Edgar Filing: JONES LANG LASALLE INC

Jones Lang LaSalle Incorporated 10-Q 6-30-2006

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2006

* Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____ to _____

Commission File Number 1-13145

Jones Lang LaSalle Incorporated

(Exact name of registrant as specified in its charter)

Maryland

(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

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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer x

Accelerated filer *

Non-accelerated filer *

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of the registrant’s common stock (par value $0.01) as of the close of business on July 28, 2006 was 36,381,338, which includes 4,227,651 shares held by a subsidiary of the registrant.

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Part I	Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005	3

	Consolidated Statements of Earnings for the three and six months ended June 30, 2006 and 2005	4

	Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2006	5

	Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	37


Part II	Other Information

Item 1.	Legal Proceedings	38

Item 2.	Share Repurchases	38

Item 4.	Submission of Matters to a Vote of Security Holders	39

Item 5.	Other Information	40

Item 6.	Exhibits	43

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Part I Financial Information

Item 1. Financial Statements

JONES LANG LASALLE INCORPORATED

Consolidated Balance Sheets

June 30, 2006 and December 31, 2005

($ in thousands, except share data)

Assets	June 30, 2006 (unaudited)			December 31, 2005
Current assets:
Cash and cash equivalents	$	23,879			28,658
Trade receivables, net of allowances of $9,263 and $5,551		516,669			415,087
Notes and other receivables		24,140			15,231
Prepaid expenses		28,365			22,442
Deferred tax assets		21,836			35,816
Other		14,342			13,864
Total current assets		629,231			531,098

Property and equipment, net of accumulated depreciation of $169,750 and $158,064		98,507			82,186
Goodwill, with indefinite useful lives, net of accumulated amortization of $38,152 and $37,450		500,342			335,731
Identified intangibles, with finite useful lives, net of accumulated amortization of $51,392 and $45,360		41,412			4,391
Investments in real estate ventures		114,035			88,710
Long-term receivables		25,726			20,931
Deferred tax assets		72,651			59,262
Other		26,330			22,460
	$	1,508,234			1,144,769

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	143,660			155,741
Accrued compensation		245,268			300,847
Short-term borrowings		15,192			18,011
Deferred tax liabilities		2,993			400
Deferred income		29,939			20,823
Other		34,933			26,813
Total current liabilities		471,985			522,635

Noncurrent liabilities:
Credit facilities		284,955			26,697
Deferred tax liabilities		2,910			3,079
Deferred compensation		22,219			15,988
Minimum pension liability		17,457			16,753
Deferred business acquisition obligations		32,854			—
Other		30,242			23,614
Total liabilities		862,622			608,766

Commitments and contingencies
Stockholders’ equity:
Common stock, $.01 par value per share, 100,000,000 shares authorized; 35,841,474 and 35,199,744 shares issued and outstanding		358			352
Additional paid-in capital		643,878			606,000
Retained earnings		162,282			100,142
Stock held by subsidiary		(153,026	)		(132,791	)
Stock held in trust		(935	)		(808	)
Accumulated other comprehensive loss		(6,945	)		(36,892	)
Total stockholders’ equity		645,612			536,003
	$	1,508,234			1,144,769

See accompanying notes to consolidated financial statements.

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JONES LANG LASALLE INCORPORATED

Consolidated Statements of Earnings

For the Three and Six Months Ended June 30, 2006 and 2005

($ in thousands, except share data) (unaudited)

	Three Months Ended June 30, 2006			Three Months Ended June 30, 2005			Six Months Ended June 30, 2006			Six Months Ended June 30, 2005

Revenue	$	509,789			325,088			846,887			565,264

Operating expenses:
Compensation and benefits		318,369			209,639			549,615			381,765
Operating, administrative and other		96,894			77,460			184,557			147,482
Depreciation and amortization		10,378			8,335			20,354			16,645
Restructuring credits		(169	)		(250	)		(670	)		(250	)
Operating expenses		425,472			295,184			753,856			545,642

Operating income		84,317			29,904			93,031			19,622

Interest expense, net of interest income		4,478			1,356			7,687			1,686
Equity in earnings from real estate ventures		9,593			4,630			8,649			3,738

Income before provision for income taxes		89,432			33,178			93,993			21,674
Provision for income taxes		23,216			8,427			24,397			5,505

Net income before cumulative effect of change in accounting principle		66,216			24,751			69,596			16,169
Cumulative effect of change in accounting principle, net of tax		—			—			1,180			—
Net income	$	66,216			24,751			70,776			16,169

Net income available to common shareholders (Note 7)	$	65,695			24,751			70,254			16,169


Basic earnings per common share	$	2.07			0.80			2.22			0.52

Basic weighted average shares outstanding		31,688,327			31,039,575			31,600,591			31,153,475

Diluted earnings per common share	$	1.94			0.74			2.08			0.48

Diluted weighted average shares outstanding		33,821,945			33,512,356			33,796,465			33,624,487

See accompanying notes to consolidated financial statements.

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JONES LANG LASALLE INCORPORATED

Consolidated Statement of Stockholders’ Equity

For the Six Months Ended June 30, 2006

($ in thousands, except share data) (unaudited)

	Common Stock				Additional Paid-In		Retained			Stock Held by			Shares Held in			Accumulated Other Comprehensive Income
	Shares (1)		Amount		Capital		Earnings			Subsidiary			Trust			(Loss)			Total

Balances at December 31, 2005		35,199,744	$	352		606,000		100,142			(132,791	)		(808	)		(36,892	)	$	536,003

Net income		—		—		—		70,776			—			—			—			70,776

Shares issued under stock compensation programs		641,730		6		14,994		—			—			—			—			15,000
Tax benefits of vestings and exercises		—		—		10,522		—			—			—			—			10,522
Amortization of stock compensation		—		—		12,362		—			—			—			—			12,362

Shares acquired by subsidiary (1)		—		—		—		—			(20,235	)		—			—			(20,235	)
Stock held in trust		—		—		—		—			—			(127	)		—			(127	)
Dividends declared		—		—		—		(8,636	)		—			—			—			(8,636	)

Foreign currency translation adjustments		—		—		—		—			—			—			27,142			27,142
Unrealized holding gain on investments		—		—		—		—			—			—			2,805			2,805

Balances at June 30, 2006		35,841,474	$	358		643,878		162,282			(153,026	)		(935	)		(6,945	)	$	645,612

(1) Shares repurchased under our share repurchase programs are not cancelled, but are held by one of our subsidiaries. The 4,227,651 shares we have repurchased through June 30, 2006 are included in the 35,841,474 shares total of our common stock account, but are deducted from our share count for purposes of calculating earnings per share.

