**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

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**FORM 10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended September 30, 2005**

**Or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition periodfrom           to           **

**Commissionfile number 1-13531**

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**Trammell Crow Company**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     |   | **75-2721454**                     |
|------------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification No.) |
| **2001 Ross Avenue  Suite 3400  Dallas, Texas**             |   | **75201**                          |
| (Address of  principal executive offices)                        |   | (Zip Code)                         |

 

**(214) 863-3000**(Registrant’s telephonenumber, including area code)

**Not applicable**(Former name, former addressand formerfiscal year, if changed since last report)

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days. Yes x No o

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the ExchangeAct). Yes x No o

There were 36,012,111 shares of the registrant’scommon stock outstanding as of November 1, 2005.

 

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**TRAMMELL CROW COMPANY AND SUBSIDIARIESINDEX**
|               | ** ** | ** **                                                                                                                                                               | **Page  Number** |
|---------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|
| PART I.  |       | Financial Information                                                                                                                                                    |             | 3 |   |
| Item 1.       |       | Financial Statements                                                                                                                                                     |             | 3 |   |
|          |       | Condensed Consolidated  Balance Sheets as of September 30, 2005 (unaudited) and  December 31, 2004                                                        |             | 3 |   |
|          |       | Condensed Consolidated Statements of Income  for the three and nine months ended September 30, 2005 and 2004  (unaudited)                                           |             | 4 |   |
|          |       | Condensed Consolidated  Statements of Stockholders’ Equity for the nine months ended  September 30, 2005 (unaudited) and the year ended December 31, 2004 |             | 5 |   |
|          |       | Condensed Consolidated Statements of  Cash Flows for the nine months ended September 30, 2005 and 2004  (unaudited)                                                 |             | 6 |   |
|          |       | Condensed Consolidated  Statements of Comprehensive Income for the three and nine months ended  September 30, 2005 and 2004 (unaudited)                             |             | 7 |   |
|          |       | Notes  to Condensed Consolidated Financial Statements (unaudited)                                                                                                        |             | 8 |   |
| Item 2.       |       | Management’s Discussion and  Analysis of Financial Condition and Results of  Operations                                                                             |             | 27 |   |
| Item 3.       |       | Quantitative and Qualitative  Disclosures About Market Risk                                                                                                              |             | 38 |   |
| Item 4.       |       | Controls and Procedures                                                                                                                                                  |             | 39 |   |
| PART II. |       | Other Information                                                                                                                                                        |             | 40 |   |
| Item 1.       |       | Legal Proceedings                                                                                                                                                        |             | 40 |   |
| Item 6.       |       | Exhibits                                                                                                                                                                 |             | 41 |   |

 

2

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**PART I—FINANCIALINFORMATION**

**ITEM1.**                *Financial Statements*

**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATEDBALANCE SHEETS(in thousands, except share and per share data)**

| ** **                                                                                                                                                                                                 | ** **                        | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                 | ** **                        | **2005**               | ** ** | **2004**              | ** ** |
| ** **                                                                                                                                                                                                 | ** **                        | **(Unaudited)**        | ** ** | **(Note 1)**     | ** ** |
| **ASSETS**                                                                                                                                                                                                 |                              |                   |       |                  |       |   |   |   |   |
| Current assets                                                                                                                                                                                             |                              |                   |       |                  |       |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                                                                 |                              |                   | $          | 66,020                |       |   |   | $ | 163,637 |   |   |
| Restricted cash                                                                                                                                                                                            |                              |                   | 2,810      |                  |       |   | 9,950 |   |   |
| Accounts  receivable, net of allowance for doubtful accounts of $3,318 in 2005 and  $3,144 in 2004                                                                                                    |                              |                   | 113,584    |                  |       |   | 103,551 |   |   |
| Receivables from  affiliates                                                                                                                                                                               |                              |                   | 2,301      |                  |       |   | 1,626 |   |   |
| Notes and other  receivables                                                                                                                                                                               |                              |                   | 5,905      |                  |       |   | 19,726 |   |   |
| Deferred income  taxes                                                                                                                                                                                     |                              |                   | 3,747      |                  |       |   | 4,021 |   |   |
| Real estate under  development                                                                                                                                                                             |                              |                   | 48,165     |                  |       |   | 10,379 |   |   |
| Real estate and  other assets held for sale                                                                                                                                                                |                              |                   | 15,347     |                  |       |   | 40,155 |   |   |
| Available for sale  securities                                                                                                                                                                             |                              |                   | 995        |                  |       |   | — |   |   |
| Other current  assets                                                                                                                                                                                      |                              |                   | 26,922     |                  |       |   | 17,854 |   |   |
| Total current  assets                                                                                                                                                                                      |                              |                   | 285,796    |                  |       |   | 370,899 |   |   |
| Furniture and  equipment, net                                                                                                                                                                              |                              |                   | 19,881     |                  |       |   | 18,649 |   |   |
| Deferred income  taxes                                                                                                                                                                                     |                              |                   | 20,132     |                  |       |   | 22,935 |   |   |
| Real estate under  development                                                                                                                                                                             |                              |                   | 153,445    |                  |       |   | 58,454 |   |   |
| Real estate held  for investment                                                                                                                                                                           |                              |                   | 93,468     |                  |       |   | 113,421 |   |   |
| Investments in  unconsolidated subsidiaries                                                                                                                                                                |                              |                   | 169,347    |                  |       |   | 74,090 |   |   |
| Goodwill, net                                                                                                                                                                                              |                              |                   | 75,239     |                  |       |   | 74,357 |   |   |
| Receivables from  affiliates                                                                                                                                                                               |                              |                   | 6,775      |                  |       |   | — |   |   |
| Available for sale  securities                                                                                                                                                                             |                              |                   | 17,425     |                  |       |   | — |   |   |
| Other assets                                                                                                                                                                                               |                              |                   | 15,487     |                  |       |   | 16,145 |   |   |
|                                                                                                                                                                                                       |                              |                   | $          | 856,995               |       |   |   | $ | 748,950 |   |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                             |                              |                   |       |                  |       |   |   |   |   |
| Current liabilities                                                                                                                                                                                        |                              |                   |       |                  |       |   |   |   |   |
| Accounts payable                                                                                                                                                                                           |                              |                   | $          | 26,706                |       |   |   | $ | 23,731 |   |   |
| Accrued expenses                                                                                                                                                                                           |                              |                   | 133,943    |                  |       |   | 146,479 |   |   |
| Payables to  affiliates                                                                                                                                                                                    |                              |                   | 144        |                  |       |   | 40 |   |   |
| Income taxes  payable                                                                                                                                                                                      |                              |                   | 3,405      |                  |       |   | 18,121 |   |   |
| Current portion of  long term debt                                                                                                                                                                         |                              |                   | 11         |                  |       |   | 6 |   |   |
| Current portion of  notes payable on real estate                                                                                                                                                           |                              |                   | 47,082     |                  |       |   | 11,066 |   |   |
| Liabilities  related to real estate and other assets held for sale                                                                                                                                         |                              |                   | 12,569     |                  |       |   | 28,467 |   |   |
| Other current  liabilities                                                                                                                                                                                 |                              |                   | 5,496      |                  |       |   | 12,600 |   |   |
| Total current  liabilities                                                                                                                                                                                 |                              |                   | 229,356    |                  |       |   | 240,510 |   |   |
| Long-term debt,  less current portion                                                                                                                                                                      |                              |                   | 51,020     |                  |       |   | 8 |   |   |
| Notes payable on  real estate, less current portion                                                                                                                                                        |                              |                   | 156,524    |                  |       |   | 112,699 |   |   |
| Other liabilities                                                                                                                                                                                          |                              |                   | 13,284     |                  |       |   | 10,027 |   |   |
| Total liabilities                                                                                                                                                                                          |                              |                   | 450,184    |                  |       |   | 363,244 |   |   |
| Minority interest                                                                                                                                                                                          |                              |                   | 44,165     |                  |       |   | 44,756 |   |   |
| Stockholders’ equity                                                                                                                                                                                  |                              |                   |       |                  |       |   |   |   |   |
| Preferred stock;  $0.01 par value; 30,000,000 shares authorized; none issued or outstanding                                                                                                           |                              |                   | —     |                  |       |   | — |   |   |
| Common stock;  $0.01 par value; 100,000,000 shares authorized; 37,903,058 shares issued and  36,013,850 shares outstanding in 2005 and 37,902,998 shares issued and  35,605,007 shares outstanding in 2004 |                              |                   | 379        |                  |       |   | 379 |   |   |
| Paid in capital                                                                                                                                                                                            |                              |                   | 201,817    |                  |       |   | 196,314 |   |   |
| Retained earnings                                                                                                                                                                                          |                              |                   | 206,788    |                  |       |   | 190,252 |   |   |
| Accumulated other  comprehensive income                                                                                                                                                                    |                              |                   | 2,603      |                  |       |   | 2,043 |   |   |
| Less:                                                                                                                                                                                                      | Treasury stock                    |                   |       | (33,182               | )          |   |   | (36,921 | ) |   |
|                                                                                                                                                                                                       | Unearned stock  compensation, net |                   |       | (15,759               | )          |   |   | (11,117 | ) |   |
| Total  stockholders’ equity                                                                                                                                                                           |                              |                   | 362,646    |                  |       |   | 340,950 |   |   |
|                                                                                                                                                                                                       |                              |                   | $          | 856,995               |       |   |   | $ | 748,950 |   |   |

 

See accompanying notes.

3

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**TRAMMELL CROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OFINCOME(in thousands, except share and per share data)(Unaudited)**

| ** **                                                                                                                                       | ** **   | **For the Three Months  Ended September 30,** | ** **   | **For the Nine Months  Ended September 30,** | ** **   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------------------------------------------------------|--------------|-----------------------------------------------------------------------|--------------|
| ** **                                                                                                                                       | ** **   | **2005**                                                               | ** **   | **2004**                                                              | ** **   | **2005** | ** ** | **2004** | ** ** |
| **REVENUES**                                                                                                                                     | ** **   | ** **                                                             | ** **   | ** **                                                            | ** **   | ** ** | ** ** | ** ** | ** ** |
| ***User  Services:***                                                                                                                            | *** *** | *** ***                                                           | *** *** | *** ***                                                          | *** *** | *** *** | *** *** | *** *** | *** *** |
| Facilities  management                                                                                                                           |         | $                                                                      | 59,076       |                                                                  | $            | 52,633 |   | $ | 173,604 |   | $ | 153,945 |   |
| Corporate advisory  services                                                                                                                     |         | 49,498                                                                 |         | 34,142                                                                |         | 114,287 |   | 90,420 |   |
| Project management  services                                                                                                                     |         | 28,216                                                                 |         | 23,268                                                                |         | 85,503 |   | 60,905 |   |
|                                                                                                                                             |         | 136,790                                                                |         | 110,043                                                               |         | 373,394 |   | 305,270 |   |
| ***Investor  Services:***                                                                                                                        |         |                                                                   |         |                                                                  |         |   |   |   |   |
| Property  management                                                                                                                             |         | 34,246                                                                 |         | 34,330                                                                |         | 102,801 |   | 103,654 |   |
| Brokerage                                                                                                                                        |         | 35,296                                                                 |         | 25,917                                                                |         | 96,752 |   | 76,776 |   |
| Construction  management                                                                                                                         |         | 3,207                                                                  |         | 2,926                                                                 |         | 8,381 |   | 6,987 |   |
|                                                                                                                                             |         | 72,749                                                                 |         | 63,173                                                                |         | 207,934 |   | 187,417 |   |
| Development and  construction                                                                                                                    |         | 10,005                                                                 |         | 8,106                                                                 |         | 26,553 |   | 24,413 |   |
|                                                                                                                                             |         | 219,544                                                                |         | 181,322                                                               |         | 607,881 |   | 517,100 |   |
| Gain on  disposition of real estate                                                                                                              |         | 7,285                                                                  |         | 7,253                                                                 |         | 9,759 |   | 11,584 |   |
| **TOTAL  REVENUES**                                                                                                                              |         | 226,829                                                                |         | 188,575                                                               |         | 617,640 |   | 528,684 |   |
| **COSTS AND EXPENSES**                                                                                                                           |         |                                                                   |         |                                                                  |         |   |   |   |   |
| Salaries, wages and  benefits                                                                                                                    |         | 140,801                                                                |         | 119,970                                                               |         | 399,242 |   | 348,915 |   |
| Commissions                                                                                                                                      |         | 41,883                                                                 |         | 28,623                                                                |         | 98,839 |   | 76,618 |   |
| General and  administrative                                                                                                                      |         | 36,323                                                                 |         | 31,002                                                                |         | 102,465 |   | 89,640 |   |
| Depreciation and  amortization                                                                                                                   |         | 2,551                                                                  |         | 2,718                                                                 |         | 7,513 |   | 8,683 |   |
| Interest                                                                                                                                         |         | 1,579                                                                  |         | 1,156                                                                 |         | 4,015 |   | 3,005 |   |
| **TOTAL  EXPENSES**                                                                                                                              |         | 223,137                                                                |         | 183,469                                                               |         | 612,074 |   | 526,861 |   |
| Operating income                                                                                                                                 |         | 3,692                                                                  |         | 5,106                                                                 |         | 5,566 |   | 1,823 |   |
| Interest and other  income                                                                                                                       |         | 672                                                                    |         | 763                                                                   |         | 2,074 |   | 2,124 |   |
| Income from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries  |         | 4,364                                                                  |         | 5,869                                                                 |         | 7,640 |   | 3,947 |   |
| Income tax expense                                                                                                                               |         | (1,600                                                                 | )            | (2,422                                                                | )            | (2,782 | ) | (1,595 | ) |
| Minority interest,  net of income tax (expense) benefit of $1,078, $(618), $(756) and $(148)                                                |         | (1,930                                                                 | )            | 842                                                                   |         | 1,321 |   | 217 |   |
| Income from  investments in unconsolidated subsidiaries, net of income tax expense of  $(896), $(629), $(3,472),and $(5,664)                |         | 1,497                                                                  |         | 1,668                                                                 |         | 6,064 |   | 8,351 |   |
| Income from  continuing operations                                                                                                               |         | 2,331                                                                  |         | 5,957                                                                 |         | 12,243 |   | 10,920 |   |
| Income (loss) from  discontinued operations, net of income tax (expense) benefit of  $(6,979), $96, $(7,208), and $(168)                    |         | 12,186                                                                 |         | (103                                                                  | )            | 12,591 |   | 247 |   |
| Net income                                                                                                                                       |         | $                                                                      | 14,517       |                                                                  | $            | 5,854 |   | $ | 24,834 |   | $ | 11,167 |   |
| Income per share from continuing operations:                                                                                                     |         |                                                                   |         |                                                                  |         |   |   |   |   |
| Basic                                                                                                                                            |         | $                                                                      | 0.07         |                                                                  | $            | 0.16 |   | $ | 0.37 |   | $ | 0.30 |   |
| Diluted                                                                                                                                          |         | $                                                                      | 0.07         |                                                                  | $            | 0.15 |   | $ | 0.33 |   | $ | 0.29 |   |
| Income (loss) per share  from discontinued operations, net of income taxes:                                                                 |         |                                                                   |         |                                                                  |         |   |   |   |   |
| Basic                                                                                                                                            |         | $                                                                      | 0.36         |                                                                  | $            | 0.00 |   | $ | 0.37 |   | $ | 0.01 |   |
| Diluted                                                                                                                                          |         | $                                                                      | 0.33         |                                                                  | $            | 0.00 |   | $ | 0.35 |   | $ | 0.01 |   |
| Net income per share:                                                                                                                            |         |                                                                   |         |                                                                  |         |   |   |   |   |
| Basic                                                                                                                                            |         | $                                                                      | 0.43         |                                                                  | $            | 0.16 |   | $ | 0.74 |   | $ | 0.31 |   |
| Diluted                                                                                                                                          |         | $                                                                      | 0.40         |                                                                  | $            | 0.15 |   | $ | 0.68 |   | $ | 0.30 |   |
| Weighted average common shares outstanding:                                                                                                      |         |                                                                   |         |                                                                  |         |   |   |   |   |
| Basic                                                                                                                                            |         | 33,873,952                                                             |         | 35,708,289                                                            |         | 33,663,140 |   | 35,584,361 |   |
| Diluted                                                                                                                                          |         | 36,679,610                                                             |         | 37,911,301                                                            |         | 36,292,969 |   | 37,588,366 |   |

 

See accompanying notes.

