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, 2009

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

For the transition period from _____ to _____

Commission File Number 1-13145

Jones Lang LaSalle Incorporated

(Exact name of registrant as specified in its charter)

Maryland

(State or other jurisdiction of incorporation or organization)

36-4150422

(I.R.S. Employer Identification No.)

200 East Randolph Drive, Chicago, IL	60601
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 312-782-5800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

Large accelerated filer T 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 T

The number of shares outstanding of the registrant’s common stock (par value $0.01) as of the close of business on October 28, 2009 was 41,835,565.

Table of Contents

Part I	Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008	3

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008	4

	Consolidated Statement of Changes in Equity for the Nine Months Ended September 30, 2009	5

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008	6

	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

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 5.	Other Information	34

Item 6.	Exhibits	37

Part I Financial Information
Item 1. Financial Statements

JONES LANG LASALLE INCORPORATED
Consolidated Balance Sheets
September 30, 2009 and December 31, 2008
($ in thousands, except share data)	September 30,
	2009			December 31,
Assets	(unaudited)			2008
Current assets:
Cash and cash equivalents	$	56,611			45,893
Trade receivables, net of allowances of $27,336 and $23,847		572,981			718,804
Notes and other receivables		77,874			89,636
Prepaid expenses		36,668			32,990
Deferred tax assets		129,177			102,934
Other		15,175			9,511
Total current assets		888,486			999,768

Property and equipment, net of accumulated depreciation of $276,479 and $225,496		216,115			224,845
Goodwill, with indefinite useful lives		1,447,611			1,448,663
Identified intangibles, with finite useful lives, net of accumulated amortization of $67,471 and $46,936		39,947			59,319
Investments in real estate ventures		157,093			179,875
Long-term receivables		54,009			51,974
Deferred tax assets		74,733			58,639
Other		115,415			53,942
Total assets	$	2,993,409			3,077,025

Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities	$	305,711			352,489
Accrued compensation		313,999			487,895
Short-term borrowings		57,161			24,570
Deferred tax liabilities		3,357			2,698
Deferred income		35,160			29,213
Deferred business acquisition obligations		101,794			13,073
Other		84,951			77,947
Total current liabilities		902,133			987,885

Noncurrent liabilities:
Credit facilities		292,286			483,942
Deferred tax liabilities		4,511			4,429
Deferred compensation		28,191			44,888
Pension liabilities		4,360			4,101
Deferred business acquisition obligations		290,518			371,636
Minority shareholder redemption liability		45,914			43,313
Other		84,770			65,026
Total liabilities		1,652,683			2,005,220

Commitments and contingencies

Company Shareholders' Equity:
Common stock, $.01 par value per share, 100,000,000 shares authorized; 41,834,319 and 34,561,648 shares issued and outstanding		418			346
Additional paid-in capital		841,430			599,742
Retained earnings		483,654			543,318
Shares held in trust		(5,276	)		(3,504	)
Accumulated other comprehensive income (loss)		16,688			(72,220	)
Total Company shareholders’ equity		1,336,914			1,067,682
Noncontrolling interest		3,812			4,123
Total equity		1,340,726			1,071,805
Total liabilities and equity	$	2,993,409			3,077,025

See accompanying notes to consolidated financial statements.

JONES LANG LASALLE INCORPORATED
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2009 and 2008
($ 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,
	2009			2008			2009			2008

Revenue	$	595,302			677,084			1,665,651			1,900,519

Operating expenses:
Compensation and benefits		380,029			449,185			1,103,960			1,259,233
Operating, administrative and other		147,744			154,767			426,020			487,508
Depreciation and amortization		18,720			29,194			64,608			63,908
Restructuring charges		4,181			10,461			36,608			10,273
Total operating expenses		550,674			643,607			1,631,196			1,820,922

Operating income		44,628			33,477			34,455			79,597

Interest expense, net of interest income		16,304			12,496			43,590			17,232
Equity in losses from unconsolidated ventures		(4,960	)		(694	)		(56,230	)		(1,938	)

