**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

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**FORM 10-Q**
| **(Mark  One)**                                                                                                                                   | ** ** | ** **                                                                                              |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| **x**                                                                                                                                             | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|                                                                                                                                              | ** ** | ** **                                                                                              |
| **For the quarterly period ended June 30,  2004**                                                                                            |
| ** **                                                                                                                                        | ** ** | ** **                                                                                              |
| **Or**                                                                                                                                            |
| ** **                                                                                                                                        | ** ** | ** **                                                                                              |
|  ̈                                                                                                                                            | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                              |       |                                                                                                    |
| **For the transition period  from          to        ** |

 

**Commissionfile number 1-13531**

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**Trammell Crow Company**

(Exact name of registrantas specified in its charter)

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

 

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

**Notapplicable**(Former name, former address and 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  ̈

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

There were 37,817,856 shares of the registrant’scommon stock outstanding as of August 2, 2004.

 

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**TRAMMELL CROWCOMPANY AND SUBSIDIARIES**

**INDEX**
| ** **    | ** ** | ** **                                                                                                                                                         | ** ** | **Page  Number** |   |
|---------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|--------|
| PART I.  |       | Financial Information                                                                                                                                              |       | 3                |   |
| Item 1.       |       | Financial  Statements                                                                                                                                              |       | 3                |   |
|          |       | Condensed Consolidated Balance  Sheets as of June 30, 2004 (unaudited) and December 31, 2003                                                             |       | 3                |   |
|          |       | Condensed Consolidated Statements  of Income for the three and six months ended June 30, 2004 and 2003  (unaudited)                                           |       | 4                |   |
|          |       | Condensed  Consolidated Statements of Stockholders’ Equity for the six months ended  June 30, 2004 (unaudited) and the year ended December 31, 2003 |       | 5                |   |
|          |       | Condensed Consolidated  Statements of Cash Flows for the six months ended June 30, 2004 and 2003  (unaudited)                                                 |       | 6                |   |
|          |       | Condensed  Consolidated Statements of Comprehensive Income for the three and six months  ended June 30, 2004 and 2003 (unaudited)                             |       | 7                |   |
|          |       | Notes to Condensed Consolidated  Financial Statements (unaudited)                                                                                                  |       | 8                |   |
| Item  2.      |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                        |       | 25               |   |
| Item  3.      |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                        |       | 35               |   |
| Item 4.       |       | Controls and  Procedures                                                                                                                                           |       | 35               |   |
| PART II. |       | Other Information                                                                                                                                                  |       | 36               |   |
| Item  1.      |       | Legal Proceedings                                                                                                                                                  |       | 36               |   |
| Item  4.      |       | Submission  of Matters to a Vote of Security Holders                                                                                                               |       | 36               |   |
| Item 6.       |       | Exhibits  and Reports on Form 8-K                                                                                                                             |       | 37               |   |

 

2

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**PART I—FINANCIALINFORMATION**

**ITEM 1.****  ***Financial Statements*

**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share data)**
| ** **                                                                                                                                                                                                 | ** **                        | **June 30,**

**2004** | ** ** | **December 31,**

**2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                 | ** **                        | **(Unaudited)**             | ** ** | **(Note 1)**               | ** ** |
| **ASSETS**                                                                                                                                                                                                 |                              |                        |       |                            |       |   |   |   |   |
| Current assets                                                                                                                                                                                             |                              |                        |       |                            |       |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                                                                 |                              |                        | $          | 78,610                          |       |   |   | $ | 105,616 |   |   |
| Restricted cash                                                                                                                                                                                            |                              |                        | 6,680      |                            |       |   | 7,647 |   |   |
| Accounts  receivable, net of allowance for doubtful accounts of $2,913 in 2004 and  $3,886 in 2003                                                                                                         |                              |                        | 94,388     |                            |       |   | 97,479 |   |   |
| Receivables from  affiliates                                                                                                                                                                               |                              |                        | 1,521      |                            |       |   | 1,593 |   |   |
| Notes and other  receivables                                                                                                                                                                               |                              |                        | 6,396      |                            |       |   | 9,876 |   |   |
| Deferred income  taxes                                                                                                                                                                                     |                              |                        | 3,704      |                            |       |   | 3,754 |   |   |
| Real estate under  development                                                                                                                                                                             |                              |                        | 16,622     |                            |       |   | 44,905 |   |   |
| Real estate and  other assets held for sale                                                                                                                                                                |                              |                        | 21,491     |                            |       |   | 43,221 |   |   |
| Other current  assets                                                                                                                                                                                      |                              |                        | 20,546     |                            |       |   | 21,686 |   |   |
| Total current  assets                                                                                                                                                                                      |                              |                        | 249,958    |                            |       |   | 335,777 |   |   |
| Furniture and  equipment, net                                                                                                                                                                              |                              |                        | 20,514     |                            |       |   | 21,305 |   |   |
| Deferred income  taxes                                                                                                                                                                                     |                              |                        | 19,958     |                            |       |   | 19,898 |   |   |
| Real estate under  development                                                                                                                                                                             |                              |                        | 58,600     |                            |       |   | 6,345 |   |   |
| Real estate held  for investment                                                                                                                                                                           |                              |                        | 108,380    |                            |       |   | 74,121 |   |   |
| Investments in  unconsolidated subsidiaries                                                                                                                                                                |                              |                        | 66,557     |                            |       |   | 65,025 |   |   |
| Goodwill, net                                                                                                                                                                                              |                              |                        | 74,341     |                            |       |   | 74,346 |   |   |
| Receivables from  affiliates                                                                                                                                                                               |                              |                        | 17,972     |                            |       |   | 14,485 |   |   |
| Other assets                                                                                                                                                                                               |                              |                        | 15,987     |                            |       |   | 18,824 |   |   |
|                                                                                                                                                                                                       |                              |                        | $          | 632,267                         |       |   |   | $ | 630,126 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                             |                              |                        |       |                            |       |   |   |   |   |
| Current liabilities                                                                                                                                                                                        |                              |                        |       |                            |       |   |   |   |   |
| Accounts payable                                                                                                                                                                                           |                              |                        | $          | 18,339                          |       |   |   | $ | 16,183 |   |   |
| Accrued expenses                                                                                                                                                                                           |                              |                        | 91,606     |                            |       |   | 116,044 |   |   |
| Payables to  affiliates                                                                                                                                                                                    |                              |                        | 53         |                            |       |   | 104 |   |   |
| Income taxes  payable                                                                                                                                                                                      |                              |                        | 1,664      |                            |       |   | 7,468 |   |   |
| Current portion of  long-term debt                                                                                                                                                                         |                              |                        | 1,074      |                            |       |   | 1,081 |   |   |
| Current portion of  capital lease obligations                                                                                                                                                              |                              |                        | 700        |                            |       |   | 1,297 |   |   |
| Current portion of  notes payable on real estate                                                                                                                                                           |                              |                        | 26,873     |                            |       |   | 57,270 |   |   |
| Liabilities  related to real estate and other assets held for sale                                                                                                                                         |                              |                        | 13,404     |                            |       |   | 26,747 |   |   |
| Other current  liabilities                                                                                                                                                                                 |                              |                        | 8,842      |                            |       |   | 9,834 |   |   |
| Total current  liabilities                                                                                                                                                                                 |                              |                        | 162,555    |                            |       |   | 236,028 |   |   |
| Long-term  debt, less current portion                                                                                                                                                                      |                              |                        | 11         |                            |       |   | 10,014 |   |   |
| Capital lease  obligations, less current portion                                                                                                                                                           |                              |                        | 575        |                            |       |   | 714 |   |   |
| Notes payable on  real estate, less current portion                                                                                                                                                        |                              |                        | 82,914     |                            |       |   | 20,386 |   |   |
| Other liabilities                                                                                                                                                                                          |                              |                        | 8,907      |                            |       |   | 6,459 |   |   |
| Total liabilities                                                                                                                                                                                          |                              |                        | 254,962    |                            |       |   | 273,601 |   |   |
| Minority interest                                                                                                                                                                                          |                              |                        | 40,114     |                            |       |   | 28,896 |   |   |
| 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; 37,783,595 shares issued and  37,673,713 shares outstanding in 2004 and 37,783,595 shares issued and  36,862,242 shares outstanding in 2003 |                              |                        | 377        |                            |       |   | 377 |   |   |
| Paid-in  capital                                                                                                                                                                                           |                              |                        | 194,795    |                            |       |   | 192,336 |   |   |
| Retained earnings                                                                                                                                                                                          |                              |                        | 156,667    |                            |       |   | 151,560 |   |   |
| Accumulated other  comprehensive income                                                                                                                                                                    |                              |                        | 1,081      |                            |       |   | 1,106 |   |   |
| Less:                                                                                                                                                                                                      | Treasury stock                    |                        |       | (1,001                          | )          |   |   | (8,363 | ) |   |
|                                                                                                                                                                                                       | Unearned stock  compensation, net |                        |       | (14,728                         | )          |   |   | (9,387 | ) |   |
| Total  stockholders’ equity                                                                                                                                                                           |                              |                        | 337,191    |                            |       |   | 327,629 |   |   |
|                                                                                                                                                                                                       |                              |                        | $          | 632,267                         |       |   |   | $ | 630,126 |   |   |