4

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**TRAMMELL CROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTSOF STOCKHOLDERS’ EQUITYNine Months Ended September 30, 2005 (Unaudited) and Year EndedDecember 31, 2004 (Note 1)(in thousands, except share data)**

| ** **                                                                                     | ** ** | **Common Shares** | ** ** | **Common  Stock Par** | ** ** | **Paid-In** | ** ** | **Retained** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Treasury** | ** ** | **Unearned  Stock** | ** ** | ** **       | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|-------------|------------|--------------|------------|---------------------------------------|------------|--------------|------------|---------------------|------------|------------------|------------|
| ** **                                                                                     | ** ** | **Issued**             | ** ** | **Treasury**               | ** ** | **Value**   | ** ** | **Capital**  | ** ** | **Earnings**                          | ** ** | **Income**   | ** ** | **Stock**           | ** ** | **Compensation** | ** ** | **Total** | ** ** |
| Balance at  January 1, 2004                                                               |       | 37,783,595             |       | 921,353                    |       |        | $          | 377          |       |                                  | $          | 192,336      |       | $                   | 151,560    | ** **       |       | $ | 1,106 |   |   | $ | (8,363 | ) |   | $ | (9,387 | ) |   | $ | 327,629 |   |
| Net income                                                                                     |       | —                 |       | —                     |       |        | —     | ** **   |       | —                                |       | 39,119       | ** ** |                | —     | ** **       |       | — |   |   | — |   |   | 39,119 |   |
| Issuance of  restricted stock                                                                  |       | 28,000                 |       | (644,313                   | )          |        | 1          | ** **   |       | 2,846                                 |       | —       | ** ** |                | —     | ** **       |       | 5,870 |   |   | (8,717 | ) |   | — |   |
| Forfeiture of  restricted stock                                                                |       | —                 |       | 32,632                     |       |        | —     | ** **   |       | —                                |       | —       | ** ** |                | —     | ** **       |       | (394 | ) |   | 304 |   |   | (90 | ) |
| Amortization of  unearned stock compensation                                                   |       | —                 |       | —                     |       |        | —     | ** **   |       | —                                |       | —       | ** ** |                | —     | ** **       |       | — |   |   | 6,683 |   |   | 6,683 |   |
| Issuance of common  stock                                                                      |       | 91,403                 |       | (366,118                   | )          |        | 1          | ** **   |       | 1,132                                 |       | (427         | )          |                | —     | ** **       |       | 3,900 |   |   | — |   |   | 4,606 |   |
| Stock repurchase                                                                               |       | —                 |       | 2,354,437                  |       |        | —     | ** **   |       | —                                |       | —       | ** ** |                | —     | ** **       |       | (37,934 | ) |   | — |   |   | (37,934 | ) |
| Foreign currency  translation adjustment, net of tax                                           |       | —                 |       | —                     |       |        | —     | ** **   |       | —                                |       | —       | ** ** |                | 937        | ** **       |       | — |   |   | — |   |   | 937 |   |
| Balance at  December 31, 2004                                                             |       | 37,902,998             |       | 2,297,991                  |       |        | 379        | ** **   |       | 196,314                               |       | 190,252      | ** ** |                | 2,043      | ** **       |       | (36,921 | ) |   | (11,117 | ) |   | 340,950 |   |
| Net income                                                                                     |       | —                 |       | —                     |       |        | —     | ** **   |       | —                                |       | 24,834       | ** ** |                | —     | ** **       |       | — |   |   | — |   |   | 24,834 |   |
| Issuance of  restricted stock                                                                  |       | —                 |       | (431,589                   | )          |        | —     | ** **   |       | 2,677                                 |       | —       | ** ** |                | —     | ** **       |       | 7,603 |   |   | (10,280 | ) |   | — |   |
| Forfeiture of  restricted stock                                                                |       | —                 |       | 179,266                    |       |        | —     | ** **   |       | —                                |       | —       | ** ** |                | —     | ** **       |       | (3,235 | ) |   | 389 |   |   | (2,846 | ) |
| Amortization of  unearned stock compensation                                                   |       | —                 |       | —                     |       |        | —     | ** **   |       | 1,585                                 |       | —       | ** ** |                | —     | ** **       |       | — |   |   | 5,249 |   |   | 6,834 |   |
| Issuance of common  stock                                                                      |       | 60                     |       | (1,126,602                 | )          |        | —     | ** **   |       | 1,241                                 |       | (8,298       | )          |                | —     | ** **       |       | 19,421 |   |   | — |   |   | 12,364 |   |
| Stock repurchase                                                                               |       | —                 |       | 970,142                    |       |        | —     | ** **   |       | —                                |       | —       | ** ** |                | —     | ** **       |       | (20,050 | ) |   | — |   |   | (20,050 | ) |
| Foreign currency  translation adjustment, net of tax                                           |       | —                 |       | —                     |       |        | —     | ** **   |       | —                                |       | —       | ** ** |                | 430        | ** **       |       | — |   |   | — |   |   | 430 |   |
| Unrealized holding  gains/(losses) on available for sale securities, net of tax |       | —                 |       | —                     |       |        | —     | ** **   |       | —                                |       | —       | ** ** |                | 130        | ** **       |       | — |   |   | — |   |   | 130 |   |
| Balance at  September 30, 2005                                                            |       | 37,903,058             |       | 1,889,208                  |       |        | $          | 379          | ** ** |                                  | $          | 201,817      |       | $                   | 206,788    | ** **       |       | $ | 2,603 | ** ** |   | $ | (33,182 | ) |   | $ | (15,759 | ) |   | $ | 362,646 |   |

 

See accompanying notes.

5

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**TRAMMELL CROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS(in thousands)(Unaudited)**

| ** **                                                            | ** ** | **For the  Nine Months  Ended September 30,**                            | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **       2005       ** | ** ** | **       2004       ** | ** ** |
| **Operating  activities**                                             |       |                                                                                         |       |   |   |   |   |   |   |
| Cash flows from earnings:                                             |       |                                                                                         |       |   |   |   |   |   |   |
| Net Income                                                            |       |                                                                                         | $          | 24,834 |   |   |   | $ | 11,167 |   |   |
| Reconciliation of net  income to net cash provided by earnings:       |       |                                                                                         |       |   |   |   |   |   |   |
| Depreciation and  amortization                                        |       |                                                                                         | 7,975      |   |   |   | 8,897 |   |   |
| Amortization of  employment contracts and unearned stock compensation |       |                                                                                         | 7,232      |   |   |   | 5,928 |   |   |
| Amortization of  contract intangibles                                 |       |                                                                                         | 1,540      |   |   |   | 1,631 |   |   |
| Bad debt expense                                                      |       |                                                                                         | 506        |   |   |   | 562 |   |   |
| Provision for  losses and writedowns for impairment on real estate    |       |                                                                                         | 23         |   |   |   | 672 |   |   |
| Gain on  disposition of real estate held for investment               |       |                                                                                         | (9,866     | ) |   |   | (741 | ) |   |
| Minority interest                                                     |       |                                                                                         | (2,077     | ) |   |   | (365 | ) |   |
| Deferred income  tax provision                                        |       |                                                                                         | 2,760      |   |   |   | 317 |   |   |
| Income from  investments in unconsolidated subsidiaries               |       |                                                                                         | (9,536     | ) |   |   | (14,015 | ) |   |
| Distributions of  earnings from unconsolidated subsidiaries           |       |                                                                                         | 5,325      |   |   |   | 1,864 |   |   |
| Net cash provided  by earnings                                        |       |                                                                                         | 28,716     |   |   |   | 15,917 |   |   |
| Changes in operating  assets and liabilities:                         |       |                                                                                         |       |   |   |   |   |   |   |
| Restricted cash                                                       |       |                                                                                         | 7,140      |   |   |   | 1,310 |   |   |
| Accounts  receivable                                                  |       |                                                                                         | (10,528    | ) |   |   | 5,439 |   |   |
| Receivables from  affiliates                                          |       |                                                                                         | (7,450     | ) |   |   | (5,002 | ) |   |
| Notes receivable  and other assets                                    |       |                                                                                         | 1,928      |   |   |   | 4,831 |   |   |
| Real estate held  for sale and under development                      |       |                                                                                         | (79,137    | ) |   |   | (46,833 | ) |   |
| Notes payable on  real estate held for sale and under development     |       |                                                                                         | 45,421     |   |   |   | 33,965 |   |   |
| Accounts payable  and accrued expenses                                |       |                                                                                         | (10,280    | ) |   |   | 1,383 |   |   |
| Payables to  affiliates                                               |       |                                                                                         | 104        |   |   |   | (102 | ) |   |
| Income taxes  payable                                                 |       |                                                                                         | (14,716    | ) |   |   | (5,332 | ) |   |
| Other liabilities                                                     |       |                                                                                         | (2,436     | ) |   |   | 1,299 |   |   |
| Net cash flows  from changes in working capital                       |       |                                                                                         | (69,954    | ) |   |   | (9,042 | ) |   |
| Net cash provided  by (used in) operating activities                  |       |                                                                                         | (41,238    | ) |   |   | 6,875 |   |   |
| **Investing activities**                                              |       |                                                                                         |       |   |   |   |   |   |   |
| Expenditures for  furniture and equipment                             |       |                                                                                         | (7,262     | ) |   |   | (4,545 | ) |   |
| Purchase of  available for sale securities, net of sales proceeds     |       |                                                                                         | (18,216    | ) |   |   | — |   |   |
| Additions to real  estate held for investment                         |       |                                                                                         | (32,256    | ) |   |   | (65,945 | ) |   |
| Net proceeds from  disposition of real estate held for investment     |       |                                                                                         | 32,777     |   |   |   | 18,438 |   |   |
| Investments in  unconsolidated subsidiaries                           |       |                                                                                         | (102,494   | ) |   |   | (5,754 | ) |   |
| Distributions from  unconsolidated subsidiaries                       |       |                                                                                         | 10,129     |   |   |   | 11,214 |   |   |
| Net cash used in  investing activities                                |       |                                                                                         | (117,322   | ) |   |   | (46,592 | ) |   |
| **Financing activities**                                              |       |                                                                                         |       |   |   |   |   |   |   |
| Principal payments  on long-term debt and capital lease obligations   |       |                                                                                         | (116,376   | ) |   |   | (115,360 | ) |   |
| Proceeds from  long-term debt                                         |       |                                                                                         | 167,390    |   |   |   | 102,539 |   |   |
| Contributions from  minority interest                                 |       |                                                                                         | 14,479     |   |   |   | 14,583 |   |   |
| Distributions to  minority interest                                   |       |                                                                                         | (12,993    | ) |   |   | (5,304 | ) |   |
| Proceeds from  notes payable on real estate held for investment       |       |                                                                                         | 32,175     |   |   |   | 59,660 |   |   |
| Payments on notes  payable on real estate held for investment         |       |                                                                                         | (16,046    | ) |   |   | (29,756 | ) |   |
| Proceeds from  exercise of stock options                              |       |                                                                                         | 9,355      |   |   |   | 575 |   |   |
| Proceeds from  issuance of common stock                               |       |                                                                                         | 3,009      |   |   |   | 2,915 |   |   |
| Purchase of common  stock                                             |       |                                                                                         | (20,050    | ) |   |   | — |   |   |
| Net cash provided  by financing activities                            |       |                                                                                         | 60,943     |   |   |   | 29,852 |   |   |
| Net decrease in  cash and cash equivalents                            |       |                                                                                         | (97,617    | ) |   |   | (9,865 | ) |   |
| Cash and cash  equivalents, beginning of period                       |       |                                                                                         | 163,637    |   |   |   | 105,616 |   |   |
| Cash and cash  equivalents, end of period                             |       |                                                                                         | $          | 66,020 |   |   |   | $ | 95,751 |   |   |

 

See accompanying notes.

6

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**TRAMMELL CROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTSOF COMPREHENSIVE INCOME(in thousands)(Unaudited)**

| ** **                                                                                                                                                                                                                                                                     | ** ** | **For the  Three Months  Ended September 30,** | ** ** | **For the  Nine Months  Ended September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                     | ** ** | **2005**                                                           | ** ** | **2004**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income                                                                                                                                                                                                                                                                     |       | $                                                                  | 14,517     |                                                              | $          | 5,854 |   | $ | 24,834 |   | $ | 11,167 |   |
| Other  comprehensive income:                                                                                                                                                                                                                                                   |       |                                                               |       |                                                              |       |   |   |   |   |
| Foreign currency translation adjustments, net of tax  (expense) benefit of $91 and $(243) in the three and nine months ended  September 30, 2005, respectively, and $(186) and $(177) in the  three and nine months ended September 30, 2004, respectively |       | (161                                                               | )          | 249                                                               |       | 430 |   | 223 |   |
| Unrealized holding gains/(losses) on available for  sale securities, net of tax (expense) benefit of $6 and $(74) in the three  and nine months ended September 30, 2005, respectively                                                                                    |       | 35                                                                 |       | —                                                            |       | 130 |   | — |   |
| Comprehensive income                                                                                                                                                                                                                                                           |       | $                                                                  | 14,391     |                                                              | $          | 6,103 |   | $ | 25,394 |   | $ | 11,390 |   |

 

See accompanying notes.

7

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**1.**   General

The condensed consolidated interim financialstatements of Trammell Crow Company and subsidiaries (the “Company”) includedherein have been prepared in accordance with the requirements for interimfinancial statements and do not include all disclosures required underaccounting principles generally accepted in the United States (“GAAP”) forcomplete financial statements. These financial statements should be read inconjunction with the consolidated financial statements included in the Company’sAnnual Report on Form 10-K for the year ended December 31,2004. In the opinion of management, all adjustments and eliminations,consisting only of recurring adjustments, necessary for a fair presentation ofthe financial statements for the interim periods have been made. Interimresults of operations are not necessarily indicative of the results to beexpected for the full year.

The Company hasexperienced and expects to continue to experience quarterly variations inrevenues and net income as a result of several factors. The Company’s quarterlyrevenues tend to increase throughout the year, particularly in the last quarterof the year, because its clients have demonstrated a tendency to closetransactions toward the end of the year. The timing and introduction of newcontracts, the disposition of investments in real estate assets, therecognition of incentive fees (often in the latter part of the fiscal year ascontractual targets are met) and other factors may also cause quarterlyfluctuations in the Company’s results of operations.

*Reclassifications*

In accordance with Financial Accounting StandardsBoard (“FASB”) Statement of Financial Accounting Standards No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets*(“FAS 144”), certain assets and liabilitiesat December 31, 2004, and certain revenues and expenses for the six monthsended June 30, 2005, and the three and nine months ended September 30,2004, have been reclassified to conform to the presentation at and for thethree months ended September 30, 2005 (see Notes 9 and 11). As aresult, certain balances differ from the amounts reported in previously fileddocuments. Certain distributions from unconsolidated subsidiaries have beenreclassified in the Company’s consolidated statements of cash flows. As aresult, cash flows from operating activities and investing activities differfrom previously filed documents. These reclassifications had no impact on theCompany’s consolidated balance sheets, statements of operations or earnings pershare amounts.

*Use of Estimates*

The preparation of thefinancial statements in accordance with GAAP requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. Actual results could differ from thoseestimates.

*MarketableSecurities*

The Company accounts for investments in marketabledebt and equity securities in accordance with FASB Statement of FinancialAccounting Standards No. 115, *Accounting for CertainInvestments in Debt*

8

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**1.**   General (Continued)

*andEquity Securities* (“FAS 115”). The Company determines theappropriate classification of debt and equity securities at the time ofpurchase and reevaluates such designation as of each balance sheet date. TheCompany classifies marketable securities it acquires with the intent togenerate a profit from short-term movements in market prices as tradingsecurities. Debt securities are classified as held to maturity when the Companyhas the positive intent and ability to hold the securities to maturity.Marketable equity and debt securities not classified as trading or held tomaturity are classified as available for sale. All of the marketable securitiesheld by the Company at September 30, 2005 are classified as available forsale.

In accordance with FAS115, the available for sale securities are carried at their fair market valueand any difference between cost and market value is recorded as unrealized gainor loss, net of income taxes, and is reported as accumulated other comprehensiveincome in the consolidated statement of stockholders’ equity. Premiums anddiscounts are recognized in interest and other income using the effectiveinterest method. Realized gains and losses and declines in value judged to beother-than-temporary on available for sale securities are included in interestand other income. The cost of securities sold is based on the specificidentification method. Interest and dividends on securities classified asavailable for sale are included in interest and other income.

*Income Taxes*

The Company accounts forincome taxes using the liability method. Deferred income taxes result fromtemporary differences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and the amounts used for federal income taxpurposes, and are measured using the enacted tax rates and laws that areexpected to be in effect when the differences reverse.

*Earnings Per Share*

Theweighted-average common shares outstanding used to calculate dilutedearnings per share reflect the dilutive effect of common stock equivalents,including unvested restricted stock and options to purchase shares of commonstock. Diluted weighted-average common shares outstanding include thefollowing: 

| ** **                                               | ** ** | **For the Three Months ** | ** ** | **For the Nine Months** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------|------------|
| ** **                                               | ** ** | **Ended September 30,**             | ** ** | **Ended September 30,**      | ** ** |
| ** **                                               | ** ** | **2005**                                      | ** ** | **2004**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| Basic  weighted-average common shares outstanding        |       | 33,873,952                                    |       | 35,708,289                             |       | 33,663,140 |   | 35,584,361 |   |
| Diluted effect of  common stock equivalents         |       | 2,805,658                                     |       | 2,203,012                              |       | 2,629,829 |   | 2,004,005 |   |
| Diluted weighted-average  common shares outstanding |       | 36,679,610                                    |       | 37,911,301                             |       | 36,292,969 |   | 37,588,366 |   |

 

9

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**1.**   General (Continued)

*Stock-BasedCompensation*

The Company has elected to use the intrinsic methodunder Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees*(“APB 25”),to account for its stock-based compensation arrangements. Compensationexpense for stock options is recognized to the extent the market price of theunderlying stock on the date of grant exceeds the exercise price of the option.The Company recognizes compensation expense related to restricted stock awards overthe vesting period of the underlying award in an amount equal to the fairmarket value of the Company’s stock on the date of grant.