Income (loss) before income taxes and noncontrolling interest		23,364			20,287			(65,365	)		60,427

Provision (benefit) for income taxes		3,505			5,112			(9,806	)		15,228
Net income (loss)		19,859			15,175			(55,559	)		45,199

Net income attributable to noncontrolling interest		88			171			290			1,838

Net income (loss) attributable to the Company		19,771			15,004			(55,849	)		43,361
Net income (loss) attributable to common shareholders	$	19,771			15,004			(56,135	)		42,358


Basic earnings (loss) per common share	$	0.47		$	0.44		$	(1.50	)	$	1.30
Basic weighted average shares outstanding		41,762,451			34,217,379			37,432,242			32,627,905

Diluted earnings (loss) per common share	$	0.46		$	0.43		$	(1.50	)	$	1.25
Diluted weighted average shares outstanding		43,299,868			35,035,602			37,432,242			33,965,981

See accompanying notes to consolidated financial statements.

JONES LANG LASALLE INCORPORATED
Consolidated Statement of Changes in Equity
For the Nine Months Ended September 30, 2009
($ in thousands, except share data) (unaudited)

	Company Shareholders' Equity
							Additional						Shares			Other
	Common Stock						Paid-In			Retained			Held in			Comprehensive			Noncontrolling			Total
	Shares			Amount			Capital			Earnings			Trust			Loss			Interest			Equity
Balances at December 31, 2008		34,561,648		$	346			599,742			543,318			(3,504	)		(72,220	)		4,123		$	1,071,805

Net (loss) income		—			—			—			(55,849	)		—			—			290			(55,559	)

Shares issued under stock compensation programs		958,754			9			3,216			—			—			—			—			3,225

Shares repurchased for payment of taxes on stock awards		(222,271	)		(2	)		(7,157	)		—			—			—			—			(7,159	)

Tax adjustments due to vestings and exercises		—			—			(8,326	)		—			—			—			—			(8,326	)

Amortization of stock compensation		—			—			35,140			—			—			—			—			35,140

Issuance of common stock		6,500,000			65			217,252			—			—			—			—			217,317

Shares issued for acquisitions		36,188			—			1,563			—			—			—			—			1,563

Dividends declared		—			—			—			(3,815	)		—			—			—			(3,815	)

Shares held in trust		—			—			—			—			(1,772	)		—			—			(1,772	)

Net distributions to noncontrolling interest		—			—			—			—			—			—			(601	)		(601	)

Foreign currency translation adjustments		—			—			—			—			—			88,908			—			88,908

Balance September 30, 2009		41,834,319		$	418			841,430			483,654			(5,276	)		16,688			3,812		$	1,340,726

See accompanying notes to consolidated financial statements.

JONES LANG LASALLE INCORPORATED
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2009 and 2008	Nine			Nine
($ in thousands) (unaudited)	Months Ended			Months Ended
	September 30, 2009			September 30, 2008

Cash flows from operating activities:
Net (loss) income	$	(55,559	)		45,199
Reconciliation of net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		64,608			63,908
Equity in losses from real estate ventures		56,230			1,938
Gain on investments		(1,381	)		—
Operating distributions from real estate ventures		—			1,767
Provision for loss on receivables and other assets		14,306			16,013
Amortization of deferred compensation		32,901			39,558
Amortization of debt issuance costs		3,524			2,308
Change in:
Receivables		173,565			124,085
Prepaid expenses and other assets		(19,912	)		(7,316	)
Deferred tax assets, net		(41,595	)		2,495
Excess tax benefit from share-based payment arrangements		—			(4,013	)
Accounts payable, accrued liabilities and accrued compensation		(182,826	)		(399,064	)
Net cash provided by (used in) operating activities		43,861			(113,122	)

Cash flows from investing activities:
Net capital additions – property and equipment		(31,234	)		(72,243	)
Business acquisitions		(14,845	)		(282,950	)
Capital contributions and advances to real estate ventures		(26,461	)		(36,634	)
Distributions, repayments of advances and sale of investments		875			29
Net cash used in investing activities		(71,665	)		(391,798	)