See accompanying notes to consolidated financial statements.

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JONES LANG LASALLE INCORPORATED

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2006 and 2005

($ in thousands) (unaudited)

	Six Months Ended June 30, 2006			Six Months Ended June 30, 2005

Cash flows from operating activities:
Cash flows from earnings:
Net income	$	70,776			16,169
Reconciliation of net income to net cash provided by earnings:
Cumulative effect of change in accounting principle, net of tax		(1,180	)		—
Depreciation and amortization		20,354			16,645
Equity in earnings from real estate ventures		(8,649	)		(3,738	)
Operating distributions from real estate ventures		12,631			5,367
Provision for loss on receivables and other assets		4,514			1,877
Amortization of deferred compensation		16,977			10,748
Amortization of debt issuance costs		365			337
Net cash provided by earnings		115,788			47,405

Cash flows from changes in working capital:
Receivables		(119,799	)		59,881
Prepaid expenses and other assets		(6,867	)		(2,489	)
Deferred tax assets, net		3,015			3,187
Excess tax benefits from share-based payment arrangements		(8,024	)		—
Accounts payable, accrued liabilities and accrued compensation		(16,154	)		(165,049	)
Net cash flows from changes in working capital		(147,829	)		(104,470	)
Net cash used in operating activities		(32,041	)		(57,065	)

Cash flows from investing activities:
Net capital additions - property and equipment		(28,535	)		(12,812	)
Business acquisitions		(168,448	)		(4,500	)
Capital contributions and advances to real estate ventures		(35,393	)		(15,664	)
Distributions, repayments of advances and sale of investments		9,365			5,778
Net cash used in investing activities		(223,011	)		(27,198	)

Cash flows from financing activities:
Proceeds from borrowings under credit facilities		584,090			380,772
Repayments of borrowings under credit facilities		(330,353	)		(286,711	)
Shares repurchased for payment of employee taxes on stock awards		(148	)		(980	)
Shares repurchased under share repurchase program		(20,362	)		(42,856	)
Excess tax benefits from share-based payment arrangements		8,024			—
Common stock issued under stock option plan and stock purchase programs		17,658			25,234
Payment of dividends		(8,636	)		—
Net cash provided by financing activities		250,273			75,459

Net decrease in cash and cash equivalents		(4,779	)		(8,804	)
Cash and cash equivalents, January 1		28,658			30,143
Cash and cash equivalents, June 30	$	23,879			21,339

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	6,847			1,667
Income taxes, net of refunds		18,753			10,319

See accompanying notes to consolidated financial statements.

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JONES LANG LASALLE INCORPORATED

Notes to Consolidated Financial Statements (Unaudited)

Readers of this quarterly report should refer to the audited financial statements of Jones Lang LaSalle Incorporated (“Jones Lang LaSalle”, which may also be referred to as “the Company” or as “the Firm,” “we,” “us” or “our”) for the year ended December 31, 2005, which are included in Jones Lang LaSalle’s 2005 Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission (“SEC”) and also available on our website (www.joneslanglasalle.com), since we have omitted from this report certain footnote disclosures which would substantially duplicate those contained in such audited financial statements. You should also refer to the “Summary of Critical Accounting Policies and Estimates” section within Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained herein, for further discussion of our accounting policies and estimates.

(1) Summary of Significant Accounting Policies

Interim Information

Our consolidated financial statements as of June 30, 2006 and for the three and six months ended June 30, 2006 and 2005 are unaudited; however, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for these interim periods have been included.

Historically, other than for our Investment Management segment, our revenue, operating income and net earnings in the first three calendar quarters have been substantially lower than in the fourth quarter. 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 and is therefore inherently unpredictable. Non-variable operating expenses, which are treated as expenses when they are incurred during the year, are relatively constant on a quarterly basis. As such, the results for the periods ended June 30, 2006 and 2005 are not indicative of the results to be obtained for the full fiscal year.

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 real estate ventures over which we exercise significant influence, but not control, are accounted for by the equity method. Investments in real estate ventures over which we are not able to exercise significant influence are accounted for under the cost method.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current presentation.

Revenue Recognition

The SEC’s Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), as amended by SAB 104, provides guidance on the application of U.S. GAAP 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 U.S. GAAP to revenue transactions with multiple deliverables.

We categorize our revenues as advisory and management fees, transaction commissions, project and development management and construction 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 and construction 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 for project and development management fees and costs incurred to total estimated costs for construction management fees.

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.

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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 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” 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 incurred but not separately scheduled, 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 account for a 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 that allows for scheduled reimbursable personnel costs 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:

· The property owner, with ultimate approval rights relating to the employment and compensation of on-site personnel, and bearing all of the economic costs of such personnel, is determined to be the primary obligor in the arrangement;

· Reimbursement to Jones Lang LaSalle is generally completed simultaneously with payment of payroll or soon thereafter;

· Because the property owner is contractually obligated to fund all operating costs of the property from existing cash flow or direct funding from its building operating account, Jones Lang LaSalle bears little or no credit risk; and

· 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 use 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 U.S. GAAP. Such costs aggregated approximately $152.4 million and $112.6 million for the three months ended June 30, 2006 and 2005, respectively. Such costs aggregated approximately $303.8 million and $225.1 million for the six months ended June 30, 2006 and 2005, respectively. This treatment has no impact on operating income, net income or cash flows.