Proforma information regarding net income and net income per share, shown in thetable below, has been determined as if the Company had applied the fair valuerecognition provisions of Statement of Financial Accounting Standards No. 123,*Accounting for Stock-Based Compensation*.

| ** **                                                                                                                              | ** ** | **For the Three Months **            | ** ** | **For the Nine Months **             | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                                                              | ** ** | ** Ended September 30, **            | ** ** | **Ended September 30,**                        | ** ** |
| ** **                                                                                                                              | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income, as  reported                                                                                                                |       | $                                                        | 14,517     |                                                     |       | $ | 5,854 |   |   | $ | 24,834 |   | $ | 11,167 |   |
| Add: Stock-based  employee compensation expense included in net income, net of related tax  effects                                     |       | 1,171                                                    |       |                                                     | 1,172      |   |   | 3,198 |   | 2,829 |   |
| Deduct: Stock-based  employee compensation expense determined under fair value based method for  all awards, net of related tax effects |       | 1,462                                                    |       |                                                     | 1,481      |   |   | 4,387 |   | 4,172 |   |
| Pro forma net  income                                                                                                                   |       | $                                                        | 14,226     |                                                     |       | $ | 5,545 |   |   | $ | 23,645 |   | $ | 9,824 |   |
| Net income per share:                                                                                                                   |       |                                                     |       |                                                     |       |   |   |   |   |   |   |
| Basic—as reported                                                                                                                  |       | $                                                        | 0.43       |                                                     |       | $ | 0.16 |   |   | $ | 0.74 |   | $ | 0.31 |   |
| Basic—pro forma                                                                                                                    |       | $                                                        | 0.42       |                                                     |       | $ | 0.16 |   |   | $ | 0.70 |   | $ | 0.28 |   |
| Net income per share:                                                                                                                   |       |                                                     |       |                                                     |       |   |   |   |   |   |   |
| Diluted—as reported                                                                                                                |       | $                                                        | 0.40       |                                                     |       | $ | 0.15 |   |   | $ | 0.68 |   | $ | 0.30 |   |
| Diluted—pro forma                                                                                                                  |       | $                                                        | 0.39       |                                                     |       | $ | 0.15 |   |   | $ | 0.65 |   | $ | 0.26 |   |

 

*Non-ControllingInterests in Consolidated Limited Life Subsidiaries*

In May 2003, the FASBissued Statement of Financial Accounting Standards No. 150, *Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity* (“FAS 150”). Certainprovisions of FAS 150 would have required the Company to classifynon-controlling interests in consolidated limited life subsidiaries asliabilities adjusted to their settlement values in the Company’s financialstatements. In November 2003, the FASB indefinitely deferred applicationof the measurement and recognition provisions (but not the disclosurerequirements) of FAS 150 with respect to these non-controlling interests.As of September 30, 2005, the estimated settlement value ofnon-controlling interests in the Company’s consolidated limited lifesubsidiaries is $9,093, as compared to book value (included in minorityinterest on the Company’s balance sheet) of $8,782. The excess of settlementvalue over book 

10

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**1.**   General (Continued)

value isdriven by an even larger estimated appreciation of certain consolidated realestate assets and investments compared to the Company’s book value, offset byselling costs and debt prepayment penalties, if any.

*New AccountingPronouncements*

On December 16, 2004, the FASB issued Statementof Financial Accounting Standards No. 123 (revised 2004), *Share-Based Payment* (“FAS 123R”), which is a revision of FAS123. Generally, the approach in FAS 123R is similar to the approach describedin FAS 123. However, FAS 123R requires all share-based payments to employees,including grants of employee stock options, to be recognized in the incomestatement based on their fair values. Pro forma disclosure is no longer analternative.

FAS 123R will become effective for the Companybeginning January 1, 2006. FAS 123R permits public companies to adopt itsrequirements using one of two methods: a “modified-prospective” method or a “modified-retrospective”method. The company plans to adopt FAS 123R using the modified-prospectivemethod.

As permitted by FAS 123, the Company currentlyaccounts for share-based payments to employees using APB 25’s intrinsic valuemethod and, as such, generally recognizes no compensation cost for employeestock options. Accordingly, the adoption of FAS 123R’s fair value method couldhave a significant impact on the Company’s results of operations, although itwill have no impact on the Company’s overall financial position. The impact ofadoption of FAS 123R cannot be predicted at this time because it will depend onlevels of share-based payments granted in the future. However, had the Companyadopted FAS 123R, the impact of that standard would have approximated theimpact of FAS 123 as described in the disclosure of pro forma net incomeand earnings per share in this Note 1.

In June 2005,the FASB ratified the consensus in EITF Issue No. 04-5, *Determining Whether a General Partner, or the General Partners as aGroup, Controls a Limited Partnership or Similar Entity When the LimitedPartners Have Certain Rights* (“EITF 04-5”). To promoteconsistency in applying this guidance to corporate entities and those entitiesthat hold real estate:

·       theEITF amended Issue No. 96-16, *Investor’s Accounting foran Investee When the Investor Has a Majority of the Voting Interest but theMinority Interest Shareholder or Shareholders Have Certain Approval or VetoRights* (“EITF 96-16”), and

·       theFASB staff issued FSP No. SOP 78-9-1, *Interactionof AICPA Statement of Position 78-9 with EITF Issue No. 04-5*(“FSP SOP 78-9-1”) which amends AICPA Statement of Position 78-9,*Accounting for Investments in Real Estate Ventures*,to reflect the consensus reached in EITF 04-5.

EITF 04-5 states that the general partner in alimited partnership is presumed to control that limited partnership. Thatpresumption may be overcome if the limited partners have either (1) thesubstantive ability—either by a single limited partner or through a simplemajority vote—to dissolve (liquidate) the limited partnership or otherwiseremove the general partner without cause or (2) substantive participating 

11

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**1.**   General (Continued)

rights. Substantiveparticipating rights—which are based on the concept discussed in EITF 96-16—providethe limited partners with the ability to effectively participate in significantdecisions that would be expected to be made in the ordinary course of thelimited partnership’s business and thereby preclude the general partner fromexercising unilateral control over the partnership.

The effective date for applying the guidance in EITF 04-5and FSP SOP 78-9-1 is (1) June 29, 2005, for all newlimited partnerships and existing limited partnerships for which thepartnership agreements are modified, and (2) no later than the beginningof the first reporting period in fiscal years beginning after December 15,2005, for all other limited partnerships. The effect of initially applying thisguidance may be accounted for similarly to a change in accounting principle orby restating the financial statements of prior periods. The amendments to EITF96-16 are to be applied prospectively to new investment agreements and toinvestment agreements that are modified after June 29, 2005. Retrospectiveapplication is not required for investments in limited partnerships for whichthe entity is no longer a general partner as of the date that the guidance in EITF04-5 is adopted.

The Company has appliedEITF 04-5 when required for new or amended limited partnerships in its September 30,2005, financial statements. The Company is evaluating the impact of the newguidance on all other limited partnerships. The impact of adopting EITF 04-5for all other limited partnerships cannot be predicted at this time, however,the Company anticipates that the adoption will not impact net income, earningsper share or stockholders’ equity. The Company plans to account for any initialeffect of applying the new guidance to all other limited partnerships under themethod similar to a change in accounting principle.

**2.**   Variable InterestEntities

The Company was involved in the formation of a legalentity to act primarily as an agent of the Company to enter into policies withinsurance carriers. The policies are for various types of insurance, includinggeneral liability, workers’ compensation and automotive. The entity iswholly-owned by an employee of the Company who holds the appropriate localinsurance agent’s license required to issue these insurance policies on behalfof the insurance carriers. The entity collects premiums and remits them to theinsurance carriers. In exchange, the entity receives commissions from theinsurance carriers and remits a portion of the commission revenue to theCompany (determined at the Company’s full discretion) in accordance with afacilities and services agreement. Based upon its evaluation, the Companyconsolidates this entity as the primary beneficiary of a variable interestentity (“VIE”) under FASB Interpretation No. 46 (revised December 2003),*Consolidation of Variable Interest Entities*(“FIN 46R”). As of September 30, 2005, the Company has $1,227 recorded inrestricted cash and $358 recorded in available for sale securities that serveas collateral for the VIE’s obligations to the insurance carriers.

In January 2005, the Company restructured aconsolidated entity established to develop an office building by admitting amajority interest partner. Based upon its evaluation at this reconsiderationevent, the Company consolidates this entity as the primary beneficiary of aVIE. The entity’s note payable 

12

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**2.**   Variable Interest Entities (Continued)

balance of $24,525 at September 30,2005, is non-recourse to the Company and is collateralized by the underlyingreal estate project.

In the second quarter of 2005, the Companyacquired $110,000 of certain tax credits through a program enacted by theCommunity Renewal Tax Relief Act of 2000. This program creates tax credits forequity investments in Community Development Entities (“CDEs”). The CDEs makequalified loans to Qualified Active Low-Income Community Businesses. In thesecond and third quarters of 2005, the Company obtained 0% to 0.01% managinginterests in various CDEs established to make these loans. The CDEs’ equityused to fund the loans was contributed by its 99.99% to 100% third partyinvestor members. Through September 30, 2005, the CDEs have made qualifiedloans totaling approximately $52,100. The Company has determined that each ofthese CDEs is a VIE. However, based upon its evaluation, the Company is not theprimary beneficiary of the entities. The Company believes that its maximumexposure to loss as a result of its involvement with these VIEs is notmaterial. Additionally, in the second quarter of 2005, the Companyobtained a 49% membership interest in a related entity that acts as the administrativemember performing loan servicing and tax matters for the CDEs. Based upon theCompany’s evaluation, this entity is also a VIE since the entity’s equity wasfunded from up-front fees received from the CDEs. However, based upon itsevaluation, the Company is not the primary beneficiary of the entity. TheCompany believes that its maximum exposure to loss as a result of itsinvolvement with this VIE is not material.

In September 2004, the Company issued a budgetguaranty relating to a development project. Under the budget guaranty, theCompany is responsible for all costs in excess of an approved budget ofapproximately $35,500. The Company was involved in the design of the underlyingentity and has determined that its budget guaranty represents a variableinterest in a VIE for which the Company is not the primary beneficiary. TheCompany cannot estimate its actual maximum exposure to loss as a result of itsinvolvement with this VIE because the budget guaranty is unlimited. However,based on the Company’s experience of minimal payments under similararrangements and the existence of a guaranteed maximum price contract betweenthe general contractor and the owner of the project that mitigates the Company’srisk, the Company believes that its exposure to loss is not material.

The Company is part of aco-lender group with an independent third party that issued a mezzanine loan tothe owner of two office buildings. In April 2000, the Company provided$567 of the total $5,667 mezzanine loan. At that time, another independentthird-party lender provided the senior financing of $19,100 to the owner. TheCompany also provides building management and leasing services for thebuildings under a long-term contract at market rates for such services. Themezzanine loan arrangement is considered to be a variable interest in theentity that owns the property, which the Company believes is a VIE. However,based upon the Company’s evaluation, the Company is not the primary beneficiaryof the entity, and, therefore, the Company has not consolidated the VIE. TheVIE sold one of its buildings in December 2004 and paid a portion of theCompany’s note receivable at that time. The Company’s maximum exposure to lossas a result of its involvement with this VIE is limited to its outstanding notebalance of $430 as of September 30, 2005.

13

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**3.**   RealEstate

Allreal estate is included in the Company’s Development and Investment segment(see Note 14). Certain real estate assets owned by the Company secure theoutstanding balances of underlying mortgage or construction loans. Real estateowned by the Company consists of the following:

| ** **                                                      | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                      | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| Real estate under  development (current)                        |       |                   | $          | 48,165                |       |   |   | $ | 10,379 |   |   |
| Real estate  included in assets held for sale (see Note 9) |       |                   | 15,200     |                  |       |   | 38,731 |   |   |
| Real estate under  development (non-current)                    |       |                   | 153,445    |                  |       |   | 58,454 |   |   |
| Real estate held  for investment(1)                             |       |                   | 93,468     |                  |       |   | 113,421 |   |   |
|                                                            |       |                   | $          | 310,278               | (2)        |   |   | $ | 220,985 | (2) |   |

----

(1)                 Netof accumulated depreciation of $1,715 and $783 at September 30, 2005, and December 31,2004, respectively.

(2)                 Includes$422 and $1,146 at September 30, 2005, and December 31, 2004,respectively, of lease intangibles and tenant origination costs, net ofaccumulated amortization.

No material provisions for losses on real estate heldfor sale were recorded in the nine months ended September 30, 2005 or2004.

In the nine months ended September 30, 2004, theCompany recorded writedowns for impairment of real estate (not classified asheld for sale at the time of such writedowns) totaling $578. Of this amount,$120 is included in discontinued operations in the consolidated statements ofincome in accordance with FAS 144, with the remaining amount included ingeneral and administrative expenses. The writedowns primarily relate to avacant land parcel in a market in which rental rates continued to decline andvacancy rates continued to increase at the time of the writedown. The Companyobtained market comparisons for the land parcel and determined that, based onthose market comparisons, the value of the land was impaired. There were nosuch writedowns for impairment in 2005.

In 2003, the Company solda parcel of land for $1,750 of which $1,125 of the consideration received wasin the form of an interest-bearing note from the buyer. The Company retained aunilateral right to repurchase the property at any time through 2006, inaddition to maintaining the right to approve any plans for development on theproperty. If the Company exercises its repurchase option, the Company wouldrepay the amount it received from the buyer, plus a return on the buyer’sinvestment. Because of the Company’s continuing involvement in and option torepurchase the property, the transaction was recorded as a financingtransaction rather than a sale. As of September 30, 2005, real estate andother assets held for sale includes $1,408 of real estate and $3 of othercurrent assets, and liabilities related to real estate and other assets heldfor sale include $1,750 of notes payable and $211 of accrued interest, allrelated to this parcel of land.

14

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**4.**   MarketableSecurities

Thefollowing is a summary of marketable securities held by the Company at September 30,2005, all of which are classified as available for sale. The Company held nomarketable securities at December 31, 2004.

| ** **                                                            | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Estimated  Fair  Value** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|----------------------------|------------|
| U.S. Treasury  securities and obligations of U.S. government agencies |       |                | $          | 6,272                        |       |                          |       | $                          | 6          |   |   |   | $ | (34 | ) |   |   | $ | 6,244 |   |   |
| Corporate debt  securities                                            |       |                | 3,720      |                         |       |                          | 2          |                       |       |   | (31 | ) |   |   | 3,691 |   |   |
| Asset-backed  securities                                              |       |                | 1,532      |                         |       |                          | 4          |                       |       |   | (5 | ) |   |   | 1,531 |   |   |
| Collateralized  mortgage obligations                                  |       |                | 1,015      |                         |       |                          | —     |                       |       |   | (11 | ) |   |   | 1,004 |   |   |
| Total debt securities                                                 |       |                | 12,539     |                         |       |                          | 12         |                       |       |   | (81 | ) |   |   | 12,470 |   |   |
| Equity securities                                                     |       |                | 5,677      |                         |       |                          | 453        |                       |       |   | (180 | ) |   |   | 5,950 |   |   |
| Total available  for sale securities                                  |       |                | $          | 18,216                       |       |                          |       | $                          | 465        |   |   |   | $ | (261 | ) |   |   | $ | 18,420 |   |   |

 

Thenet carrying value and estimated fair value of debt securities at September 30,2005, by contractual maturity, are shown below. Actual repayment dates maydiffer from contractual maturities because the issuers of the securities mayhave the right to prepay obligations.

| ** **                              | ** ** | **Amortized  Cost** | ** ** | **Estimated  Fair Value** | ** ** |
|-----------------------------------------|------------|---------------------|------------|--------------------------------|------------|
| **Debt  securities:**                   |       |                |       |                           |       |   |   |   |   |
| Due in one year  or less                |       |                | $          | 996                            |       |   |   | $ | 995 |   |   |
| Due after one  year through five years  |       |                | 3,966      |                           |       |   | 3,927 |   |   |
| Due after five  years through ten years |       |                | 4,779      |                           |       |   | 4,760 |   |   |
| Due after ten  years                    |       |                | 251        |                           |       |   | 253 |   |   |
| Asset-backed  securities                |       |                | 1,015      |                           |       |   | 1,004 |   |   |
| Collateralized  mortgage obligations    |       |                | 1,532      |                           |       |   | 1,531 |   |   |
| Total debt  securities                  |       |                | $          | 12,539                         |       |   |   | $ | 12,470 |   |   |

 

The Company recorded nosignificant realized gains or losses related to sales of marketable securitiesin the first nine months of 2005.

