Edgar Filing: JONES LANG LASALLE INC

Jones Lang LaSalle 10-Q 9-30-2006

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 September 30, 2006

o 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 o

Non-accelerated filer o

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 October 27, 2006 was 36,517,641, which includes 4,349,651 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 September 30, 2006 and December 31, 2005	3

	Consolidated Statements of Earnings for the three and nine months ended September 30, 2006 and 2005	4

	Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2006	5

	Consolidated Statements of Cash Flows for the nine months ended September 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	23

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 5.	Other Information	39

Item 6.	Exhibits	42

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Part I

Financial Information

Item 1.

Financial Statements

JONES LANG LASALLE INCORPORATED

Consolidated Balance Sheets

September 30, 2006 and December 31, 2005

($ in thousands, except share data)

Assets	September 30, 2006 (unaudited)			December 31, 2005
Current assets:
Cash and cash equivalents	$	34,060			28,658
Trade receivables, net of allowances of $9,230 and $5,551		460,862			415,087
Notes and other receivables		31,217			15,231
Prepaid expenses		27,535			22,442
Deferred tax assets		36,374			35,816
Other		16,860			13,864
Total current assets		606,908			531,098

Property and equipment, net of accumulated depreciation of $170,287 and $158,064		105,992			82,186
Goodwill, with indefinite useful lives, net of accumulated amortization of $38,118 and $37,450		512,778			335,731
Identified intangibles, with finite useful lives, net of accumulated amortization of $54,893 and $45,360		39,837			4,391
Investments in real estate ventures		127,487			88,710
Long-term receivables		23,006			20,931
Deferred tax assets		59,547			59,262
Other		27,540			22,460
	$	1,503,095			1,144,769

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	157,705			155,741
Accrued compensation		322,153			300,847
Short-term borrowings		19,220			18,011
Deferred tax liabilities		1,601			400
Deferred income		26,921			20,823
Other		38,140			26,813
Total current liabilities		565,740			522,635

Noncurrent liabilities:
Credit facilities		158,029			26,697
Deferred tax liabilities		2,273			3,079
Deferred compensation		21,553			15,988
Minimum pension liability		17,621			16,753
Deferred business acquisition obligations		33,539			—
Other		30,774			23,614
Total liabilities		829,529			608,766

Commitments and contingencies
Stockholders’ equity:
Common stock, $.01 par value per share, 100,000,000 shares authorized; 36,486,588 and 35,199,744 shares issued and outstanding		365			352
Additional paid-in capital		655,290			606,000
Retained earnings		186,979			100,142
Stock held by subsidiary		(162,480	)		(132,791	)
Stock held in trust		(1,405	)		(808	)
Accumulated other comprehensive loss		(5,183	)		(36,892	)
Total stockholders’ equity		673,566			536,003
	$	1,503,095			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 Nine Months Ended September 30, 2006 and 2005

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

	Three Months Ended September 30, 2006		Three Months Ended September 30, 2005		Nine Months Ended September 30, 2006			Nine Months Ended September 30, 2005

Revenue	$	462,317		326,384		1,309,204			891,648

Operating expenses:
Compensation and benefits		313,711		211,035		863,326			592,800
Operating, administrative and other		99,796		79,702		284,353			227,184
Depreciation and amortization		11,523		8,322		31,877			24,967
Restructuring charges (credits)		—		721		(670	)		471
Operating expenses		425,030		299,780		1,178,886			845,422

Operating income		37,287		26,604		130,318			46,226

Interest expense, net of interest income		4,112		1,333		11,799			3,019
Equity in earnings from real estate ventures		773		2,366		9,422			6,104

Income before provision for income taxes		33,948		27,637		127,941			49,311
Provision for income taxes		9,251		7,020		33,648			12,525

Net income before cumulative effect of change in accounting principle		24,697		20,617		94,293			36,786
Cumulative effect of change in accounting principle, net of tax		—		—		1,180			—
Net income	$	24,697		20,617		95,473			36,786

Net income available to common shareholders (Note 7)	$	24,697		20,231		94,951			36,400

Basic earnings per common share	$	0.77		0.64		2.99			1.16

Basic weighted average shares outstanding		32,106,994		31,576,006		31,771,247			31,296,057

Diluted earnings per common share	$	0.73		0.61		2.85			1.10

Diluted weighted average shares outstanding		33,751,054		33,425,883		33,319,566			32,990,066

See accompanying notes to consolidated financial statements.

