form10-q.htm
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, 2007

Or

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
  
36-4150422
(State or other jurisdiction of incorporation or organization)
  
(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 July 26, 2007 was 37,421,907 which includes 4,970,232 shares held by a subsidiary of the registrant.
 
1

Table of Contents

Part I
  
Financial Information
  
       
Item 1.
  
3
     
 
   
3
     
 
   
4
     
 
   
5
     
 
   
6
     
 
   
7
     
 
Item 2.
  
19
     
 
Item 3.
  
29
     
 
Item 4.
  
30
     
 
Part II
  
Other Information
 
     
 
Item 1.
  
31
 
    
 
Item 1A.
  
31
     
 
Item 2.
  
31
     
 
Item 4.
  
32
     
 
Item 5.
  
32
       
Item 6.
  
36
 
2

Financial Information
Item 1.
Financial Statements

JONES LANG LASALLE INCORPORATED
Consolidated Balance Sheets
June 30, 2007 and December 31, 2006
($ in thousands, except share data)

   
June 30, 2007
    
December 31,
  
Assets
  
(unaudited)
    
2006
  
Current assets:
            
Cash and cash equivalents
   $
37,513
      
50,612
  
Trade receivables, net of allowances of $13,088 and $7,845
    
581,272
      
630,121
  
Notes and other receivables
    
60,408
      
30,079
  
Prepaid expenses
    
30,319
      
28,040
  
Deferred tax assets
    
48,034
      
49,230
  
Other assets
    
22,346
      
19,363
  
Total current assets
    
779,892
      
807,445
  
 
                
Property and equipment, net of accumulated depreciation of $189,851 and $181,959
    
146,926
      
120,376
  
Goodwill, with indefinite useful lives, net of accumulated amortization of $39,183 and $38,701
    
580,237
      
520,478
  
Identified intangibles, with finite useful lives, net of accumulated amortization of $63,073 and $58,594
    
38,822
      
37,583
  
Investments in real estate ventures
    
130,698
      
131,789
  
Long-term receivables, net
    
30,744
      
29,781
  
Deferred tax assets
    
40,967
      
37,465
  
Other assets, net
    
47,607
      
45,031
  
 
   $
1,795,893
      
1,729,948
  
 
                
Liabilities and Shareholders’ Equity
                
Current liabilities:
                
Accounts payable and accrued liabilities
   $
192,377
      
221,356
  
Accrued compensation
    
365,679
      
514,586
  
Short-term borrowings
    
30,239
      
17,738
  
Deferred tax liabilities
    
2,027
      
1,426
  
Deferred income
    
22,796
      
31,896
  
Other current liabilities
    
39,593
      
43,444
  
Total current liabilities
    
652,711
      
830,446
  
 
                
Noncurrent liabilities:
                
Credit facilities
    
117,710
      
32,398
  
Deferred tax liabilities
    
1,289
      
648
  
Deferred compensation
    
47,267
      
30,668
  
Pension liability
    
20,152
      
19,252
  
Deferred business acquisition obligations
    
45,439
      
34,178
  
Other noncurrent liabilities
    
41,266
      
31,978
  
Total liabilities
    
925,834
      
979,568
  
 
                
Commitments and contingencies
                
Shareholders’ equity:
                
Common stock, $.01 par value per share, 100,000,000 shares authorized; 36,821,901 and 36,592,864 shares issued and outstanding
    
368
      
366
  
Additional paid-in capital
    
706,050
      
676,270
  
Retained earnings
    
349,705
      
255,914
  
Shares held by subsidiary
     (219,359 )     (197,543 )
Shares held in trust
     (1,427 )     (1,427 )
Accumulated other comprehensive income
    
34,722
      
16,800
  
Total shareholders’ equity
    
870,059
      
750,380
  
 
   $
1,795,893
      
1,729,948
  

See accompanying notes to consolidated financial statements.

3

JONES LANG LASALLE INCORPORATED
Consolidated Statements of Earnings
For the Three and Six Months Ended June 30, 2007 and 2006
($ in thousands, except share data) (unaudited)

   
Three Months
    
Three Months
    
Six Months
    
Six Months
  
   
Ended
    
Ended
    
Ended
    
Ended
  
   
June 30,
    
June 30,
    
June 30,
    
June 30,
  
   
2007
    
2006
    
2007
    
2006
  
                         
Revenue
   $
676,086
      
509,789
      
1,166,139
      
846,887
  
Operating expenses:
                                