Cash flows from financing activities:
Proceeds from borrowings under credit facilities		890,290			1,278,124
Repayments of borrowings under credit facilities		(1,050,525	)		(759,838	)
Debt issuance costs		(11,183	)		(9,498	)
Issuance of common stock, net		217,689			—
Shares repurchased for payment of employee taxes on stock awards		(7,159	)		(13,876	)
Common stock issued under option and stock purchase programs		3,225			8,268
Excess tax benefit from share-based payment arrangements		—			4,013
Payment of dividends		(3,815	)		(17,290	)
Net cash provided by financing activities		38,522			489,903

Net increase (decrease) in cash and cash equivalents		10,718			(15,017	)
Cash and cash equivalents, January 1		45,893			78,580
Cash and cash equivalents, September 30	$	56,611			63,563


Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	20,490			10,290
Income taxes, net of refunds		30,140			71,243
Non-cash financing activities:
Deferred business acquisition obligations	$	5,419			331,559

See accompanying notes to consolidated financial statements.

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, 2008, which are included in our 2008 Annual Report, 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 and in our 2008 Annual Report for further discussion of our accounting policies and estimates.

(1) Interim Information

Our consolidated financial statements as of September 30, 2009 and for the three and nine months ended September 30, 2009 and 2008 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 recognized evenly throughout the year. Our Investment Management segment generally earns investment-generated performance fees on clients’ real estate investment returns and co-investment equity gains when assets are sold, the timing of which is geared towards the benefit of our clients. Within our Investor and Occupier Services segments, revenue for capital markets activities relates to the size and timing of our clients’ transactions and can fluctuate significantly from period to period. Non-variable operating expenses, which we treat as expenses when they are incurred during the year, are relatively constant on a quarterly basis. As such, the results for the periods ended September 30, 2009 and 2008 are not indicative of the results to be obtained for the full fiscal year.

(2) New Accounting Standards

Codification of FASB Accounting Standards

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 168, “The FASB Accounting Standards CodificationTM (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles, a Replacement of FASB Statement No. 162.” Under the provisions of SFAS 168, the ASC is established as the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. In the FASB’s view, the issuance of SFAS 168 and the ASC will not change GAAP for SEC registrants. The ASC became the exclusive authoritative reference for use in the Company’s consolidated financial statements beginning with the periods ended September 30, 2009.

Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC Topic 820 applies to accounting pronouncements that require or permit fair value measurements, except for share-based payment transactions under ASC Topic 718.

On January 1, 2008 the Company adopted these accounting standards with respect to its financial assets and liabilities that are measured at fair value, and on January 1, 2009 the Company adopted these standards with respect to its non-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.

ASC Topic 820 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 determine the fair value of these contracts based on widely accepted valuation techniques. The inputs for these valuation techniques are primarily Level 2 inputs of the hierarchy. At September 30, 2009, we had forward exchange contracts in effect with a gross notional value of $654.3 million and a net fair value gain of $3.3 million, recorded as a current asset of $9.2 million and a current liability of $5.9 million. This net carrying gain is offset by a carrying loss in the associated intercompany loans such that the net impact to earnings is not significant.

See Note 6, Investments in Real Estate Ventures and “Asset Impairments, Investments in Real Estate Ventures” in our Summary of Critical Accounting Policies and Estimates in Management’s Discussion and Analysis for discussion of our processes for evaluating investments in real estate ventures for impairment on a quarterly basis. The inputs to this quarterly impairment analysis are Level 3 inputs in the fair value hierarchy.

Business Combinations

In December 2007, the FASB issued SFAS 141(revised), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) now embedded within ASC Topic 805, “Business Combinations,” changes how we record in our consolidated financial statements identifiable assets acquired and the liabilities assumed in business combinations. This accounting standard 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. ASC Topic 805 principally applies prospectively to business combinations for which the acquisition date is after December 31, 2008, and the impact of its application on our consolidated financial statements will depend on the contract terms of any business combinations we may complete in the future.