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JONES LANG LASALLE INCORPORATED

Consolidated Statement of Stockholders’ Equity

For the Nine Months Ended September 30, 2006

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

																Accu-
																mulated
																Other
										Stock						Compre-
					Additional					Held by			Stock			hensive
	Common Stock				Paid-In		Retained			Subsi-			Held in			Income
	Shares (1)		Amount		Capital		Earnings			diary			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		—		—		—		95,473			—			—			—			95,473

Shares issued under stock compensation programs		1,286,844		13		901		—			—			—			—			914
Tax benefits of vestings and exercises		—		—		27,375		—			—			—			—			27,375
Amortization of stock compensation		—		—		21,014		—			—			—			—			21,014

Shares acquired by subsidiary (1)		—		—		—		—			(29,689	)		—			—			(29,689	)
Stock held in trust		—		—		—		—			—			(597	)		—			(597	)
Dividends declared		—		—		—		(8,636	)		—			—			—			(8,636	)

Foreign currency translation adjustments		—		—		—		—			—			—			29,804			29,804
Unrealized holding gain on investments		—		—		—		—			—			—			1,905			1,905

Balances at September 30, 2006		36,486,588	$	365		655,290		186,979			(162,480	)		(1,405	)		(5,183	)	$	673,566

(1)

Shares repurchased under our share repurchase programs are not cancelled, but are held by one of our subsidiaries. The 4,349,651 shares we have repurchased through September 30, 2006 are included in the 36,486,588 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 Nine Months Ended September 30, 2006 and 2005

($ in thousands) (unaudited)

	Nine Months Ended September 30, 2006			Nine Months Ended September 30, 2005

Cash flows from operating activities:
Cash flows from earnings:
Net income	$	95,473			36,786
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		31,877			24,967
Equity in earnings from real estate ventures		(9,422	)		(6,104	)
Operating distributions from real estate ventures		15,243			5,568
Provision for loss on receivables and other assets		4,916			2,194
Amortization of deferred compensation		26,931			15,332
Amortization of debt issuance costs		519			543
Net cash provided by earnings		164,357			79,286

Cash flows from changes in working capital:
Receivables		(68,752	)		38,689
Prepaid expenses and other assets		(10,878	)		(2,025	)
Deferred tax assets, net		(448	)		4,170
Excess tax benefits from share-based payment arrangements		(24,475	)		—
Accounts payable, accrued liabilities and accrued compensation		94,380			(108,874	)
Net cash flows from changes in working capital		(10,173	)		(68,040	)
Net cash provided by operating activities		154,184			11,246

Cash flows from investing activities:
Net capital additions - property and equipment		(44,126	)		(21,908	)
Business acquisitions		(182,663	)		(4,885	)
Capital contributions and advances to real estate ventures		(58,733	)		(19,850	)
Distributions, repayments of advances and sale of investments		16,551			7,572
Net cash used in investing activities		(268,971	)		(39,071	)

Cash flows from financing activities:
Proceeds from borrowings under credit facilities		715,277			444,957
Repayments of borrowings under credit facilities		(584,454	)		(407,187	)
Shares repurchased for payment of employee taxes on stock awards		(17,288	)		(9,481	)
Shares repurchased under share repurchase program		(29,689	)		(43,304	)
Excess tax benefits from share-based payment arrangements		24,475			—
Common stock issued under stock option plan and stock purchase programs		20,504			38,726
Payment of dividends		(8,636	)		—
Net cash provided by financing activities		120,189			23,711

Net increase (decrease) in cash and cash equivalents		5,402			(4,114	)
Cash and cash equivalents, January 1		28,658			30,143
Cash and cash equivalents, September 30	$	34,060			26,029

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	12,751			3,218
Income taxes, net of refunds		27,562			14,447
Non-cash financing activities:
Cash dividends declared but not paid		—			9,259
Deferred business acquisition obligations		32,069			—

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 September 30, 2006 and for the three and nine months ended September 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 each of 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 September 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 United States generally accepted accounting principles (“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. Construction management fees, which are gross construction services revenues net of subcontract costs, were $2.5 million and $9.0 million for the three and nine months ended September 30, 2006, respectively. Gross construction services revenues totaled $36.9 million and $103.7 million, and subcontract costs totaled $34.4 million and $94.7 million for the same three and nine month periods.

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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.

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 $139.6 million and $128.9 million for the three months ended September 30, 2006 and 2005, respectively. Such costs aggregated approximately $443.4 million and $354.0 million for the nine months ended September 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 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.

