Edgar Filing: JONES LANG LASALLE INC

form10-q.htm

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2008

£ 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 T No £

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 T

Accelerated filer £

Non-accelerated filer £

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

The number of shares outstanding of the registrant’s common stock (par value $0.01) as of the close of business on November 5, 2008 was 34,503,401.

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Part I	Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007	3

	Consolidated Statements of Earnings for the three and nine months ended September 30, 2008 and 2007
		4
	Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2008	5

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32

Item 4.	Controls and Procedures	33


Part II	Other Information

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Share Repurchases	35

Item 5.	Other Information	35

Item 6.	Exhibits	39

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Part I Financial Information

Item 1. Financial Statements

JONES LANG LASALLE INCORPORATED

Consolidated Balance Sheets

September 30, 2008 and December 31, 2007

($ in thousands, except share data)	September 30,
	2008			December 31,
Assets	(unaudited)			2007
Current assets:
Cash and cash equivalents	$	63,563			78,580
Trade receivables, net of allowances of $25,199 and $13,300		685,639			834,865
Notes and other receivables		87,906			52,695
Prepaid expenses		37,734			26,148
Deferred tax assets		63,576			64,872
Other		10,819			13,816
Total current assets		949,237			1,070,976

Property and equipment, net of accumulated depreciation of $224,276 and $198,169		220,068			193,329
Goodwill, with indefinite useful lives		1,479,596			694,004
Identified intangibles, with finite useful lives, net of accumulated amortization of $35,702 and $68,537		72,737			41,670
Investments in real estate ventures		180,589			151,800
Long-term receivables, net		53,170			33,219
Deferred tax assets		38,289			58,584
Other, net		47,979			48,292
Total assets	$	3,041,665			2,291,874

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	352,262			302,976
Accrued compensation		352,305			655,895
Short-term borrowings		18,668			14,385
Deferred tax liabilities		5,131			727
Deferred income		29,101			29,756
Deferred business acquisition obligations		43,332			45,363
Other		78,466			60,193
Total current liabilities		879,265			1,109,295

Noncurrent liabilities:
Credit facilities		543,209			29,205
Deferred tax liabilities		5,474			6,577
Deferred compensation		39,823			46,423
Pension liabilities		1,765			1,096
Deferred business acquisition obligations		370,269			36,679
Minority shareholder redemption liability		44,080			—
Other		64,198			43,794
Total liabilities		1,948,083			1,273,069

Commitments and contingencies		—			—
Minority interest		3,970			8,272
Shareholders’ equity:
Common stock, $.01 par value per share, 100,000,000 shares authorized; 34,491,043 and 31,722,587 shares issued and outstanding		345			317
Additional paid-in capital		572,241			441,951
Retained earnings		510,911			484,840
Shares held in trust		(3,480	)		(1,930	)
Accumulated other comprehensive income		9,595			85,355
Total shareholders’ equity		1,089,612			1,010,533
Total liabilities and shareholders’ equity	$	3,041,665			2,291,874

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, 2008 and 2007

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

	Three Months			Three Months		Nine Months			Nine Months
	Ended			Ended		Ended			Ended
	September 30,			September 30,		September 30,			September 30,
	2008			2007		2008			2007

Revenue	$	677,084			624,151		1,900,519			1,790,291
Operating expenses:
Compensation and benefits		449,186			412,920		1,259,233			1,174,842
Operating, administrative and other		154,767			132,828		487,508			375,082
Depreciation and amortization		29,194			13,893		63,908			38,828
Restructuring charges (credits)		10,461			—		10,273			(411	)
Operating expenses		643,608			559,641		1,820,922			1,588,341

Operating income		33,476			64,510		79,597			201,950

Interest expense, net of interest income		12,496			4,378		17,232			10,046
Gain on sale of investments		—			—		—			6,129
Equity in earnings (losses) from real estate ventures		(693	)		4,979		(1,938	)		11,480

Income before provision for income taxes and minority interest		20,287			65,111		60,427			209,513