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, now ASC Section 810-10-65, 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. We applied the provisions of this standard prospectively starting January 1, 2009, and its adoption did not have a material impact 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, now ASC Subtopic 815-50, requires enhanced disclosures about an entity’s derivative and hedging activities, and became effective for the Company in the first quarter of 2009. As a firm, we do not enter into derivative financial instruments for trading or speculative purposes. However, we do use derivative financial instruments in the form of forward foreign currency exchange contracts to manage selected foreign currency risks that arise in the normal course of business. We mark these contracts to market each period and recognize in earnings changes in unrealized gains or losses as a component of Operating, administrative and other expenses. These gains and losses are offset by the associated gains and losses on intercompany loans such that the net impact to earnings is not significant (see Fair Value Measurements above). At September 30, 2009, we had forward exchange contracts in effect with a gross notional value of $654.3 million and a net fair value gain of $3.3 million, recorded as a current asset of $9.2 million in Other current assets and a current liability of $5.9 million in Other current liabilities. We have considered the counterparty credit risk related to these forward foreign currency exchange contracts and do not deem any counterparty credit risk material at this time.

Fair Value of Financial Instruments

In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP, now ASC Section 825-10-65, requires publicly traded companies to disclose the fair value of financial instruments in interim financial statements, adding to the current requirement to make these disclosures in annual financial statements.

Our financial instruments include cash and cash equivalents, receivables, accounts payable, short-term borrowings, borrowings under our credit Facilities and foreign currency forward contracts. The carrying values of cash and cash equivalents, receivables, accounts payable and short-term borrowings approximate their estimated fair values due to the short maturity of these instruments. The estimated fair value of our borrowings under our credit Facilities approximates their carrying value due to their variable interest rate terms. The fair values of our foreign currency forward contracts are disclosed above under the headings “Fair Value Measurements” and “Disclosures about Derivative Instruments and Hedging Activities.”

Subsequent Events

In May 2009, the FASB issued SFAS 165, “Subsequent Events.” SFAS 165, now ASC Topic 855, establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued. This standard, now effective, requires recognition in the financial statements of the effect of all subsequent events that provide additional evidence about conditions that existed at the balance sheet date, and disclosures of the date through which subsequent events have been evaluated.

Consolidation of Variable Interest Entities

In June 2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation (“FIN”) No. 46(R).” SFAS 167 amends FIN 46(R) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. The analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both (i) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (ii) the obligation to absorb losses of, or the right to receive benefits from, the variable interest entity that could potentially be significant to the entity. SFAS 167 also amends guidance in FIN 46(R) (i) for determining when an entity is a variable interest entity, including an additional reconsideration event for such determinations, (ii) to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity, (iii) to eliminate the quantitative approach previously required for determining the primary beneficiary, and (iv) to enhance disclosures regarding an enterprise’s involvement in a variable interest entity. SFAS 167 will be effective for the Company as of January 1, 2010, with early adoption prohibited. Management has not yet determined what impact the application of this standard will have on our consolidated financial statements.

(3) Revenue Recognition

We earn revenue from the following principal sources:

Transaction commissions;

Advisory and management fees;

Incentive fees;

Project and development management fees; and

Construction management 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’ 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 $2.2 million and $6.1 million for the three months ended September 30, 2009 and 2008, respectively, and $7.8 million and $12.7 million for the nine months ended September 30, 2009 and 2008, respectively. Gross construction services revenues totaled $35.1 million and $78.7 million for the three months ended September 30, 2009 and 2008, respectively, and $119.9 million and $192.2 million for the nine months ended September 30, 2009 and 2008, respectively. Subcontract costs totaled $32.9 million and $72.6 million for the three months ended September 30, 2009 and 2008, respectively, and $112.1 million and $179.5 million for the nine months ended September 30, 2009 and 2008, respectively.