Compensation and benefits
    
436,265
      
318,369
      
761,922
      
549,615
  
Operating, administrative and other
    
126,517
      
96,894
      
242,253
      
184,557
  
Depreciation and amortization
    
12,309
      
10,378
      
24,935
      
20,354
  
Restructuring credits
    
—
       (169 )     (411 )     (670 )
Operating expenses
    
575,091
      
425,472
      
1,028,699
      
753,856
  
                                 
Operating income
    
100,995
      
84,317
      
137,440
      
93,031
  
Interest expense, net of interest income
    
3,830
      
4,478
      
5,668
      
7,687
  
Gain on sale of investments
    
3,703
      
—
      
6,129
      
—
  
Equity in earnings from real estate ventures
    
6,368
      
9,593
      
6,502
      
8,649
  
                                 
Income before provision for income taxes
    
107,236
      
89,432
      
144,403
      
93,993
  
Provision for income taxes
    
28,632
      
23,216
      
38,556
      
24,397
  
                                 
Net income before cumulative effect of change  in accounting principle
    
78,604
      
66,216
      
105,847
      
69,596
  
Cumulative effect of change in accounting principle, net of tax
    
—
      
—
      
—
      
1,180
  
Net income
   $
78,604
      
66,216
      
105,847
      
70,776
  
                                 
Net income available to common shareholders (Note 10)
   $
77,932
      
65,694
      
105,175
      
70,254
  
                                 
                                 
Basic earnings per common share
   $
2.45
      
2.07
      
3.30
      
2.22
  
                                 
Basic weighted average shares outstanding
    
31,828,364
      
31,688,327
      
31,878,811
      
31,600,591
  
                                 
Diluted earnings per common share
   $
2.32
      
1.94
      
3.12
      
2.08
  
                                 
Diluted weighted average shares outstanding
    
33,655,359
      
33,821,945
      
33,664,471
      
33,796,465
  

See accompanying notes to consolidated financial statements.

4

JONES LANG LASALLE INCORPORATED
Consolidated Statement of Shareholders’ Equity
For the Six Months Ended June 30, 2007
($ in thousands, except share data) (unaudited)

   
Common Stock
    
Additional
Paid-In
    
Retained
    
Shares
Held by
    
Shares
Held in
    
Accumulated
Other
Comprehensive
        
   
Shares (1)
    
Amount
    
Capital
    
Earnings
    
Subsidiary
    
Trust
    
Income
    
Total
  
                                                 
Balances at December 31, 2006
    
36,592,864
     $
366
      
676,270
      
255,914
       (197,543 )     (1,427 )    
16,800
     $
750,380
  
 
                                                                
Net income
    
—
      
—
      
—
      
105,847
      
—
      
—
      
—
      
105,847
  
 
                                                                
Shares issued under stock compensation programs
    
229,037
      
2
      
5,275
      
—
      
—
      
—
      
—
      
5,277
  
Tax benefits of vestings and exercises
    
—
      
—
      
3,754
      
—
      
—
      
—
      
—
      
3,754
  
Amortization of stock compensation
    
—
      
—
      
20,751
      
—
      
—
      
—
      
—
      
20,751
  
 
                                                                
Shares acquired by subsidiary (1)
    
—
      
—
      
—
      
—
       (21,816 )    
—
      
—
       (21,816 )
 
                                                                
Dividends declared
    
—
      
—
      
—
       (12,056 )    
—
      
—
      
—
       (12,056 )
 
                                                                
Reclassification adjustment for gain on sale of available-for-sale securities realized in net income
    
—
      
—
      
—
      
—
      
—
      
—
       (2,256 )     (2,256 )
Foreign currency translation adjustments
    
—
      
—
      
—
      
—
      
—
      
—
      
20,178
      
20,178
  
 
                                                                
Balances at June 30, 2007
    
36,821,901
     $
368
      
706,050
      
349,705
       (219,359 )     (1,427 )    
34,722
     $
870,059
  

(1)  Shares repurchased under our share repurchase programs are not cancelled, but are held by one of our subsidiaries.  The 4,970,232 shares we have repurchased through June 30, 2007 are included in the 36,821,901 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.