Provision for income taxes		5,112			17,384		15,228			55,940
Minority interest, net of tax		171			1,197		1,838			1,197

Net income	$	15,004			46,530		43,361			152,376

Net income available to common shareholders (Note 9)	$	15,004			46,530		42,358			151,704


Basic earnings per common share	$	0.44			1.44		1.30			4.73

Basic weighted average shares outstanding		34,217,379			32,416,773		32,627,905			32,060,102


Diluted earnings per common share	$	0.43			1.38		1.25			4.50

Diluted weighted average shares outstanding		35,035,602			33,610,782		33,965,981			33,701,963

See accompanying notes to consolidated financial statements.

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JONES LANG LASALLE INCORPORATED

Consolidated Statement of Shareholders’ Equity

For the Nine Months Ended September 30, 2008

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

														Accumulated
					Additional						Shares			Other
	Common Stock				Paid-In			Retained			Held in			Comprehensive
	Shares		Amount		Capital			Earnings			Trust			Income			Total
Balance at December 31, 2007		31,722,587	$	317		441,951			484,840			(1,930	)		85,355		$	1,010,533

Net income		—		—		—			43,361			—			—			43,361

Shares issued for Staubach acquisition		1,997,682		20		99,980			—			—			—			100,000

Shares issued under stock compensation programs (1)		770,774		8		(5,606	)		—			—			—			(5,598	)

Tax benefits of vestings and exercises		—		—		4,013			—			—			—			4,013

Amortization of stock compensation		—		—		31,903			—			—			—			31,903

Dividends declared		—		—		—			(17,290	)		—			—			(17,290	)

Shares held in trust		—		—		—			—			(1,550	)		—			(1,550	)

Foreign currency translation adjustments		—		—		—			—			—			(75,760	)		(75,760	)

Balance at September 30, 2008		34,491,043	$	345		572,241			510,911			(3,480	)		9,595		$	1,089,612

(1) Includes shares repurchased for payment of employee taxes on stock awards.

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, 2008 and 2007

($ in thousands) (unaudited)

	Nine Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2008			2007

Cash flows from operating activities:
Net income	$	43,361			152,376
Reconciliation of net income to net cash operating activities:
Depreciation and amortization		63,908			38,828
Equity in losses (earnings) from real estate ventures		1,938			(11,480	)
Gain on sale of investments		-			(6,129	)
Operating distributions from real estate ventures		1,767			10,592
Provision for loss on receivables		16,013			8,012
Minority interest		1,838			1,197
Amortization of deferred compensation		39,558			31,068
Amortization of debt issuance costs		2,308			438
Change in:
Receivables		124,085			(41,443	)
Prepaid expenses and other assets		(7,316	)		(13,325	)
Deferred tax assets, net		2,495			(798	)
Excess tax benefits from share-based payment arrangements		(4,013	)		(25,807	)
Accounts payable, accrued compensation and other accrued liabilities		(399,064	)		9,889
Net cash (used in) provided by operating activities		(113,122	)		153,418

Cash flows from investing activities:
Net capital additions – property and equipment		(72,243	)		(71,320	)
Business acquisitions		(282,950	)		(86,984	)
Capital contributions and advances to real estate ventures		(36,634	)		(26,841	)
Distributions, repayments of advances and sale of investments		29			34,523
Net cash used in investing activities		(391,798	)		(150,622	)

Cash flows from financing activities:
Proceeds from borrowings under credit facilities		1,278,124			764,285
Repayments of borrowings under credit facilities		(759,838	)		(695,329	)
Debt issuance costs		(9,498	)		(450	)
Shares repurchased for payment of employee taxes on stock awards		(13,876	)		(29,282	)
Shares repurchased under share repurchase program		-			(66,160	)
Excess tax benefits from share-based payment arrangements		4,013			25,807
Common stock issued under stock option plan and stock purchase programs		8,268			7,949
Payment of dividends		(17,290	)		(12,056	)
Net cash provided by (used in) financing activities		489,903			(5,236	)