We include costs in excess of billings on uncompleted construction contracts of $8.1 million and $9.8 million in “Trade receivables,” and billings in excess of costs on uncompleted construction contracts of $4.2 million and $5.9 million in “Deferred income,” respectively, in our September 30, 2009 and December 31, 2008 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.

Accordingly, 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 or client, 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 we account for them on a net basis. We have always presented reimbursable contract costs on a net basis in accordance with U.S. GAAP. These costs aggregated approximately $242.3 million and $286.9 million for the three months ended September 30, 2009 and 2008, respectively, and approximately $823.1 million and $860.3 million for the nine months ended September 30, 2009 and 2008, 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:

The three geographic regions of Investor and Occupier Services ("IOS"):

(i)

Americas,

(ii)

Europe, Middle East and Africa (“EMEA”),

(iii)

Asia Pacific; and

(iv)

Investment Management, which offers investment management services on a global basis.

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, energy management and sustainability and construction management services (collectively "management services"). We consider “property management” as services provided to non-occupying property investors and “facilities management” as a service provided to owner-occupiers.

The Investment Management segment provides investment management services to institutional investors and high-net-worth individuals.

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. We allocate corporate global overhead expenses to the business segments based on the budgeted operating expenses of each segment.

For segment reporting we show equity in (losses) earnings from real estate ventures within our revenue line 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 (losses) earnings 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.

Summarized unaudited financial information by business segment for the three and nine months ended September 30, 2009 and 2008 is as follows ($ in thousands):


	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
Investor and Occupier Services
Americas
Revenue:
Transaction services	$	130,346			134,176			376,757			301,599
Management services		105,264			116,332			301,424			304,631
Equity income (losses)		30			-			(1,181	)		41
Other services		3,124			3,564			9,941			11,538
	$	238,764			254,072			686,941			617,809
Operating expenses:
Compensation, operating and administrative expenses		199,816			220,378			605,390			558,773
Depreciation and amortization		9,672			16,820			38,111			31,363
Operating income	$	29,276			16,874			43,440			27,673

EMEA
Revenue:
Transaction services	$	98,773			147,436			264,735			454,307
Management services		55,196			54,288			149,675			162,876
Equity income (losses)		19			(3	)		(940	)		99
Other services		254			6,840			4,404			10,441
	$	154,242			208,561			417,874			627,723
Operating expenses:
Compensation, operating and administrative expenses		152,909			194,693			428,225			605,652
Depreciation and amortization		5,265			7,978			15,641			20,864
Operating (loss) income	$	(3,932	)		5,890			(25,992	)		1,207

Asia Pacific
Revenue:
Transaction services	$	62,272			70,384			150,653			207,014
Management services		71,943			61,568			206,736			180,087
Equity losses		-			(556	)		(2,371	)		(705	)
Other services		2,216			1,159			5,515			5,337
	$	136,431			132,555			360,533			391,733
Operating expenses:
Compensation, operating and administrative expenses		126,076			128,978			345,131			384,938
Depreciation and amortization		3,205			3,634			9,198			9,962
Operating income (loss)	$	7,150			(57	)		6,204			(3,167	)

Investment Management
Revenue:
Transaction and other services	$	1,213			4,047			3,881			14,485
Advisory fees		61,177			70,963			180,063			215,647
Incentive fees		3,524			6,327			11,867			32,557
Equity losses		(5,009	)		(135	)		(51,738	)		(1,373	)
	$	60,905			81,202			144,073			261,316
Operating expenses:
Compensation, operating and administrative expenses		48,972			59,903			151,235			197,378
Depreciation and amortization		578			762			1,657			1,719
Operating income (loss)	$	11,355			20,537			(8,819	)		62,219

Segment Reconciling Items:
Total Segment revenue	$	590,342			676,390			1,609,421			1,898,581
Reclassification of equity losses		(4,960	)		(694	)		(56,230	)		(1,938	)
Total revenue	$	595,302			677,084			1,665,651			1,900,519

Total operating expenses before restructuring charges		546,493			633,146			1,594,588			1,810,649
Restructuring charges		4,181			10,461			36,608			10,273
Operating income	$	44,628			33,477			34,455			79,597