 

See accompanying notes.

3

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**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME(in thousands, except share and per share data)(Unaudited)**
| ** **                                                                                                                                   | ** ** | **For the Three Months   Ended June 30,** | ** ** | **For the Six Months   Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                                                                                   | ** ** | **2004**                                                                | ** ** | **2003**                                                              | ** ** | **2004** | ** ** | **2003** | ** ** |
| **REVENUES**                                                                                                                                 |       |                                                                    |       |                                                                  |       |   |   |   |   |
| ***User Services:***                                                                                                                         |       |                                                                    |       |                                                                  |       |   |   |   |   |
| Facilities management                                                                                                                        |       | $                                                                       | 50,556     |                                                                  | $          | 53,453 |   | $ | 101,312 |   | $ | 104,916 |   |
| Corporate advisory services                                                                                                                  |       | 33,744                                                                  |       | 29,644                                                                |       | 56,278 |   | 52,316 |   |
| Project management services                                                                                                                  |       | 19,675                                                                  |       | 15,884                                                                |       | 37,637 |   | 30,331 |   |
|                                                                                                                                         |       | 103,975                                                                 |       | 98,981                                                                |       | 195,227 |   | 187,563 |   |
| ***Investor Services:***                                                                                                                     |       |                                                                    |       |                                                                  |       |   |   |   |   |
| Property management                                                                                                                          |       | 34,762                                                                  |       | 36,015                                                                |       | 69,324 |   | 73,438 |   |
| Brokerage                                                                                                                                    |       | 28,710                                                                  |       | 23,604                                                                |       | 50,859 |   | 41,098 |   |
| Construction management                                                                                                                      |       | 2,343                                                                   |       | 2,744                                                                 |       | 4,061 |   | 4,784 |   |
|                                                                                                                                         |       | 65,815                                                                  |       | 62,363                                                                |       | 124,244 |   | 119,320 |   |
| Development and construction                                                                                                                 |       | 8,805                                                                   |       | 7,729                                                                 |       | 17,134 |   | 17,554 |   |
|                                                                                                                                         |       | 178,595                                                                 |       | 169,073                                                               |       | 336,605 |   | 324,437 |   |
| Gain on disposition of real estate                                                                                                           |       | 3,885                                                                   |       | 73                                                                    |       | 4,353 |   | 4,841 |   |
| Other                                                                                                                                        |       | 479                                                                     |       | 158                                                                   |       | 1,366 |   | 812 |   |
|                                                                                                                                         |       | 182,959                                                                 |       | 169,304                                                               |       | 342,324 |   | 330,090 |   |
| **COSTS AND EXPENSES**                                                                                                                       |       |                                                                    |       |                                                                  |       |   |   |   |   |
| Salaries, wages and benefits                                                                                                                 |       | 112,793                                                                 |       | 112,308                                                               |       | 228,945 |   | 221,955 |   |
| Commissions                                                                                                                                  |       | 27,982                                                                  |       | 22,798                                                                |       | 48,004 |   | 40,149 |   |
| General and administrative                                                                                                                   |       | 32,860                                                                  |       | 31,357                                                                |       | 59,281 |   | 57,027 |   |
| Depreciation and amortization                                                                                                                |       | 2,869                                                                   |       | 5,236                                                                 |       | 6,100 |   | 9,405 |   |
| Interest                                                                                                                                     |       | 1,153                                                                   |       | 1,565                                                                 |       | 2,057 |   | 3,843 |   |
|                                                                                                                                         |       | 177,657                                                                 |       | 173,264                                                               |       | 344,387 |   | 332,379 |   |
| Income (loss) from continuing operations before  income taxes, minority interest and income from investments in unconsolidated  subsidiaries |       | 5,302                                                                   |       | (3,960                                                                | )          | (2,063 | ) | (2,289 | ) |
| Income tax (expense) benefit                                                                                                                 |       | (2,211                                                                  | )          | 1,732                                                                 |       | 880 |   | 1,004 |   |
| Minority interest, net of income tax (expense)  benefit of $445, $(862), $470 and $(1,031)                                                   |       | (590                                                                    | )          | 1,101                                                                 |       | (625 | ) | 1,321 |   |
| Income from investments in unconsolidated  subsidiaries, net of income tax expense of $719, $3,354, $5,035 and $3,394                        |       | 713                                                                     |       | 4,297                                                                 |       | 6,683 |   | 4,349 |   |
| Income from continuing operations                                                                                                            |       | 3,214                                                                   |       | 3,170                                                                 |       | 4,875 |   | 4,385 |   |
| Income (loss) from discontinued operations, net of  income tax (expense) benefit of $0, $77, $(317) and $131                                 |       | —                                                                  |       | (98                                                                   | )          | 438 |   | (169 | ) |
| Net income                                                                                                                                   |       | $                                                                       | 3,214      |                                                                  | $          | 3,072 |   | $ | 5,313 |   | $ | 4,216 |   |
| Income per share from  continuing operations:                                                                                                |       |                                                                    |       |                                                                  |       |   |   |   |   |
| Basic                                                                                                                                        |       | $                                                                       | 0.09       |                                                                  | $          | 0.09 |   | $ | 0.14 |   | $ | 0.12 |   |
| Diluted                                                                                                                                      |       | $                                                                       | 0.09       |                                                                  | $          | 0.08 |   | $ | 0.13 |   | $ | 0.11 |   |
| Income (loss) per share  from discontinued operations, net of income taxes:                                                                  |       |                                                                    |       |                                                                  |       |   |   |   |   |
| Basic                                                                                                                                        |       | $                                                                       | —     |                                                                  | $          | — |   | $ | 0.01 |   | $ | — |   |
| Diluted                                                                                                                                      |       | $                                                                       | —     |                                                                  | $          | — |   | $ | 0.01 |   | $ | — |   |
| Net income per share:                                                                                                                        |       |                                                                    |       |                                                                  |       |   |   |   |   |
| Basic                                                                                                                                        |       | $                                                                       | 0.09       |                                                                  | $          | 0.09 |   | $ | 0.15 |   | $ | 0.12 |   |
| Diluted                                                                                                                                      |       | $                                                                       | 0.09       |                                                                  | $          | 0.08 |   | $ | 0.14 |   | $ | 0.11 |   |
| Weighted average common  shares outstanding:                                                                                                 |       |                                                                    |       |                                                                  |       |   |   |   |   |
| Basic                                                                                                                                        |       | 35,545,234                                                              |       | 35,583,404                                                            |       | 35,521,715 |   | 35,853,169 |   |
| Diluted                                                                                                                                      |       | 37,462,293                                                              |       | 36,534,387                                                            |       | 37,426,216 |   | 36,665,297 |   |