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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.

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.” 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, Middle East and Africa 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 2006 evaluation was that the fair value of each reporting unit exceeded its carrying amount, and therefore we did not recognize an impairment loss.

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

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 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.

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Fair Value Measurements

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies to accounting pronouncements that require or permit fair value measurements, except for share-based payment transactions under SFAS 123R. The Company is required to apply the guidance of SFAS 157 beginning January 1, 2008. Management has not yet determined what impact the application of SFAS 157 will have on our consolidated financial statements.

Accounting for Defined Benefit Pension and Other Postretirement Plans

In September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS 158 does not change the basic approach to measuring plan assets, benefit obligations, or annual net periodic benefit cost in SFAS 87, “Employers’ Accounting for Pensions,” but requires recognition on the balance sheet of the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability, with changes in the funded status in the year in which the changes occur recognized in comprehensive income. The Company is required to apply the guidance of SFAS 158 in preparation of our consolidated financial statements for the year ended December 31, 2006. Management has not yet determined what impact the application of SFAS 158 will have on our consolidated financial statements.

The Effect of Prior Year Errors on Current Year Materiality Evaluations

In September 2006, the SEC Staff issued SAB 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 requires SEC registrants to consider the effect of all carry over and reversing effects of uncorrected errors in previous years when quantifying errors in current year financial statements. The Company is required to apply the guidance of SAB 108 in preparation of our consolidated financial statements for the year ended December 31, 2006. Management has not yet determined what impact the application of SAB 108 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, Middle East and Africa (“EMEA”), 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 charges (credits),” as we have determined that it is not meaningful to investors to allocate such amounts to our segments. See Note 3 for discussion of “Restructuring charges (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 charges (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.

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

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	Three Months Ended September 30, 2006			Three Months Ended September 30, 2005			Nine Months Ended September 30, 2006			Nine Months Ended September 30, 2005

Americas
Revenue:
Transaction services	$	75,159			44,825			189,906			113,864
Management services		71,774			55,831			198,836			150,220
Equity earnings		373			198			657			381
Other services		2,823			2,291			8,256			6,040
Intersegment revenue		256			169			915			698
		150,385			103,314			398,570			271,203
Operating expenses:
Compensation, operating and administrative services		128,415			87,065			359,012			244,953
Depreciation and amortization		5,852			3,797			16,435			11,080
Operating income	$	16,118			12,452			23,123			15,170

EMEA
Revenue:
Transaction services	$	138,448			84,734			326,933			236,720
Management services		27,812			22,179			71,595			70,051
Equity earnings (losses)		22			—			(284	)		(226	)
Other services		3,406			3,740			10,771			9,099
		169,688			110,653			409,015			315,644
Operating expenses:
Compensation, operating and administrative services		152,518			105,164			386,113			307,046
Depreciation and amortization		3,518			2,435			8,867			7,439
Operating income	$	13,652			3,054			14,035			1,159

Asia Pacific
Revenue:
Transaction services	$	45,019			35,461			118,856			101,674
Management services		32,769			28,604			88,650			78,310
Equity earnings (losses)		(135	)		—			1,714			—
Other services		622			(756	)		3,319			777
Intersegment revenue		141			—			203			—
		78,416			63,309			212,742			180,761
Operating expenses:
Compensation, operating and administrative services		78,480			60,741			206,842			168,310
Depreciation and amortization		1,819			1,745			5,579			5,414
Operating (loss) income	$	(1,883	)		823			321			7,037

Investment Management
Revenue:
Transaction and other services	$	4,218			3,722			19,153			14,613
Advisory fees		45,595			32,601			126,947			93,369
Incentive fees		14,672			13,154			145,982			16,911
Equity earnings		513			2,166			7,335			5,949
Intersegment revenue (expense)		(61	)		—			(120	)		—
		64,937			51,643			299,297			130,842
Operating expenses:
Compensation, operating and administrative services		54,430			37,937			196,710			100,373
Depreciation and amortization		334			344			996			1,034
Operating income	$	10,173			13,362			101,591			29,435

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Segment Reconciling Items:
Total segment revenue	$	463,426		328,919		1,319,624		898,450
Intersegment revenue eliminations		(336	)	(169	)	(998	)	(698	)
Reclassification of equity earnings		(773	)	(2,366	)	(9,422	)	(6,104	)
Total revenue		462,317		326,384		1,309,204		891,648