5

JONES LANG LASALLE INCORPORATED
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2007 and 2006
($ in thousands) (unaudited)
 
   
Six
    
Six
  
   
Months Ended
    
Months Ended
  
   
June 30, 2007
    
June 30, 2006
  
Cash flows from operating activities:
            
Net income
   $
105,847
      
70,776
  
Reconciling net income to net cash from operating activities:
                
Cumulative effect of change in accounting principle, net of tax
    
—
       (1,180 )
Depreciation and amortization
    
24,935
      
20,354
  
Equity in earnings from real estate ventures
     (6,502 )     (8,649 )
Gain on sale of investments
     (3,703 )    
—
  
Operating distributions from real estate ventures
    
8,147
      
12,631
  
Provision for loss on receivables and other assets
    
6,518
      
4,514
  
Amortization of deferred compensation
    
22,686
      
16,977
  
Amortization of debt issuance costs
    
296
      
365
  
Change in:
                
Receivables
    
27,124
       (119,799 )
Prepaid expenses and other assets
     (7,652 )     (6,867 )
Deferred tax assets, net
     (1,064 )    
3,015
  
Excess tax benefits from share-based payment arrangements
     (3,754 )     (8,024 )
Accounts payable, accrued liabilities and accrued compensation
     (152,575 )     (16,154 )
Net cash provided by (used in) operating activities
    
20,303
       (32,041 )
                 
Cash flows from investing activities:
                
Net capital additions – property and equipment
     (45,396 )     (28,535 )
Business acquisitions
     (66,697 )     (168,448 )
Capital contributions and advances to real estate ventures
     (20,663 )     (35,393 )
Distributions, repayments of advances and sale of investments
    
24,075
      
9,365
  
Net cash used in investing activities
     (108,681 )     (223,011 )
                 
Cash flows from financing activities:
                
Proceeds from borrowings under credit facilities
    
609,179
      
584,090
  
Repayments of borrowings under credit facilities
     (509,119 )     (330,353 )
Shares repurchased for payment of employee taxes on stock awards
     (857 )     (148 )
Shares repurchased under share repurchase program
     (21,815 )     (20,362 )
Excess tax benefits from share-based payment arrangements
    
3,754
      
8,024
  
Common stock issued under stock option plan and stock purchase programs
    
6,193
      
17,658
  
Payment of dividends
     (12,056 )     (8,636 )
Net cash provided by financing activities
    
75,279
      
250,273
  
                 
Net decrease in cash and cash equivalents
     (13,099 )     (4,779 )
Cash and cash equivalents, January 1
    
50,612
      
28,658
  
Cash and cash equivalents, June 30
   $
37,513
      
23,879
  
                 
Supplemental disclosure of cash flow information:
                
Cash paid during the period for:
                
Interest
   $
8,097
      
6,847
  
Income taxes, net of refunds
    
28,246
      
18,753
  
Non-cash financing activities:
                
Deferred business acquisition obligations
    
11,261
      
32,854
  

See accompanying notes to consolidated financial statements.

6

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, 2006, which are included in Jones Lang LaSalle’s 2006 Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission (“SEC”) and also available on our web site (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) Interim Information

Our consolidated financial statements as of June 30, 2007 and for the three and six months ended June 30, 2007 and 2006 are unaudited; however, in the opinion of management, we have included all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for these interim periods.

Historically, our revenue and profits have tended to be higher in the third and fourth quarters of each year than in the first two quarters. This is the result of a general focus in the real estate industry on completing or documenting transactions by calendar-year-end and the fact that certain expenses are constant throughout the year. Our Investment Management segment earns investment-generated performance fees on clients’ real estate investment returns and co-investment equity gains, generally when assets are sold, the timing of which is geared towards the benefit of our clients. Within our Investor and Occupier Services segments, expansion of capital markets activities has an increasing impact on comparability between reporting periods, as the timing of recognition of revenues relates to the size and timing of our clients’ transactions. Non-variable operating expenses, which are treated as expenses when they are incurred during the year, are relatively constant on a quarterly basis. As a result, the results for the periods ended June 30, 2007 and 2006 are not indicative of the results to be obtained for the full fiscal year.

(2) New Accounting Standards

Accounting for Uncertainty in Income Taxes
Effective January 1, 2007, we adopted FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies and sets forth consistent rules for accounting for uncertain income tax positions in accordance with SFAS 109, “Accounting for Income Taxes.” The Company did not recognize any change to its liability for unrecognized tax benefits as a result of the adoption. Therefore, we have not adjusted our retained earnings as of January 1, 2007. As of the adoption date, the amount of unrecognized tax benefits was $19.9 million, all of which would impact the effective tax rate of the Company if recognized. However, we do not believe that there will be significant changes in the amount of unrecognized tax benefits within the next 12 months.

The Company recognizes interest accrued and penalties, if any, related to income taxes as a component of income tax expense. As of January 1, 2007, $0.3 million of interest expense and no penalties were accrued. As of June 30, 2007, $0.4 million of interest expense and no penalties were accrued.