Net decrease in cash and cash equivalents		(15,017	)		(2,440	)
Cash and cash equivalents, January 1		78,580			50,612
Cash and cash equivalents, September 30	$	63,563			48,172

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	10,290			11,548
Income taxes, net of refunds		71,243			39,624
Non-cash financing activities:
Deferred business acquisition obligations		331,559			12,996

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, 2007, which are included in Jones Lang LaSalle’s 2007 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) Interim Information

Our consolidated financial statements as of September 30, 2008 and for the three and nine months ended September 30, 2008 and 2007 are unaudited; however, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for these interim periods have been included.

Historically, our revenue 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, the fluctuations in capital markets activities has had 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 September 30, 2008 and 2007 are not indicative of the results to be obtained for the full fiscal year.

(2) New Accounting Standards

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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. In November 2007, the FASB deferred the implementation of SFAS 157 for non-financial assets and liabilities for one year. Management has not yet determined what impact the application of SFAS 157 for non-financial assets and liabilities will have on our consolidated financial statements. On January 1, 2008 the Company adopted SFAS 157 with respect to its financial assets and liabilities that are measured at fair value. The adoption of these provisions did not have a material impact on our consolidated financial statements.

SFAS 157 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

We regularly use foreign currency forward contracts to manage our currency exchange rate risk related to intercompany lending and cash management practices. We determined the fair value of these contracts based on widely accepted valuation techniques. The inputs for these valuation techniques are Level 2 inputs in the hierarchy of SFAS 157. At September 30, 2008, we had forward exchange contracts in effect with a gross notional value of $517.6 million and a net fair value loss of $2.7 million, recorded as a current asset of $3.6 million and a current liability of $6.3 million. This net carrying loss is offset by a carrying gain in associated intercompany loans such that the net impact to earnings is not significant. At September 30, 2008, the Company has no recurring fair value measurements for financial assets and liabilities that are based on unobservable inputs or Level 3 inputs.

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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. Under SFAS 159, the Company had the option of adopting fair value accounting for financial assets and liabilities starting on January 1, 2008. The adoption of SFAS 159 did not have a material effect on our consolidated financial statements since the Company did not elect to measure any of its financial assets or liabilities using the fair value option prescribed by SFAS 159.

Business Combinations

In December 2007, the FASB issued SFAS 141(revised), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) will change how identifiable assets acquired and the liabilities assumed in a business combination will be recorded in the financial statements. SFAS 141(R) requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires expensing of most transaction and restructuring costs. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is after December 31, 2008. Management has not yet determined what impact the application of SFAS 141(R) will have on our consolidated financial statements.

Noncontrolling Interests

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 160 requires reporting entities to present noncontrolling (minority) interests as equity (as opposed to a liability or mezzanine equity) and provides guidance on the accounting for transactions between an entity and noncontrolling interests. SFAS 160 applies prospectively as of January 1, 2009. Management has not yet determined what impact the application of SFAS 160 will have on our consolidated financial statements.

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities. SFAS 161 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years beginning after November 15, 2008. Management has not yet determined what impact the application of SFAS 161 will have on our consolidated financial statement disclosures.

(3) Revenue Recognition

We categorize our revenues as:

Transaction commissions;

Advisory and management fees; and

Incentive fees.

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 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 incentive fees based on the performance of underlying funds and separate account investments, and the contractual benchmarks, formulas and timing of the measurement period with clients.

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Project and development management and construction management fees are a subset of our revenues in the advisory and management fees category. 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 $6.1 million and $2.3 million for the three months ended September 30, 2008 and 2007, respectively and $12.7 million and $7.2 million for the nine months ended September 30, 2008 and 2007, respectively.

Gross construction services revenues totaled $78.7 million and $44.2 million for the three months ended September 30, 2008 and 2007, respectively, and $192.2 million and $128.6 million for the nine months ended September 30, 2008 and 2007, respectively.