Total segment operating expenses		425,366		299,228		1,180,554		845,649
Intersegment operating expense eliminations		(336	)	(169	)	(998	)	(698	)
Total operating expenses before restructuring charges (credits)		425,030		299,059		1,179,556		844,951
Restructuring charges (credits)		—		721		(670	)	471

Operating income	$	37,287		26,604		130,318		46,226

(3) Restructuring Charges (Credits)

Land Investment and Development Group

In 2001, we closed our non-strategic residential land business in the Americas region of the Investment Management segment. Sales of assets from this business resulted in gains of $0.4 million in the three months ended September 30, 2005, and gains of $0.7 million and $0.4 million for the nine months ended September 30, 2006 and 2005, respectively. As no assets were sold in the three months ended September 30, 2006, no restructuring charges or credits were recorded in the current period.

Business Restructuring

Business restructuring charges include severance and professional fees associated with the realignment of our business. In the third quarter of 2005, we initiated a restructuring program in Germany, where workforce reductions resulted in a charge of $1.1 million in that quarter. For the nine months ended September 30, 2005, this charge was offset by $0.2 million of net credits taken in the second quarter of 2005 relative to a 2002 restructuring program, where actual costs incurred varied from initial estimates. Actual costs incurred can vary from original estimates as a result of 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 September 30, 2006, we had total investments and loans of $125.6 million in approximately 30 separate property or real estate fund co-investments, and a $1.9 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 $125.6 million of property or fund co-investments, loans of $3.3 million to real estate ventures bear interest rates ranging from 7.25% to 8.0% and are to be repaid by 2008. Following is a table summarizing our investments in real estate limited partnerships or similar entities ($ 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		124.9
Equity method						$	125.1
Limited partner without advisory agreements		<1% to 5	%		Cost		0.5
Total						$	125.6

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.

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At September 30, 2006, LIC I and LIC II have unfunded capital commitments of $146.5 million and $153.6 million, respectively, of which our 47.85% and 48.72% shares are $70.1 million and $74.8 million, respectively, for future fundings of co-investments. These $70.1 million and $74.8 million commitments are part of our maximum potential unfunded commitments to LIC I and LIC II at September 30, 2006, which are euro 78.5 million ($99.5 million) and $338.4 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 September 30, 2006, LIC I maintains a euro 35 million ($44.4 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 ($21.2 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 78.5 million ($99.5 million) and to LIC II of $338.4 million discussed above. As of September 30, 2006, LIC I had euro 8.2 million ($10.4 million) of outstanding borrowings on the LIC I Facility, and LIC II had $3.8 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 $2.9 million at September 30, 2006.

We expect to continue to pursue co-investment opportunities with our real estate money management clients in the Americas, EMEA 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 nine months ended September 30, 2006, we have recorded no impairment charges. For the nine months ended September 30, 2005, we recorded $1.5 million 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. We recorded an insignificant amount of net impairment charges for the three months ended September 30, 2005.

(5) Business Combinations, Goodwill and Other Intangible Assets

We have $552.6 million of unamortized identified intangibles and goodwill as of September 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 $552.6 million of unamortized intangibles and goodwill, $512.8 million represents goodwill with indefinite useful lives, which we ceased amortizing beginning January 1, 2002. The remaining $39.8 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 be recorded only if the related conditions are 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.

In September 2006, we acquired RSP Group, a Dubai-based real estate investment and advisory firm, for $14 million cash paid at closing with provisions for earn-outs subject to certain contract provisions and performance. 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 $1.9 million, and will be amortized over lives of up to 3 years. The remaining direct costs of acquisition 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
							Asia			Investment
	Americas			EMEA			Pacific			Management			Consolidated

Gross Carrying Amount

Balance as of January 1, 2006	$	185,339			67,291			92,552			27,999		$	373,181
Additions		143,152			27,159			—			—			170,311
Impact of exchange rate movements		—			5,305			503			1,596			7,404

Balance as of September 30, 2006		328,491			99,755			93,055			29,595			550,896

Accumulated Amortization

Balance as of January 1, 2006	$	(15,457	)		(5,755	)		(6,825	)		(9,413	)	$	(37,450	)
Impact of exchange rate movements		—			(406	)		(27	)		(235	)		(668	)

Balance as of September 30, 2006		(15,457	)		(6,161	)		(6,852	)		(9,648	)		(38,118	)

Net book value as of September 30, 2006	$	313,034			93,594			86,203			19,947		$	512,778