The Company or one of its subsidiaries files income tax returns in the United States, the United Kingdom including England and Scotland, Australia, Germany, The People’s Republic of China including Hong Kong, France, Japan, and Singapore as well as approximately 40 other jurisdictions. Generally, the Company’s open tax years include those from 2002 to the present, although in a number of jurisdictions reviews of taxing authorities for more recent years have been completed or are in process. Although the ultimate outcome of tax audits is uncertain, we believe adequate amounts of tax and interest have been provided for any adjustments that are expected to result related to these years.

Income Statement Presentation of Certain Taxes Collected
In June 2006, the FASB’s Emerging Issues Task Force (EITF) issued EITF Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” EITF 06-3 includes in its scope taxes assessed by governmental authorities that are both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, such as sales, use, value added, and some excise taxes.  Effective January 1, 2007, we adopted EITF 06-3, which requires disclosure of a company’s policies relative to accounting for such taxes; we present such taxes on net basis (excluded from revenues) in our consolidated statements of earnings.
 
7

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.

Fair Value Option
In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose to measure financial instruments and certain other items at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The Company has the option of adopting fair value accounting for financial assets and liabilities in accordance with the guidance of SFAS 159 beginning January 1, 2008. Management has not yet determined what impact the application of SFAS 159 will have on our consolidated financial statements.

Investment Company Accounting
In June 2007, the AICPA issued Statement of Position (“SOP”) 07–1, “Clarification of the Scope of the Audit and Accounting Guide, Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies.” SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide, “Investment Companies” (“the Guide”) and when companies that own or have significant stakes in investment companies should and should not retain, in their financial statements, the specialized industry accounting under the Guide. Management has not yet determined if SOP 07-1 is applicable to the Company's investments in real estate ventures and what impact, if any, the application of SOP 07-1 will have on our consolidated financial statements.
 
(3) Revenue Recognition

We categorize our revenues as advisory and management fees, transaction commissions, incentive fees, 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. We recognize incentive fees based on the performance of underlying funds’ investments and the contractual benchmarks, formulas and timing of the measurement period with clients. We recognize project and development management and construction management fees by 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 $3.1 million and $3.1 million for the three months ended June 30, 2007 and 2006, respectively, and $4.9 million and $5.5 million for the six months ended June 30, 2007 and 2006, respectively.

Gross construction services revenues totaled $46.3 million and $40.6 million for the three months ended June 30, 2007 and 2006, respectively, and $84.4 million and $69.1 million for the six months ended June 30, 2007 and 2006, respectively.

Subcontract costs totaled $43.2 million and $37.5 million, for the three months ended June 30, 2007 and 2006, respectively, and $79.5 million and $63.6 million for the six months ended June 30, 2007 and 2006, respectively.

Costs in excess of billings on uncompleted construction contracts of $10.9 million and $3.2 million are included in “Trade receivables,” and billings in excess of costs on uncompleted construction contracts of $3.0 million and $6.6 million are included in “Deferred income,” respectively, in our June 30, 2007 and December 31, 2006 consolidated balance sheets.

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. We report a contract that provides a fixed fee billing, fully inclusive of all personnel or other recoverable expenses incurred but not separately scheduled, 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.
 
8

We account for a contract on a net basis when the fee structure is comprised of at least two distinct elements, namely (i) a fixed management fee and (ii) 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. These costs aggregated approximately $177.5 million and $152.4 million for the three months ended June 30, 2007 and 2006, respectively, and approximately $362.9 million and $303.8 million for the six months ended June 30, 2007 and 2006, respectively.  This treatment has no impact on operating income, net income or cash flows.
 
(4) 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-based compensation programs. We allocate these corporate global overhead expenses to the business segments based on the relative revenue of each segment.

Our measure of segment operating results excludes “Restructuring charges (credits),” as we have determined that it is not meaningful to investors to allocate such charges (credits) to our segments. See Note 5 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, 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 four reporting segments.

We have reclassified certain prior year amounts to conform to the current presentation.

9

The following table summarizes unaudited financial information by business segment for the three and six months ended June 30, 2007 and 2006 ($ in thousands):

   
Three Months
    
Three Months
    
Six Months
    
Six Months
  
   
Ended
    
Ended
    
Ended
    
Ended
  
   
June 30,
    
June 30,
    
June 30,
    
June 30,
  
Investor and Occupier Services
  
2007
    
2006
    
2007
    
2006
  
                         
Americas
                        
Revenue:
                        
Transaction services
   $
85,070
      
66,535
      
157,759
      
114,747
  
Management services
    
86,021
      
64,801
      
156,952
      
127,062
  
Equity earnings
    
270
      
135
      
420
      
284
  
Other services
    
7,638
      
2,891
      
12,134
      
5,432
  
     
178,999
      
134,362
      
327,265
      
247,525
  
Operating expenses:
                                