Subcontract costs totaled $72.6 million and $41.9 million for the three months ended September 30, 2008 and 2007, respectively, and $179.5 million and $121.4 million for the nine months ended September 30, 2008 and 2007, respectively.

We include costs in excess of billings on uncompleted construction contracts of $21.0 million and $4.8 million in “Trade receivables,” and billings in excess of costs on uncompleted construction contracts of $5.7 million and $12.9 million in “Deferred income,” respectively, in our September 30, 2008 and December 31, 2007 consolidated balance sheets.

In certain of our businesses, primarily those involving management services, our clients reimburse us for expenses incurred on their behalf. We base the treatment of reimbursable expenses for financial reporting purposes 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.

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 $286.9 million and $224.6 million for the three months ended September 30, 2008 and 2007, respectively, and approximately $860.3 million and $697.6 million for the nine months ended September 30, 2008 and 2007, respectively. This treatment has no impact on operating income, net income or cash flows.

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(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. 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, energy management and sustainability and construction management services (collectively "management services"). Each geographic region offers our full range of IOS capabilities.

Operating income represents total revenue less direct and indirect allocable expenses. Allocated expenses primarily consist of corporate global overhead. We allocate these corporate global overhead expenses to the business segments based on the relative operating income of each segment.

For segment reporting we 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. Our measure of segment reporting results also excludes restructuring charges. The Chief Operating Decision Maker of Jones Lang LaSalle measures the segment results with “Equity in earnings (losses) from real estate ventures,” and without restructuring charges. We define the Chief Operating Decision Maker collectively as our Global Executive Committee, which is comprised of our Global Chief Executive Officer, Global Chief 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.

The following table summarizes unaudited financial information by business segment for the three and nine months ended September 30, 2008 and 2007 ($ in thousands):

	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
	September 30,		September 30,		September 30,		September 30,
Investor and Occupier Services	2008		2007		2008		2007

Americas
Revenue:
Transaction services	$	134,176		93,242		301,599		251,001
Management services		110,802		87,436		294,495		244,388
Equity earnings		—		1,262		41		1,682
Other services		9,094		6,026		21,674		18,161
		254,072		187,966		617,809		515,232
Operating expenses:
Compensation, operating and administrative services		220,379		161,285		558,773		450,959
Depreciation and amortization		16,820		6,501		31,363		18,507
Operating income	$	16,873		20,180		27,673		45,766

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	Three Months			Three Months		Nine Months			Nine Months
	Ended			Ended		Ended			Ended
	September 30,			September 30,		September 30,			September 30,
Investor and Occupier Services	2008			2007		2008			2007

EMEA
Revenue:
Transaction services	$	147,436			184,061		454,307			484,102
Management services		53,655			37,836		160,859			105,100
Equity earnings (losses)		(3	)		174		99			(21	)
Other services		7,473			2,774		12,458			9,542
		208,561			224,845		627,723			598,723
Operating expenses:
Compensation, operating and administrative services		194,693			205,892		605,652			541,448
Depreciation and amortization		7,978			4,704		20,864			13,151
Operating income	$	5,890			14,249		1,207			44,124

Asia Pacific
Revenue:
Transaction services	$	70,384			74,008		207,014			275,916
Management services		61,568			58,054		180,087			150,130
Equity earnings (losses)		(556	)		253		(705	)		485
Other services		1,159			1,702		5,337			5,112
		132,555			134,017		391,733			431,643
Operating expenses:
Compensation, operating and administrative services		128,978			124,764		384,938			377,480
Depreciation and amortization		3,634			2,368		9,962			5,998
Operating income (loss)	$	(57	)		6,885		(3,167	)		48,165

