|
(572 |
) |
|
(1,187 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring
and restructuring charges |
|
|
(20 |
) |
|
(910 |
) |
|
(1,408 |
) |
|
4,975
|
|
|
2,637 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses |
|
|
227,423
|
|
|
248,670
|
|
|
248,677
|
|
|
352,667
|
|
|
1,077,437 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) |
|
$ |
(6,760 |
) |
|
15,326
|
|
|
21,240
|
|
|
59,715
|
|
$ |
89,521 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) |
|
$ |
(6,085 |
) |
|
5,067
|
|
|
15,305
|
|
|
49,955
|
|
$ |
64,242 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share |
|
$ |
(0.20 |
) |
|
0.17
|
|
|
0.49
|
|
|
1.62
|
|
$ |
2.08 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per common share |
|
$ |
(0.20 |
) |
|
0.16
|
|
|
0.47
|
|
|
1.52 |
|
$ |
1.96 |
|
Jones
Lang LaSalle Incorporated Quarterly Information
(unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
($
in thousands, except share data) |
|
March
31 |
|
June
30 |
|
Sept.
30 |
|
Dec.
31 |
|
Year
2003 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
Investor
& Occupier Services: |
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$ |
59,524 |
|
|
66,701
|
|
|
68,293
|
|
|
119,000
|
|
$ |
313,518 |
|
|
Europe
|
|
|
71,302
|
|
|
82,012
|
|
|
81,884
|
|
|
115,934
|
|
|
351,132 |
|
|
Asia
Pacific |
|
|
32,563
|
|
|
41,242
|
|
|
42,131
|
|
|
56,718
|
|
|
172,654 |
|
|
Investment
Management |
|
|
24,592
|
|
|
23,872
|
|
|
25,860
|
|
|
38,977
|
|
|
113,301 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Intersegment revenue |
|
|
(69 |
) |
|
(270 |
) |
|
(93 |
) |
|
(328 |
) |
|
(760 |
) |
|
Equity
in earnings from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unconsolidated
ventures |
|
|
(80 |
) |
|
285
|
|
|
77
|
|
|
(8,233 |
) |
|
(7,951 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue |
|
|
187,832
|
|
|
213,842
|
|
|
218,152
|
|
|
322,068
|
|
|
941,894 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
& Occupier Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
61,075
|
|
|
64,005
|
|
|
60,459
|
|
|
90,136
|
|
|
275,675 |
|
|
Europe
|
|
|
72,746
|
|
|
79,606
|
|
|
79,324
|
|
|
106,438
|
|
|
338,114 |
|
|
Asia
Pacific |
|
|
37,801
|
|
|
40,873
|
|
|
42,603
|
|
|
54,118
|
|
|
175,395 |
|
|
Investment
Management |
|
|
23,200
|
|
|
22,456
|
|
|
21,241
|
|
|
27,977
|
|
|
94,874 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Intersegment expenses |
|
|
(69 |
) |
|
(270 |
) |
|
(93 |
) |
|
(328 |
) |
|
(760 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring
and restructuring charges |
|
|
56
|
|
|
4,097
|
|
|
(1,451 |
) |
|
1,659
|
|
|
4,361 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses |
|
|
194,809
|
|
|
210,767
|
|
|
202,083
|
|
|
280,000
|
|
|
887,659 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) |
|
$ |
(6,977 |
) |
|
3,075 |
|
|
16,089 |
|
|
42,068 |
|
$ |
54,235 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) |
|
$ |
(7,247 |
) |
|
(1,415 |
) |
|
7,411
|
|
|
37,316
|
|
$ |
36,065 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share |
|
$ |
(0.24 |
) |
|
(0.05 |
) |
|
0.24
|
|
|
1.20
|
|
$ |
1.17 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per common share |
|
$ |
(0.24 |
) |
|
(0.05 |
) |
|
0.23
|
|
|
1.14
|
|
$ |
1.12 |
|
Jones
Lang LaSalle Incorporated
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
($ in
thousands)
| |
|
Balance
at |
|
|
|
|
|
Balance |
|
| |
|
Beginning
|
|
Costs
and |
|
|
|
at
End |
|
|
Description
|
|
of
Period |
|
Expenses
|
|
Deductions
(A) |
|
of
Period |
|
| |
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable Reserves |
|
$ |
4,790 |
|
|
3,801 |
|
|
1,931
|
|
$ |
6,660 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable Reserves |
|
$ |
4,992 |
|
|
1,579
|
|
|
1,781
|
|
$ |
4,790 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable Reserves (B) |
|
$ |
5,887 |
|
|
262
|
|
|
1,157
|
|
$ |
4,992 |
|
(A)
Includes primarily write-offs of uncollectible accounts.