Compensation, operating and administrative services
    
153,792
      
121,332
      
289,675
      
229,936
  
Depreciation and amortization
    
6,084
      
5,281
      
12,006
      
10,583
  
Operating income
   $
19,123
      
7,749
      
25,584
      
7,006
  
                                 
EMEA
                                
Revenue:
                                
Transaction services
   $
157,903
      
109,110
      
300,041
      
188,485
  
Management services
    
35,181
      
22,561
      
67,264
      
43,782
  
Equity earnings (losses)
    
172
       (85 )     (195 )     (305 )
Other services
    
3,730
      
4,396
      
6,767
      
7,365
  
     
196,986
      
135,982
      
373,877
      
239,327
  
Operating expenses:
                                
Compensation, operating and administrative services
    
177,830
      
127,877
      
335,555
      
233,596
  
Depreciation and amortization
    
3,931
      
2,840
      
8,447
      
5,348
  
Operating income
   $
15,225
      
5,265
      
29,875
      
383
  
                                 
Asia Pacific
                                
Revenue:
                                
Transaction services
   $
162,312
      
45,189
      
201,908
      
73,837
  
Management services
    
47,018
      
28,041
      
92,077
      
55,881
  
Equity earnings
    
210
      
1,633
      
231
      
1,850
  
Other services
    
1,691
      
1,529
      
3,410
      
2,697
  
     
211,231
      
76,392
      
297,626
      
134,265
  
Operating expenses:
                                
Compensation, operating and administrative services
    
165,194
      
71,556
      
252,715
      
128,301
  
Depreciation and amortization
    
1,857
      
1,938
      
3,630
      
3,760
  
Operating income
   $
44,180
      
2,898
      
41,281
      
2,204
  
                                 
Investment Management
                                
Revenue:
                                
Transaction and other services
   $
5,411
      
3,886
      
7,930
      
14,936
  
Advisory fees
    
54,295
      
43,084
      
108,214
      
81,353
  
Incentive fees
    
29,817
      
117,766
      
51,683
      
131,310
  
Equity earnings
    
5,716
      
7,910
      
6,046
      
6,820
  
     
95,239
      
172,646
      
173,873
      
234,419
  
Operating expenses:
                                
Compensation, operating and administrative services
    
65,966
      
94,498
      
126,230
      
142,339
  
Depreciation and amortization
    
437
      
319
      
852
      
663
  
Operating income
   $
28,836
      
77,829
      
46,791
      
91,417
  
                                 
Segment Reconciling Items:
                                
Total segment revenue
   $
682,454
      
519,382
      
1,172,641
      
855,536
  
Reclassification of equity earnings
     (6,368 )     (9,593 )     (6,502 )     (8,649 )
Total revenue
    
676,086
      
509,789
      
1,166,139
      
846,887
  
                                 
Total segment operating expenses
    
575,091
      
425,641
      
1,029,110
      
754,526
  
Restructuring credits
    
—
       (169 )     (411 )     (670 )
                                 
Operating income
   $
100,995
      
84,317
      
137,440
      
93,031
  
 
10

(5) Restructuring Charges (Credits)

In 2001, we closed our non-strategic residential land business in the Americas region of the Investment Management segment.   We sold assets and collected cash from this business that resulted in gains of $0.2 million for the three months ended June 30, 2006 and $0.4 million and $0.7 million for the six months ended June 30, 2007 and 2006, respectively.
 
(6) Investments in Real Estate Ventures

As of June 30, 2007, we had total investments and loans of $130.7 million in approximately 30 separate property or fund co-investments. Within this $130.7 million are loans of $3.5 million to real estate ventures which bear an 8.0% interest rate and are to be repaid by 2008.

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. LIC I is fully committed to underlying real estate ventures. At June 30, 2007, our maximum potential unfunded commitment to LIC I is euro 33.4 million ($45.3 million). 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. At June 30, 2007, LIC II has unfunded capital commitments for future fundings of co-investments of $308.2 million, of which our 48.78% share is $150.3 million. The $150.3 million commitment is part of our maximum potential unfunded commitment to LIC II at June 30, 2007 of $454.0 million.
 
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 48.78% ownership interest in LIC II; primarily institutional investors hold the remaining 52.15% and 51.22% interests in LIC I and LIC II, respectively. We account for our investments in LIC I and LIC II 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.