 

See accompanying notes.

4

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**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTSOF STOCKHOLDERS’ EQUITYSix Months ended June 30, 2004 (Unaudited) and Year ended December 31,2003 (Note 1)(in thousands, except share data)**
| ** **                                                        | ** ** | ** **             | ** ** | ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|--------------------|------------|-------------|------------|--------------|------------|-------------------|------------|------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                                                        | ** ** | ** **             | ** ** | ** **         | ** ** | **Common**  | ** ** | ** **   | ** ** | ** **        | ** ** | **Other**              | ** ** | ** ** | ** ** | **Unearned**     | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | **Common Shares** | ** ** | **Stock Par** | ** ** | **Paid-In** | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | **Treasury**           | ** ** | **Stock**  | ** ** | ** **       | ** ** |
| ** **                                                        | ** ** | **Issued**             | ** ** | **Treasury**       | ** ** | **Value**   | ** ** | **Capital**  | ** ** | **Earnings**      | ** ** | **Income (Loss)** | ** ** | **Stock**  | ** ** | **Compensation** | ** ** | **Total**  | ** ** |
| Balance at  January 1, 2003                                  |       | 36,227,820             |       | 48,647             |       |        | $          | 362          |       |              | $          | 178,977                |       |       | $          | 130,874          |       |       |       | $ | (589 | ) |   |   | $ | (464 | ) |   |   | $ | (806 | ) |   | $ | 308,354 |   |
| Net income                                                        |       | —                 |       | —             |       |        | —     |         |       | —            |       |                   | 21,040     |       |       |             | —     |       |       |   | — |   |   |   | — |   |   | 21,040 |   |
| Issuance of restricted stock                                 |       | 1,413,000              |       | (223,500           | )          |        | 14         |         |       | 12,269            |       |                   | —     |       |       |             | —     |       |       |   | 2,028 |   |   |   | (14,311 | ) |   | — |   |
| Forfeiture of restricted stock                                    |       | —                 |       | 237,570            |       |        | —     |         |       | (26               | )          |                   | —     |       |       |             | —     |       |       |   | (1,996 | ) |   |   | 1,807 |   |   | (215 | ) |
| Amortization of unearned stock compensation                       |       | —                 |       | —             |       |        | —     |         |       | —            |       |                   | —     |       |       |             | —     |       |       |   | — |   |   |   | 3,923 |   |   | 3,923 |   |
| Issuance of common stock                                     |       | 142,775                |       | (275,764           | )          |        | 1          |         |       | 1,116             |       |                   | (354       | )          |       |             | —     |       |       |   | 2,504 |   |   |   | — |   |   | 3,267 |   |
| Stock repurchase                                                  |       | —                 |       | 1,134,400          |       |        | —     |         |       | —            |       |                   | —     |       |       |             | —     |       |       |   | (10,435 | ) |   |   | — |   |   | (10,435 | ) |
| Foreign currency translation adjustment, net of tax               |       | —                 |       | —             |       |        | —     |         |       | —            |       |                   | —     |       |       |             | 1,358      |       |       |   | — |   |   |   | — |   |   | 1,358 |   |
| Change in fair value of interest rate swap agreement,  net of tax |       | —                 |       | —             |       |        | —     |         |       | —            |       |                   | —     |       |       |             | 337        |       |       |   | — |   |   |   | — |   |   | 337 |   |
| Balance at December 31, 2003                                 |       | 37,783,595             |       | 921,353            |       |        | 377        |         |       | 192,336           |       |                   | 151,560    |       |       |             | 1,106      |       |       |   | (8,363 | ) |   |   | (9,387 | ) |   | 327,629 |   |
| Net income                                                        |       | —                 |       | —             |       |        | —     |         |       | —            |       |                   | 5,313      |       |       |             | —     |       |       |   | — |   |   |   | — |   |   | 5,313 |   |
| Issuance of restricted stock                                 |       | —                 |       | (638,313           | )          |        | —     |         |       | 2,459             |       |                   | —     |       |       |             | —     |       |       |   | 5,796 |   |   |   | (8,255 | ) |   | — |   |
| Forfeiture of restricted stock                                    |       | —                 |       | 1,465              |       |        | —     |         |       | —            |       |                   | —     |       |       |             | —     |       |       |   | (20 | ) |   |   | 1 |   |   | (19 | ) |
| Amortization of unearned stock compensation                       |       | —                 |       | —             |       |        | —     |         |       | —            |       |                   | —     |       |       |             | —     |       |       |   | — |   |   |   | 2,913 |   |   | 2,913 |   |
| Issuance of common stock                                     |       | —                 |       | (174,623           | )          |        | —     |         |       | —            |       |                   | (206       | )          |       |             | —     |       |       |   | 1,586 |   |   |   | — |   |   | 1,380 |   |
| Foreign currency translation adjustment, net of tax               |       | —                 |       | —             |       |        | —     |         |       | —            |       |                   | —     |       |       |             | (25        | )          |       |   | — |   |   |   | — |   |   | (25 | ) |
| Balance at June  30, 2004                                         |       | 37,783,595             |       | 109,882            |       |        | $          | 377          |       |              | $          | 194,795                |       |       | $          | 156,667          |       |       |       | $ | 1,081 |   |   |   | $ | (1,001 | ) |   |   | $ | (14,728 | ) |   | $ | 337,191 |   |

 

See accompanying notes.