(B) Costs
and expenses for 2002 are net of the $2.0 million reversal of bad debt reserves
relating to Diverse.
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item
9A. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Jones
Lang LaSalle (the Company) has established disclosure controls and procedures to
ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to the officers who certify the
Company's financial reports and to the members of senior management and the
Board of Directors.
Based on
management's evaluation as of December 31, 2004, the principal executive officer
and principal financial officer of the Company have concluded that the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective.
Management's
Report on Internal Control Over Financial Reporting
The
Company's management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our principal executive officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal
Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our evaluation under the framework in Internal
Control - Integrated Framework, our
management concluded that our internal control over financial reporting was
effective as of December 31, 2004. Management's assessment of the effectiveness
of our internal control over financial reporting as of December 31, 2004 has
been audited by KPMG LLP, an independent registered public accounting firm, as
stated in their report which is included in Item 8. Financial Statements and
Supplementary Data.
Changes
in Internal Controls Over Financial Reporting
There
were no changes to the Company's internal controls over financial reporting
during the fourth quarter ended December 31, 2004 that have materially affected,
or are reasonably likely to materially affect, the Company's internal controls
over financial reporting.
Item
9B. Other Information
Not
applicable.
Part
III
Item
10. Directors and Executive Officers of the
Registrant
Because
our common stock is listed on the New York Stock Exchange (the "NYSE"), our
chief executive officer is required to make, and has made, an annual
certification to the NYSE stating that he is not aware of any violation by the
Company of NYSE corporate governance listing standards. Our chief executive
officer made this annual certification on June 22, 2004. In addition, Jones Lang
LaSalle has filed, as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K,
the certifications of its chief executive officer and chief financial officer
required under Section 302 of the Sarbanes Oxley Act of 2002 to be filed with
the Securities and Exchange Commission regarding the quality of the Company's
public disclosure. Such certifications required under the Section 302 of the
Sarbanes Oxley Act of 2002 also were filed as Exhibits 31.1 and 31.2 to our
Annual Report on Form 10-K for the fiscal year ended December 31,
2003.
The remaining information
required by this item is incorporated by reference to the material in Jones Lang
LaSalle's Proxy Statement for the 2005 Annual Meeting of Shareholders (the
"Proxy Statement") under the captions "Election of Directors," "Management" and
"Section 16(a) Beneficial Ownership Reporting Compliance" and in Item 1 of this
Annual Report on Form 10-K.
Item
11. Executive Compensation
The
information required by this item is incorporated by reference to the material
in the Proxy Statement under the caption "Executive Compensation."
Item
12. Security Ownership of Certain Beneficial Owners and
Management
The
information required by this item is incorporated by reference to the material
in the Proxy Statement under the caption "Common Stock Security Ownership of
Certain Beneficial Owners and Management."