Investment Management
Revenue:
Transaction and other services	$	4,047			9,336		14,485			17,267
Advisory fees		70,963			63,643		215,647			171,856
Incentive fees		6,326			6,033		32,557			57,716
Equity earnings (losses)		(134	)		3,290		(1,373	)		9,334
		81,202			82,302		261,316			256,173
Operating expenses:
Compensation, operating and administrative services		59,903			53,808		197,378			180,038
Depreciation and amortization		762			319		1,719			1,171
Operating income	$	20,537			28,175		62,219			74,964

Segment Reconciling Items:
Total segment revenue	$	676,391			629,130		1,898,581			1,801,771
Reclassification of equity earnings (losses)		(693	)		4,979		(1,938	)		11,480
Total revenue		677,084			624,151		1,900,519			1,790,291

Total segment operating expenses		633,147			559,641		1,810,649			1,588,752
Restructuring charges (credits)		10,461			—		10,273			(411	)

Operating income	$	33,476			64,510		79,597			201,950

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(5) Business Combinations, Goodwill and Other Intangible Assets

Staubach Acquisition

On July 11, 2008, we purchased all of the outstanding shares of Staubach Holdings Inc. (“Staubach”), a leading real estate services firm specializing in tenant representation in the United States. Staubach’s extensive tenant representation capability and deep presence in key markets in the United States will reinforce our integrated global platform and Corporate Solutions business.

At closing, we paid $123 million in cash, as adjusted for Staubach's net liabilities, and $100 million in shares of our common stock. The Company issued 1,997,682 shares of its common stock, which represented approximately 6% of the Company’s outstanding shares. As required by the Merger Agreement, we determined the number of shares based on $100 million divided by the Adjusted Trading Price of $50.06, the average closing price of our common stock for the five consecutive trading days ending August 14, 2008.

The Merger Agreement also provides for the following deferred payments payable in cash: (i) $78 million in August 2010 (or in August 2011 if certain revenue targets are not met); (ii) $156 million in August 2011 (or in August 2012 if certain revenue targets are not met); and (iii) $156 million in August 2013. We discounted the deferred payments to a present value of $316 million as of July 11, 2008, based on a 6% annual discount rate and recorded this liability as a long-term deferred business acquisition obligation.

Staubach shareholders also are entitled to receive an earn-out payment of up to $114 million, payable on a sliding scale, if certain thresholds are met with respect to the performance of the Americas tenant representation business for the earn-out periods ended December 31, 2010, 2011 and 2012. This earn-out payment will be accounted for as purchase consideration if these performance thresholds are met.

The initial allocation of purchase consideration consisting of cash paid at closing, issuance of shares of common stock, the provision for deferred business acquisition obligations and assumption of Staubach’s net liabilities resulted in $571 million of goodwill and $37 million of identifiable intangibles. The Company is still evaluating the assets and liabilities acquired in the Staubach acquisition, and anticipates completing the allocation of purchase consideration in the fourth quarter of 2008.

Unaudited Pro Forma Condensed Combined Financial Information

We have included Staubach’s results of operations with those of the Company since July 11, 2008. Pro forma consolidated results of operations, assuming the acquisition of Staubach occurred on January 1, 2007 and January 1, 2008 for the respective years presented are as follows ($ in thousands):

	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
	September 30,		September 30,		September 30,		September 30,
	2008		2007		2008		2007

Revenue	$	686,750		699,122		2,138,492		2,050,914
Operating expenses		651,907		631,504		2,023, 690		1,822,342
Operating income	$	34,843		67,618		114,802		228,572

Net income available to common shareholders	$	15,330		44,254		53,332		154,088

Basic earnings per common share		0.45		1.29		1.57		4.52
Basic weighted average shares outstanding		34,434,518		34,414,455		34,027,741		34,057,784

Diluted earnings per common share		0.43		1.24		1.51		4.32
Diluted weighted average shares outstanding		35,252,741		35,608,464		35,365,817		35,699,645

Pro forma operating expense adjustments consist of adjustments to intangible amortization to reverse amortization recorded by Staubach and to record intangible amortization based on the Company’s current estimate of identifiable intangibles and their associated useful lives.