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 48.72% of the respective ventures. We apply the provisions of the following guidance when accounting for these interests:

· FASB Interpretation No. 46 (revised), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (“FIN 46R”)

· EITF Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-5”)

· AICPA Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures” as amended by FASB Staff Position No. SOP 78-9-a (“SOP 78-9-a”)

· Accounting Principles Board (“APB”) Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” (“APB 18”)

· EITF Topic No. D-46, “Accounting for Limited Partnership Investments” (“EITF D-46”)

The application of such guidance 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 in the ventures.

For real estate limited partnerships in which the Company is a general partner, we apply the guidance set forth in FIN 46R, EITF 04-5 and SOP 78-9-a in evaluating the control the Company has over the limited partnership. These entities are generally well-capitalized and grant the limited partners important rights, such as the right to replace the general partner without cause, to dissolve or liquidate the partnership, to approve the sale or refinancing of the principal partnership assets, or to approve the acquisition of principal partnership assets. Such general partner interests are accounted for under the equity method.

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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 46R and SOP 78-9-a, 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, but only has 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 real estate ventures accounted for under the equity method, we maintain an investment account, which is increased by contributions made and by our share of net income of the real estate ventures, and decreased by distributions received and by our share of net losses of the real estate ventures. Our share of each real estate venture’s net income or loss, including gains and losses from capital transactions, is reflected in our consolidated statement of earnings as “Equity in earnings (losses) from real estate ventures.” For investments in real estate ventures accounted for under the cost method, our investment account is increased by contributions made and decreased by distributions representing return of capital.

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 Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“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 indications 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 real estate 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 report “Equity in earnings (losses) from real estate ventures” in the consolidated statement of earnings after “Operating income (loss).” However, for segment reporting we reflect “Equity earnings (losses)” within “Revenue.” See Note 2 for “Equity earnings (losses)” reflected within segment revenues, as well as discussion of how the Chief Operating Decision Maker (as defined in Note 2) measures segment results with “Equity earnings (losses)” included in segment revenues.

We also hold an investment in equity securities with readily determinable fair values, and have classified the securities as available-for sale securities under the provisions of SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). Unrealized holding gains or losses on investments in such securities are reported as a component of “Accumulated other comprehensive income (loss)” within stockholders’ equity until realized.

See Note 4 for additional information on investments in real estate ventures.

Business Combinations, Goodwill and Other Intangible Assets

We apply SFAS 141, “Business Combinations,” when accounting for business combinations. 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 the intangibles resulting from business acquisitions and the JLW merger. Beginning January 1, 2002, pursuant to the issuance of SFAS 142, “Goodwill and Other Intangible Assets,” we ceased the amortization of intangibles with indefinite useful lives. We continue to amortize intangibles with finite useful lives, which primarily represent the value placed on customer relationships and management contracts 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 2005 evaluation was that the fair value of each reporting unit exceeded its carrying amount, and therefore we did not recognize an impairment loss.

See Note 5 for additional information on business combinations, goodwill and other intangible assets.

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Stock-based Compensation

Prior to January 1, 2006, we accounted for our stock-based compensation plans under the provisions of SFAS 123, “Accounting for Stock-Based Compensation,” as amended by SFAS 148, “Accounting for Stock-Based Compensation - Transition and Disclosure.” These provisions allowed 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 by SFAS 148, had been applied. We elected to apply the provisions of APB 25 in accounting for stock options and other stock awards, and accordingly, recognized no compensation expense for stock options granted at the market value of our common stock on the date of grant, or for 15% discounts on stock purchases under our U.S. Employee Stock Purchase Plan (“ESPP”). We did recognize compensation expense over the vesting period of other stock awards (including various grants of restricted stock units and offerings of discounted stock purchases under our Jones Lang LaSalle Savings Related Share Option (UK) Plan) pursuant to APB 25.

Effective January 1, 2006, we account for stock-based compensation in accordance with SFAS 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R eliminates the alternative to use APB 25’s intrinsic value method of accounting that was provided in SFAS 123 as originally issued. SFAS 123R requires us to recognize expense for the grant-date fair value of stock options and other equity-based compensation issued to employees over the employee’s requisite service period. Effective January 1, 2006, we amended our ESPP to provide for a 5% discount on stock purchases and eliminate the “look-back” feature in the plan, which along with the other provisions of the plan allows the ESPP to remain “noncompensatory” under the standard. The adoption of SFAS 123R primarily impacts “Compensation and benefits” expense in our consolidated statement of earnings by changing prospectively our method of measuring and recognizing compensation expense on share-based awards from recognizing forfeitures as incurred to estimating forfeitures at the date of grant. The effect of this change as it relates to prior periods is reflected in “Cumulative effect of change in accounting principle, net of tax” in the consolidated statement of earnings. In the first quarter of 2006, we recorded a $1.8 million pre-tax, $1.2 million net of tax, gain for the cumulative effect of this accounting change.

See Note 6 for additional information on stock-based compensation.

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 our balance sheet as a separate component of stockholders’ equity (accumulated other comprehensive income (loss)) and in our disclosure of comprehensive income (loss) in Note 8. 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.

New Accounting Standards

Accounting for “Share-Based” Compensation

Effective January 1, 2006, we account for share-based compensation in accordance with SFAS 123R, “Share-Based Payment.” See further discussion of the new standard under “Stock-based Compensation” above and in Note 6.