The
following table provides information as of December 31, 2004 with respect to
Jones Lang LaSalle's common shares issuable under our equity compensation plans
(in thousands, except exercise price):
| |
|
|
|
|
|
Number
of |
|
| |
|
|
|
|
|
Securities |
|
| |
|
|
|
|
|
Remaining |
|
| |
|
|
|
|
|
Available
for |
|
| |
|
|
|
|
|
Future
Issuance |
|
| |
|
Number
of |
|
|
|
Under
Equity |
|
| |
|
Securities
|
|
Weighted
Average |
|
Compensation |
|
| |
|
to
be Issued |
|
Exercise
|
|
Plans |
|
| |
|
Upon
Exercise |
|
Price
of |
|
(Excluding |
|
| |
|
of
Outstanding |
|
Outstanding
|
|
Securities |
|
| |
|
Options,
Warrants |
|
Options,
|
|
Reflected |
|
|
Plan
Category |
|
and
Rights |
|
and
Rights |
|
in
Column (A)) |
|
| |
|
(A)
|
|
(B)
|
|
(C) |
|
| |
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders |
|
|
|
|
|
|
|
|
SAIP
(1) |
|
|
5,038
|
|
$ |
24.14 |
|
|
1,491 |
|
|
ESPP
(2) |
|
|
—
|
|
|
—
|
|
|
618 |
|
|
Subtotal
|
|
|
5,038
|
|
|
|
|
|
2,109 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
SAYE
(3) |
|
|
220
|
|
$ |
13.63 |
|
|
280 |
|
|
Subtotal
|
|
|
220
|
|
|
|
|
|
280 |
|
|
Total
|
|
|
5,258
|
|
|
|
|
|
2,389 |
|
Notes:
(1) In 1997,
we adopted the 1997 Stock Award and Incentive Plan ("SAIP"), which provides for
the granting of options to purchase a specified number shares of common stock
and other stock awards to eligible participants of Jones Lang
LaSalle.
(2) In 1998,
we adopted an Employee Stock Purchase Plan ("ESPP") for eligible U.S. based
employees. Under this plan,
employee contributions for stock purchases will be enhanced through an
additional contribution of 15%. At the Annual Meeting of Shareholders held May
27, 2004, shareholders approved an amendment to the Jones Lang LaSalle ESPP to
increase the number of shares available thereunder by 750,000.
(3) In
November of 2001, we established the Jones Lang LaSalle Savings Related Share
Option (UK) Plan ("SAYE") for employees of our UK based operations. Under the
SAYE plan, employees have a one-time opportunity to enter into a tax efficient
savings plan linked to the option to purchase stock. The Company enhances
employee contributions
by 15%. Both employee and employer contributions vest over a period of three to
five years, with the first vesting to occur in 2005.
Item
13. Certain Relationships and Related Transactions
The
information required by this item is incorporated by reference to the material
appearing in the Proxy Statement under the caption "Certain Relationships and
Related Transactions."
Item
14. Principal Accounting Fees and Services
The
information required by this item is incorporated by reference to the material
appearing in the Proxy Statement under the caption "Information about the
Independent Registered Public Accounting Firm."
Part
IV
Item
15. Exhibits and Financial Statement Schedules
The
following documents are filed as part of this report:
See Index
to Consolidated Financial Statements in Item 8 of this report.
| |
2. |
Financial
Statement Schedule: |
See Index
to Consolidated Financial Statements in Item 8 of this report.
A list of
exhibits is set forth in the Exhibit Index which immediately precedes the
exhibits and is incorporated by reference herein.
Cautionary
Note Regarding Forward-Looking Statements
Certain
statements in this filing and elsewhere (such as in reports, other filings with
the United States 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 of the
future results, performance, achievements, plans and objectives expressed or
implied by such forward-looking statements. We discuss those risks,
uncertainties and other factors in this report in (i) 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;
Item 8. Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements; and elsewhere and (ii) the other reports we file with the
United States Securities and Exchange Commission. Important factors that could
cause actual results to differ from those in our forward-looking statements
include (without limitation):
| |
• |
The
effect of political, economic and market conditions and geopolitical
events; |
| |
• |
The
logistical and other challenges inherent in operating in numerous
different countries; |
| |
• |
The
actions and initiatives of current and potential
competitors; |
| |
• |
The
level and volatility of real estate prices, interest rates, currency
values and other market indices; |
| |
• |
The
outcome of pending litigation; and |
| |
• |
The
impact of current, pending and future legislation and
regulation. |
Accordingly,
we caution our readers not to place undue reliance on forward-looking
statements, which speak only as of the date on which they are made. 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.