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Pro forma net income also includes interest expense adjustments based on the Company’s estimate of interest that would have been incurred on deferred payments due to Staubach and due to an increase in borrowing under the Company’s credit facility for cash paid at closing and various other acquisition related items.

The Company applied an estimated 39% tax rate to the pro forma adjustments. Pro forma weighted average shares include an adjustment to show the impact of the 1,997,682 shares issued as if they had been outstanding as of the beginning of all periods presented.

Additional 2008 Business Combinations

In the first nine months of 2008 we completed fourteen acquisitions in addition to Staubach, consisting of the following:

The Standard Group LLC, a Chicago-based retail transaction management firm;

Creevy LLH Ltd, a Scotland-based firm that provides investment, leasing and valuation services for leisure and hotels properties;

Brune Consulting Management GmbH, a Germany-based retail management firm;

Creer & Berkeley Pty Ltd., an Australian property sales, leasing, management, valuation and consultancy firm;

Shore Industrial, an Australian commercial real estate agency in Sydney's northern suburbs;

Sallmanns Holdings Ltd, a valuation business based in Hong Kong;

The remaining 60% of a commercial real estate firm formed by the Company and Ray L. Davis, based in Australia;

Kemper’s Holding GmbH, a Germany-based retail specialist, making us the largest property advisory business in Germany and providing us with new offices in Leipzig, Cologne and Hannover;

Leechiu & Associates, an agency business in the Philippines;

10.

The remaining 51% interest in a Finnish real estate services firm which previously operated under the name GVA. We acquired the initial 49% in 2007;

11.

ECD Energy and Environment Canada, the leading environmental consulting firm in Canada and the developer of Green Globes, a technology platform for evaluating and rating building sustainability;

12.

Churston Heard, a leading retail consultancy in the UK that offers a full range of retail services;

13.

HIA, a Brazilian hotel services company; and

14.

Alkas, a Turkish based commercial real estate firm.

Terms for these transactions included (i) net cash paid at closing and capitalized costs totaling approximately $177.4 million, (ii) consideration subject only to the passage of time recorded in “Deferred business acquisition obligations” on our balance sheet at a current fair value of $31.0 million, and (iii) additional consideration subject to earn-out provisions that will be paid only if the related conditions are achieved. In addition we paid $20.0 million in the first quarter to satisfy a deferred business acquisition obligation from the 2006 Spaulding & Slye acquisition.

In the third quarter of 2008, the Company received regulatory approval to legally merge its India operations with those of the Trammell Crow Meghraj (“TCM”) entity in which it acquired 44.8% interest in July 2007. As a result of the legal merger, the TCM shareholders exchanged their 55.2% ownership interest in TCM for 28.1% of the combined Indian subsidiary. The Company is required to repurchase this 28.1% of its Indian subsidiary, held by the former TCM shareholders, on fixed dates in 2010 and 2012. The Company recorded $44.1 million as a minority shareholder redemption liability, which represents the current fair value of this 28.1% exchanged in the acquisition of the remaining TCM shares and a reclassification of the TCM shareholders’ minority interest. As part of this acquisition, the Company recorded additional goodwill of $35.4 million and additional identifiable intangibles of $2.3 million. The minority shareholder redemption liability will ultimately be relieved through the repurchases of the 28.1% owned by minority shareholders in 2010 and 2012.

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In the third quarter of 2008, the Company finalized the total purchase price relative to its fourth quarter 2006 acquisition of areaAZero, an occupier fit-out business in Spain, and its fourth quarter 2007 acquisition of Corporate Realty Advisors, a North Carolina corporate advisory and tenant representation firm, through the amendment of purchase agreement earn-out terms from each of those transactions. The amendments of these earn-out terms resulted in the reclassification of $8.6 million from other assets to goodwill, and an addition of $3.2 million to goodwill and deferred business acquisition obligations.