Accounting for General Partner Interests in a Limited Partnership

In June 2005, the FASB ratified EITF 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” EITF 04-5 presumes that a general partner controls a limited partnership, and therefore should consolidate the limited partnership in its financial statements. To overcome the presumption of control, and thereby account for a general partner investment in a limited partnership on the equity method, EITF 04-5 requires the general partner to grant certain rights to the limited partners. EITF 04-5 also applies to entities similar to limited partnerships, such as limited liability companies with governing provisions that are the functional equivalent of a limited partnership.

Consolidation of existing limited partnerships (or similar entities) in which we have a general partner (or similar) interest would result in a material increase in the amount of assets and liabilities reported in our balance sheet. However, management has amended partnership agreements, where applicable, to grant limited partner rights sufficient to overcome the EITF 04-5 control presumption and retain equity method accounting for such interests.

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Determining Variability in the Application of FIN 46R

In April 2006, the FASB issued FASB Staff Position (FSP) FIN 46R-6, “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)” (“FSP FIN 46R-6”). The variability that is considered in applying FIN 46R affects the determination of (a) whether an entity is a variable interest entity (VIE), (b) which interests are “variable interests” in the entity, and (c) which party, if any, is the primary beneficiary of the VIE. That variability affects any calculation of expected losses and expected residual returns, if such a calculation is necessary. The Company is required to apply the guidance in this FSP prospectively to all entities (including newly created entities) with which it first becomes involved and to all entities previously required to be analyzed under FIN 46R when a “reconsideration event” has occurred, beginning July 1, 2006. Management expects that the application of FSP FIN 46R-6 will not have a material impact on our consolidated financial statements.

Accounting for Uncertainty in Income Taxes

In June 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS 109, “Accounting for Income Taxes.” The evaluation of a tax position in accordance with FIN 48 is a two-step process. First, the Company determines whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. Second, a tax position that meets the more-likely-than-not threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent reporting period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent reporting period in which the threshold is no longer met. The Company is required to apply the guidance of FIN 48 beginning January 1, 2007. Management has not yet determined what impact the application of FIN 48 will have on our consolidated financial statements.

(2) 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"):

(ii)

Americas,

(iii)

Europe and

(iv)

Asia Pacific.

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 "transaction services") and property management, facilities management, project and development management and construction 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 “Restructuring credits,” as we have determined that it is not meaningful to investors to allocate such credits to our segments. See Note 3 for discussion of “Restructuring credits.” Also, for segment reporting we continue to show “Equity in earnings (losses) from real estate ventures” within our revenue line, especially since it is an integral part of our Investment Management segment. The Chief Operating Decision Maker of Jones Lang LaSalle measures the segment results without restructuring credits, but with “Equity in earnings (losses) from real estate 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 to the current presentation.

Summarized unaudited financial information by business segment for the three and six months ended June 30, 2006 and 2005 is as follows ($ in thousands):

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Investor and Occupier Services	Three Months Ended June 30, 2006			Three Months Ended June 30, 2005			Six Months Ended June 30, 2006			Six Months Ended June 30, 2005

Americas
Revenue:
Transaction services	$	66,535			41,940			114,747			69,039
Management services		64,801			49,405			127,062			94,388
Equity earnings		135			182			284			181
Other services		2,891			2,174			5,432			3,751
Intersegment revenue		494			240			659			529
		134,856			93,941			248,184			167,888
Operating expenses:
Compensation, operating and administrative services		121,826			82,550			230,595			157,887
Depreciation and amortization		5,281			3,671			10,583			7,283
Operating income	$	7,749			7,720			7,006			2,718

Europe
Revenue:
Transaction services	$	109,110			92,969			188,485			151,986
Management services		22,561			24,409			43,782			47,873
Equity losses		(85	)		(226	)		(305	)		(226	)
Other services		4,396			2,785			7,365			5,358
		135,982			119,937			239,327			204,991
Operating expenses:
Compensation, operating and administrative services		127,877			111,409			233,596			201,881
Depreciation and amortization		2,840			2,454			5,348			5,005
Operating income (loss)	$	5,265			6,074			383			(1,895	)

Asia Pacific
Revenue:
Transaction services	$	45,189			41,312			73,837			66,212
Management services		28,041			26,263			55,881			49,706
Equity earnings		1,633			—			1,850			—
Other services		1,529			943			2,697			1,535
Intersegment revenue		33			—			61			—
		76,425			68,518			134,326			117,453
Operating expenses:
Compensation, operating and administrative services		71,589			58,593			128,362			107,571
Depreciation and amortization		1,938			1,863			3,760			3,668
Operating income	$	2,898			8,062			2,204			6,214

Investment Management
Revenue:
Transaction and other services	$	3,886			8,989			14,935			10,891
Advisory fees		43,084			32,518			81,353			60,768
Incentive fees		117,766			1,381			131,311			3,757
Equity earnings		7,910			4,674			6,820			3,783
Intersegment revenue		(29	)		—			(58	)		—
		172,617			47,562			234,361			79,199
Operating expenses:
Compensation, operating and administrative services		94,469			34,787			142,281			62,436
Depreciation and amortization		319			347			663			690
Operating income	$	77,829			12,428			91,417			16,073


Segment Reconciling Items:
Total segment revenue	$	519,880			329,958			856,198			569,531
Intersegment revenue eliminations		(498	)		(240	)		(662	)		(529	)
Reclassification of equity earnings		(9,593	)		(4,630	)		(8,649	)		(3,738	)
Total revenue		509,789			325,088			846,887			565,264

Total segment operating expenses		426,139			295,674			755,188			546,421
Intersegment operating expense eliminations		(498	)		(240	)		(662	)		(529	)
Total operating expenses before restructuring credits		425,641			295,434			754,526			545,892
Restructuring credits		(169	)		(250	)		(670	)		(250	)

Operating income	$	84,317			29,904			93,031			19,622

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(3) Restructuring Credits

For the three and six months ended June 30, 2006, total restructuring credits totaled $0.2 million and $0.7 million, respectively. For the three and six months ended June 30, 2005, total restructuring credits totaled $0.2 million and $0.2 million, respectively. These credits consist of the following ($ in millions):

	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
Restructuring Credits	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005

Land Investment and Development Group	$	(0.2	)		—			(0.7	)		—
Business Restructuring		—			(0.2	)		—			(0.2	)
Total Restructuring Credits	$	(0.2	)		(0.2	)		(0.7	)		(0.2	)

Land Investment and Development Group

In 2001, we closed our non-strategic residential land business in the Americas region of the Investment Management segment. In the three and six months ended June 30, 2006, we sold assets from this business that resulted in gains of $0.2 million and $0.7 million, respectively.