(5) Business Combinations, Goodwill and Other Intangible Assets

2009 Business Combinations Activity

In the first nine months of 2009, we paid $13.2 million to satisfy deferred business acquisition obligations, primarily related to the Americas’ 2006 acquisition of Spaulding & Slye. We also recognized earn-out obligations of $11.6 million for (i) acquisitions completed in prior years resulting in payments of $4.6 million, (ii) additional deferred business acquisition obligations of $5.4 million that will be paid in the next year, and (iii) the issuance of 36,188 shares of the Company’s common stock, valued at $1.6 million, issued as part of an earn-out agreement for the 2006 acquisition of RSP Group, a Dubai-based real estate investment advisory firm.

In the third quarter of 2009, the Company finalized its allocation of the purchase price of the 2008 acquisition of Staubach Holdings Inc. (“Staubach”). The final allocation of the $506.9 million of purchase consideration included increases in accounts receivable and other assets, increases in current liabilities, and decreases in identifiable intangible assets acquired, resulting in a net $49.3 million decrease in goodwill from the allocation of purchase price consideration at December 31, 2008. The final allocation of the purchase price is as follows ($ in thousands):

Accounts receivable and other assets	$	121,312
Current liabilities		(100,915	)
Current and deferred tax liabilities		(72,647	)
Identifiable intangible assets		34,902
Goodwill		524,234
	$	506,886

Earn-out payments

At September 30, 2009, we had the potential to make earn-out payments on 16 acquisitions that are subject to the achievement of certain performance conditions. The maximum amount of the potential earn-out payments for these acquisitions was $184.6 million at September 30, 2009. These amounts will come due at various times over the next five years assuming the achievement of the applicable performance conditions.

Goodwill and Other Intangible Assets

We have $1.5 billion of unamortized intangibles and goodwill as of September 30, 2009. 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 $1.5 billion of unamortized intangibles and goodwill, $1.448 billion represents goodwill with indefinite useful lives, which is not amortized. We will amortize the remaining $40 million of identifiable intangibles 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, 2009	$	939,933			316,581		174,970		17,179		1,448,663
Additions, net of adjustments		(46,048	)		11,075		708		—		(34,265	)
Impact of exchange rate movements		(7	)		20,496		11,420		1,304		33,213
Balance as of September 30, 2009	$	893,878			348,152		187,098		18,483		1,447,611

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, 2009	$	80,592			14,645			10,891			127			106,255
Adjustments		(323	)		(279	)		113			—			(489	)
Impact of exchange rate movements		—			1,193			458			1			1,652
Balance as of September 30, 2009	$	80,269			15,559			11,462			128			107,418

Accumulated Amortization
Balance as of January 1, 2009	$	(33,979	)		(9,396	)		(3,487	)		(74	)		(46,936	)
Amortization expense		(14,740	)		(2,685	)		(1,774	)		(46	)		(19,245	)
Impact of exchange rate movements		—			(885	)		(402	)		(3	)		(1,290	)
Balance as of September 30, 2009	$	(48,719	)		(12,966	)		(5,663	)		(123	)		(67,471	)

Net book value as of September 30, 2009	$	31,550			2,593			5,799			5			39,947

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

2009	$	3.8
2010		10.4
2011		8.2
2012		6.0
2013		4.6
Thereafter		6.9
Total	$	39.9

(6) Investments in Real Estate Ventures

As of September 30, 2009, we had total investments in real estate ventures of $157.1 million in approximately 40 separate property or fund co-investments.

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 vehicles for substantially all co-investment commitments made through December 31, 2005. LIC I is fully committed to underlying real estate ventures. At September 30, 2009, our maximum potential unfunded commitment to LIC I was euro 12.3 million ($18.0 million). LaSalle Investment Company II (“LIC II”), formed in January 2006, is comprised of two parallel limited partnerships which serve as our investment vehicles for most new co-investments. At September 30, 2009, LIC II has unfunded capital commitments for future fundings of co-investments of $282.5 million, of which our 48.78% share is $137.8 million. The $137.8 million commitment is part of our maximum potential unfunded commitment to LIC II at September 30, 2009 of $376.8 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. We handle approvals for such activity consistently with those of the Firm’s co-investment capital. At September 30, 2009, no bridge-financing arrangements were outstanding.