5

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**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**(in thousands)(Unaudited)
| ** **                                                                | ** ** | **For the Six Months  Ended June 30,** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                                | ** ** | **2004**                                                        | ** ** | **2003** | ** ** |
| **Operating activities**                                                  |       |                                                            |       |   |   |
| Cash flows from earnings:                                                 |       |                                                            |       |   |   |
| Net income                                                                |       | $                                                               | 5,313      |   | $ | 4,216 |   |
| Reconciliation of net income to net cash provided by  (used in) earnings: |       |                                                            |       |   |   |
| Depreciation and  amortization                                            |       | 6,126                                                           |       | 9,457 |   |
| Amortization of  employment contracts and unearned stock compensation     |       | 3,618                                                           |       | 2,365 |   |
| Amortization of contract  intangibles                                     |       | 1,069                                                           |       | 1,035 |   |
| Bad debt expense                                                          |       | 487                                                             |       | 1,198 |   |
| Provision for losses and  writedowns for impairment on real estate        |       | 672                                                             |       | 3,033 |   |
| Gain on disposition of  real estate held for investment                   |       | (758                                                            | )          | — |   |
| Minority interest                                                         |       | 1,095                                                           |       | (2,352 | ) |
| Deferred income tax  provision (benefit)                                  |       | (1                                                              | )          | 133 |   |
| Income from investments  in unconsolidated subsidiaries                   |       | (11,718                                                         | )          | (7,743 | ) |
| Net cash provided by  earnings                                            |       | 5,903                                                           |       | 11,342 |   |
| Changes in operating assets and liabilities:                              |       |                                                            |       |   |   |
| Restricted cash                                                           |       | 967                                                             |       | 667 |   |
| Accounts receivable                                                       |       | 2,604                                                           |       | 26,046 |   |
| Receivables from  affiliates                                              |       | (3,415                                                          | )          | 1,188 |   |
| Notes receivable and  other assets                                        |       | 5,209                                                           |       | (4,096 | ) |
| Real estate held for sale  and under development                          |       | (21,456                                                         | )          | (6,071 | ) |
| Notes payable on real  estate held for sale and under development         |       | 20,553                                                          |       | 5,624 |   |
| Accounts payable and  accrued expenses                                    |       | (22,565                                                         | )          | (34,908 | ) |
| Payables to affiliates                                                    |       | (51                                                             | )          | — |   |
| Income taxes payable                                                      |       | (5,804                                                          | )          | (2,567 | ) |
| Other liabilities                                                         |       | 1,391                                                           |       | (99 | ) |
| Net cash flows from  changes in working capital                           |       | (22,567                                                         | )          | (14,216 | ) |
| Net cash used in  operating activities                                    |       | (16,664                                                         | )          | (2,874 | ) |
| **Investing activities**                                                  |       |                                                            |       |   |   |
| Expenditures for  furniture and equipment                                 |       | (3,319                                                          | )          | (3,616 | ) |
| Additions to real estate  held for investment                             |       | (28,882                                                         | )          | (9,590 | ) |
| Net proceeds from  disposition of real estate held for investment         |       | 14,860                                                          |       | — |   |
| Investments in  unconsolidated subsidiaries                               |       | (1,346                                                          | )          | (881 | ) |
| Distributions from  unconsolidated subsidiaries                           |       | 11,709                                                          |       | 13,262 |   |
| Net cash used in  investing activities                                    |       | (6,978                                                          | )          | (825 | ) |
| **Financing  activities**                                                 |       |                                                            |       |   |   |
| Principal payments on  long-term debt and capital lease obligations       |       | (113,943                                                        | )          | (48,337 | ) |
| Proceeds from long-term  debt                                             |       | 102,539                                                         |       | 41,401 |   |
| Contributions from  minority interest                                     |       | 12,683                                                          |       | 2,633 |   |
| Distributions to minority  interest                                       |       | (2,560                                                          | )          | (6,140 | ) |
| Proceeds from notes  payable on real estate held for investment           |       | 9,944                                                           |       | 4,962 |   |
| Payments on notes payable  on real estate held for investment             |       | (13,407                                                         | )          | (263 | ) |
| Proceeds from exercise of  stock options                                  |       | 140                                                             |       | 22 |   |
| Proceeds from issuance of  common stock                                   |       | 1,240                                                           |       | 1,092 |   |
| Purchase of common stock                                                  |       | —                                                          |       | (10,435 | ) |
| Net cash used in  financing activities                                    |       | (3,364                                                          | )          | (15,065 | ) |
| Net decrease in cash and  cash equivalents                                |       | (27,006                                                         | )          | (18,764 | ) |
| Cash and cash  equivalents, beginning of period                           |       | 105,616                                                         |       | 78,005 |   |
| Cash and cash equivalents, end of period                                  |       | $                                                               | 78,610     |   | $ | 59,241 |   |

 

See accompanying notes.

6

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**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME(in thousands)(Unaudited)**
| ** **                                                                                                                                                                                                                                                 | ** ** | **For the Three  Months  Ended June 30,** | ** ** | **For the Six  Months  Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                 | ** ** | **2004**                                                      | ** ** | **2003**                                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net income                                                                                                                                                                                                                                                 |       | $                                                             | 3,214      |                                                        | $          | 3,072 |   | $ | 5,313 |   | $ | 4,216 |   |
| Other  comprehensive income:                                                                                                                                                                                                                               |       |                                                          |       |                                                        |       |   |   |   |   |
| Foreign currency translation adjustments, net of tax  expense (benefit) of $(157) and $(9) in the three and six months ended  June 30, 2004, respectively, and $383 and $422 in the three and six  months ended June 30, 2003, respectively |       | (224                                                          | )          | 495                                                         |       | (25 | ) | 569 |   |
| Change in fair value of interest rate swap agreement,  net of tax expense of $0 and $229 in the three and six months ended  June 30, 2003, respectively                                                                                               |       | —                                                        |       | —                                                      |       | — |   | 337 |   |
| Comprehensive income                                                                                                                                                                                                                                       |       | $                                                             | 2,990      |                                                        | $          | 3,567 |   | $ | 5,288 |   | $ | 5,122 |   |

 

See accompanying notes.