Business Restructuring

Business restructuring charges include severance and professional fees associated with the realignment of our business. In 2002, we initiated a four percent reduction in workforce in Europe to meet expected global economic conditions. As a result of actual costs incurred from the restructuring varying from our original estimates, we recorded a net credit of $0.2 million in the second quarter of 2005. Actual costs incurred from business restructurings can vary from original estimates for a number 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.

(4) Investments in Real Estate Ventures

As of June 30, 2006, we had total investments and loans of $111.2 million in approximately 30 separate property or real estate fund co-investments, and a $2.8 million investment in LoopNet, Inc. LoopNet operates an online marketplace for commercial real estate in the United States, and delivers technology and information services to commercial real estate organizations to manage their online listing presence and property marketing. Our investment in LoopNet is accounted for as an investment in available-for-sale securities under SFAS 115.

Within the $111.2 million of property or fund co-investments, loans of $3.7 million to real estate ventures bear interest rates ranging from 7.25% to 8.0% and are to be repaid by 2008. Following is a table summarizing our investments in real estate limited partnerships or similar entities ($ in millions):

Type of Interest	Percent Ownership of Real Estate Limited Partnership Venture			Accounting Method		Carrying Value

General partner		0% to 1	%		Equity	$	0.2
Limited partner with advisory agreements		<1% to 48.72	%		Equity		110.5
Equity method						$	110.7
Limited partner without advisory agreements		<1% to 5	%		Cost		0.5
Total						$	111.2

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We utilize two investment vehicles to facilitate the majority of our co-investment activity. LaSalle Investment Company I (“LIC I”) is a series of four parallel limited partnerships which serve as our investment vehicle for substantially all co-investment commitments made through December 31, 2005. LaSalle Investment Company II (“LIC II”), formed in January 2006, is comprised of two parallel limited partnerships which serve as our investment vehicle for most new co-investments. LIC I and LIC II invest in certain real estate ventures that own and operate commercial real estate. We have an effective 47.85% ownership interest in LIC I, and an effective 48.72% ownership interest in LIC II; primarily institutional investors hold the remaining 52.15% and 51.28% interests in LIC I and LIC II, respectively. Our investments in LIC I and LIC II are accounted for under the equity method of accounting in the accompanying consolidated financial statements. Additionally, a non-executive Director of Jones Lang LaSalle is an investor in LIC I on equivalent terms to other investors.

At June 30, 2006, LIC I and LIC II have unfunded capital commitments of $161.3 million and $109.3 million, respectively, of which our 47.85% and 48.72% shares are $77.2 million and $53.3 million, respectively, for future fundings of co-investments. These $77.2 million and $53.3 million commitments are part of our maximum potential unfunded commitments to LIC I and LIC II at June 30, 2006, which are euro 84.5 million ($108.0 million) and $255.2 million, respectively.

LIC I’s and LIC II’s exposures to liabilities and losses of the ventures are limited to their existing capital contributions and remaining capital commitments. We expect that LIC I will draw down on our commitment over the next three to five years to satisfy its existing commitments to underlying funds, and that LIC II will draw down on our commitment over the next six to eight years as it enters into new commitments. 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 investments within LIC II. The purpose is to accelerate capital raising and growth in assets under management. Approvals for such activity are handled consistently with those of the Firm’s co-investment capital.

As of June 30, 2006, LIC I maintains a euro 35 million ($44.8 million) revolving credit facility (the "LIC I Facility"), and LIC II maintains a $200 million revolving credit facility (the "LIC II Facility"), principally for their working capital needs. The capacity in the LIC II Facility contemplates potential bridge financing opportunities. Each facility contains a credit rating trigger (related to the credit ratings of one of LIC I’s investors and one of LIC II’s investors, who are unaffiliated with Jones Lang LaSalle) and a material adverse condition clause. If either of the credit rating trigger or the material adverse condition clause becomes triggered, the facility to which that condition relates would be in default and would need to be repaid. Such a condition would require us to fund our pro-rata share of the then outstanding balance on the related facility, which is the limit of our liability. The maximum exposure to Jones Lang LaSalle, assuming that the LIC I Facility were fully drawn, would be euro 16.7 million ($21.4 million); assuming that the LIC II Facility were fully drawn, the maximum exposure to Jones Lang LaSalle would be $97.4 million. Each exposure is included within and cannot exceed our maximum potential unfunded commitments to LIC I of euro 84.5 million ($108.0 million) and to LIC II of $255.2 million discussed above. As of June 30, 2006, LIC I had euro 2.8 million ($3.5 million) of outstanding borrowings on the LIC I Facility, and LIC II had $7.8 million of outstanding borrowings on the LIC II Facility.

Exclusive of our LIC I and LIC II commitment structures, we have potential obligations related to unfunded commitments to other real estate ventures, the maximum of which is $3.3 million at June 30, 2006.

We expect to continue to pursue co-investment opportunities with our real estate money management clients in the Americas, Europe and Asia Pacific, as co-investment remains very important to the continued growth of Investment Management. The net co-investment funding for 2006 is anticipated to be between $50 and $60 million (planned co-investment less return of capital from liquidated co-investments).