As of September 30, 2009, LIC I maintains a euro 10.0 million ($14.6 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 ($7.0 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 12.3 million ($18.0 million) and to LIC II of $376.8 million. As of September 30, 2009, LIC I had $0.3 million of outstanding borrowings on the LIC I Facility, and LIC II had $22.4 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 $8.7 million at September 30, 2009.

Impairment

We review our investments in real estate ventures on a quarterly basis for indications of whether the carrying value of the real estate assets underlying our investments in real estate ventures may not be recoverable or whether our investment in these co-investments is other than temporarily impaired. When events or changes in circumstances indicate that the carrying amount of a real estate asset underlying one of our investments in real estate ventures may be impaired, we review the recoverability of the carrying amount of the real estate asset in comparison to an estimate of the future undiscounted cash flows expected to be generated by the underlying asset. When the carrying amount of the real estate asset is in excess of the future undiscounted cash flows, we use a discounted cash flow approach to determine the fair value of the asset in computing the amount of the impairment. Additionally, we consider a number of factors, including our share of co-investment cash flows and the fair value of our co-investments, in determining whether or not our investment is other than temporarily impaired.

Due to further declines in real estate markets, which are having an adverse impact on rental income assumptions and forecasted exit capitalization rates, we determined that certain real estate investments had become impaired in the first nine months of 2009. The results of these impairment analyses were primarily responsible for our recognition of $47.6 million of non-cash charges in the first nine months of 2009, which are included in equity losses from real estate ventures, representing our equity share of these charges. It is reasonably possible that if real estate values continue to decline, we may sustain additional impairment charges on our investments in real estate ventures in future periods. We recorded $0.9 million of impairment charges in the first nine months of 2008.

(7) Stock-based Compensation

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 September 30, 2009 is as follows:

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

Unvested at June 30, 2009		3,418.7		$	51.67
Granted		13.4			35.44
Vested		(707.1	)		66.04
Forfeited		(25.3	)		52.30
Unvested at September 30, 2009		2,699.7		$	47.82	2.00 years	$	127.9

Restricted stock unit activity for the nine months ended September 30, 2009 is as follows:

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

Unvested at January 1, 2009		1,994.2		$	69.89
Granted		1,583.6			29.59
Vested		(823.5	)		65.39
Forfeited		(54.6	)		60.00
Unvested at September 30, 2009		2,699.7		$	47.82	2.00 years	$	127.9
Unvested shares expected to vest		2,593.7		$	47.69	2.01 years	$	122.9

We determined the fair value of restricted stock units based on the market price of the Company’s common stock on the grant date. As of September 30, 2009, there was $45.7 million of remaining unamortized deferred compensation related to unvested restricted stock units. We will recognize the remaining cost of unvested restricted stock units granted through September 30, 2009 over varying periods into 2014.

Shares vesting during the nine months ended September 30, 2009 and 2008 had fair values of $53.9 million and $41.4 million, respectively.

Stock Option Awards

We have granted stock options at the market value of our common stock on 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 related award agreements; 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.

Stock option activity for the three months ended September 30, 2009 is as follows:

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

Outstanding at June 30, 2009		67.5		$	17.42
Exercised		(0.5	)		20.25
Forfeited		—			—
Outstanding at September 30, 2009		67.0		$	17.40	2.14 years	$	2.0

Stock option activity for the nine months ended September 30, 2009 is as follows:

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

Outstanding at January 1, 2009		118.0		$	20.30
Exercised		(33.0	)		22.83
Forfeited		(18.0	)		26.47
Outstanding at September 30, 2009		67.0		$	17.40		2.14 years	$	2.0
Exercisable at September 30, 2009		67.0		$	17.40		2.14 years	$	2.0

As of September 30, 2009, we have approximately 67,000 options outstanding, all of which vested prior to 2009. Accordingly, we recognized no compensation expense related to unvested options for the first nine months of 2009.