15

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**5.**   Investments inUnconsolidated Subsidiaries

Investmentsin unconsolidated subsidiaries consist of the following:

| ** **  | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------|------------|------------------------|------------|-----------------------|------------|
| ** **  | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| Real estate |       |                   | $          | 41,421                |       |   |   | $ | 39,829 |   |   |
| Other       |       |                   | 127,926    |                  |       |   | 34,261 |   |   |
|        |       |                   | $          | 169,347               |       |   |   | $ | 74,090 |   |   |

 

In April 2005, the Company exercised its optionto acquire additional shares of Savills plc (“Savills”), a property servicesfirm headquartered in the United Kingdom and a leading provider of real estateservices in Europe, Asia-Pacific and Australia. The exercise of the optionresulted in the issuance of 5,243,229 shares by Savills at a price of 701.28pence per share, for a total cost of £36,770 ($70,392). The exercise pricerepresented a 20% premium to the average mid-market closing price of the sharesin trading on the London Stock Exchange for the five trading days preceding theexercise of the option. Preceding its exercise of the option, also in April 2005,the company acquired 1,677,970 of Savills’ Ordinary Shares in open marketpurchases at an average price of 650.00 pence per share, having the effect ofreducing the number of shares purchasable under the option. The option exerciseand the market purchase together increased the Company’s ownership stake toapproximately 19.6% of Savills’ Ordinary Shares then outstanding. The aggregatecost of the market purchases and the shares issued upon exercise of the optionwas $91,272. The purchases were funded by borrowings under the Company’s lineof credit. The investment is classified as an “other” investment in the tableabove.

The Company is in the process of completing itspurchase price allocation of this additional ownership interest in Savills. Ofthe total purchase price, approximately $4,172 has been allocated on apreliminary basis to the value of customer relationships, property andfacilities management contracts and backlog. This amount is being amortizedover periods up to ten years. The estimated difference between the carryingvalue of the investment and the amount of underlying equity in net assets of$66,193 will be evaluated for impairment as part of the investment as a wholewhen evidence of a loss in value occurs. Impairment charges would be recognizedwhen losses in value are other than temporary.

The summarized financial information below does notinclude the results of Savills because Savills qualifies as a foreign privateissuer.

Summarizedoperating results for unconsolidated subsidiaries accounted for on the equitymethod are as follows:

| ** **     | ** ** | **For the Three Months** | ** ** | **For the Nine Months ** | ** ** |
|----------------|------------|-----------------------------------------|------------|----------------------------------------------|------------|
| ** **     | ** ** | **Ended September 30,**       | ** ** | **Ended September 30,**            | ** ** |
| ** **     | ** ** | **2005**                                | ** ** | **2004**                                     | ** ** | **2005** | ** ** | **2004** | ** ** |
| Total revenues |       | $                                       | 22,741     |                                         | $          | 20,069 |   | $ | 69,806 |   | $ | 96,400 |   |
| Total expenses |       | 22,405                                  |       | 17,357                                       |       | 61,306 |   | 53,728 |   |
| Net income     |       | $                                       | 336        |                                         | $          | 2,712 |   | $ | 8,500 |   | $ | 42,672 |   |

 

16

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**6.**   AccruedExpenses

Accruedexpenses consist of the following:

| ** **                                                                                                          | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                          | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| Payroll and bonuses                                                                                                 |       |                   | $          | 49,210                |       |   |   | $ | 67,315 |   |   |
| Commissions                                                                                                         |       |                   | 23,556     |                  |       |   | 36,171 |   |   |
| Development costs                                                                                                   |       |                   | 24,754     |                  |       |   | 16,601 |   |   |
| Deferred income                                                                                                     |       |                   | 18,831     |                  |       |   | 13,160 |   |   |
| Interest                                                                                                            |       |                   | 455        |                  |       |   | 455 |   |   |
| Insurance                                                                                                           |       |                   | 2,539      |                  |       |   | 2,150 |   |   |
| Restructuring charges  (see Note 15)                                                                           |       |                   | 1,601      |                  |       |   | 1,902 |   |   |
| Other                                                                                                               |       |                   | 13,655     |                  |       |   | 11,229 |   |   |
|                                                                                                                |       |                   | 134,601    |                  |       |   | 148,983 |   |   |
| Less: Accrued expenses  included in liabilities related to real estate and other assets held for sale  (see Note 9) |       |                   | 658        |                  |       |   | 2,504 |   |   |
|                                                                                                                |       |                   | $          | 133,943               |       |   |   | $ | 146,479 |   |   |

 

**7.**   Long-Term Debt

Long-termdebt consists of the following:

| ** **                                                                                                   | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Borrowings under  $175,000 line of credit with a bank (the “Credit Facility”)                      |       |                         | $          | 51,000                      |       |   |   | $ | — |   |   |
| Borrowings under  $25,000 short-term revolving line of credit with a bank (the “Swing  Line”) |       |                         | —     |                        |       |   | — |   |   |
| Borrowings under  £1,100 short-term borrowing facility with a bank (the “European Facility”)  |       |                         | —     |                        |       |   | — |   |   |
| Other                                                                                                        |       |                         | 31         |                        |       |   | 14 |   |   |
| Total long-term  debt                                                                                        |       |                         | 51,031     |                        |       |   | 14 |   |   |
| Less: Current  portion of long-term debt                                                                     |       |                         | 11         |                        |       |   | 6 |   |   |
|                                                                                                         |       |                         | $          | 51,020                      |       |   |   | $ | 8 |   |   |

 

During June 2005, the Company entered into theCredit Facility and the Company’s previous $150,000 line of credit wasterminated. The Company repaid borrowings outstanding under the previous lineof credit with proceeds from the Credit Facility. Borrowings under the CreditFacility are due in June 2008 and are either Base Rate Loans or EurodollarRate Loans. Base Rate Loans bear interest at a base rate plus a margin up to0.25% depending on the Company’s leverage ratio. The base rate is the higher ofthe prime lending rate or an average federal funds rate plus 0.5%. EurodollarRate Loans bear interest at the Eurodollar rate plus a margin which ranges from1.75% to 2.0%, depending upon the Company’s leverage ratio. The Eurodollar rateis based on the British Bankers Association LIBOR rate. The interest rate forborrowings under the Credit Facility was 5.4% at September 30, 2005.

17

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**7.**   Long-Term Debt(Continued)

The shares of certainsubsidiaries of the Company, accounting for at least 80% of Adjusted GrossEBITDA, as defined in the Credit Facility agreement, are pledged as securityfor the Credit Facility.

The Company is subject tovarious covenants associated with the Credit Facility, such as maintenance ofminimum equity and liquidity and certain key financial data. In addition, theCompany may not pay dividends or make other distributions on account of itscommon stock exceeding 50% of the previous year’s net income before depreciationand amortization plus, for the year ending December 31, 2005 only, anamount equal to $20,000. There are also certain restrictions on investments andacquisitions that can be made by the Company. At September 30, 2005, theCompany is in compliance with all covenants of the Credit Facility.

The covenants associatedwith the Credit Facility and the amount of the Company’s other borrowings andcontingent liabilities may have the effect of limiting the credit available tothe Company under the Credit Facility to an amount less than the $175,000commitment. At September 30, 2005, the Company has unused borrowingcapacity of $113,095 (taking in account borrowings and letters of creditoutstanding) under its Credit Facility.

Under the Credit Facility,the Company pays a quarterly fee equal to 0.25% per annum of the unusedcommitment under the line. If a certain interest coverage ratio is notmaintained, as defined in the agreement, the Credit Facility requires theCompany to enter into one or more interest rate swap agreements for the Company’sindebtedness in excess of $30,000 ensuring the net interest is fixed.

The Swing Line is acomponent of the Credit Facility. Borrowings under the Swing Line mature fivebusiness days from the date drawn (no later than June 28, 2008) and bearinterest at a 30-day LIBOR-based rate (plus an applicable margin asdefined in the agreement). Borrowings under the Swing Line reduce borrowingcapacity under the Credit Facility.

**8.**   Notes Payable onReal Estate

TheCompany has loans secured by real estate consisting of the following:

| ** **                                                                                                                | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Current portion of notes  payable on real estate                                                                          |       |                         | $          | 47,082                      |       |   |   | $ | 11,066 |   |   |
| Notes payable on real  estate included in liabilities related to real estate and other assets held  for sale (see Note 9) |       |                         | 11,891     |                        |       |   | 25,939 |   |   |
| Total notes payable on  real estate, current portion                                                                      |       |                         | 58,973     |                        |       |   | 37,005 |   |   |
| Notes payable on real  estate, non-current portion                                                                        |       |                         | 156,524    |                        |       |   | 112,699 |   |   |
| Total notes payable on real estate                                                                                        |       |                         | $          | 215,497                     |       |   |   | $ | 149,704 |   |   |

 

Notes payable on real estate held for sale areincluded in liabilities related to real estate and other assets held for sale.Notes payable on real estate under development (current) are included incurrent portion of notes payable on real estate. Notes payable on real estateunder development (non-current) and real estate held for investment areclassified according to payment terms and maturity date.

18

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**8.**   Notes Payable onReal Estate (Continued)

At September 30,2005, $7,670 of the current portion and $10,822 of the non-current portion ofnotes payable on real estate are recourse to the Company (beyond being recourseto the single-purpose entity that holds the real estate asset and is theobligor on the note payable). With respect to a project to which $3,322 of thecurrent recourse obligations relate, the Company has an agreement to sell theproject upon completion, the proceeds of which will be used to repay therelated note payable.

The Company has aparticipating mortgage loan obligation related to a real estate projectclassified as real estate under development (non-current). The participatingmortgage loan is subordinate to a construction loan on the underlying project.The mortgage lender participates in net operating cash flow of the mortgagedreal estate project, if any, and capital proceeds, net of related expenses,upon the sale of the project, after payment of amounts due under theconstruction loan. The lender receives 6% fixed interest on the outstandingbalance of its note, compounded monthly, and participates in 35% to 80% ofproceeds remaining after the construction loan is paid, based on reachingvarious internal rates of return. The amount of the participating liability andthe related debt discount are $12,050 and $2,671, respectively, at September 30,2005 and $10,030 and $4,894, respectively, at December 31, 2004. In thenine months ended September 30, 2005 and 2004, the Company amortized$4,243 and $3,885, respectively, of the debt discount, which has beencapitalized to real estate under development (non-current).

**9.**   RealEstate and Other Assets Held for Sale and Related Liabilities

Real estate and otherassets held for sale include completed real estate projects or land for sale intheir present condition that have met all of the “held for sale” criteria ofFAS 144 and other assets directly related to such projects. Liabilitiesrelated to real estate and other assets held for sale have been included as asingle line item in the Company’s balance sheet. In accordance withFAS 144, balances related to assets classified as held for sale at September 30,2005, or sold in the nine months ended September 30, 2005, that were notclassified as held for sale at December 31, 2004, have been reclassifiedto real estate and other assets held for sale in the Company’s balance sheet asof December 31, 2004 presented herein.

Real estate and otherassets held for sale and related liabilities are as follows:

| ** **                                                               | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **Assets:**                                                              |       |                         |       |                        |       |   |   |   |   |
| Notes and other receivables                                              |       |                         | $          | —                      |       |   |   | $ | 1,099 |   |   |
| Real estate held for sale (see Note 3)                                   |       |                         | 15,200     |                        |       |   | 38,731 |   |   |
| Other current assets                                                     |       |                         | 123        |                        |       |   | 237 |   |   |
| Other assets                                                             |       |                         | 24         |                        |       |   | 88 |   |   |
| Total real estate and other assets held for sale                         |       |                         | 15,347     |                        |       |   | 40,155 |   |   |
| **Liabilities:**                                                         |       |                         |       |                        |       |   |   |   |   |
| Accrued expenses (see Note 6)                                            |       |                         | 658        |                        |       |   | 2,504 |   |   |
| Notes payable on real estate held for sale (see Note  8)                 |       |                         | 11,891     |                        |       |   | 25,939 |   |   |
| Other current liabilities                                                |       |                         | 20         |                        |       |   | 24 |   |   |
| Total liabilities related to real estate and other  assets held for sale |       |                         | 12,569     |                        |       |   | 28,467 |   |   |
| **Net real estate and other assets held for sale**                       |       |                         | $          | 2,778                       |       |   |   | $ | 11,688 |   |   |

 

19

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**10.**   Stockholders’Equity

Asummary of the Company’s stock option activity for the nine months ended September 30,2005, is as follows:

| ** **                                          | ** ** | **Exercise Price  of $3.85 (below  market price  at grant date)** | ** ** | **Exercise price  of $9.74 to  $14.50 (at  market price  at grant date)** | ** ** | **Exercise price  of $14.51 to  $22.75 (at  market price  at grant date)** | ** ** | **Exercise price  of $22.76 to  $36.00 (at  market price  at grant date)** | ** ** | **Total** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|-----------|------------|
| **Options outstanding:**                            |       |                                                                                            |       |                                                                                                         |       |                                                                                                          |       |                                                                                                          |       |      |       |   |   |   |   |   |   |   |   |
| December 31,  2004                             |       |                                                                                            | 896,135    |                                                                                                         |       |                                                                                                          | 3,004,925  |                                                                                                          |       |      | 1,921,135  |   |   |   | 144,621 |   |   | 5,966,816 |   |
| Granted                                             |       |                                                                                            | —     |                                                                                                         |       |                                                                                                          | —     |                                                                                                          |       |      | —     |   |   |   | — |   |   | — |   |
| Exercised                                           |       |                                                                                            | (387,259   | )                                                                                                            |       |                                                                                                          | (226,396   | )                                                                                                             |       |      | (313,630   | ) |   |   | — |   |   | (927,285 | ) |
| Forfeited                                           |       |                                                                                            | (61,595    | )                                                                                                            |       |                                                                                                          | (37,943    | )                                                                                                             |       |      | (11,064    | ) |   |   | — |   |   | (110,602 | ) |
| September 30,  2005                            |       |                                                                                            | 447,281    |                                                                                                         |       |                                                                                                          | 2,740,586  |                                                                                                          |       |      | 1,596,441  |   |   |   | 144,621 |   |   | 4,928,929 |   |
| **Options exercisable at  September 30, 2005** |       |                                                                                            | 447,281    |                                                                                                         |       |                                                                                                          | 2,481,378  |                                                                                                          |       |      | 1,596,441  |   |   |   | 144,621 |   |   | 4,669,721 |   |

 

**11.**   Gain on Dispositionof Real Estate and Discontinued Operations

During the first nine months of 2005, the Companyrecognized total gain on disposition of real estate (excluding discontinuedoperations) of $9,759. This gain was comprised of four sales of real estateprojects with an aggregate net sales price of $14,962 and a settlement relatedto the estimated cost****to completeconstruction related to a previous period disposition. This gain also includeddeferred gain recognition of $326 related to dispositions in prior periods.During the first nine months of 2004, the Company sold eight real estateprojects for an aggregate net sales price of $34,621, resulting in an aggregategain on disposition of $11,246. The Company also recognized $338 of deferredgain from previous period dispositions.

The Company’s income (loss) from discontinuedoperations consists of the operations and gains on disposition of real estateprojects held for sale or sold subsequent to the adoption of FAS 144effective January 1, 2002, that are considered “components of an entity”as defined by FAS 144 and for which the Company does not have or expect tohave any significant involvement in the operations of the project after thedisposal. The Company has certain real estate assets that are land parcels andconstitute a component of an entity. From time to time, the Company disposes ofthese land parcels in smaller lots. An individual lot that is part of a largerland parcel does not constitute a component of an entity within the meaning ofparagraph 41 of FAS 144 until it is either classified as held for sale inaccordance with FAS 144 or sold. As required by FAS 144, certain revenuesand expenses for the six months ended June 30, 2005, and the three andnine months ended September 30, 2004, have been reclassified to conform tothe presentation for the three months ended September 30, 2005.

In the first nine months of 2005, the Company sold 13real estate projects that were considered discontinued operations underFAS 144. The aggregate net sales price for these projects was $80,315, andthe Company recognized an aggregate gain on disposition of $22,005. In thefirst nine months of 2004, the Company sold two real estate projects that wereconsidered discontinued operations under FAS 144.

20

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**11.**   Gain on Disposition of Real Estate and Discontinued Operations(Continued)

The aggregate net salesprice for these projects was $14,177, and the Company recognized a gain ondisposition of $856, including interest forgiveness of $326. The gain ondisposition related to these projects has been reported as discontinuedoperations, net of applicable income taxes, in the consolidated statements ofincome.

In 2004, the Company sold a 150-acre land parcelto a third party for cash of $30,010. At the time of sale, a consolidatedsubsidiary of the Company (other than the entity that sold the property) held apurchase contract on seven acres of the 150-acre land parcel. As aresult, the Company recorded the transaction related to the seven-acre parcelas a financing transaction, rather than a sale. In the third quarter of 2005,the Company terminated the purchase contract in exchange for additionalnet proceeds of $1,275 and recognized total gain on disposition ofreal estate (including the portion of the 2004 transaction related to theseven-acre parcel) of $2,317. This amount is included in discontinued operationsin the consolidated statements of income.