7

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**TRAMMELL CROWCOMPANY AND SUBSIDIARIES NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS June 30, 2004(in thousands, except share and 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, 2003. Inthe opinion of management, all adjustments and eliminations, consisting only ofrecurring adjustments, necessary for a fair presentation of the financialstatements for the interim periods have been made. Interim results ofoperations are not necessarily indicative of the results to be expected for thefull 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 and other factorsmay also cause quarterly fluctuations in the Company’s results of operations.

*Reclassifications*

In accordance withFinancial Accounting Standards Board (“FASB”) Statement of Financial AccountingStandards No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets*(“FAS 144”),certain assets and liabilities at December 31, 2003, and certain revenuesand expenses for the three months ended March 31, 2004, and the three andsix months ended June 30, 2003 have been reclassified to conform to thepresentation at and for the three months ended June 30, 2004 (seeNotes 7 and 9). As a result, certain balances differ from the amountsreported in previously filed documents.

*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.

*Consolidation*

The Company accounts for its interests in variableinterest entities (“VIEs”) in accordance with FASB Interpretation No. 46(revised December 2003), *Consolidation of VariableInterest Entities* (“FIN 46R”). The Company determines whetheran entity is a VIE and, if so, whether it should be consolidated, by utilizingjudgments and estimates that are inherently subjective. If the Company madedifferent judgments or utilized different estimates in these evaluations, itcould result in differing conclusions as to whether or not an entity is a VIEand whether or not to consolidate such entity.

 

8

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**1.     **General (Continued)

The accompanying consolidated financial statementsinclude the accounts of the Company, its wholly-owned subsidiaries, and othersubsidiaries that are not considered VIEs and over which the Company hascontrol. In addition, the Company consolidates any VIEs of which it is theprimary beneficiary in accordance with FIN 46R. Intercompany accounts andtransactions have been eliminated. The Company’s investments in subsidiaries(including VIEs of which the Company is not the primary beneficiary) in whichit has the ability to exercise significant influence over operating andfinancial policies, but does not control (including subsidiaries where the Companyhas less than 20% ownership), are accounted for on the equity method. TheCompany eliminates transactions with such equity method subsidiaries to theextent of its ownership in such subsidiaries. Accordingly, the Company’s shareof the earnings or losses of these equity basis subsidiaries is included inconsolidated net income. Investments in other subsidiaries are carried at cost.The Company’s unconsolidated subsidiaries primarily own or invest in realestate development projects.

In May 2003, the Company entered into a purchaseagreement with an independent third party (“Seller Entity”) to acquire parcelsof undeveloped land for a purchase price of $19,500. As part of the agreement,the Company has deposited $750 in escrow which is non-refundable in the eventthe Company decides not to purchase the land. This non-refundable deposit isconsidered to be a variable interest in the Seller Entity, which the Companybelieves is a VIE. However, based upon the Company’s evaluation, the Company isnot the primary beneficiary of the Seller Entity, and therefore has notconsolidated the Seller Entity. As of June 30, 2004, the Company’s totalexposure to loss as a result of its involvement with this VIE is limited to itsdeposit of $750.

The Company is part of aco-lender group with an independent third party that has issued a mezzanineloan to the owner of two office buildings. In April 2000, the Companyprovided $567 of the total $5,667 mezzanine loan. At that time, anotherindependent third-party lender provided the primary financing of $19,100 to theowner. The Company also provides building management and leasing services forthe buildings 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 properties, which the Company believes is a VIE. However,based upon the Company’s evaluation, the Company is not the primary beneficiaryof the entity. Therefore, the Company has not consolidated the entity that ownsthe office buildings for which it has provided financing. The Company’s totalexposure to loss as a result of its involvement with this VIE is $567 as of June 30,2004.

*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 are expectedto be in effect when the differences reverse.

8

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**1.     **General (Continued)

*Earnings Per Share*

The weighted-averagecommon shares outstanding used to calculate diluted earnings per share for thethree and six months ended June 30, 2004, include 1,917,059 and 1,904,501shares, respectively, to reflect the dilutive effect of unvested restrictedstock and options to purchase shares of common stock. The weighted-averagecommon shares outstanding used to calculate diluted earnings per share for thethree and six months ended June 30, 2003, include 950,983 and 812,128shares, respectively, to reflect the dilutive effect of unvested restrictedstock and options to purchase shares of common stock.

*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 awardsover the vesting period of the underlying award in an amount equal to the fairmarket value of the Company’s stock on the date of grant.

Pro forma informationregarding net income and net income per share, shown in the table below, hasbeen determined as if the Company had applied the fair value recognitionprovisions of Statement of Financial Accounting Standards No. 123, *Accounting for Stock-Based Compensation*.
| ** **                                                                                                                              | ** ** | **For the Three  Months  Ended June 30,** | ** ** | **For the Six  Months  Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                              | ** ** | **2004**                                                      | ** ** | **2003**                                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net income, as  reported                                                                                                                |       | $                                                             | 3,214      |                                                        | $          | 3,072 |   | $ | 5,313 |   | $ | 4,216 |   |
| Add: Stock-based  employee compensation expense included in net income, net of related tax  effects                                     |       | 963                                                           |       | 570                                                         |       | 1,657 |   | 844 |   |
| Deduct: Stock-based  employee compensation expense determined under fair value based method for  all awards, net of related tax effects |       | 1,485                                                         |       | 900                                                         |       | 2,691 |   | 2,357 |   |
| Pro forma net  income                                                                                                                   |       | $                                                             | 2,692      |                                                        | $          | 2,742 |   | $ | 4,279 |   | $ | 2,703 |   |
| Net income per share:                                                                                                                   |       |                                                          |       |                                                        |       |   |   |   |   |
| Basic—as  reported                                                                                                                 |       | $                                                             | 0.09       |                                                        | $          | 0.09 |   | $ | 0.15 |   | $ | 0.12 |   |
| Basic—pro  forma                                                                                                                   |       | $                                                             | 0.08       |                                                        | $          | 0.08 |   | $ | 0.12 |   | $ | 0.08 |   |
| Net income per share:                                                                                                                   |       |                                                          |       |                                                        |       |   |   |   |   |
| Diluted—as  reported                                                                                                               |       | $                                                             | 0.09       |                                                        | $          | 0.08 |   | $ | 0.14 |   | $ | 0.11 |   |
| Diluted—pro forma                                                                                                                  |       | $                                                             | 0.07       |                                                        | $          | 0.08 |   | $ | 0.11 |   | $ | 0.07 |   |

 

9

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**1.     **General (Continued)

*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”). Certain provisionsof FAS 150 would have required the Company to classify non-controllinginterests in consolidated limited life subsidiaries as liabilities adjusted totheir settlement values in the Company’s financial statements. In November 2003,the FASB indefinitely deferred application of the measurement and recognitionprovisions (but not the disclosure requirements) of FAS 150 with respectto these non-controlling interests. As of June 30, 2004, the estimatedsettlement value of non-controlling interests in the Company’s consolidatedlimited life subsidiaries is $9,924, as compared to book value (included inminority interest on the Company’s balance sheet) of $9,245. The excess ofsettlement value over book value is driven by an even larger estimatedappreciation of certain consolidated real estate assets and investments fromthe Company’s book value, offset by selling costs and debt prepaymentpenalties, if any.