Approximately 33,000 options were exercised during the first nine months of 2009, having an intrinsic value of $0.8 million. For the same period in 2008, approximately 64,000 options were exercised, having an intrinsic value of $1.7 million. As a result of these exercises, we received cash of $0.9 million and $2.2 million for the nine months ended September 30, 2009 and 2008, respectively.

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. Through March 31, 2009, we enhanced employee contributions for stock purchases through an additional contribution of a 5% discount on the purchase price as of the end of each three month program period. Employee contributions and our contributions vest immediately. Since its inception, 1,636,678 shares have been purchased under the program through March 31, 2009. In the first quarter of 2009, 96,046 shares having a grant date market value of $23.26 were purchased under the program. Effective April 1, 2009 the 5% discount has been discontinued, program periods are now one month in length, and purchases are broker-assisted on the open market. We do not record any compensation expense with respect to this program.

SAYE – The Jones Lang LaSalle Savings Related Share Option Plan (“Save As You Earn” or “SAYE”) is for eligible employees of our UK and Ireland based 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 2009, the Company issued approximately 326,000 options at an exercise price of $19.47 under the SAYE plan; no options were issued in the second or third quarters of 2009. The fair values of the options granted under this plan are being amortized over their respective vesting periods. At September 30, 2009, there were approximately 382,000 options outstanding under the SAYE plan.

(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 31st measurement date for our plans.

Net periodic pension cost consisted of the following for the three and nine months ended September 30, 2009 and 2008 ($ in thousands):

	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008


Employer service cost - benefits earned during the period	$	647			960			1,837			2,950
Interest cost on projected benefit obligation		2,209			2,905			6,251			8,972
Expected return on plan assets		(2,409	)		(3,349	)		(6,816	)		(10,343	)
Net amortization/deferrals		42			52			120			162
Recognized actual (gains) losses		(40	)		38			(116	)		121
Net periodic pension cost	$	449			606			1,276			1,862

For the nine months ended September 30, 2009, we have made $3.9 million in payments to our defined benefit pension plans. We expect to contribute a total of $4.0 million to our defined benefit pension plans in 2009. We made $7.6 million of contributions to these plans in the twelve months ended December 31, 2008.

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

We calculate earnings (loss) per share by dividing net income (loss) available to common shareholders by weighted average shares outstanding. To calculate net income (loss) available to common shareholders, we subtract dividend-equivalents (net of tax) to be paid on outstanding but unvested shares of restricted stock units from net income (loss) in the period the dividend is declared. Included in the calculations of net income (loss) available to common shareholders are dividend-equivalents of $0.3 million net of tax, declared and paid in the second quarter of 2009, and $1.0 million net of tax, declared and paid in the second quarter of 2008.

The difference between basic weighted average shares outstanding and diluted weighted average shares outstanding is the dilutive impact of common stock equivalents. Common stock equivalents consist primarily of shares to be issued under employee stock compensation programs and outstanding stock options whose exercise price was less than the average market price of our stock during these periods. Due to the net loss for the nine months ended September 30, 2009, basic shares were not increased by common stock equivalents in the calculations of diluted shares as the impact would have been anti-dilutive.

The following table details the calculations of basic and diluted earnings per common share for the three and nine months ended September 30, 2009 and 2008 ($ in thousands):

	Three Months		Three Months		Nine Months			Nine Months
	Ended		Ended		Ended			Ended
	September 30,		September 30,		September 30,			September 30,
	2009		2008		2009			2008

Net income (loss) attributable to the Company	$	19,771		15,004		(55,849	)		43,361
Dividends on unvested common stock, net of tax benefit		-		-		286			1,003
Net income (loss) attributable to common shareholders	$	19,771		15,004		(56,135	)		42,358