Power
of Attorney
KNOW ALL
MEN BY THESE PRESENTS, that each of Jones Lang LaSalle Incorporated, a Maryland
corporation, and the undersigned Directors and officers of Jones Lang LaSalle
Incorporated, hereby constitutes and appoints Colin Dyer, Lauralee E. Martin and
Stanley Stec its, his or her true and lawful attorneys-in-fact and agents, for
it, him or her and in its, his or her name, place and stead, in any and all
capacities, with full power to act alone, to sign any and all amendments to this
report, and to file each such amendment to this report, with all exhibits
thereto, and any and all documents in connection therewith, with the Securities
and Exchange Commission, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as it, he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
Signatures
Pursuant
to the requirements of Section 13 or 15 (d) 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, on the 11th day of March,
2005.
| |
JONES
LANG LASALLE INCORPORATED |
| |
|
| |
/s/
Lauralee E. Martin |
| |
By:
Lauralee
E. Martin |
| |
Executive
Vice President and |
| |
Chief
Operating and Financial Officer |
| |
(Authorized
Officer and |
| |
Principal
Financial Officer) |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on the 11th day of March, 2005.
|
Signature |
Title |
| |
|
|
/s/
Sheila A. Penrose |
Chairman
of the Board of Directors and |
|
Sheila
A. Penrose |
Director |
| |
|
|
/s/
Colin Dyer |
President
and Chief Executive Officer and |
|
Colin
Dyer |
Director |
| |
(Principal
Executive Officer) |
| |
|
|
/s/
Lauralee E. Martin |
Executive
Vice President and |
|
Lauralee
E. Martin |
Chief
Operating and Financial Officer |
| |
(Principal
Financial Officer) |
| |
|
|
/s/
Henri-Claude de Bettignies |
Director |
|
Henri-Claude
de Bettignies |
|
| |
|
|
/s/
Darryl Hartley-Leonard |
Director |
|
Darryl
Hartley-Leonard |
|
| |
|
|
/s/
Sir Derek Higgs |
Director |
|
Sir
Derek Higgs |
|
| |
|
|
/s/
Thomas C. Theobald |
Director |
|
Thomas
C. Theobald |
|
| |
|
|
/s/
Stanley Stec |
Senior
Vice President and |
|
Stanley
Stec |
Global
Controller |
| |
(Principal
Accounting Officer) |
Exhibit Index
Exhibit
Number
Description
|
3.1
Charter
of Jones Lang LaSalle Incorporated (Incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-4 (File No.
333-48074-01)) |
| |
|
3.2
Amended
and Restated Bylaws of the Registrant (Incorporated by reference to
Exhibit 99.2 to the Report on Form 8-K dated January 10,
2005) |
| |
|
4.1 Form of
certificate representing shares of Jones Lang LaSalle Incorporated common
stock (Incorporated by reference to Exhibit 4.1 to the Quarterly Report on
Form 10-Q for the quarter ended March 31, 2001) |
| |
|
10.1
Amended and
Restated Multicurrency Credit Agreement, dated as of April 13, 2004
(Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q for the quarter ended March 31, 2004) |
| |
|
10.2
Asset Purchase
Agreement, dated as of December 31, 1996, by and among LaSalle
Construction Limited Partnership, LaSalle Partners Limited Partnership,
Clune Construction Company, L.P. and Michael T. Clune (Incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement No.