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 we expect that LIC II will draw down on our commitment over the next four 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, 2007, LIC I maintains a euro 25 million ($33.9 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 and a material adverse condition clause. If either of the credit rating trigger or the material adverse condition clauses becomes triggered, the facility to which that condition relates would be in default and outstanding borrowings 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 12.0 million ($16.2 million); assuming that the LIC II Facility were fully drawn, the maximum exposure to Jones Lang LaSalle would be $97.6 million. Each exposure is included within and cannot exceed our maximum potential unfunded commitments to LIC I of euro 33.4 million ($45.3 million) and to LIC II of $454.0 million. As of June 30, 2007, LIC I had euro 5.4 million ($7.3 million) of outstanding borrowings on the LIC I Facility, and LIC II had $7.5 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 $12.9 million at June 30, 2007.

11

During the first quarter of 2007, we sold our investment in LoopNet, an investment in available-for-sale securities under SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” and recognized a “Gain on sale of investments” of $2.4 million. During the second quarter of 2007, we recognized a $3.7 million gain on sale of SiteStuff, Inc., a company in which we had a cost method investment.

We apply the provisions of APB 18, SAB 59, and SFAS 144 when evaluating investments in real estate ventures for impairment, including impairment evaluations of the individual assets underlying our investments. We recorded no impairment charges in the first six months of 2007 or 2006.

(7) Business Combinations, Goodwill, and Other Intangible Assets

We have $619.1 million of unamortized identified intangibles and goodwill as of June 30, 2007 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 $619.1 million of unamortized intangibles and goodwill, $580.3 million represents goodwill with indefinite useful lives, which we ceased amortizing beginning January 1, 2002. We will amortize the remaining $38.8 million of identifiable intangibles (principally representing customer relationships and management contracts acquired) over their remaining finite useful lives.

In the first quarter of 2007, we acquired 100% interests in each of NSC Corporate, a leading Western Australian agency business, and Hargreaves Goswell, a London agency business. In addition to cash paid at closing, the terms of each transaction included provisions for future consideration subject to certain provisions. We recorded the fair value of future consideration which is subject only to the passage of time as “Deferred business acquisition obligations” on our consolidated balance sheet. We have recorded the fair value of the contract pipeline acquired and certain restrictive agreements as identifiable intangibles with finite useful lives; we attributed the remaining direct costs of acquisition to goodwill. Payment of an earn-out provision in the NSC Corporate acquisition is subject to the achievement of certain performance conditions, which we will record to goodwill at the time those conditions are met; we will not record the earn-out if the related conditions are not achieved. Additional future consideration subject to employment-related provisions in the Hargreaves Goswell acquisition is recorded as compensation expense over the term of those provisions. Also, in the first quarter of 2007, we made adjustments to accounting for the 2006 Spaulding & Slye acquisition which are reflected as additions to goodwill in the Americas segment.

In the second quarter of 2007, we acquired 100% interests in each of Troostwijk Makelaars, an independent property advisor firm based in the Netherlands that specializes in leasing, capital markets, and advisory and research services, and KHK Group, an English project and development services business. Terms for the two transactions included cash paid at closing totaling approximately $45.6 million, with provisions for additional consideration and earn-outs subject to certain contract provisions and performance. Additional consideration subject only to the passage of time and scheduled to be paid in 2010 is recorded in “Deferred business acquisition obligations” on our consolidated balance sheet at a current fair value of $3.5 million. 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 contract pipeline and certain restrictive agreements, were attributed a total value of $2.7 million, and will be amortized over lives of up to three years. We attributed the remaining direct costs of acquisition to goodwill. Each acquisition also includes provisions for future consideration subject to employment-related conditions, the total of which is up to $9.4 million to be recorded as compensation expense over the next three years.

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):

12


   
Investor and Occupier Services
              
         
 
    
Asia
    
 Investment
        
   
Americas
    
EMEA
    
Pacific
    
Management
    
Consolidated
  
                               
Gross Carrying Amount
                              
                               
Balance as of January 1, 2007
   $
328,628
      
104,494
      
95,563
      
30,494
      
559,179
  
Additions
    
418
      
50,646
      
2,917
      
—
      
53,981
  
Impact of exchange rate movements
    
—
      
2,508
      
3,179
      
573
      
6,260
  
                                         
Balance as of June 30, 2007
    
329,046
      
157,648
      
101,659
      
31,067
      
619,420
  
                                         
Accumulated Amortization
                                        
                                         
Balance as of January 1, 2007
   $ (15,457 )     (6,429 )     (7,038 )     (9,777 )     (38,701 )
Impact of exchange rate movements
    
—
       (160 )     (234 )     (88 )     (482 )
                                         
Balance as of June 30, 2007
     (15,457 )     (6,589 )     (7,272 )     (9,865 )     (39,183 )
                                         