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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
							Asia			Investment
	Americas			EMEA			Pacific			Management			Consolidated

Gross Carrying Amount

Balance as of January 1, 2006	$	41,310			571			2,739			5,131		$	49,751
Additions		41,619			2,802			—			—			44,421
Impact of exchange rate movements		—			61			52			445			558

Balance as of September 30, 2006		82,929			3,434			2,791			5,576			94,730

Accumulated Amortization

Balance as of January 1, 2006	$	(37,237	)		(571	)		(2,421	)		(5,131	)	$	(45,360	)
Amortization expense		(8,129	)		(556	)		(285	)		—			(8,970	)
Impact of exchange rate movements		—			(62	)		(56	)		(445	)		(563	)

Balance as of September 30, 2006		(45,366	)		(1,189	)		(2,762	)		(5,576	)		(54,893	)

Net book value as of September 30, 2006	$	37,563			2,245			29			—		$	39,837

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

2006	$	2.7
2007		7.0
2008		6.6
2009		3.7
2010		3.5
Thereafter		16.3
Total	$	39.8

(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 September 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 nine month period ended September 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 nine months ended September 30, 2006 and 2005, respectively, consisted of the following ($ in thousands):

	Three Months Ended September 30, 2006		Three Months Ended September 30, 2005		Nine Months Ended September 30, 2006		Nine Months Ended September 30, 2005

Stock option awards	$	17		—		51		—
Restricted stock unit awards		11,331		7,433		28,585		17,600
ESPP		—		—		—		—
UK SAYE		57		57		167		(44	)
	$	11,405		7,490		28,803		17,556

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 nine months ended September 30, 2005 ($ in thousands, except per share data):

	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005

Net income available to common shareholders, as reported	$	20,231			36,400

Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		6,324			15,156

Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax effects		(7,149	)		(17,274	)
Pro forma net income	$	19,406			34,282

Net earnings per share:
Basic—as reported	$	0.64			1.16
Basic—pro forma	$	0.61			1.10
Diluted—as reported	$	0.61			1.10
Diluted—pro forma	$	0.58			1.04

Stock Option Awards

We have 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 September 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 September 30, 2006, is as follows:

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

Outstanding at June 30, 2006		499.3		$	18.13
Granted		—			—
Exercised		(100.4	)		19.16
Forfeited		—			—
Outstanding at September 30, 2006		398.9		$	17.94		2.52 years	$	26.9
Exercisable at September 30, 2006		382.6		$	17.92		2.37 years	$	25.8

Stock option activity for the nine months ended September 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		1,110.1		$	19.86
Granted		—			—
Exercised		(689.8	)		20.62
Forfeited		(21.4	)		30.80
Outstanding at September 30, 2006		398.9		$	17.94		2.52 years	$	26.9
Exercisable at September 30, 2006		382.6		$	17.92		2.37 years	$	25.8

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 September 30, 2006, we have approximately 398,900 options outstanding, of which approximately 16,300 options were unvested.

We recognized $0.02 million and $0.05 million of compensation expense related to the unvested options for the three and nine months ended September 30, 2006, respectively. Approximately $0.04 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 September 30, 2006 and 2005 were $0.5 million and $0.3 million, respectively, and in the nine months ended September 30, 2006 and 2005 were $2.4 million and $8.1 million, respectively. The intrinsic values of options that vested in the three months ended September 30, 2006 and 2005 were $0.4 million and $0.2 million, respectively, and in the nine months ended September 30, 2006 and 2005 were $1.9 million and $3.7 million, respectively.

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

	Three Months Ended September 30, 2006		Three Months Ended September 30, 2005		Nine Months Ended September 30, 2006		Nine Months Ended September 30, 2005

Number of options exercised		100,451		201,115		689,830		922,704

Aggregate fair value	$	8.3		9.6		47.8		40.2
Intrinsic value		6.4		5.1		33.6		18.3
Amount of cash received	$	1.9		4.5		14.2		21.9

Tax benefit recognized	$	2.4		1.9		12.7		6.6

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Restricted Stock Unit Awards

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

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

Unvested at June 30, 2006		2,856.2		$	36.44
Granted		7.0			82.46
Vested		(732.6	)		25.63
Forfeited		(7.9	)		30.34
Unvested at September 30, 2006		2,122.7		$	40.34		1.77 years	$	95.8
Unvested shares expected to vest		2,002.7		$	39.94		1.75 years	$	91.2

Restricted stock activity for the nine months ended September 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		2,084.9		$	28.17
Granted		832.1			57.03
Vested		(746.1	)		25.54
Forfeited		(48.2	)		31.23
Unvested at September 30, 2006		2,122.7		$	40.34		1.77 years	$	95.8
Unvested shares expected to vest		2,002.7		$	39.94		1.75 years	$	91.2

As of September 30, 2006, there was $44.0 million of remaining unamortized deferred compensation related to unvested restricted stock units. The remaining cost of unvested restricted stock units granted through September 30, 2006 will be recognized over varying periods into 2011.