Income (loss) fromdiscontinued operations excludes substantial indirect costs of producing thisincome such as salaries and bonuses (included in salaries, wages and benefitsin the Company’s consolidated statements of income) that are driven by overallprofitability of the Company’s local offices. The components of discontinuedoperations are as follows:

| ** **                                                            | ** ** | **      For the Three Months           Ended September 30,    ** | ** ** | **For the Nine Months  Ended September 30,**            | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **      2005      **                                                                                                         | ** ** | **      2004      ** | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Revenues:**                                                         |       |                                                                                                                                                                                     |       |                                                                             |       |   |   |   |   |   |   |   |   |
| Development and  construction                                         |       |                                                                                                                                                                                     | $          | 784                                                                              |       |   |   | $ | 393 |   |   | $ | 3,040 |   | $ | 1,220 |   |
| Gain on  disposition of real estate                                   |       |                                                                                                                                                                                     | 19,985     |                                                                             |       |   | 13 |   |   | 22,005 |   | 856 |   |
| Total Revenues                                                        |       |                                                                                                                                                                                     | 20,769     |                                                                             |       |   | 406 |   |   | 25,045 |   | 2,076 |   |
| **Expenses:**                                                         |       |                                                                                                                                                                                     |       |                                                                             |       |   |   |   |   |   |   |   |   |
| Salaries, wages,  and benefits                                        |       |                                                                                                                                                                                     | 55         |                                                                             |       |   | — |   |   | 216 |   | — |   |
| Commissions                                                           |       |                                                                                                                                                                                     | 350        |                                                                             |       |   | 17 |   |   | 350 |   | 26 |   |
| General and  administrative                                           |       |                                                                                                                                                                                     | 738        |                                                                             |       |   | 417 |   |   | 2,596 |   | 1,030 |   |
| Depreciation and  amortization                                        |       |                                                                                                                                                                                     | 58         |                                                                             |       |   | 53 |   |   | 462 |   | 214 |   |
| Interest                                                              |       |                                                                                                                                                                                     | 413        |                                                                             |       |   | 121 |   |   | 1,657 |   | 400 |   |
| Total Expenses                                                        |       |                                                                                                                                                                                     | 1,614      |                                                                             |       |   | 608 |   |   | 5,281 |   | 1,670 |   |
| Operating income (loss)                                               |       |                                                                                                                                                                                     | 19,155     |                                                                             |       |   | (202 | ) |   | 19,764 |   | 406 |   |
| Interest and  other income                                            |       |                                                                                                                                                                                     | 10         |                                                                             |       |   | 3 |   |   | 35 |   | 9 |   |
| Income (loss)  from discontinued operations, before income taxes |       |                                                                                                                                                                                     | 19,165     |                                                                             |       |   | (199 | ) |   | 19,799 |   | 415 |   |
| Income tax  (expense) benefit                                         |       |                                                                                                                                                                                     | (6,979     | )                                                                                |       |   | 96 |   |   | (7,208 | ) | (168 | ) |
| Income (loss) from  discontinued operations, net of income taxes |       |                                                                                                                                                                                     | $          | 12,186                                                                           |       |   |   | $ | (103 | ) |   | $ | 12,591 |   | $ | 247 |   |

 

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**12.**   FinancialInstruments

The Company has entered into various interest rateagreements to manage market risks related to changes in interest rates,primarily in satisfaction of requirements under the Company’s Credit Facility.The Company’s participation in derivative transactions has been limited to riskmanagement purposes. Derivative instruments are not held or issued for tradingpurposes.

In December 2004, the Company entered into aninterest rate cap agreement in order to limit its interest expense on aconstruction loan with a 30-day LIBOR-based floating interest raterelated to a consolidated real estate project. The interest rate cap agreementhas a notional amount of $7,686 at September 30, 2005, and the Companywill receive payments if the LIBOR-based interest rate exceeds 3.5%. Theinterest rate cap agreement has not been designated as an effective hedge, and,therefore, the interest rate cap agreement will be marked to market each periodwith the change in fair market value recognized in current period earnings. Theinterest rate cap agreement expires on January 1, 2006. Through September 30,2005, amounts recorded by the Company related to this interest rate capagreement were not material.

Accounts receivable,accounts payable and accrued expenses and other liabilities are carried atamounts that reasonably approximate their fair values. The fair values of theCompany’s long-term debt and notes payable on real estate reasonablyapproximate their fair values based on the Company’s incremental borrowingrates for similar types of borrowing arrangements.

**13.**   Commitmentsand Contingencies

The Company has guaranteed repayment of a maximum of$5,053 of real estate notes payable of its unconsolidated subsidiaries, all ofwhich is outstanding at September 30, 2005. These notes are secured by theunderlying real estate and have maturity dates through December 2009.

The Company issued several debt repayment guaranteesof others that are subject to the fair value provisions of FASB Interpretation No. 45,*Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, Including Direct Guarantees of Indebtedness of Others*(“FIN 45”).

In 2004, the Company issued a debt repayment guarantyof an unconsolidated subsidiary in conjunction with a $30,000 loan agreement.As part of this loan agreement, the Company issued a repayment guaranty of upto 50% of the loan balance plus any accrued and unpaid interest. In accordancewith the terms of the guaranty, at such time as the principal balance has beenreduced to $15,000 or less and a target loan-to-value ratio has been reached,the Company’s guaranty is reduced to 25% of the loan balance. In exchange forthe guaranty, the Company receives a priority return with respect to itscapital contribution based on the outstanding amount of principal on the loan.The Company estimates that its likely exposure under the guaranty is notmaterial and has determined that the present value of the priority return isthe best estimate of the fair value of the guaranty under FIN 45. The Companyinitially recorded a liability offset by an increase in its investment inunconsolidated subsidiary balance of $1,886. The underlying note was paid downto $15,000 in the second quarter of 2005, resulting in a decrease in theCompany’s guaranty. As a result, the Company decreased the liability balance, witha corresponding decrease to the investment balance. The liability balance is$472 at September 30, 2005.

22

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**13.**   Commitments and Contingencies (Continued)

In 2004, the Company also issued a $1,000 debtrepayment guaranty on a $10,185 construction loan in order to obtain adevelopment fee contract and allow a third-party owner to obtain financing fora construction project. The guaranty expires upon project completion andachievement of a specified leasing target. The third-party owner has agreed totransfer a separate parcel of land to the Company, should the Company berequired to perform under the guaranty. The loan matures in November 2009.The Company estimates that its likely exposure under the guaranty is notmaterial and has recorded the fair value of the guaranty in an amountequivalent to the consideration received, or $102.

During 2004, the Company issued several other debtrepayment guarantees of unconsolidated subsidiaries that are subject to theprovisions of FIN 45. The Company estimates that its likely exposure underthese guarantees is not material. On this basis, the Company estimates that thefair value of these guarantees is equivalent to the amount necessary to securethe guarantees using letters of credit from a bank, and the aggregate amount isnominal.

At September 30, 2005, the Company hasoutstanding letters of credit totaling $23,502, including $3,025, $3,409 and$9,188 of which collateralize amounts recorded in accrued expenses, othercurrent liabilities and other liabilities, respectively. The letters of creditexpire at varying dates through June 2006.

In addition, the Company has numerous completion andbudget guarantees relating to development projects. These guarantees are madewith third-party owners in the normal course of business. Each of theseguarantees requires the Company to complete construction of the relevantproject within a specified time frame and/or within a specified budget, withthe Company potentially being liable for costs to complete in excess of suchbudget. However, the Company generally has “guaranteed maximum price” contractswith reputable general contractors with respect to projects for which theCompany provides these guarantees. These contracts are intended to pass thebudget risk to such contractors. Management does not expect to incur anymaterial losses under these guarantees.

From time to time, the Company acts as a generalcontractor with respect to construction projects. The Company does not considerthese activities to be a material part of its business. In connection withthese activities, the Company seeks to subcontract construction work forcertain projects to reputable subcontractors. Should construction defects ariserelated to the underlying projects, the Company could potentially be liable tothe client for the costs to repair such defects, but the Company wouldgenerally look to the subcontractor that performed the work to remedy thedefect. Management does not expect to incur material losses with respect toconstruction defects.

As of September 30, 2005, the Company has madenon-refundable earnest money deposits totaling $6,721 in conjunction withcontracts to acquire approximately $206,461 of real estate from other entities.

The Company and one of itssubsidiaries are defendants in a lawsuit styled* **Bank One Oklahoma, N.A., et al.*(the “Bank”) *v. Trammell Crow Services, Inc. and Trammell Crow Company*,No. 03 C 3624, pending in the US District Court for the Northern Districtof Illinois, originally filed on April 2, 2003. The claims asserted by theplaintiffs relate to a sale/leaseback transaction involving a property inOklahoma City 

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**13.**   Commitments and Contingencies (Continued)

previously owned by theBank. The suit alleges breach of contract, breach of fiduciary duty, negligentmisrepresentation, fraudulent misrepresentation and fraudulent concealmentagainst the Company and/or its subsidiary and alleges that the plaintiffs havebeen damaged in an unspecified amount in excess of $10,000. The plaintiffs seekto recover actual damages, punitive damages and reasonable attorneys’ fees. Thesuit is in the process of discovery, and no trial date has been set. As of thedate of this Form 10-Q, the outcome of the suit cannot be predictedwith any certainty, and the Company cannot at this time estimate an amount orrange of potential loss in the event of an unfavorable outcome. While theCompany cannot predict with any certainty the outcome of this matter, theCompany currently believes the plaintiffs’ claims are without merit and isvigorously defending the lawsuit.

From time to time, theCompany is involved in other litigation matters that arise in the ordinarycourse of its business, some of which involve claims for damages which aresubstantial in amount. The ultimate liability for these matters cannot bedetermined. However, based on the information currently available, the Companydoes not believe that the resolution of any such matters to which it iscurrently a party will have a material adverse effect on the Company’s resultsof operations, financial condition or liquidity.

**14.**   SegmentInformation

*Description ofServices by Segment*

The Global Services segment includes property andfacilities management, brokerage and corporate advisory, and project andconstruction management services delivered to both user and investor clients.

The Development andInvestment segment includes development activities performed on behalf ofinvestor and user clients on a fee basis, as well as development activitypursuant to which the Company takes an ownership position. The Development andInvestment segment also includes activities related to the Company’s operatingreal estate projects prior to disposition.

*Measurement ofSegment Profit or Loss and Segment Assets*

The Company evaluates performance and allocatesresources among its two reportable segments based on income before incometaxes. The accounting policies of the reportable segments are the same as thosedescribed in the summary of significant accounting policies.

Virtually all of the Company’s revenues are fromclients located in the United States. For the three and nine months ended September 30,2005, one individual client accounts for $27,090, or 12%, and $77,840, or 13%,respectively, of the Company’s consolidated revenues. For the three and ninemonths ended September 30, 2004, the same client accounted for $23,597, or13%, and $59,820, or 11%, respectively, of the Company’s consolidated revenues.Revenues from this client are included primarily in the Company’s GlobalServices segment.

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**14.**   Segment Information (Continued)

Summarized financialinformation for reportable segments is as follows:

| ** **                                                                                                                            | ** ** | **For the Three Months  Ended September 30,** | ** ** | **For the Nine Months  Ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **    2005    **               | ** ** | **    2004    **              | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** |
| **Global Services:**                                                                                                                  | ** ** |                                                                   | ** ** | ** **                                                            |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Total revenues                                                                                                                        |       |                                                                   | $          | 210,803                                                               | ** ** |   |   | $ | 173,403 | ** ** |   |   | $ | 582,592 | ** ** |   |   | $ | 493,062 | ** ** |   |
| Costs and expenses(1)                                                                                                                 |       |                                                                   | 200,587    | ** **                                                            |       |   | 167,803 | ** ** |   |   | 555,576 | ** ** |   |   | 481,487 | ** ** |   |
| Operating income                                                                                                                      |       |                                                                   | 10,216     | ** **                                                            |       |   | 5,600 | ** ** |   |   | 27,016 | ** ** |   |   | 11,575 | ** ** |   |
| Interest and other income                                                                                                             |       |                                                                   | 440        | ** **                                                            |       |   | 415 | ** ** |   |   | 1,590 | ** ** |   |   | 1,104 | ** ** |   |
| Income from continuing operations before income  taxes, minority interest and income from investments in unconsolidated  subsidiaries |       |                                                                   | 10,656     | ** **                                                            |       |   | 6,015 | ** ** |   |   | 28,606 | ** ** |   |   | 12,679 | ** ** |   |
| Minority interest, before income taxes                                                                                                |       |                                                                   | (260       | )                                                                     |       |   | 520 | ** ** |   |   | 282 | ** ** |   |   | 503 | ** ** |   |
| Income from investments in unconsolidated  subsidiaries, before income taxes                                                     |       |                                                                   | 1,856      | ** **                                                            |       |   | 2,254 | ** ** |   |   | 5,755 | ** ** |   |   | 4,812 | ** ** |   |
| Income from continuing operations, before income  taxes                                                                               |       |                                                                   | 12,252     | ** **                                                            |       |   | 8,789 | ** ** |   |   | 34,643 | ** ** |   |   | 17,994 | ** ** |   |
| Income from discontinued operations, before income  taxes                                                                             |       |                                                                   | 915        | ** **                                                            |       |   | 26 | ** ** |   |   | 915 | ** ** |   |   | 39 | ** ** |   |
| Income before income taxes                                                                                                            |       |                                                                   | $          | 13,167                                                                | ** ** |   |   | $ | 8,815 | ** ** |   |   | $ | 35,558 | ** ** |   |   | $ | 18,033 | ** ** |   |
| **Development and Investment:**                                                                                                       |       |                                                                   | ** ** | ** **                                                            |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Total revenues                                                                                                                        |       |                                                                   | $          | 16,026                                                                | ** ** |   |   | $ | 15,172 | ** ** |   |   | $ | 35,048 | ** ** |   |   | $ | 35,622 | ** ** |   |
| Costs and expenses(1)                                                                                                                 |       |                                                                   | 22,550     | ** **                                                            |       |   | 15,666 | ** ** |   |   | 56,498 | ** ** |   |   | 45,374 | ** ** |   |
| Operating loss                                                                                                                        |       |                                                                   | (6,524     | )                                                                     |       |   | (494 | ) |   |   | (21,450 | ) |   |   | (9,752 | ) |   |
| Interest and other income                                                                                                             |       |                                                                   | 232        | ** **                                                            |       |   | 348 | ** ** |   |   | 484 | ** ** |   |   | 1,020 | ** ** |   |
| Loss from continuing operations before income taxes,  minority interest and income from investments in unconsolidated subsidiaries    |       |                                                                   | (6,292     | )                                                                     |       |   | (146 | ) |   |   | (20,966 | ) |   |   | (8,732 | ) |   |
| Minority interest, before income taxes                                                                                                |       |                                                                   | (2,748     | )                                                                     |       |   | 940 | ** ** |   |   | 1,795 | ** ** |   |   | (138 | ) |   |
| Income from investments in unconsolidated  subsidiaries, before income taxes                                                     |       |                                                                   | 537        | ** **                                                            |       |   | 43 | ** ** |   |   | 3,781 | ** ** |   |   | 9,203 | ** ** |   |
| Income (loss) from continuing operations, before  income taxes                                                                        |       |                                                                   | (8,503     | )                                                                     |       |   | 837 | ** ** |   |   | (15,390 | ) |   |   | 333 | ** ** |   |
| Income (loss) from discontinued operations, before  income taxes                                                                      |       |                                                                   | 18,250     | ** **                                                            |       |   | (225 | ) |   |   | 18,884 | ** ** |   |   | 376 | ** ** |   |
| Income before income taxes                                                                                                            |       |                                                                   | $          | 9,747                                                                 | ** ** |   |   | $ | 612 | ** ** |   |   | $ | 3,494 | ** ** |   |   | $ | 709 | ** ** |   |
| **Total:**                                                                                                                            |       |                                                                   | ** ** | ** **                                                            |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Total revenues                                                                                                                        |       |                                                                   | $          | 226,829                                                               | ** ** |   |   | $ | 188,575 | ** ** |   |   | $ | 617,640 | ** ** |   |   | $ | 528,684 | ** ** |   |
| Costs and expenses(1)                                                                                                                 |       |                                                                   | 223,137    | ** **                                                            |       |   | 183,469 | ** ** |   |   | 612,074 | ** ** |   |   | 526,861 | ** ** |   |
| Operating income                                                                                                                      |       |                                                                   | 3,692      | ** **                                                            |       |   | 5,106 | ** ** |   |   | 5,566 | ** ** |   |   | 1,823 | ** ** |   |
| Interest and other income                                                                                                             |       |                                                                   | 672        | ** **                                                            |       |   | 763 | ** ** |   |   | 2,074 | ** ** |   |   | 2,124 | ** ** |   |
| Income from continuing operations before income  taxes, minority interest and income from investments in unconsolidated  subsidiaries |       |                                                                   | 4,364      | ** **                                                            |       |   | 5,869 | ** ** |   |   | 7,640 | ** ** |   |   | 3,947 | ** ** |   |
| Minority interest, before income taxes                                                                                                |       |                                                                   | (3,008     | )                                                                     |       |   | 1,460 | ** ** |   |   | 2,077 | ** ** |   |   | 365 | ** ** |   |
| Income from investments in unconsolidated  subsidiaries, before income taxes                                                     |       |                                                                   | 2,393      | ** **                                                            |       |   | 2,297 | ** ** |   |   | 9,536 | ** ** |   |   | 14,015 | ** ** |   |
| Income from continuing operations, before income  taxes                                                                               |       |                                                                   | 3,749      | ** **                                                            |       |   | 9,626 | ** ** |   |   | 19,253 | ** ** |   |   | 18,327 | ** ** |   |
| Income (loss) from discontinued operations, before  income taxes                                                                      |       |                                                                   | 19,165     | ** **                                                            |       |   | (199 | ) |   |   | 19,799 | ** ** |   |   | 415 | ** ** |   |
| Income before  income taxes                                                                                                           |       |                                                                   | $          | 22,914                                                                | ** ** |   |   | $ | 9,427 | ** ** |   |   | $ | 39,052 | ** ** |   |   | $ | 18,742 | ** ** |   |

----

(1)      Costs and expenses for the three and nine monthsended September 30, 2005, include non-cash compensation expense related tothe amortization of employment contracts and unearned stock compensation of$2,010 and $5,447 related to the Global Services segment and $720 and $1,785related to the Development and Investment segment, respectively. Costs andexpenses for the three and nine months ended September 30, 2004, includenon-cash compensation expense related to the amortization of employmentcontracts and unearned stock compensation of $1,633 and $4,118 related to theGlobal Services segment and $677 and $1,810 related to the Development andInvestment segment, respectively.