333-25741) |
| |
|
10.3
Amended and
Restated Stock Award and Incentive Plan (Incorporated by reference to
Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended
March 31, 2004) |
| |
|
10.4*
Jones Lang
LaSalle Incorporated Restricted Stock Unit Agreement (Under the Amended
and Restated Stock Award and Incentive Plan) Non Executive Directors 2004
Annual Grant |
| |
|
10.5*
Jones Lang
Lasalle Incorporated Stock Ownership Program Shares Agreement (Under the
Amended and Restated Stock Award and Incentive Plan) |
| |
|
10.6*
Jones Lang
Lasalle Incorporated Restricted Stock Unit Agreement (Under the Amended
and Restated Stock Award and Incentive Plan) |
| |
|
10.7
Employee Stock
Purchase Plan (Incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement No. 333 42193) |
| |
|
10.8
First Amendment
to the Employee Stock Purchase Plan (Incorporated by reference to Exhibit
10.2 to the Quarterly Report on Form 10-Q for the quarter ended June 30,
1998) |
| |
|
10.9
Second Amendment to the Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998) |
| |
|
10.10
Third Amendment
to the Employee Stock Purchase Plan (Incorporated by reference to Exhibit
10.2 to the Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2000) |
| |
|
10.11
Fourth
Amendment to the Jones Lang LaSalle Incorporated Employee Stock Purchase
Plan (Incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-8 (File No. 333-117024) |
| |
|
10.12
Description of
Management Incentive Plan (Incorporated by reference to Exhibit 10.8 to
the Annual Report on Form 10-K for the year ended December 31,
1997) |
| |
|
10.13
Form of
Indemnification Agreement with Executive Officers and Directors
(Incorporated by Reference to Exhibit 10.14 to the Annual Report on Form
10-K for the year ended December 31, 1998) |
| |
|
10.14
Amended and
Restated Severance Pay Plan (Incorporated by reference to Exhibit 10.5 to
the Quarterly Report on Form 10-Q for the quarter ended March 31,
2004) |
| |
|
10.15
Senior
Executive Services Agreement with Christopher A. Peacock (Incorporated by
reference to Exhibit 10.16 to the Annual report on Form 10-K for the
fiscal year ended December 31, 1999) |
| |
|
10.16
Compromise
Agreement with Christopher A. Peacock (Incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended
March 31, 2004) |
| |
|
10.17
Senior
Executive Service Agreement with Robert Orr (Incorporated by reference to
Exhibit 10.17 to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1999) |
| |
|
10.18
Offer Letter
between Colin Dyer and Jones Lang LaSalle dated as of July 16, 2004 and
accepted July 19, 2004 (Incorporated by reference to Exhibit 99.2 to the
Periodic Report on Form 8-K dated July 21, 2004) |
| |
|
10.19
Letter
Agreement Regarding Compensation of the Chairman of the Board of Directors
dated as of January 1, 20005 (Incorporated by reference to Exhibit 99.1 to
the Periodic Report on Form 8-K dated January 10, 2005)
|
| |
|
10.20
Senior
Executive Services Agreement with Stuart L. Scott (Incorporated by
reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004) |
| |
|
10.21
Jones Lang
LaSalle Savings Related Share Option (UK) Plan adopted October 24, 2001
(Incorporated by reference to Exhibit 10.25 to the Annual Report on Form
10-K for the year ended December 31, 2001) |
| |
|
10.22* Amended
And Restated Jones Lang LaSalle Incorporated Co-Investment Long Term
Incentive Plan dated October 4, 2004 |
| |
|
10.23* LaSalle
Investment Management Long Term Incentive Compensation Program Amended and
Restated as of December 15, 2004 |
| |
|
10.24
Jones Lang
LaSalle Incorporated Deferred Compensation Plan effective January 1, 2004
(Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 (File No. 333-110366)) |
| |
|
10.25* Jones Lang
LaSalle Incorporated Non-Executive Director Compensation Plan Summary of
Terms and Conditions, Amended and Restated as of July 1, 2004
|
| |
|
12.1*
Computation of
Ratio of Earnings to Fixed Charges |
| |
|
21.1*
List of
Subsidiaries |
| |
|
23.1*
Consent of
Independent Registered Public Accounting Firm |
| |
|
24.1*
Power of
Attorney (Set forth on page preceding signature page of this
report) |
| |
|
31.1*
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
| |
|
31.2*
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
| |
|
32.1*
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
* Filed
herewith.