**2.      Real Estate**

All real estate isincluded in the Company’s Development and Investment segment (see Note 12).Certain real estate assets owned by the Company secure the outstanding balancesof underlying mortgage or construction loans. Real estate owned by the Companyconsists of the following:
| ** **                                                         | ** ** | **June 30,   2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------|------------|-----------------------------|------------|
| Real estate under  development (current)                           |       | $                             | 16,622     |                        |       | $ | 44,905 |   |   |
| Real estate  included in assets held for sale (see Note 7)(1) |       | 20,213                        |       |                        | 41,584     |   |   |
| Real estate under  development (non-current)                       |       | 58,600                        |       |                        | 6,345      |   |   |
| Real estate held  for investment(2)                                |       | 108,380                       |       |                        | 74,121     |   |   |
|                                                               |       | $                             | 203,815    |                        |       | $ | 166,955 |   |   |

----

(1)          Net of allowances of$1,026 and $1,048 at June 30, 2004, and December 31, 2003,respectively, to reduce the carrying value of assets to fair value less cost tosell.

(2)          Net of accumulateddepreciation of $1,326 and $1,066 at June 30, 2004, and December 31,2003, respectively.

In the six months ended June 30, 2004 and 2003, theCompany recorded provisions for losses on real estate of $94 and $1,631,respectively, to increase the allowances on real estate held for sale to reducethe carrying value of assets to fair value less cost to sell. Of the amountrecorded in 2003, $1,395 was included in discontinued operations in theconsolidated statements of income as it related to a real estate project thatis considered a discontinued operation under FAS 144. All remainingamounts are included in general and administrative expenses in the consolidatedstatements of income.

In the six months ended June 30, 2004 and 2003, theCompany recorded writedowns for impairment of real estate (not classified asheld for sale at the time of such writedowns) totaling $578 and $1,402, 

10

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**2.     **Real Estate (Continued)

respectively, which isincluded in general and administrative expenses in the consolidated statementsof income. The 2004 writedowns for impairment primarily relate to a vacant landparcel in a market in which rental rates continue to decline and vacancy ratescontinue to increase. The Company obtained market comparisons for the landparcel and determined that, based on those market comparisons, the value of theland was impaired. The 2003 writedowns for impairment primarily related to asingle-tenant office/industrial real estate project. The non-recourse notepayable related to the real estate project had matured and the Companysubsequently conveyed the underlying property to the lender to satisfy thenote. The fair value of the asset was determined based on a discounted cashflow projection prior to the conveyance of the property to the lender.

In December 2003, the Company sold a parcel ofland for $1,750. The consideration received included an interest-bearing notefrom the buyer for $1,125. The Company retained a unilateral right torepurchase the property at any time through 2006, in addition to maintainingthe right to approve any plans for development on the property. If the Companyexercises its repurchase option, the Company would repay the amount it receivedfrom the buyer, plus a return on the buyer’s investment. Because of the Company’scontinuing involvement in and option to repurchase the property, thetransaction did not qualify as a sale and as a result, a financing transactionwas recorded. As of June 30, 2004, real estate and other assets held forsale includes $844 of real estate and $1,111 of notes receivable, andliabilities related to real estate and other assets held for sale include$1,750 of notes payable and $105 of accrued interest, all related to thisparcel of land.

In the first half of 2003,the Company sold its 50% partnership interest in a consolidated subsidiary tothe other partner in the partnership for a net sales price of $1,032. Thetransaction resulted in a non-cash decrease in real estate and other assetsheld for sale of $11,004 (accounts receivable of $4 and real estate of$11,000), a decrease in cash (included in real estate and other assets held forsale) of $92, and a non-cash reduction in liabilities related to real estateand other assets held for sale of $11,804 (decrease in accounts payable of $61,increase in accrued expenses of $164, decrease in notes payable on real estateof $11,907), and a non-cash increase in minority interest of $210. The Companyrecognized a gain on disposition of $1,530 as a result of this transaction.

**3.      Investments in Unconsolidated Subsidiaries**

Investments inunconsolidated subsidiaries consist of the following:
| ** **  | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-------------|------------|-------------------------|------------|-----------------------------|------------|
| Real estate |       | $                       | 35,595     |                        |       | $ | 35,546 |   |   |
| Other       |       | 30,962                  |       |                        | 29,479     |   |   |
|        |       | $                       | 66,557     |                        |       | $ | 65,025 |   |   |

 

11

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**3.     **Investments in Unconsolidated Subsidiaries(Continued)

The Company owns approximately 10.0% of theoutstanding stock of Savills plc (“Savills”), a property services firmheadquartered in the United Kingdom and a leading provider of real estateservices in Europe, Asia-Pacific and Australia. The investment is classified asan “other” investment in the table above.

Summarizedoperating results for unconsolidated subsidiaries accounted for on the equitymethod are as follows:
| ** **       | ** ** | **For the Three Months  Ended June 30,** | ** ** | **For the Six Months  Ended June 30,** | ** ** |
|------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **       | ** ** | **2004**                                                          | ** ** | **2003**                                                        | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Real Estate:** |       |                                                              |       |                                                            |       |   |   |   |   |
| Total revenues   |       | $                                                                 | 5,798      |                                                            | $          | 38,735 |   | $ | 49,459 |   | $ | 54,035 |   |
| Total expenses   |       | 3,454                                                             |       | 11,316                                                          |       | 9,161 |   | 20,790 |   |
| Net income       |       | $                                                                 | 2,344      |                                                            | $          | 27,419 |   | $ | 40,298 |   | $ | 33,245 |   |
| **Other:**       |       |                                                              |       |                                                            |       |   |   |   |   |
| Total revenues   |       | $                                                                 | 161,918    |                                                            | $          | 108,201 |   | $ | 285,100 |   | $ | 190,520 |   |
| Total expenses   |       | 148,418                                                           |       | 99,342                                                          |       | 267,728 |   | 181,344 |   |
| Net income       |       | $                                                                 | 13,500     |                                                            | $          | 8,859 |   | $ | 17,372 |   | $ | 9,176 |   |
| **Total:**       |       |                                                              |       |                                                            |       |   |   |   |   |
| Total revenues   |       | $                                                                 | 167,716    |                                                            | $          | 146,936 |   | $ | 334,559 |   | $ | 244,555 |   |
| Total expenses   |       | 151,872                                                           |       | 110,658                                                         |       | 276,889 |   | 202,134 |   |
| Net income       |       | $                                                                 | 15,844     |                                                            | $          | 36,278 |   | $ | 57,670 |   | $ | 42,421 |   |