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 2005 (dollars in thousands, except per share data) (Unaudited)**

**14.**   Segment Information (Continued)

| ** **                  | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **Total  Assets:**          | ** ** |                         | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Global Services             |       |                         | $          | 381,822                     | ** ** |   |   | $ | 319,464 | ** ** |   |
| Development and  Investment |       |                         | 475,173    | ** **                  |       |   | 429,486 | ** ** |   |
| Total consolidated  assets  |       |                         | $          | 856,995                     | ** ** |   |   | $ | 748,950 | ** ** |   |

 

**15.**   RestructuringCharges

During 2001, theCompany announced an internal reorganization of its business designed toconsolidate all of the property and facilities management, brokerage andcorporate advisory, and construction and project management services deliveredto both user and investor clients under a single leadership structure. As partof its restructuring plans, primarily during the fourth quarter of 2001, theCompany closed several offices and identified offices with excess space that itintends to sublease to third parties. The Company recorded restructuringcharges primarily comprised of lease obligations, costs to sublease excessspace (offset by estimated future sublease income) and miscellaneous furnitureand equipment writeoffs. These accruals will be relieved over the remainingterms of the underlying leases through March 2012.

Activityrelated to the Company’s lease obligations and related costs included inrestructuring accruals in 2005 is as follows:

| Balance at  December 31, 2004  |   | $   | 1,902  |   |
|-------------------------------------|--------|-----|--------|--------|
| Cash payments                       |   | 301 |   |
| Balance at  September 30, 2005 |   | $   | 1,601  |   |

 

**16.**   SupplementalCash Flow Information

Supplementalcash flow information is summarized below:

| ** **                                       | ** ** | **Nine Months Ended  September 30,**      | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                       | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** |
| **Non-cash activities:**                         |       |                                                     |       |   |   |   |   |   |   |
| Issuance of restricted stock, net of forfeitures |       |                                                     | $          | 7,045 |   |   |   | $ | 8,389 |   |   |
| Capital lease  obligations                       |       |                                                     | 3          |   |   |   | 664 |   |   |
|                                                  |            |                                                          |            |  |  |  |  |  |  |  |  |

 

26

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**ITEM 2.**                *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations*

The following discussionshould be read in conjunction with the Company’s unaudited CondensedConsolidated Financial Statements and the notes thereto included in Item 1 ofthis Quarterly Report on Form 10-Q.

**Overview**

Trammell Crow Company (the“Company”) is one of the largest diversified commercial real estate servicecompanies in the world. The Company’s business is organized under two distinctnational leadership structures. The Global Services Group includessubstantially all of the building management services, brokerage services, andproject management services delivered to both user and investor clients.Substantially all of the Company’s real estate development and investmentactivities are conducted through the Company’s Development and InvestmentGroup. In addition to its full service offices located throughout the UnitedStates, the Company has offices in Canada, Europe, Asia and Latin/South Americafocused on the delivery of real estate services to users of commercial realestate. The Company delivers brokerage services outside the United Statesthrough strategic alliances with leading providers—in Europe and Asia, throughSavills plc, (“Savills”) a leading property services company based in theUnited Kingdom; and in Canada, through JJ Barnicke, a leading Canadian realestate services provider. The Company delivers building management, brokerageand project management services in India through Trammell Crow Meghraj, India’sleading property services company jointly owned by the Company and certaininternational partners.

Within the Global Servicessegment, with approximately 6,200 employees, the Company provides services touser clients, including multinational corporations and hospitals, who aretypically the primary occupants of the commercial properties for which servicesare performed, and investor clients who are not typically the primary occupantsof the commercial properties for which services are performed. The buildingmanagement services provided to user clients consist primarily of facilitiesmanagement, which includes providing comprehensive day-to-day occupancy relatedservices, principally to large corporations, healthcare systems and other usersthat occupy commercial facilities in multiple locations. These services includeadministration and day-to-day maintenance and repair of client-occupiedfacilities. Brokerage services provided to user clients include corporateadvisory services such as portfolio management and tenant representation.Project management services provided to user clients include facility planningand project management, such as construction oversight, space planning, site consolidations,facilities design, and workplace moves, adds, and changes. The buildingmanagement services provided to investor clients include property managementservices relating to all aspects of building operations, tenant relations andoversight of building improvement processes. Brokerage services provided toinvestor clients include project leasing and investment sales services wherebythe Company advises buyers, sellers and landlords in connection with theleasing and sale of office, industrial and retail space, and land. Projectmanagement services provided to investor clients include constructionmanagement services such as space planning and tenant finish and coordination.

Within the Development andInvestment segment, encompassing approximately 220 employees, the Companyprovides development services to both investor and user clients—both thosepursuant to which the Company takes an ownership position in a project andthose pursuant to which the Company provides development services to others inexchange for fees. The Company provides comprehensive project developmentservices and acquires and disposes of commercial real estate projects. Thedevelopment services provided include financial planning, site acquisition,procurement of approvals and permits, design and engineering coordination,construction bidding and management, tenant finish coordination, projectcloseout and project finance coordination. The Company will continue to focusits efforts in this area on risk-mitigated opportunities for investor clientsand fee development and build-to-suit projects for user clients. From time totime, the Company may pursue development and investment activities, includingopportunistic property acquisitions and new development, for its own account oron a co-investment basis. 

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With anorganization comprised of professionals dedicated fully to development andinvestment activities, the Company is positioned to pursue and execute newdevelopment business, particularly programmatic business with the Company’slarge investor clients, and exploit niche market opportunities.

**Results of Operations—Three and Nine Months Ended September 30,2005 Compared to Three and Nine Months Ended September 30, 2004**

In accordance withStatement of Financial Accounting Standards No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*(“FAS 144”),certain revenues and expenses for the six months ended June 30, 2005, andthe three and nine months ended September 30, 2004, have been reclassifiedto conform to the presentation for the three months ended September 30,2005. As a result, certain balances differ from the amounts reported inpreviously filed documents. See *Income from DiscontinuedOperations, Net of Income Taxes*, below, for additional information.

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| ** **                                                                                                                                 | ** ** | **For the Nine Months  Ended September 30,** | ** **   | ** ** | ** **   | ** **        | ** **   |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|--------------|------------|--------------|-------------------|--------------|
| ** **                                                                                                                                 | ** ** | **2005**                                                              | ** **   | **2004**   | ** **   | **$ Change** | ** **   | **% Change** | ** ** |
| ** **                                                                                                                                 | ** ** | **($ in thousands)**                                        | ** **   |
| **REVENUES:**                                                                                                                              |       |                                                                  |         |       |         |              |         |   |   |   |   |
| ***User  Services:***                                                                                                                      |       |                                                                  |         |       |         |              |         |   |   |   |   |
| Facilities management                                                                                                                      |       | $                                                                     | 173,604      |       | $            | 153,945           |         | $ | 19,659 |   |   | 12.8 | % |   |
| Corporate advisory  services                                                                                                               |       | 114,287                                                               |         | 90,420     |         | 23,867            |         |   | 26.4 | % |   |
| Project management  services                                                                                                               |       | 85,503                                                                |         | 60,905     |         | 24,598            |         |   | 40.4 | % |   |
|                                                                                                                                       |       | 373,394                                                               |         | 305,270    |         | 68,124            |         |   | 22.3 | % |   |
| ***Investor  Services:***                                                                                                                  |       |                                                                  | *** *** |       | *** *** |              | *** *** |   |   |   |   |
| Property management                                                                                                                        |       | 102,801                                                               |         | 103,654    |         | (853              | )            |   | (0.8 | )% |   |
| Brokerage                                                                                                                                  |       | 96,752                                                                |         | 76,776     |         | 19,976            |         |   | 26.0 | % |   |
| Construction management                                                                                                                    |       | 8,381                                                                 |         | 6,987      |         | 1,394             |         |   | 20.0 | % |   |
|                                                                                                                                       |       | 207,934                                                               |         | 187,417    |         | 20,517            |         |   | 10.9 | % |   |
| Development and  construction                                                                                                              |       | 26,553                                                                |         | 24,413     |         | 2,140             |         |   | 8.8 | % |   |
|                                                                                                                                       |       | 607,881                                                               |         | 517,100    |         | 90,781            |         |   | 17.6 | % |   |
| Gain on disposition of  real estate                                                                                                        |       | 9,759                                                                 |         | 11,584     |         | (1,825            | )            |   | (15.8 | )% |   |
| **TOTAL  REVENUES**                                                                                                                        |       | 617,640                                                               |         | 528,684    |         | 88,956            |         |   | 16.8 | % |   |
| **COST AND EXPENSES:**                                                                                                                     |       |                                                                  | ** **   |       |         |              |         |   |   |   |   |
| Salaries, wages and  benefits                                                                                                              |       | 399,242                                                               |         | 348,915    |         | 50,327            |         |   | 14.4 | % |   |
| Commissions                                                                                                                                |       | 98,839                                                                |         | 76,618     |         | 22,221            |         |   | 29.0 | % |   |
| General and  administrative                                                                                                                |       | 102,465                                                               |         | 89,640     |         | 12,825            |         |   | 14.3 | % |   |
| Depreciation and  amortization                                                                                                             |       | 7,513                                                                 |         | 8,683      |         | (1,170            | )            |   | (13.5 | )% |   |
| Interest                                                                                                                                   |       | 4,015                                                                 |         | 3,005      |         | 1,010             |         |   | 33.6 | % |   |
| **TOTAL  EXPENSES**                                                                                                                        |       | 612,074                                                               |         | 526,861    |         | 85,213            |         |   | 16.2 | % |   |
| Operating income                                                                                                                           |       | 5,566                                                                 |         | 1,823      |         | 3,743             |         |   | 205.3 | % |   |
| Interest and other income                                                                                                                  |       | 2,074                                                                 |         | 2,124      |         | (50               | )            |   | (2.4 | )% |   |
| Income from continuing  operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries |       | 7,640                                                                 |         | 3,947      |         | 3,693             |         |   | 93.6 | % |   |
| Income tax expense                                                                                                                         |       | (2,782                                                                | )            | (1,595     | )            | (1,187            | )            |   | (74.4 | )% |   |
| Minority interest, net  of income taxes                                                                                                    |       | 1,321                                                                 |         | 217        |         | 1,104             |         |   | 508.8 | % |   |
| Income from investments  in unconsolidated subsidiaries, net of income taxes                                                          |       | 6,064                                                                 |         | 8,351      |         | (2,287            | )            |   | (27.4 | )% |   |
| Income from continuing  operations                                                                                                         |       | 12,243                                                                |         | 10,920     |         | 1,323             |         |   | 12.1 | % |   |
| Income from discontinued  operations, net of income taxes                                                                                  |       | 12,591                                                                |         | 247        |         | 12,344            |         |   | 4,997.6 | % |   |
| **Net income**                                                                                                                             |       | $                                                                     | 24,834       |       | $            | 11,167            |         | $ | 13,667 |   |   | 122.4 | % |   |

 

29

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| ** **                                                                                                                                 | ** ** | **For the Three Months  Ended September 30,** | ** **   | ** ** | ** **   | ** **        | ** **   |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|--------------|------------|--------------|-------------------|--------------|
| ** **                                                                                                                                 | ** ** | **2005**                                                               | ** **   | **2004**   | ** **   | **$ Change** | ** **   | **% Change** | ** ** |
| ** **                                                                                                                                 | ** ** | **($ in thousands)**                                         | ** **   |
| **REVENUES:**                                                                                                                              |       |                                                                   |         |       |         |              |         |   |   |
| ***User  Services:***                                                                                                                      |       |                                                                   |         |       |         |              |         |   |   |
| Facilities management                                                                                                                      |       | $                                                                      | 59,076       |       | $            | 52,633            |         | $ | 6,443 |   | 12.2 | % |
| Corporate advisory  services                                                                                                               |       | 49,498                                                                 |         | 34,142     |         | 15,356            |         | 45.0 | % |
| Project management  services                                                                                                               |       | 28,216                                                                 |         | 23,268     |         | 4,948             |         | 21.3 | % |
|                                                                                                                                       |       | 136,790                                                                |         | 110,043    |         | 26,747            |         | 24.3 | % |
| ***Investor  Services:***                                                                                                                  |       |                                                                   | *** *** |       | *** *** |              | *** *** |   |   |
| Property management                                                                                                                        |       | 34,246                                                                 |         | 34,330     |         | (84               | )            | (0.2 | )% |
| Brokerage                                                                                                                                  |       | 35,296                                                                 |         | 25,917     |         | 9,379             |         | 36.2 | % |
| Construction management                                                                                                                    |       | 3,207                                                                  |         | 2,926      |         | 281               |         | 9.6 | % |
|                                                                                                                                       |       | 72,749                                                                 |         | 63,173     |         | 9,576             |         | 15.2 | % |
| Development and  construction                                                                                                              |       | 10,005                                                                 |         | 8,106      |         | 1,899             |         | 23.4 | % |
|                                                                                                                                       |       | 219,544                                                                |         | 181,322    |         | 38,222            |         | 21.1 | % |
| Gain on disposition of  real estate                                                                                                        |       | 7,285                                                                  |         | 7,253      |         | 32                |         | 0.4 | % |
| **TOTAL  REVENUES**                                                                                                                        |       | 226,829                                                                |         | 188,575    |         | 38,254            |         | 20.3 | % |
| **COST AND EXPENSES:**                                                                                                                     |       |                                                                   | ** **   |       |         |              |         |   |   |
| Salaries, wages and  benefits                                                                                                              |       | 140,801                                                                |         | 119,970    |         | 20,831            |         | 17.4 | % |
| Commissions                                                                                                                                |       | 41,883                                                                 |         | 28,623     |         | 13,260            |         | 46.3 | % |
| General and  administrative                                                                                                                |       | 36,323                                                                 |         | 31,002     |         | 5,321             |         | 17.2 | % |
| Depreciation and  amortization                                                                                                             |       | 2,551                                                                  |         | 2,718      |         | (167              | )            | (6.1 | )% |
| Interest                                                                                                                                   |       | 1,579                                                                  |         | 1,156      |         | 423               |         | 36.6 | % |
| **TOTAL  EXPENSES**                                                                                                                        |       | 223,137                                                                |         | 183,469    |         | 39,668            |         | 21.6 | % |
| Operating Income                                                                                                                           |       | 3,692                                                                  |         | 5,106      |         | (1,414            | )            | (27.7 | )% |
| Interest and other  income                                                                                                                 |       | 672                                                                    |         | 763        |         | (91               | )            | (11.9 | )% |
| Income from continuing  operations before income taxes, minority interest and income from investments in  unconsolidated subsidiaries |       | 4,364                                                                  |         | 5,869      |         | (1,505            | )            | (25.6 | )% |
| Income tax expense                                                                                                                         |       | (1,600                                                                 | )            | (2,422     | )            | 822               |         | 33.9 | % |
| Minority interest, net  of income taxes                                                                                                    |       | (1,930                                                                 | )            | 842        |         | (2,772            | )            | (329.2 | )% |
| Income from investments  in unconsolidated subsidiaries, net of income taxes                                                               |       | 1,497                                                                  |         | 1,668      |         | (171              | )            | (10.3 | )% |
| Income from continuing  operations                                                                                                         |       | 2,331                                                                  |         | 5,957      |         | (3,626            | )            | (60.9 | )% |
| Income (loss) from  discontinued operations, net of income taxes                                                                           |       | 12,186                                                                 |         | (103       | )            | 12,289            |         | 11,931.1 | % |
| **Net income**                                                                                                                             |       | $                                                                      | 14,517       |       | $            | 5,854             |         | $ | 8,663 |   | 148.0 | % |

 

***Revenues.******  ***Facilitiesmanagement revenue increased in the third quarter and first nine months of 2005from comparable periods in the prior year. This increase is primarily theresult of the addition of several new customers. Additionally, the increaseduring the nine month period reflected the expansion of a client relationshipin the second quarter of 2004. Reimbursement of salaries, wages, benefits andout-of-pocket general and administrative costs, a component of facilitiesmanagement revenue, comprised the majority of the revenue increases from 2004.The composition of facilities management revenue, including management fees andreimbursements, can vary significantly from period to period based on the termsof the underlying management agreements in effect each period.

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Corporate advisoryservices revenue increased for the third quarter and first nine months of 2005as compared to the same periods in the prior year. The increase, primarily incommission revenues, is in part the result of an increase in the number oftenant representation brokers as the Company has focused on expanding itsbrokerage network. In addition, transaction volumes have increased as clientscontinue to show a willingness to make real estate commitments.