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. For the three and six months ended June 30, 2006, we have recorded no impairment charges. For the three and six months ended June 30, 2005, we recorded $0.3 million and $1.5 million, respectively, of such charges to “Equity in earnings (losses) from real estate ventures,” representing our equity share of the impairment charges against individual assets held by these ventures.

(5) Business Combinations, Goodwill and Other Intangible Assets

We have $541.7 million of unamortized identified intangibles and goodwill as of June 30, 2006 that are subject to the provisions of SFAS 142, “Goodwill and Other Intangible Assets.” 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 $541.7 million of unamortized intangibles and goodwill, $500.3 million represents goodwill with indefinite useful lives, which we ceased amortizing beginning January 1, 2002. The remaining $41.4 million of identifiable intangibles (principally representing customer relationships and management contracts acquired) are amortized over their remaining finite useful lives.

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In January 2006, we acquired Spaulding & Slye, a privately-held real estate services and investment company with offices in Boston and Washington, D.C. Spaulding & Slye delivers full-scale development, leasing, management, investment sales, construction and structured finance services to corporate, institutional and investor clients. Terms for the transaction, which was financed with Jones Lang LaSalle’s existing revolving credit facility, were $150 million cash paid at closing with provisions for additional consideration and an earn-out that are subject to certain contract provisions and performance. The fair value of the additional consideration is recorded as “Deferred business acquisition obligations” on our consolidated balance sheet, and consists of $20 million and $15 million to be paid in January 2008 and December 2008, respectively. Payment of the earn-out is subject to the achievement of certain performance conditions, and will be recorded at the time those conditions are met; the earn-out will not be recorded if the related conditions are not achieved. Intangible assets with finite useful lives, including the value of customer relationships acquired, certain restrictive agreements, and use of the Spaulding & Slye Investments name were attributed a total value of $41.6 million, and will be amortized over lives ranging from 3 to 10 years. The remaining direct costs of acquisition were attributed to goodwill.

In May 2006, we acquired Rogers Chapman, a privately-held specialist commercial real estate advisor in the United Kingdom. In June 2006, we acquired The Littman Partnership, a privately-held specialist-planning business, also in the United Kingdom. Aggregate consideration for the two transactions included cash paid at closing totaling 7.8 million pounds sterling ($14.4 million) with provisions for additional consideration and earn-outs subject to certain contract provisions and performance. The fair value of the additional consideration is recorded in “Deferred business acquisition obligations” on our consolidated balance sheet, and consists of 0.6 million pounds sterling ($1.1 million) to be paid in 2009. Earn-out payments are subject to the achievement of certain performance conditions, and will be recorded at the time those conditions are met; each earn-out will be recorded only if the related conditions are achieved. Intangible assets with finite useful lives, including the value of customer relationships acquired and certain restrictive agreements, were attributed a total value of 0.5 million pounds sterling ($0.9 million), and will be amortized over lives of up to 3 years. The remaining direct costs of acquisitions were attributed to goodwill.

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

	Investor and Occupier Services
	Americas			Europe			Asia Pacific			Investment Management			Consolidated

Gross Carrying Amount

Balance as of January 1, 2006	$	185,339			67,291			92,552			27,999		$	373,181
Additions		143,764			14,967			—			—			158,731
Impact of exchange rate movements		—			4,774			464			1,344			6,582

Balance as of June 30, 2006		329,103			87,032			93,016			29,343			538,494

Accumulated Amortization

Balance as of January 1, 2006	$	(15,457	)		(5,755	)		(6,825	)		(9,413	)	$	(37,450	)
Impact of exchange rate movements		—			(372	)		(132	)		(198	)		(702	)

Balance as of June 30, 2006		(15,457	)		(6,127	)		(6,957	)		(9,611	)		(38,152	)

Net book value as of June 30, 2006	$	313,646			80,905			86,059			19,732		$	500,342

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

	Investor and Occupier Services
	Americas			Europe			Asia Pacific			Investment Management			Consolidated

Gross Carrying Amount

Balance as of January 1, 2006	$	41,310			571			2,739			5,131		$	49,751
Additions		41,641			948			—			—			42,589
Impact of exchange rate movements		—			52			38			374			464

Balance as of June 30, 2006		82,951			1,571			2,777			5,505			92,804

Accumulated Amortization

Balance as of January 1, 2006	$	(37,237	)		(571	)		(2,421	)		(5,131	)	$	(45,360	)
Amortization expense		(5,420	)		(61	)		(189	)		—			(5,670	)
Impact of exchange rate movements		—			(52	)		64			(374	)		(362	)

Balance as of June 30, 2006		(42,657	)		(684	)		(2,546	)		(5,505	)		(51,392	)

Net book value as of June 30, 2006	$	40,294			887			231			—		$	41,412

Remaining estimated future amortization expense for our intangibles with finite useful lives ($ in millions):

2006	$	5.4
2007		6.8
2008		6.4
2009		3.5
2010		3.5
Thereafter		15.8
Total	$	41.4

(6) Stock-based Compensation

The Jones Lang LaSalle Amended and Restated Stock Award and Incentive Plan (“SAIP”) provides for the granting of various stock awards to eligible employees of Jones Lang LaSalle. Such awards include restricted stock units and options to purchase a specified number of shares of common stock. Under the plan, the total number of shares available to be issued is 12,110,000. There were approximately 2.8 million shares available for grant under the SAIP at June 30, 2006.

We adopted SFAS 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) as of January 1, 2006 using the modified prospective approach. The adoption of SFAS 123R primarily impacts “Compensation and benefits” expense in our consolidated statement of earnings by changing prospectively our method of measuring and recognizing compensation expense on share-based awards from recognizing forfeitures as incurred to estimating forfeitures at the date of grant. The effect of this change as it relates to prior periods is reflected in “Cumulative effect of change in accounting principle, net of tax” in the consolidated statement of earnings. In the six month period ended June 30, 2006, we recorded a $1.8 million pre-tax, $1.2 million net of tax, gain for the cumulative effect of this accounting change.