 

12

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**4.      Accrued Expenses**

Accruedexpenses consist of the following:
| ** **                                                                                                         | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Payroll and  bonuses                                                                                               |       | $                       | 28,879     |                        |       | $ | 42,316 |   |   |
| Commissions                                                                                                        |       | 28,200                  |       |                        | 38,337     |   |   |
| Development costs                                                                                                  |       | 8,585                   |       |                        | 15,045     |   |   |
| Deferred income                                                                                                    |       | 8,879                   |       |                        | 5,691      |   |   |
| Interest                                                                                                           |       | 818                     |       |                        | 1,175      |   |   |
| Insurance                                                                                                          |       | 2,948                   |       |                        | 3,032      |   |   |
| Restructuring  charges (see Note 13)                                                                          |       | 1,676                   |       |                        | 1,864      |   |   |
| Other                                                                                                              |       | 12,000                  |       |                        | 9,584      |   |   |
|                                                                                                               |       | 91,985                  |       |                        | 117,044    |   |   |
| Less accrued  expenses included in liabilities related to real estate and other assets held  for sale (see Note 7) |       | 379                     |       |                        | 1,000      |   |   |
|                                                                                                               |       | $                       | 91,606     |                        |       | $ | 116,044 |   |   |

 

**5.      Long-Term Debt**

Long-term debt consists ofthe following:
| ** **                                                                                                  | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Borrowings under  $150,000 line of credit with a bank (the “Credit Facility”)                     |       | $                       | —     |                        |       | $ | 10,000 |   |   |
| Borrowings under  $25,000 discretionary line of credit with a bank                                          |       | —                  |       |                        | —     |   |   |
| Borrowings under  £1,100 short-term borrowing facility with a bank (the “European Facility”) |       | 638                     |       |                        | —     |   |   |
| Other                                                                                                       |       | 447                     |       |                        | 1,095      |   |   |
| Total long-term  debt                                                                                       |       | 1,085                   |       |                        | 11,095     |   |   |
| Less current  portion of long-term debt                                                                     |       | 1,074                   |       |                        | 1,081      |   |   |
|                                                                                                        |       | $                       | 11         |                        |       | $ | 10,014 |   |   |

 

The Company is subject to various covenants associatedwith the Credit Facility, such as maintenance of minimum equity and liquidityand certain key financial data. In addition, the Company may not pay dividendsor make other distributions on account of its common stock exceeding 50% of theprevious year’s net income before depreciation and amortization, and there arecertain restrictions on investments and acquisitions that can be made by theCompany. At June 30, 2004, the Company is in compliance with all covenantsof the Credit Facility.

The covenants associated with the Credit Facility andthe amount of the Company’s other borrowings and contingent liabilities mayhave the effect of limiting the borrowing capacity available to the Company 

13

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

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

under the Credit Facilityto an amount less than the $150,000 commitment. At June 30, 2004, theCompany has unused borrowing capacity of $103,660 (taking into account lettersof credit outstanding and limitations from certain financial covenants) underits Credit Facility.

Borrowings under theCompany’s $25,000 discretionary line of credit are unsecured and reduce theborrowing capacity of the Credit Facility dollar for dollar.

**6.**   NotesPayable on Real Estate

The Company has loanssecured by real estate consisting of the following:
| ** **                                                                                                                | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Current portion  of notes payable on real estate                                                                          |       | $                       | 26,873     |                        |       | $ | 57,270 |   |   |
| Notes payable on  real estate included in liabilities related to real estate and other assets  held for sale (see Note 7) |       | 12,953                  |       |                        | 25,611     |   |   |
| Total notes  payable on real estate, current portion                                                                      |       | 39,826                  |       |                        | 82,881     |   |   |
| Notes payable on  real estate, non-current portion                                                                        |       | 82,914                  |       |                        | 20,386     |   |   |
| Total notes payable on  real estate                                                                                       |       | $                       | 122,740    |                        |       | $ | 103,267 |   |   |

 

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.

At June 30, 2004, $2,590 of the current portionand $11,504 of the non-current portion of notes payable on real estate arerecourse to the Company. With respect to a project to which $3,322 of thecurrent recourse obligations relate, the Company has an agreement where aninvestor customer will purchase the project upon completion, the proceeds fromwhich will be used to repay the related 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 lender participates in net operating cash flow of the mortgaged real estateproject, if any, and capital proceeds, net of related expenses, upon the saleof the project, after payment of amounts due under the construction loan. Thelender receives 6% fixed interest on the outstanding balance of its note,compounded monthly, and participates in 35% to 80% of proceeds remaining afterthe construction loan is paid, based on reaching various internal rates ofreturn. The amount of the participation liability and the related debt discountare $8,876 and $6,166, respectively, at June 30, 2004. In 2004, theCompany amortized $2,710 of the debt discount, which has been capitalized toreal estate under development (non-current).

14

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**7.      Real Estate and Other Assets Held for Sale and RelatedLiabilities**

Real estate and other assets held for sale includecompleted real estate projects or land for sale in their present condition thathave met all of the “held for sale” criteria of FAS 144 and other assetsdirectly related to such projects. Liabilities related to real estate and otherassets held for sale have been included as a single line item in the Company’sbalance sheet. In accordance with FAS 144, balances related to assetsclassified as held for sale at June 30, 2004, or sold in the six monthsended June 30, 2004, that were not classified as held for sale at December 31,2003, have been reclassified to real estate and other assets held for sale inthe Company’s balance sheet as of December 31, 2003 presented herein.