Earn-out payments

At September 30, 2008 we had the potential to make earn-out payments on 20 acquisitions that are subject to the achievement of certain performance conditions. The maximum amount of the potential earn-out payments of 19 of these acquisitions was $192 million at September 30, 2008. We expect these amounts will come due at various times over the next six years. The TCM acquisition earn-out payments are based on formulas and independent valuations that are not quantifiable at this time.

Goodwill and Other Intangible Assets

We have $1,552.3 million of unamortized intangibles and goodwill as of September 30, 2008 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 $1,552.3 million of unamortized intangibles and goodwill, $1,479.6 million represents goodwill with indefinite useful lives, which is not amortized. The remaining $72.7 million of identifiable intangibles that are amortized over their remaining finite useful lives.

The following table sets forth, by reporting segment, the current year movements in 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, 2008	$	357,606		192,238			122,356			21,804			694,004
Additions		580,359		174,976			63,149			—			818,484
Impact of exchange rate movements		—		(25,203	)		(5,861	)		(1,828	)		(32,892	)
Balance as of September 30, 2008	$	937,965		342,011			179,644			19,976			1,479,596

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, 2008	$	85,986			10,508			7,701			6,012			110,207
Additions		37,279			6,679			7,158			—			51,116
Adjustment for fully amortized intangibles		(41,173	)		(804	)		(3,470	)		(5,908	)		(51,355	)
Impact of exchange rate movements		—			(1,259	)		(275	)		5			(1,529	)
Balance as of September 30, 2008	$	82,092			15,124			11,114			109			108,439

Accumulated Amortization
Balance as of January 1, 2008	$	(53,367	)		(4,792	)		(4,459	)		(5,919	)		(68,537	)
Amortization expense		(12,757	)		(5,237	)		(1,811	)		(41	)		(19,846	)
Adjustment for fully amortized intangibles		41,173			804			3,470			5,908			51,355
Impact of exchange rate movements		—			1,246			78			2			1,326
Balance as of September 30, 2008		(24,951	)		(7,979	)		(2,722	)		(50	)		(35,702	)

Net book value as of September 30, 2008	$	57,141			7,145			8,392			59			72,737

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

2008	$	11.5
2009		25.2
2010		9.5
2011		7.2
2012		6.1
Thereafter		13.2
Total	$	72.7

(6) Investments in Real Estate Ventures

As of September 30, 2008, we had total investments in and loans to real estate ventures of $180.6 million in approximately 40 separate property or fund co-investments. Within this $180.6 million are loans of $3.3 million to real estate ventures which bear an 8.0% interest rate and are to be repaid in 2009.

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 September 30, 2008, our maximum potential unfunded commitment to LIC I was euro 19.6 million ($27.6 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 September 30, 2008, LIC II has unfunded capital commitments for future fundings of co-investments of $442.8 million, of which our 48.78% share is $216.0 million. The $216.0 million commitment is part of our maximum potential unfunded commitment to LIC II at September 30, 2008 of $404.8 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. At September 30, 2008, no bridge financing arrangements were outstanding.

As of September 30, 2008, LIC I maintains a euro 10.0 million ($14.1 million) revolving credit facility (the "LIC I Facility"), and LIC II maintains a $50.0 million revolving credit facility (the "LIC II Facility"), principally for their working capital needs. 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 4.8 million ($6.7 million); assuming that the LIC II Facility were fully drawn, the maximum exposure to Jones Lang LaSalle would be $24.4 million. Each exposure is included within and cannot exceed our maximum potential unfunded commitments to LIC I of euro 19.6 million ($27.6 million) and to LIC II of $404.8. million. As of September 30, 2008, LIC I had euro 3.7 million ($5.2 million) of outstanding borrowings on the LIC I Facility, and LIC II had $18.2 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 $8.9 million at September 30, 2008.

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 impairment charges of $0.9 million in the first nine months of 2008 and no impairment charges in the first nine months of 2007.

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(7) 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 from recognizing forfeitures as incurred to estimating forfeitures, and accelerating expense recognition for share-based awards to employees who are or will become retirement-eligible prior to the stated vesting period of the award.