Approximately 732,600 and 746,100 restricted stock unit awards vested during the three and nine months ended September 30, 2006, having aggregate fair values of $64.8 million and $64.1 million and intrinsic values of $45.8 million and $45.4 million for those periods, respectively. As a result of the vestings, we recognized tax benefits of $14.5 million and $14.7 million for the three and nine months ended September 30, 2006.

Additionally, the Compensation Committee of the Board of Directors approved certain retirement criteria in December 2005, whereby an employee age 55 or older, with a sum of age plus years of service with the Company which meets or exceeds 65, would be eligible to be considered for receipt of retirement benefits upon departure from the Company. In the third quarter of 2006, we determined that these criteria trigger application of certain provisions of SFAS 123R whereby compensation expense for restricted stock unit awards granted after our adoption of SFAS 123R (i.e., beginning January 1, 2006) to employees meeting the established criteria should be accelerated such that all expense for an employee’s award is recognized by the time that employee meets the criteria to be considered for retirement eligibility. Restricted stock unit awards granted in the first quarter of 2006 to employees meeting the criteria to be considered for retirement eligibility in that quarter had an unamortized value of $2.5 million at March 31, 2006. These 2006 awards continued to be amortized over the stated vesting periods into the third quarter of 2006. We accelerated the remaining $2.2 million of unamortized compensation expense in the quarter ended September 30, 2006. We believe that correction of this error is not material to the consolidated financial statements in any quarter of this year, nor do we believe it to be material to consolidated earnings trends.

In accordance with SFAS 123R, we will continue to recognize compensation cost over the stated vesting periods for awards granted prior to January 1, 2006 until the earlier of the completion of the stated vesting period for such awards or the date actual retirement occurs. If we had applied the substantive vesting period provisions of SFAS 123R (including the impact of retirement eligibility) for awards issued before our adoption of SFAS 123R, recorded compensation expense would have been reduced by $0.1 million and $0.7 million for the three and nine month periods ended September 30, 2006, respectively, as such amortization would have been recognized in prior years.

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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, 1,311,238 shares have been purchased under the program through September 30, 2006. During the three months ended September 30, 2006, 12,748 shares having a grant date market value of $85.48 were purchased under the program. During the nine months ended September 30, 2006, 46,122 shares having a weighted average grant date market value of $82.04 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 originally approved the reservation of 500,000 shares for the SAYE on May 14, 2001. At our 2006 Annual Meeting, our shareholders approved an increase of 500,000 in the number of shares reserved for issuance under the SAYE. 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.

(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 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 dividends of $0.25 per share of common stock declared by the Company’s Board of Directors on April 19, 2006 and August 17, 2005.

For the three and nine months ended September 30, 2006, we calculated basic earnings per common share based on basic weighted average shares outstanding of 32,106,994 and 31,771,247, respectively, and calculated diluted earnings per common share based on diluted weighted average shares outstanding of 33,751,054 and 33,319,566, 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 4,349,651 or 3,328,551 shares that had been repurchased as of September 30, 2006 and 2005, respectively, and which are held by one of our subsidiaries. See Part II, Item 2. Share Repurchases for additional information.

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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 September 30, 2006		Three Months Ended September 30, 2005		Nine Months Ended September 30, 2006		Nine Months Ended September 30, 2005

Net income before cumulative effect of change in accounting principle	$	24,697		20,617		94,293		36,786
Cumulative effect of change in accounting principle, net of tax		—		—		1,180		—
Net income	$	24,697		20,617		95,473		36,786
Dividends on unvested common stock, net of tax benefit		—		386		522		386
Net income available to common shareholders	$	24,697		20,231		94,951		36,400

Basic weighted average shares outstanding			32,106,994			31,576,006			31,771,247			31,296,057
Basic income per common share before cumulative effect of change in accounting principle and dividends on unvested common stock