Net book value as of June 30, 2007
   $
313,589
      
151,059
      
94,387
      
21,202
      
580,237
  
 
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, 2007
   $
82,929
      
4,449
      
2,965
      
5,834
      
96,177
  
Additions
    
—
      
3,207
      
1,773
      
—
      
4,980
  
Impact of exchange rate movements
    
—
      
471
      
118
      
149
      
738
  
                                         
Balance as of June 30, 2007
    
82,929
      
8,127
      
4,856
      
5,983
      
101,895
  
                                         
Accumulated Amortization
                                        
                                         
Balance as of January 1, 2007
   $ (47,127 )     (2,668 )     (2,965 )     (5,834 )     (58,594 )
Amortization expense
     (3,352 )     (544 )     (252 )    
—
       (4,148 )
Impact of exchange rate movements
    
—
       (62 )     (120 )     (149 )     (331 )
                                         
Balance as of June 30, 2007
     (50,479 )     (3,274 )     (3,337 )     (5,983 )     (63,073 )
                                         
Net book value as of June 30, 2007
   $
32,450
      
4,853
      
1,519
      
—
      
38,822
  
 
Remaining estimated future amortization expense for our intangibles with finite useful lives ($ in millions):

2007 (remaining six months)
   $
4.5
  
2008
    
8.3
  
2009
    
5.4
  
2010
    
4.2
  
2011
    
3.5
  
Thereafter
    
12.9
  
Total
   $
38.8
  
 
13
 
(8) Stock-based Compensation

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. We previously recognized forfeitures as incurred; we now estimate forfeitures at the date of grant and accelerate expense recognition for share-based awards to employees who are or will become retirement-eligible prior to the stated vesting period of the award. The effect of the change to estimating forfeitures as it relates to periods prior to 2006 is reflected in “Cumulative effect of change in accounting principle, net of tax” in the consolidated statement of earnings. In the three month period ended March 31, 2006, we recorded a $1.8 million pre-tax, $1.2 million net of tax, gain for the cumulative effect of this accounting change.

Restricted Stock Unit Awards

Along with cash base salaries and performance-based annual cash incentive awards, restricted stock unit awards represent a primary element of our compensation program for Company officers, managers and professionals.

Restricted stock unit activity for the three months ended June 30, 2007 is as follows:

         
Weighted Average
    
Weighted Average
    
Aggregate
  
   
Shares
    
Grant Date
    
Remaining
    
Intrinsic Value
  
   
(thousands)
    
Fair Value
    
Contractual Life
    
($ in millions)
  
                             
Unvested at March 31, 2007
    
2,601.6
     $
51.57
                  
Granted
    
63.9
      
106.49
                  
Vested
    
—
      
—
                  
Forfeited
     (17.7 )    
42.47
                  
Unvested at June 30, 2007
    
2,647.8
     $
52.96
    
1.28 years
     $
160.3
  
 
Restricted stock unit activity for the six months ended June 30, 2007 is as follows:

         
Weighted Average
    
Weighted Average
    
Aggregate
  
   
Shares
    
Grant Date
    
Remaining
    
Intrinsic Value
  
   
(thousands)
    
Fair Value
    
Contractual Life
    
($ in millions)
  
                         
Unvested at January 1, 2007
    
2,116.5
     $
40.29
                  
Granted
    
597.8
      
95.97
                  
Vested
     (34.1 )    
30.02
                  
Forfeited
     (32.4 )    
42.62
                  
Unvested at June 30, 2007
    
2,647.8
     $
52.96
    
1.28 years
     $
160.3
  
Unvested shares expected to vest
    
2,516.0
     $
51.96
    
1.21 years
     $
154.8
  

Compensation expense for restricted stock units included in the “Compensation and benefits” line of the consolidated statement of earnings was $9.6 million and $7.3 million for the three months ended June 30, 2007 and 2006, respectively, and was $20.7 million and $14.0 million for the six months ended June 30, 2007 and 2006, respectively.

As of June 30, 2007, there was $63.2 million of remaining unamortized deferred compensation related to unvested restricted stock units. We expect that this cost will be recognized over the remaining weighted average contractual life of the awards.

Approximately 34,100 restricted stock unit awards vested during the first six months of 2007, having an aggregate fair value of $3.2 million and intrinsic value of $2.1 million. For the same period in 2006, approximately 13,500 restricted stock unit awards vested having an aggregate fair value of $0.7 million and intrinsic value of $0.3 million. As a result of these vesting events, we recognized tax benefits of $1.1 million and $0.2 million for the six months ended June 30, 2007 and 2006, respectively.

14
 
Stock Option Awards

We have generally granted stock options at the market value of our common stock at the date of grant. Our options vest at such times and conditions as the Compensation Committee of our Board of Directors determined and set 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 programs. We have not granted stock options since 2003.