In prior years, we did not recognize compensation cost on stock option awards in accordance with SFAS 123, as amended by SFAS 148. These provisions allowed entities to continue to apply the intrinsic value-based method under the provisions of APB 25. Accordingly, we provided disclosure of pro forma net income and net income per share as if the fair value-based method, defined in SFAS 123, as amended by SFAS 148, had been applied.

We have recognized other stock awards (including various grants of restricted stock units and offerings of discounted stock purchases under employee stock purchase plans) as compensation expense over the vesting period of those awards pursuant to APB 25 prior to January 1, 2006, and subsequently in accordance with SFAS 123R.

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Share-based compensation expense is included within the “Compensation and benefits” line of our consolidated statement of earnings. Share-based compensation expense for the three and six months ended June 30, 2006 and 2005, respectively, consisted of the following ($ in thousands):

	Three Months Ended June 30, 2006		Three Months Ended June 30, 2005		Six Months Ended June 30, 2006		Six Months Ended June 30, 2005

Stock option awards	$	17		—		34		—
Restricted stock unit awards		10,129		5,498		17,206		10,168
ESPP		—		—		—		—
UK SAYE		60		30		110		(101	)
	$	10,206		5,528		17,350		10,067

The following table provides net income and pro forma net income per common share as if the fair value-based method had been applied to all awards for the three and six months ended June 30, 2005 ($ in thousands, except per share data):

	Three Months Ended June 30, 2005			Six Months Ended June 30, 2005

Net income, as reported	$	24,751			16,169

Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		4,786			8,832

Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax effects		(5,781	)		(10,125	)
Pro forma net income	$	23,756			14,876

Net earnings per share:
Basic—as reported	$	0.80			0.52
Basic—pro forma	$	0.77			0.48
Diluted—as reported	$	0.74			0.48
Diluted—pro forma	$	0.71			0.44

Stock Option Awards

We have generally granted stock options at the market value of common stock at the date of grant. Our options vest at such times and conditions as the Compensation Committee of our Board of Directors determines and sets forth in the award agreement; the most recent options granted (in 2003) vest over periods of up 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; no options were granted in 2004 or 2005, and none have been granted through June 30, 2006.

The per share weighted average fair value of options granted during 2003 was $7.85 on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Expected dividend yield	0.00	%
Risk-free interest rate	3.56	%
Expected life	6 to 9 years
Expected volatility	42.85	%
Contractual terms	7 to 10 years

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Stock option activity for the three months ended June 30, 2006, is as follows:

	Options (thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value ($ in millions)

Outstanding at March 31, 2006		577.5		$	18.07
Granted		—			—
Exercised		(71.2	)		17.91
Forfeited		—			—
Outstanding at June 30, 2006		506.3		$	18.14		2.79 years	$	35.1
Exercisable at June 30, 2006		481.2		$	18.12		2.63 years	$	33.4

Stock option activity for the six months ended June 30, 2006, is as follows:

	Options (thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value ($ in millions)

Outstanding at January 1, 2006		1,117.1		$	19.86
Granted		—			—
Exercised		(589.4	)		20.91
Forfeited		(21.4	)		30.72
Outstanding at June 30, 2006		506.3		$	18.14		2.79 years	$	35.1
Exercisable at June 30, 2006		481.2		$	18.12		2.63 years	$	33.4

Until the adoption of SFAS 123R on January 1, 2006, we had not recognized any compensation expense for stock options granted at the market value of our common stock on the date of grant. As of June 30, 2006, we have approximately 506,300 options outstanding, of which approximately 25,100 options were unvested.

We recognized $0.02 million and $0.03 million of compensation expense related to the unvested options for the three and six months ended June 30, 2006, respectively. Approximately $0.07 million of compensation cost remains to be recognized on unvested options through 2008.

The fair values of shares underlying options that vested in the three months ended June 30, 2006 and 2005 were $1.8 million and $7.3 million, respectively, and in the six months ended June 30, 2006 and 2005 were $2.0 million and $7.9 million, respectively. The intrinsic values of options that vested in the three months ended June 30, 2006 and 2005 were $1.4 million and $3.2 million, respectively, and in the six months ended June 30, 2006 and 2005 were $1.6 million and $3.5 million, respectively.

The following table summarizes information about exercises of options occurring during the three and six months ended June 30, 2006 and 2005 ($ in millions):

	Three Months Ended June 30, 2006		Three Months Ended June 30, 2005		Six Months Ended June 30, 2006		Six Months Ended June 30, 2005

Number of options exercised		71,196		155,663		589,379		721,589

Aggregate fair value	$	5.8		6.8		39.5		30.6
Intrinsic value		4.5		3.1		27.2		13.2
Amount of cash received	$	1.3		3.7		12.3		17.4

Tax benefit recognized	$	1.7		1.1		10.3		4.8

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Restricted Stock Unit Awards

Restricted stock activity for the three months ended June 30, 2006 is as follows:

	Shares (thousands)			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value ($ in millions)

Unvested at March 31, 2006		2,856.7		$	35.86
Granted		10.3			85.59
Vested		—			—
Forfeited		(39.3	)		32.61
Unvested at June 30, 2006		2,827.7		$	36.09		1.43 years	$	145.5
Unvested shares expected to vest		2,677.0		$	35.54		1.41 years	$	139.2

Restricted stock activity for the six months ended June 30, 2006 is as follows:

	Shares (thousands)			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value ($ in millions)

Unvested at January 1, 2006		2,078.6		$	28.18
Granted		808.5			55.90
Vested		(13.5	)		20.89
Forfeited		(45.9	)		31.35
Unvested at June 30, 2006		2,827.7		$	36.09		1.43 years	$	145.5
Unvested shares expected to vest		2,677.0		$	35.54		1.41 years	$	139.2

As of June 30, 2006, there was $54.8 million of remaining unamortized deferred compensation related to unvested restricted stock units. The remaining cost of unvested restricted stock units granted through June 30, 2006 will be recognized over varying periods into 2011.