The revenue growth inproject management was the result of the addition of new clients and theexpansion of services provided to existing clients (due to increases in clients’portfolios, the scope of the Company’s services under certain outsourcingcontracts and transaction volumes).

The slight decreases inproperty management revenue in the three and nine months ended September 30,2005 were partially the result of decreased square footage under management in2005 as compared to 2004. The reduction in square footage primarily resultedfrom sales of buildings in the Company’s management portfolio to REITs or otherinvestors that self-manage their properties or use other service providers. Inaddition, some square footage decreases resulted from existing clients takingservices in-house or to other service providers. These decreases were partiallyoffset by additions to square footage related to new business.

Brokerage revenueincreased for the third quarter and first nine months of 2005 from comparableperiods in 2004 due to increases in investment sales commissions and, to alesser extent, project leasing commissions. Real estate remains a favored assetclass among certain investors as a result of improving leasing fundamentals andrelatively low interest rates. As a result, investment sales activity and the resultingcommission revenue have increased.

Construction managementrevenue increased in the three and nine months ended September 30, 2005,as compared to the same periods in 2004. Construction management revenue isgenerated from services including space planning and tenant finish coordinationfor investor clients in conjunction with property management and leasingassignments, and are directly related to tenants’ real estate demands. Theincrease in construction management revenue resulted from a higher volume ofconstruction projects as tenant leasing activity increased and is consistentwith the increase in brokerage revenue.

Development andconstruction revenue increased in the third quarter and first nine months of2005 as compared to the same periods in the prior year, driven in part by anincrease in development fees. Typically, the impact of increases and decreasesin the Company’s development starts and investments is not reflected infinancial results until later periods. The Company experienced an increase indevelopment and construction revenue in 2005 as a consequence of developmentstarts and investments trending up in 2004, with 2004 starts more than doublingthose for 2003. In addition, development and construction revenue increased dueto an increase in rental revenue from acquisitions of operating real estateproperties subsequent to the first half of 2004.****Developmentincentive fees increased during the third quarter 2005, but decreased in thenine months of 2005, as compared to the same periods in 2004, due to the timingand volume of significant transactions.

Historically, the Companyprimarily focused its commercial real estate development business on office,industrial and retail projects for investor clients. The Company has increasedits focus on development for user clients, including corporations and those inthe healthcare sector. By expanding its focus on development for user clients,particularly those in the healthcare sector, the Company seeks to mitigate thecyclicality traditionally inherent in the commercial development business. Inaddition, through High Street Residential, a wholly-owned subsidiary of theCompany, the Company has expanded its focus to include development of mixed-usefacilities with a residential component, including condominium development andtransit-oriented development. The Company, mainly through certain of itsdiscretionary development and investment funds, is also directing its effortstoward property and project acquisitions, including those acquisitions whereopportunities exist to add value through re-development or re-leasing.

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The Company’s gain ondisposition of real estate increased slightly in the third quarter anddecreased in the first nine months of 2005 from comparable periods in 2004. Inthe third quarter of 2005, the Company sold three real estate projects with anaggregate net sales price of $13.3 million, resulting in a gain on dispositionof $7.1 million, and recognized deferred gain of $0.2 million relating toprevious period dispositions. In the third quarter of 2004, the Company soldfour real estate projects for an aggregate net sales price of $19.0 million,resulting in an aggregate gain on disposition of $7.3 million. During the firstnine months of 2005, the Company recognized total gain on disposition of realestate of $9.8 million. This gain was comprised of four sales of real estateprojects with an aggregate net sales price of $15.0 million and a settlementrelated to the estimated cost to complete construction related to a previousperiod disposition. In addition, this gain included deferred gain recognitionof $0.3 million relating to dispositions in prior periods. During the firstnine months of 2004, the Company sold eight real estate projects for anaggregate net sales price of $34.6 million, resulting in an aggregate gain ondisposition of $11.3 million and recognized deferred gain of $0.3 millionrelating to a previous period disposition. Gain on disposition of real estatediscussed above does not include those gains classified in discontinuedoperations as discussed in *Income from**Discontinued Operations, Net of Income Taxes*below.

***Costs and Expenses.******  ***Salaries,wages and benefits expense includes all compensation paid to Company employeesother than brokerage commissions. As such, it includes salaries, benefits andannual incentive bonuses for employees whose compensation is reimbursed byclients (“reimbursed employees”); salaries, benefits and annual incentivebonuses for employees whose compensation is not so reimbursed (“unreimbursedemployees”); long-term incentive compensation associated with restricted stockgrants to certain employees; and transaction-related incentivecompensation other than brokerage commissions, primarily paid in connectionwith development and investment transactions, including those transactionsrecorded as income (loss) from discontinued operations. Salaries, wages andbenefits expense for both reimbursed and unreimbursed employees increased inthe third quarter and first nine months of 2005 from comparable periods in theprior year. Salaries,****wages andbenefits for reimbursed employees grew as the Company increased its facilitiesmanagement and project management headcount to service client expansions andnew clients. In addition, the Company’s annual incentive bonus expense increaseddue to the Company’s increased headcount and profitability in 2005.

The increase in commissionexpense during the third quarter and first nine months of 2005 was directlyattributable to the increases in the Company’s corporate advisory services andbrokerage revenue discussed above.

General and administrativeexpenses increased in the three and nine months ended September 30, 2005,as compared to the same periods in 2004, due in part to increasedclient-reimbursed out-of-pocket general and administrative expenses, due togrowth in the Company’s facilities management and project management servicelines. In addition, the acquisition of several operating real estate propertiessince the first half of 2004 led to increased real estate operating expenses in2005. These properties, which the Company plans to redevelop, lease and sell,include acquisitions made through the Company’s fifth discretionary developmentand investment fund (“Fund V”). The Company’s insurance expense also increasedas a result of higher premium rates being charged by the insurance industry.

Depreciation andamortization expenses decreased for the third quarter and first nine months of2005 from 2004. The Company has replaced many of its computer assets at a lowercost than the assets that were retired, which has reduced the Company’sdepreciation expense. In addition, several intangible asset balances related toacquired management contracts became fully amortized in 2004, which resulted ina decrease in amortization expense in the third quarter and first nine monthsof 2005 as compared to 2004.

The increase in interestexpense is primarily the result of higher average outstanding balances underthe Company’s revolving line of credit as compared to the same periods in 2004,due to amounts drawn to fund the Company’s acquisition of an additionalownership interest in Savills.

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***Minority Interest, Net of Income Taxes.******  ***Minorityinterest fluctuated from income in the third quarter of 2004 to expense in thethird quarter of 2005. For the nine months ended September 30, 2005,minority interest income increased from the same period in the prior year. Theincrease in minority interest income during the first nine months of 2005primarily relates to operating losses incurred by Fund V, which are shared withoutside partners. Fund V has acquired several operating real estate propertiessince the first half of 2004 that, as expected, generated operating losses inthe current period. The Company plans to redevelop, lease and sell theseproperties. In addition, a portion of the 2005 income relates to the minorityinterest owners’ share of fees earned by the Company related to certainconsolidated real estate projects. The minority interest expense in the thirdquarter of 2005 was largely driven by expense related to gains on dispositionsof consolidated real estate projects which are shared with outside partners.

***Income from Investments in UnconsolidatedSubsidiaries, Net of Income Taxes.******  ***Inthe ordinary course of business, a significant portion of the Company’sdevelopment and investment activities are conducted, and are expected to beconducted in future periods, through unconsolidated subsidiaries. The Companyalso has certain investments in unconsolidated subsidiaries which are notrelated to its development and investment activities. Income from investmentsin unconsolidated subsidiaries fluctuates from period to period based on thevolume and profitability of transactions carried out by the underlyingunconsolidated subsidiaries. The overall decrease in income from investments inunconsolidated subsidiaries in the first nine months of 2005, as compared to2004, was primarily the result of significant income from an unconsolidatedsubsidiary that sold its building portfolio in the first quarter of 2004, inexcess of such sales that occurred in 2005. This decrease was offset byincreased income from the Company’s investment in Savills, due to the purchaseof additional shares of Savills in the second quarter of 2005, which increasedthe Company’s ownership interest from approximately 10% to approximately 19.6%of the outstanding stock of Savills. In 2005, income from the Company’sinvestment in Savills was partially offset by amortization of the portion ofthe Savills purchase price allocated to certain intangible assets.

***Income (Loss) from Discontinued Operations, Net ofIncome Taxes.******  ***Income(loss) from discontinued operations consists of the operations of real estateproperties and gain on disposition of real estate properties held for sale orsold subsequent to the adoption of FAS 144 effective January 1, 2002,that were considered components of an entity under FAS 144 and in whichthe Company has not retained or does not expect to retain significantcontinuing involvement. Dispositions of real estate assets have been and willcontinue to be a significant part of the Company’s activities and, as a resultof applying the provisions of FAS 144, the Company expects a greateramount of these activities to be classified as discontinued operations infuture periods as fewer asset dispositions will qualify for grandfatheredtreatment under FAS 144. Because gains on sale of real estate projectsaccounted for as income from discontinued operations can give rise tosignificant incentive compensation expense on account of local office andoverall Company profitability (which is separately accounted for as salaries,wages and benefits), the Company’s net income resulting from sales issignificantly less than the amount shown as income from discontinuedoperations.

During the third quarterof 2005, the Company sold seven real estate projects that were considereddiscontinued operations for an aggregate net sales price of $51.1 million,resulting in an aggregate gain on disposition (before income taxes) of $20.0million. The Company sold one real estate project in the third quarter of 2004that was considered a discontinued operation. This sale, which generated a netsales price of $2.8 million, resulted in a gain on disposition of $0.01 million.In the first nine months of 2005, the Company sold 13 real estate projects thatwere considered discontinued operations for an aggregate net sales price of$80.3 million, resulting in an aggregate gain on disposition (before incometaxes) of $22.0 million. During the first nine months of 2004, the Companysold two real estate projects that were considered discontinued operations foran aggregate net sales price of $14.2 million. This sale resulted in an aggregategain on disposition of real estate (before income taxes) of $0.9 million,including interest forgiveness of $0.3 million.

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***NetIncome.***   Netincome increased due to the fluctuations in revenues and expenses describedabove, in addition to a decrease in the Company’s effective tax rate. Thedecrease in the effective tax rate was driven by the increase in the Company’sincome from its investment in Savills, largely due to the Company’s increasedownership in Savills. In addition, the higher level of ownership of Savillswill enable the Company to take advantage of certain foreign tax credits.

**QuarterlyResults of Operations and Seasonality**

The results of operationsfor any quarter are not necessarily indicative of results for any futureperiod. The Company’s revenues and net income during the fourth fiscal quarterhistorically have been somewhat greater than in each of the first three fiscalquarters, primarily because its clients have demonstrated a tendency to closetransactions toward the end of the fiscal year. The timing and introduction ofnew contracts, the disposition of investments in real estate assets, therecognition of incentive fees (often in the latter part of the fiscal year ascontractual targets are met) and other factors may also cause quarterly fluctuationsin the Company’s results of operations.

**Liquidity and Capital Resources**

The Company’s liquidityand capital resources requirements include the funding of working capitalneeds, primarily costs incurred in providing services to its clients beforecollection of related billings; the funding of capital investments, includingthe acquisition of or investments in other real estate service companies; therepurchase of its shares if authorized by the Board of Directors; expendituresfor real estate and payments on notes payable associated with its developmentand investment activities; and expenditures related to upgrading the Company’smanagement information systems. The Company finances its operations withinternally generated funds and borrowings under the Credit Facility (describedbelow). The portion of the Company’s development and investment business thatincludes the acquisition and development of real estate is financed with loanssecured by underlying real estate, external equity, internal sources of funds,or a combination thereof.

Net cash used in operatingactivities totaled $41.2 million for the first nine months of 2005, compared tonet cash provided of $6.9 million for the same period in 2004. Cash used inoperating activities, excluding the change in real estate and relatedborrowings, totaled $7.5 million for the first nine months of 2005 as comparedto cash provided of $19.8 million for the same period of 2004. This increase incash used is in part due to higher average outstanding accounts receivablebalances in 2005, consistent with the overall growth in the Company’s revenuesfrom 2004 to 2005. The Company also made greater incentive compensation andincome tax payments during the first nine months of 2005 on account of 2004 activity,as compared to such payments made during the same period in 2004. In addition,cash used in real estate activities, net of related borrowings, was $33.7million during the first nine months of 2005, compared to $12.9 millionfor the same period in 2004 as a result of increased real estate investmentactivity in 2005.

Net cash used in investingactivities totaled $117.3 million for the first nine months of 2005, comparedto $46.6 million for the first nine months of 2004. This increase in cash used isprimarily due to an increase in investments in unconsolidated subsidiaries, netof distributions, to $92.4 million in the first nine months of 2005 as comparedto distributions from unconsolidated subsidiaries, net of contributions, of$5.5 million in the same period of 2004. The increase in investments isattributable to the Company’s purchase of additional shares of Savills in 2005.The Company’s wholly-owned captive insurance company also made purchases, netof sales proceeds, of $18.2 million in marketable securities in 2005, ascompared to no such purchases in 2004. In addition, expenditures made in thefirst nine months of 2005 related to real estate classified as “held forinvestment” were $32.3 million during the first nine months of 2005, as comparedto $65.9 million during the first nine months of 2004. These expenditures wereoffset by $32.8 million of proceeds from the dispositions of real estateprojects classified as “held for investment” at the time of disposition inaccordance with FAS 144, as compared to $18.4 million of such proceeds in 2004.

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Net cash provided byfinancing activities totaled $60.9 million during the first nine months of 2005as compared to $29.9 million during the same period of 2004. The increase incash provided in 2005 is primarily due to borrowings, net of principal debtpayments, under the Company’s line of credit of $51.0 million, compared toprincipal debt payments, net of borrowings, of $12.8 million in the comparable2004 period. The Company used the 2005 borrowings to fund its purchase ofadditional shares of Savills. In addition, the Company received proceeds fromthe exercise of employee stock options of $9.4 million in 2005, as compared to$0.6 million in 2004. This increase in cash was offset by a decrease in proceedsfrom borrowings, net of payments, of $16.1 million on notes payable related toreal estate held for investment as compared to $29.9 million in the same periodof 2004. The Company also used cash in 2005 to repurchase common stock,totaling $20.1 million. In addition, the Company received contributions, net ofdistributions, from minority interest holders of $1.5 million in the first ninemonths of 2005, compared to $9.3 million in the first nine months of 2004.

In June 2005, theCompany obtained a $175.0 million revolving line of credit (the “CreditFacility”) arranged by Bank of America, N.A., as the administrative agent,which replaced the Company’s previous $150.0 million revolving line ofcredit. Borrowings under the Credit Facility are due in June 2008 and are eitherBase Rate Loans or Eurodollar Rate Loans. Base Rate Loans bear interest at abase rate plus a margin up to 0.25% depending on the Company’s leverage ratio.The base rate is the higher of the prime lending rate or an average federalfunds rate plus 0.5%. Eurodollar Rate Loans bear interest at the Eurodollarrate plus a margin, which ranges from 1.75% to 2.0%, depending upon the Company’sleverage ratio. The Eurodollar rate is based on the British Bankers AssociationLIBOR rate. The Credit Facility contains various covenants such as themaintenance of minimum equity, liquidity, revenues, interest coverage ratiosand fixed charge ratios. The Credit Facility also includes restrictions onrecourse indebtedness and total indebtedness, restrictions on liens and certainrestrictions on investments and acquisitions that can be made by the Company.In addition, the Company may not pay dividends, repurchase common shares, ormake other distributions on account of its common stock exceeding 50% of theprevious year’s net income before depreciation and amortization, plus for theyear ending December 31, 2005 only, an amount equal to $20.0 million. TheCredit Facility is guaranteed by certain significant subsidiaries of theCompany and is secured by a pledge of a stock of such significant subsidiariesand a pledge of certain intercompany indebtedness.

The Company’sparticipation in derivative transactions has been limited to risk managementpurposes, and derivative instruments are not held for trading purposes. If acertain interest coverage ratio is not maintained, as defined in the agreement,the Credit Facility requires the Company to enter into one or more interestrate agreements for the Company’s floating rate indebtedness in excess of$30.0 million (other than construction loans under which interest iscapitalized in accordance with accounting principles generally accepted in theUnited States) ensuring the net interest on such excess is fixed, capped orhedged.

The Company also has a$25.0 million short-term revolving line of credit (the “Swing Line”) withBank of America, N.A. Each loan obtained by the Company under the Swing Linematures in five business days, but no later than June 28, 2008, and bearsinterest at a 30-day LIBOR-based rate (plus an applicable margin asdefined per the agreement). Borrowings under the Swing Line are unsecured andreduce borrowing capacity under the Credit Facility.

At September 30,2005, the Company had outstanding borrowings of $51.0 million under the CreditFacility. The covenants contained in the Credit Facility and the amount of theCompany’s other borrowings and contingent liabilities may have the effect oflimiting the borrowing capacity available to the Company under the CreditFacility to an amount less than the $175.0 million commitment. The Company’sunused borrowing capacity (taking into account borrowings and letters of creditoutstanding) under the Credit Facility was $113.1 million at September 30,2005. Since many of the financial covenants in the Credit Facility aredependent on the Company’s “EBITDA,” as defined in the Credit Facilityagreement and calculated on a trailing four-quarter basis, a decline in theCompany’s overall operations could 

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adverselyimpact the Company’s ability to comply with these financial covenants and, inturn, the Company’s borrowing capacity.