Stock option activity for the three months ending June 30, 2007 is as follows:

               
Weighted Average
    
Aggregate
  
   
Options
    
Weighted Average
    
Remaining
    
Intrinsic Value
  
   
(thousands)
    
Exercise Price
    
Contractual Life
    
($ in millions)
  
                         
Outstanding at March 31, 2007
    
235.8
     $
19.50
                  
Granted
    
—
      
—
                  
Exercised
     (21.7 )    
19.33
                  
Forfeited
    
—
      
—
                  
Outstanding at June 30, 2007
    
214.1
     $
19.52
    
2.55 years
     $
20.1
  

Stock option activity for the six months ending June 30, 2007 is as follows:

               
Weighted Average
    
Aggregate
  
   
Options
    
Weighted Average
    
Remaining
    
Intrinsic Value
  
   
(thousands)
    
Exercise Price
    
Contractual Life
    
($ in millions)
  
                         
Outstanding at January 1, 2007
    
311.3
     $
18.28
                  
Granted
    
—
      
—
                  
Exercised
     (96.2 )    
15.59
                  
Forfeited
     (1.0 )    
12.25
                  
Outstanding at June 30, 2007
    
214.1
     $
19.52
    
2.55 years
     $
20.1
  
Exercisable at June 30, 2007
    
210.9
     $
19.57
    
2.50 years
     $
19.8
  

As of June 30, 2007, we have approximately 214,100 options outstanding, of which approximately 3,200 options were unvested. We recognized less than $0.01 million in compensation expense related to the unvested options for the first six months of 2007. Approximately $0.01 million of compensation cost remains to be recognized on unvested options through 2008.

The following table summarizes option exercises during the three and six months ended June 30, 2007 and 2006 ($ in millions):

   
Three Months
    
Three Months
    
Six Months
    
Six Months
  
   
Ended
    
Ended
    
Ended
    
Ended
  
   
June 30,
    
June 30,
    
June 30,
    
June 30,
  
   
2007
    
2006
    
2007
    
2006
  
                         
Number of options exercised
    
21,697
      
71,196
      
96,197
      
589,379
  
                                 
Intrinsic value
   $
2.0
      
4.5
      
8.6
      
27.2
  
Cash received from options exercised
    
1.1
      
1.3
      
4.1
      
12.3
  
Tax benefit realized from option exercises
    
0.7
      
1.7
      
2.9
      
10.3
  

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, 1,352,972 shares have been purchased under the program through June 30, 2007. In the second quarter of 2007, 11,446 shares having a grant date market value of $113.50 were purchased under the program. For the six months ended June 30, 2007, 29,966 shares having a weighted average grant date market value of $107.80 were issued under the program. No compensation expense is recorded with respect to this program.
 
15

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. In November 2006, the SAYE plan was extended to employees in our Ireland operations. Under this plan, employees make an election to contribute to the plan in order that their savings might be used to purchase stock at a 15% discount provided by the Company. The options to purchase stock with such savings vest over a period of three or five years. Employees have had the opportunity to contribute to the plan in 2002, 2005, 2006, and 2007. In the first quarter of 2007, the Company issued approximately 40,000 options at an exercise price of $90.02 under the SAYE plan. The fair values of the options are being amortized over their respective vesting periods. The first vesting of the 2007 options will occur in 2010 with the remaining to vest in 2012.
 
(9) Retirement Plans

We maintain contributory defined benefit pension plans in the United Kingdom, Ireland and Holland to provide retirement benefits to eligible employees. It is our policy to fund the minimum annual contributions required by applicable regulations. We use a December 31 measurement date for our plans.

Net periodic pension cost consisted of the following for the three and six months ended June 30, 2007 and 2006 ($ in thousands):

   
Three Months
    
Three Months
    
Six Months
    
Six Months
  
   
Ended
    
Ended
    
Ended
    
Ended
  
   
June 30,
    
June 30,
    
June 30,
    
June 30,
  
   
2007
    
2006
    
2007
    
2006
  
                         
Employer service cost - benefits earned during the year
   $
1,010
      
996
      
2,000
      
1,745
  
Interest cost on projected benefit obligation
    
2,624
      
2,258
      
5,204
      
4,427
  
Expected return on plan assets
     (3,138 )     (2,606 )     (6,224 )     (5,109 )
Net amortization/deferrals
    
495
      
524
      
981
      
1,028
  
Recognized actual loss
    
19
      
57
      
37
      
111
  
Net periodic pension cost
   $
1,010
      
1,229
      
1,998
      
2,202