Approximately 13,500 restricted stock unit awards vested during the first six months of 2006. The vested shares had an aggregate fair value of $0.7 million and intrinsic value of $0.3 million, resulting in $0.4 million of cash received. As a result of the vesting, we recognized a tax benefit of $0.2 million on the vested shares. No restricted stock unit awards vested during the first six months of 2005.

Other Stock Compensation Programs

U.S. Employee Stock Purchase Plan - In 1998, we adopted an Employee Stock Purchase Plan ("ESPP") for eligible U.S.-based employees. Under the current plan, employee contributions for stock purchases are enhanced by us through an additional contribution of a 5% discount on the purchase price as of the end of a program period; program periods are now three months each. Employee contributions and our contributions vest immediately. Since its inception, 1,298,489 shares have been purchased under the program through June 30, 2006. During the three months ended June 30, 2006, 12,689 shares having a grant date market value of $87.55 were purchased under the program. During the six months ended June 30, 2006, 33,374 shares having a weighted average grant date market value of $80.72 were purchased under the program. No compensation expense is recorded with respect to this program.

UK SAYE - In November 2001, we adopted the Jones Lang LaSalle Savings Related Share Option (UK) Plan (“Save As You Earn” or “SAYE”) for eligible employees of our UK-based operations. Our Compensation Committee approved the reservation of 500,000 shares for the SAYE on May 14, 2001. Under this plan, employee contributions for stock purchases are enhanced by us 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. Employees have had the opportunity to contribute to the plan in 2002, 2005 and 2006. In 2002, employee and employer contributions resulted in the issuance of approximately 220,000 options at an exercise price of $13.63. Our contribution of $0.5 million is recorded as compensation expense over the vesting period. The first vesting of these options occurred in 2005 with the remaining to vest in 2007. In 2005, employee and employer contributions resulted in the issuance of approximately 106,000 options at an exercise price of $35.33. Our contribution of $0.7 million is recorded as compensation expense over the vesting period. The first vesting of these options will occur in 2008 with the remaining to vest in 2010. In 2006, employee and employer contributions resulted in the issuance of approximately 37,000 options at an exercise price of $58.96. Our contribution of $0.3 million will be recorded as compensation expense over the vesting period. The first vesting of these options will occur in 2009 with the remaining to vest in 2011.

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(7) Earnings Per Share and Net Income Available to Common Shareholders

Earnings per share is calculated by dividing net income available to common shareholders by weighted average shares outstanding. To calculate net income available to common shareholders, we subtract dividend-equivalents (net of tax) to be paid on outstanding but unvested shares of restricted stock units from net income in the period the dividend is declared. Included in the calculations of net income available to common shareholders in the current period are dividend-equivalents of $0.25 per share on outstanding but unvested shares of restricted stock units that were part of the semi-annual cash dividend of $0.25 per share of Common Stock declared by the Company’s Board of Directors on April 19, 2006.

For the three and six months ended June 30, 2006, we calculated basic earnings per common share based on basic weighted average shares outstanding of 31.7 million and 31.6 million, respectively, and calculated diluted earnings per common share based on diluted weighted average shares outstanding of 33.8 million and 33.8 million, respectively. 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. We did not include in weighted average shares outstanding the 4,227,651 or 3,323,700 shares that had been repurchased as of June 30, 2006 and 2005, respectively, and which are held by one of our subsidiaries. See Part II, Item 2. Share Repurchases for additional information.

The table below details certain components in the calculation of earnings defined as “net income available to common shareholders,” as well as the per share impact of those components.

	Three Months Ended			Three Months Ended		Six Months Ended			Six Months Ended
	June 30, 2006			June 30, 2005		June 30, 2006			June 30, 2005

Net income before cumulative effect of change in accounting principle	$	66,216			24,751		69,596			16,169
Cumulative effect of change in accounting principle, net of tax		—			—		1,180			—
Net income	$	66,216			24,751		70,776			16,169
Dividends on unvested common stock, net of tax benefit		521			—		521			—
Net income available to common shareholders	$	65,695			24,751		70,254			16,169

Basic weighted average shares outstanding		31,688,327			31,039,575		31,600,591			31,153,475
Basic income per common share before cumulative effect of change in accounting principle and dividends on unvested common stock	$	2.09			0.80		2.20			0.52
Cumulative effect of change in accounting principle, net of tax		—			—		0.04			—
Dividends on unvested common stock, net of tax benefit		(0.02	)		—		(0.02	)		—
Basic earnings per common share	$	2.07			0.80		2.22			0.52


Diluted weighted average shares outstanding		33,821,945			33,512,356		33,796,465			33,624,487
Diluted income per common share before cumulative effect of change in accounting principle and dividends on unvested common stock	$	1.96			0.74		2.06			0.48
Cumulative effect of change in accounting principle, net of tax		—			—		0.03			—
Dividends on unvested common stock, net of tax benefit		(0.02	)		—		(0.01	)		—
Diluted earnings per common share	$	1.94			0.74		2.08			0.48

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(8) Comprehensive Income (Loss)

For the three and six months ended June 30, 2006 and 2005, comprehensive income (loss) was as follows:

	Three Months Ended		Three Months Ended			Six Months Ended		Six Months Ended
	June 30, 2006		June 30, 2005			June 30, 2006		June 30, 2005

Net income	$	66,216		24,751			70,776		16,169

Other comprehensive income (loss):
Foreign currency translation adjustments		22,762		(19,628	)		27,142		(28,747	)