At September 30,2005, the Company was in compliance with all covenants of the Credit Facility.The Company expects to continue to borrow under the Credit Facility to financefuture strategic acquisitions and investments, fund its co-investmentactivities and provide the Company with an additional source of workingcapital.

In December 2004, theCompany entered into an interest rate cap agreement in order to limit itsinterest expense on a construction loan with a 30-day LIBOR-basedfloating interest rate related to a consolidated real estate project. Theinterest rate cap agreement has a notional amount of $7.7 million at September 30,2005, and the Company will receive payments if the LIBOR-based interest rateexceeds 3.5%. The interest rate cap agreement has not been designated as aneffective hedge, and therefore the interest rate cap agreement will be markedto market each period with the change in fair market value recognized incurrent period earnings. The interest rate cap agreement expires on January 1,2006. Through September 30, 2005, amounts recorded by the Company relatedto this interest rate cap agreement were not material.

The Company does notanticipate paying any dividends in the foreseeable future. The Company believesthat funds generated from operations, together with existing cash and availablecredit under the Credit Facility and loans secured by underlying real estatewill be sufficient to finance its current operations, planned capitalexpenditure requirements, payment obligations for development purchases,investments in development and investment funds and programs, sharerepurchases, acquisitions of and investments in service companies, signingbonuses or loans for new employees and internal growth for the foreseeablefuture. The Company’s need, if any, to raise additional funds to meet itsworking capital and capital requirements will depend upon numerous factors,including the success and pace of implementation of its growth strategy. TheCompany regularly considers capital raising alternatives to be able to takeadvantage of available avenues to supplement its working capital, including strategiccorporate partnerships or other alliances, bank borrowings and the sale ofequity and/or debt securities.

**New Accounting Pronouncements**

On December 16, 2004,the FASB issued Statement of Financial Accounting Standards No. 123(revised 2004), *Share-Based Payment* (“FAS 123R”),which is a revision of FAS 123. Generally, the approach in FAS 123R is similarto the approach described in FAS 123. However, FAS 123R requires allshare-based payments to employees, including grants of employee stock options,to be recognized in the income statement based on their fair values. Pro formadisclosure is no longer an alternative.

FAS 123R will becomeeffective for the Company beginning January 1, 2006. FAS 123R permitspublic companies to adopt its requirements using one of two methods: a“modified-prospective” method or a “modified-retrospective” method. The companyplans to adopt FAS 123R using the modified-prospective method.

As permitted by FAS 123,the Company currently accounts for share-based payments to employees using APB25’s intrinsic value method and, as such, generally recognizes no compensationcost for employee stock options. Accordingly, the adoption of FAS 123R’s fairvalue method could have a significant impact on the Company’s results ofoperations, although it will have no impact on the Company’s overall financialposition. The impact of adoption of FAS 123R cannot be predicted at this timebecause it will depend on levels of share-based payments granted in the future.However, had the Company adopted FAS 123R, the impact of that standard wouldhave approximated the impact of FAS 123 as described in the disclosure ofpro forma net income and earnings per share in “*Item 1.Financial Statements, Note 1.*’’

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InJune 2005, the FASB ratified the consensus in EITF Issue No. 04-5,*Determining Whether a General Partner, or theGeneral Partners as a Group, Controls a Limited Partnership or Similar EntityWhen the Limited Partners Have Certain Rights* (“EITF 04-5”).To promote consistency in applying this guidance to corporate entities andthose entities that hold real estate:

·       theEITF amended Issue No. 96-16, *Investor’s Accounting foran Investee When the Investor Has a Majority of the Voting Interest but theMinority Interest Shareholder or Shareholders Have Certain Approval or VetoRights* (“EITF 96-16”), and

·       theFASB staff issued FSP No. SOP 78-9-1, *Interactionof AICPA Statement of Position 78-9 with EITF Issue No. 04-5*(“FSP SOP 78-9-1”) which amends AICPA Statement of Position 78-9,*Accounting for Investments in Real Estate Ventures*,to reflect the consensus reached in EITF 04-5.

EITF 04-5 statesthat the general partner in a limited partnership is presumed to control thatlimited partnership. That presumption may be overcome if the limited partnershave either (1) the substantive ability—either by a single limited partneror through a simple majority vote—to dissolve (liquidate) the limitedpartnership or otherwise remove the general partner without cause or(2) substantive participating rights. Substantive participating rights—whichare based on the concept discussed in EITF 96-16—provide the limitedpartners with the ability to effectively participate in significant decisionsthat would be expected to be made in the ordinary course of the limited partnership’sbusiness and thereby preclude the general partner from exercising unilateralcontrol over the partnership.

The effective date forapplying the guidance in EITF 04-5 and FSP SOP 78-9-1 is(1) June 29, 2005, for all new limited partnerships and existinglimited partnerships for which the partnership agreements are modified, and(2) no later than the beginning of the first reporting period in fiscalyears beginning after December 15, 2005, for all other limitedpartnerships. The effect of initially applying this guidance may be accountedfor similarly to a change in accounting principle or by restating the financialstatements of prior periods. The amendments to EITF 96-16 are to beapplied prospectively to new investment agreements and to investment agreementsthat are modified after June 29, 2005. Retrospective application is notrequired for investments in limited partnerships for which the entity is nolonger a general partner as of the date that the guidance in EITF 04-5 isadopted.

The Company has appliedEITF 04-5 when required for new or amended limited partnerships in itsSeptember 30, 2005, financial statements. The Company is evaluating theimpact of the new guidance on all other limited partnerships. The impact ofadopting EITF 04-5 for all other limited partnerships cannot be predictedat this time, however, the Company anticipates that the adoption will notimpact net income, earnings per share or stockholders’ equity. The Companyplans to account for any initial effect of applying the new guidance to allother limited partnerships under the method similar to a change in accountingprinciple.

**Off-balance Sheet Arrangements**

The Company hasoff-balance sheet arrangements consisting of certain debt repayment guaranteesthat have been provided by the company as security for the obligations ofothers (primarily unconsolidated subsidiaries of the Company) in the normalcourse of the Company’s real estate development business. The Company has notmade any material payments under such arrangements in the nine months ended September 30,2005 or 2004. The Company has guaranteed a maximum of $5.1 million of suchnotes payable, all of which is outstanding at September 30, 2005. Paymentsrequired under these arrangements, if any, would generally result in anincrease in the Company’s investment in the underlying unconsolidatedsubsidiaries.

**Forward-Looking Statements**

Certain statementscontained or incorporated by reference in this Quarterly Report on Form 10-Q,including without limitation statements containing the words “believe,” “anticipate,”“attainable,” 

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“forecast,”“will,” “may,” “expect(ation),” “envision,” “project,” “budget,” “objective,” “goal,”“target(ing),” “estimate,” “could,” “should,” “would,” “conceivable,” “intend,”“possible,” “prospects,” “forsee,” “look(ing) for,” “look to” and words ofsimilar import, are forward-looking statements within the meaning of thefederal securities laws. Such forward-looking statements involve knownand unknown risks, uncertainties and other matters which may cause the actualresults, performance or achievements of the Company or industry results to bematerially different from any future results, performance or achievementsexpressed or implied by such forward-looking statements. Such risks,uncertainties and other matters include, but are not limited to (i) thetiming of individual transactions, (ii) the ability of the Company toidentify, implement and maintain the benefit of cost reduction measures andachieve economies of scale, (iii) the ability of the Company to competeeffectively in the international arena and manage the risks of operating in theinternational arena (including foreign currency exchange risk), (iv) theability of the Company to retain its major clients and renew its contracts, (v) theability of the Company to attract new user and investor clients, (vi) theability of the Company to manage fluctuations in net earnings and cash flowwhich could result from the Company’s participation as a principal in realestate investments, (vii) the Company’s ability to continue to pursue itsgrowth strategy, (viii) the Company’s ability to pursue strategicacquisitions on favorable terms and manage challenges and issues commonlyencountered as a result of those acquisitions, (ix) the Company’sability to compete in highly competitive national and local business lines, and(x) the Company’s ability to attract and retain qualified personnel in allareas of its business (particularly senior management). In addition, theCompany’s ability to achieve certain anticipated results will be subject toother factors affecting the Company’s business that are beyond the Company’scontrol, including but not limited to general economic conditions (includinginterest rates, the cost and availability of capital for investment in realestate, clients’ willingness to make real estate commitments and other factorsimpacting the value of real estate assets), the effect of government regulationon the conduct of the Company’s business and the threat of terrorism and actsof war. Given these uncertainties, readers are cautioned not to place unduereliance on such forward-looking statements. The Company disclaims anyobligation to update any such statements or publicly announce any updates orrevisions to any of the forward-looking statements contained herein toreflect any change in the Company’s expectation with regard thereto or anychange in events, conditions, circumstances or assumptions underlying suchstatements. Reference is hereby made to the disclosures contained under theheading “Risk Factors” in “Item 1. Business” of the Company’s AnnualReport on Form 10-K filed with the Securities and ExchangeCommission on March 16, 2005.

**ITEM 3.**                *Quantitative and Qualitative Disclosures About Market Risk*

The Company’s primarymarket risk exposure is to changes in interest rates. The Company is exposed tomarket risk related to its Credit Facility and loans secured by real estateproperties as discussed in “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity and Capital Resources” and inNotes 7 and 8 to the Company’s Condensed Consolidated FinancialStatements. The Credit Facility and the majority of the loans secured by realestate bear interest at variable rates and are subject to fluctuations in themarket. During the first nine months of 2005, the Company borrowed $51.0million, net of principal debt payments, under the Credit Facility, primarilyto fund the Company’s acquisition of an additional ownership stake in Savills,which could further expose the Company to fluctuations in interest rates. Fromtime to time, the Company purchases interest rate agreements to hedge, cap orlock a portion, but not all, of its exposure to fluctuations in interest rates,and, as such, the effects of interest rate changes may be limited.

The Company’s earnings arealso somewhat affected by fluctuations in the value of the U.S. dollar ascompared to foreign currencies as a result of the operations of the Company andits consolidated and unconsolidated subsidiaries in Canada, Europe, Asia andAustralia. Due to the increase in the Company’s ownership interest in Savillsfrom approximately 10.0% to 19.6% in April 2005, the impact offluctuations in currency exchange rates may become more significant to theCompany’s results of operations.

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**ITEM 4.**                *Controls and Procedures*

As of the end of the period covered by this report,the Company carried out an evaluation under the supervision and with theparticipation of management, including its Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the Company’s disclosure controlsand procedures (as defined in 13a-15(e) of the SecuritiesExchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdesign and operation of the Company’s disclosure controls and procedures areeffective in ensuring that material information relating to the Company(including its consolidated subsidiaries) required to be included in theCompany’s periodic filings or submissions with the Securities and ExchangeCommission is recorded, processed, summarized and reported within the timeperiods specified in the rules and forms of the Securities and ExchangeCommission. There were no changes in the Company’s internal control overfinancial reporting (as defined in Rule 13a-15(f) under theExchange Act) that occurred during the Company’s last fiscal quarter that havematerially affected or are reasonably likely to materially affect the Company’sinternal control over financial reporting.

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**PART II—OTHER INFORMATION**

**ITEM 1.**                LegalProceedings

The Company and one of itssubsidiaries are defendants in a lawsuit styled *Bank OneOklahoma, N.A., et al.*(the “Bank”)*v. TrammellCrow Services, Inc. and Trammell Crow Company*, No. 03 C3624, pending in the US District Court for the Northern District of Illinois,originally filed on April 2, 2003. The claims asserted by the plaintiffsrelate to a sale/leaseback transaction involving a property in Oklahoma Citypreviously owned by the Bank. The suit alleges breach of contract, breach offiduciary duty, negligent misrepresentation, fraudulent misrepresentation andfraudulent concealment against the Company and/or its subsidiary and allegesthat the plaintiffs have been damaged in an unspecified amount in excess of$10.0 million. The plaintiffs seek to recover actual damages, punitivedamages and reasonable attorneys’ fees. The suit is in the process ofdiscovery, and no trial date has been set. As of the date of this Form 10-Q,the outcome of the suit cannot be predicted with any certainty, and the Companycannot at this time estimate an amount or range of potential loss in the eventof an unfavorable outcome. While the Company cannot predict with any certaintythe outcome of this matter, the Company currently believes the plaintiffs’claims are without merit and is vigorously defending the lawsuit.

From time to time, the Company is involved in otherlitigation matters that arise in the ordinary course of its business, some ofwhich involve claims for damages which are substantial in amount. The ultimateliability for these matters cannot be determined. However, based on theinformation currently available, the Company does not believe that theresolution of any such matters to which it is currently a party will have amaterial adverse effect on the Company’s results of operations, financialcondition or liquidity.

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**ITEM 6.**                *Exhibits*

(a)           Exhibits:
| 3.1(1)   |   | Certificate of Incorporation of the Company                                                                                                                                  |
|----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2(1)   |   | Bylaws of the Company                                                                                                                                                        |
| 3.2.1(2) |   | First Amendment to the Bylaws of the Company                                                                                                                                 |
| 3.2.1(3) |   | Second Amendment to the Bylaws of the Company                                                                                                                                |
| 3.2.1(4) |   | Third Amendment to the Bylaws of the Company                                                                                                                                 |
| 4.1(5)   |   | Form of Certificate for Shares of Common Stock  of the Company                                                                                                          |
| 31.1     |   | Certification by the Chief Executive Officer of the  Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                  |
| 31.2     |   | Certification by the Chief Financial Officer of the  Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                  |
| 32.1     |   | Certification by the Chief Executive Officer of the  Company Pursuant to 18 U.S.C. § 1350, adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2     |   | Certification by the Chief Financial Officer of the  Company Pursuant to 18 U.S.C. § 1350, adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

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(1)                 Previouslyfiled as an exhibit to the Company’s Registration Statement on Form S-1(File Number 333-34859) filed with the Securities and ExchangeCommission on September 3, 1997, and incorporated herein by reference.

(2)                 Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with the Securitiesand Exchange Commission on August 11, 2000, and incorporated herein byreference.

(3)                 Previouslyfiled as an exhibit to the Company’s Form 10-K filed with theSecurities and Exchange Commission on March 31, 2003, and incorporatedherein by reference.

(4)                 Previouslyfiled as Exhibit 3.2.3 to the Company’s Form 10-K filed withthe Securities and Exchange Commission on March 15, 2004, and incorporatedherein by reference.

(5)                 Previouslyfiled as Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A(File Number 333-34859) filed with the Securities and ExchangeCommission on October 23, 1997, and incorporated herein by reference.

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

|                              | TRAMMELL  CROW COMPANY |
|------------------------------|------------------------|
|                         | By:                    | /s/  DEREK R. MCCLAIN |
|                         |                   | Derek R. McClain |
|                         | * *               | *Chief  Financial Officer* |
| * *                     | * *               | *(Principal  Financial Officer and duly authorized to  sign this report on behalf of the Registrant)* |
| Date:  November 8, 2005 | * *               |

 

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**Exhibit Index**
| Exhibit  Number | ** ** | ** **                                                                                                                                                                              | ** ** | **Description** |
|-----------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 3.1(1)          |       | Certificate of  Incorporation of the Company                                                                                                                                            |
| 3.2(1)          |       | Bylaws of the Company                                                                                                                                                                   |
| 3.2.1(2)        |       | First Amendment to the  Bylaws of the Company                                                                                                                                           |
| 3.2.1(3)        |       | Second Amendment to the  Bylaws of the Company                                                                                                                                          |
| 3.2.1(4)        |       | Third Amendment to the  Bylaws of the Company                                                                                                                                           |
| 4.1(5)          |       | Form of Certificate  for Shares of Common Stock of the Company                                                                                                                     |
| 31.1            |       | Certification by the  Chief Executive Officer of the Company Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                            |
| 31.2            |       | Certification by the  Chief Financial Officer of the Company Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                            |
| 32.1            |       | Certification by the  Chief Executive Officer of the Company Pursuant to  18 U.S.C. § 1350, adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
| 32.2            |       | Certification by the Chief Financial Officer of the  Company Pursuant to 18 U.S.C. § 1350, adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002  |

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(1)                 Previouslyfiled as an exhibit to the Company’s Registration Statement on Form S-1(File Number 333-34859) filed with the Securities and ExchangeCommission on September 3, 1997, and incorporated herein by reference.

(2)                 Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with theSecurities and Exchange Commission on August 11, 2000, and incorporatedherein by reference.

(3)                 Previouslyfiled as an exhibit to the Company’s Form 10-K filed with theSecurities and Exchange Commission on March 31, 2003, and incorporated hereinby reference.

(4)                 Previouslyfiled as Exhibit 3.2.3 to the Company’s Form 10-K filed withthe Securities and Exchange Commission on March 15, 2004, and incorporatedherein by reference.

(5)                 Previouslyfiled as Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A(File Number 333-34859) filed with the Securities and ExchangeCommission on October 23, 1997, and incorporated herein by reference.

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