Restricted Stock Unit Awards

Along with cash-based 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 September 30, 2008 is as follows:

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

Unvested at June 30, 2008		2,724.0		$	65.54
Granted		25.5			56.84
Vested		(712.5	)		52.76
Forfeited		(18.6	)		70.70
Unvested at September 30, 2008		2,018.4		$	69.90	2.08 years	$	87.8

Restricted stock unit activity for the nine months ended September 30, 2008 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, 2008		1,778.5		$	61.55
Granted		1,079.4			71.09
Vested		(786.0	)		52.72
Forfeited		(53.5	)		68.86
Unvested at September 30, 2008		2,018.4		$	69.90	2.08 years	$	87.8
Unvested shares expected to vest		1,950.9		$	70.09	2.09 years	$	84.8

As of September 30, 2008, there was $74.0 million of remaining unamortized deferred compensation related to unvested restricted stock units. We expect the cost to be recognized over the remaining weighted average contractual life of the awards.

Approximately 786,000 restricted stock unit awards vested during the first nine months of 2008, having an aggregate fair value of $41.4 million and an intrinsic value of $34.2 million. For the same period in 2007, approximately 880,000 restricted stock unit awards vested, having an aggregate fair value of $99.1 million and an intrinsic value of $67 million. As a result of these vesting events, we recognized tax benefits of $2.3 million and $22.6 million for the nine months ending September 30, 2008 and 2007, respectively.

Stock Option Awards

We have granted stock options at the market value of our common stock at the date of grant. Our options vested 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, vested 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.

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Stock option activity for the three months ended September 30, 2008 is as follows:

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

Outstanding at June 30, 2008		124.0		$	20.38
Exercised		(6.0	)		21.87
Forfeited		(0.0	)		0.00
Outstanding at September 30, 2008		118.0		$	20.30	2.05 years	$	2.7

Stock option activity for the nine months ended September 30, 2008 is as follows:

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

Outstanding at January 1, 2008		183.0		$	19.18
Exercised		(64.0	)		16.80
Forfeited		(1.0	)		39.00
Outstanding at September 30, 2008		118.0		$	20.30	2.05 years	$	2.7
Exercisable at September 30, 2008		118.0		$	20.30	2.05 years	$	2.7

As of September 30, 2008, we have approximately 118,000 options outstanding, all of which have vested. We recognized less than $0.01 million in compensation expense related to the unvested options for the first nine months of 2008.

The following table summarizes information about exercises of options occurring during the three and nine months ended September 30, 2008 and 2007 ($ in millions):

	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
	September 30,		September 30,		September 30,		September 30,
	2008		2007		2008		2007

Number of options exercised		6,083		17,723		64,049		113,920

Intrinsic value	$	0.1		1.4		1.7		9.8
Cash received from options exercised		0.2		0.8		2.2		4.9
Tax benefit realized from options exercised		0.0		0.6		1.3		3.5

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, we enhance employee contributions for stock purchases 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, 1,480,240 shares have been purchased under the program through September 30, 2008. In the first nine months of 2008, 95,758 shares having a weighted average grant date market value of $58.47 were purchased under the program. We do not record any compensation expense with respect to this program.

UK SAYE - In 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, we extended the SAYE plan 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. In the first quarter of 2008, the Company issued approximately 85,000 options at an exercise price of $60.66 under the SAYE plan. The fair values of the options are being amortized over their respective vesting periods. At September 30, 2008, there were approximately 171,000 options outstanding under the SAYE plan.

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(8) 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 nine months ended September 30, 2008 and 2007 ($ in thousands):

	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,
	2008			2007			2008			2007

Employer service cost - benefits earned during the year	$	960			1,025			2,950			3,025
Interest cost on projected benefit obligation		2,905			2,665			8,972			7,869
Expected return on plan assets		(3,349	)		(3,187	)		(10,343	)		(9,411	)