Realestate and other assets held for sale and related liabilities are as follows:
| ** **                                                               | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **Assets:**                                                              |       |                    |       |                        |       |   |   |
| Notes and other receivables                                              |       | $                       | 1,111      |                        |       | $ | 1,193 |   |   |
| Real estate held for sale (see Note 2)                                   |       | 20,213                  |       |                        | 41,584     |   |   |
| Other current assets                                                     |       | 143                     |       |                        | 444        |   |   |
| Other assets                                                             |       | 24                      |       |                        | —     |   |   |
| Total real estate  and other assets held for sale                        |       | 21,491                  |       |                        | 43,221     |   |   |
| **Liabilities:**                                                         |       |                    |       |                        |       |   |   |
| Accrued expenses (see Note 4)                                            |       | 379                     |       |                        | 1,000      |   |   |
| Notes payable on real estate held for sale (see Note  6)                 |       | 12,953                  |       |                        | 25,611     |   |   |
| Other current liabilities                                                |       | 72                      |       |                        | 136        |   |   |
| Total liabilities  related to real estate and other assets held for sale |       | 13,404                  |       |                        | 26,747     |   |   |
| **Net real estate and other  assets held for sale**                      |       | $                       | 8,087      |                        |       | $ | 16,474 |   |   |

 

15

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**8.**   Stockholders’Equity

Asummary of the Company’s stock option activity for the six months ended June 30,2004, 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,  2003                        |       |                                                                                            | 956,649    |                                                                                                         |       |                                                                                                          | 3,207,925  |                                                                                                          |       |      | 2,086,341  |   |   |   | 151,739 |   |   | 6,402,654 |   |
| Granted                                        |       |                                                                                            | —     |                                                                                                         |       |                                                                                                          | —     |                                                                                                          |       |      | —     |   |   |   | — |   |   | — |   |
| Exercised                                      |       |                                                                                            | (36,427    | )                                                                                                            |       |                                                                                                          | —     |                                                                                                          |       |      | —     |   |   |   | — |   |   | (36,427 | ) |
| Forfeited                                      |       |                                                                                            | —     |                                                                                                         |       |                                                                                                          | (21,875    | )                                                                                                             |       |      | (77,862    | ) |   |   | — |   |   | (99,737 | ) |
| June 30,  2004                            |       |                                                                                            | 920,222    |                                                                                                         |       |                                                                                                          | 3,186,050  |                                                                                                          |       |      | 2,008,479  |   |   |   | 151,739 |   |   | 6,266,490 |   |
| **Options exercisable at  June 30, 2004** |       |                                                                                            | 920,222    |                                                                                                         |       |                                                                                                          | 2,362,926  |                                                                                                          |       |      | 2,008,479  |   |   |   | 151,739 |   |   | 5,443,366 |   |

 

**9.**   Gainon Disposition of Real Estate and Discontinued Operations

During 2004, the Company sold four real estateprojects for a net sales price of $15,595, resulting in a gain on dispositionof $4,015. In addition, the Company recognized $338 of deferred gain fromdispositions in prior periods. During thefirst six months of 2003, the Company sold five real estate projects for anaggregate net sales price of $6,098 (including a note receivable of $230 from abuyer of one project), resulting in an aggregate gain on disposition of $4,502.In one other transaction, the Company recognized $339 of deferred gain from aprevious period disposition.

The Company’s discontinued operations include theoperations and gains on disposition of real estate projects held for sale orsold subsequent to the adoption of FAS 144 effective January 1, 2002,that are considered “components of an entity” as defined by FAS 144 andfor which the Company does not have or expect to have any significantinvolvement in the operations of the project after the disposal. As required byFAS 144, certain revenues and expenses for the three months ended March 31,2004, and the three and six months ended June 30, 2003 have beenreclassified to conform to the presentation for the three months ended June 30,2004.

In 2004, the Company soldone real estate project that was considered a discontinued operation underFAS 144. The net sales price for this project was $11,335, and the Companyrecognized a gain on disposition of $821, including interest forgiveness of$326. In the first half of 2003, the Company sold two real estate projects thatwere considered discontinued operations under FAS 144. The aggregate salesprice for these two projects was $12,366, and the Company recognized anaggregate gain on disposition of $1,747. The aggregate gain on dispositionrelated to these projects has been reported as discontinued operations, net ofapplicable income taxes, in the consolidated statements of income.

17

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**9.**   Gain onDisposition of Real Estate and Discontinued Operations (Continued)

The components ofdiscontinued operations are as follows:
| ** **                                                       | ** ** | **For the Three  Months  Ended June 30,** | ** ** | **For the Six  Months  Ended June 30,** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                       | ** ** | **2004**                                                      | ** ** | **2003**                                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Revenues:**                                                    |       |                                                          |       |                                                        |       |   |   |   |   |
| Development and  construction                                    |       | $                                                             | —     |                                                        | $          | — |   | $ | — |   | $ | 123 |   |
| Gain on  disposition of real estate                              |       | —                                                        |       | 25                                                          |       | 821 |   | 1,747 |   |
| Other                                                            |       | —                                                        |       | 6                                                           |       | 51 |   | 23 |   |
|                                                             |       | —                                                        |       | 31                                                          |       | 872 |   | 1,893 |   |
| **Expenses:**                                                    |       |                                                          |       |                                                        |       |   |   |   |   |
| Salaries, wages  and benefits                                    |       | —                                                        |       | —                                                      |       | — |   | 55 |   |
| Commissions                                                      |       | —                                                        |       | —                                                      |       | — |   | 197 |   |
| General and  administrative                                      |       | —                                                        |       | 22                                                          |       | 20 |   | 1,507 |   |
| Depreciation and  amortization                                   |       | —                                                        |       | —                                                      |       | 26 |   | 52 |   |
| Interest                                                         |       | —                                                        |       | 184                                                         |       | 71 |   | 382 |   |
|                                                             |       | —                                                        |       | 206                                                         |       | 117 |   | 2,193 |   |
| Income (loss)  from discontinued operations, before income taxes |       | —                                                        |       | (175                                                        | )          | 755 |   | (300 | ) |
| Income tax  (expense) benefit                                    |       | —                                                        |       | 77                                                          |       | (317 | ) | 131 |   |
| Income (loss) from  discontinued operations, net of income taxes |       | $                                                             | —     |                                                        | $          | (98 | ) | $ | 438 |   | $ | (169 | ) |

 

**10.**  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 tohedging purposes. Derivative instruments are not held or issued for tradingpurposes.

On March 24, 2001, anexisting interest rate swap agreement was renewed for a 24-month periodending March 24, 2003, with a notional amount of $150,000. This interestrate swap agreement established a fixed interest pay rate of 4.68% on a portionof the Company’s variable rate debt. Under the interest rate swap agreement, ifthe actual LIBOR-based rate was less than the specified fixed interestrate, the Company was obligated to pay the differential interest amount, suchamount being recorded as incremental interest expense. Conversely, if the LIBOR-basedrate was greater than the specified fixed interest rate, the differentialinterest amount was paid to the Company and recorded as a reduction of interestexpense. The weighted average receive rate under the interest rate swapagreement for the three months ended March 31, 2003 was 1.37%. Inconnection with this agreement, the Company recorded incremental interestexpense, excluding the liability reduction described below, of $567 for thethree months ended March 31, 2003.

18

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**10.**  FinancialInstruments (Continued)

Prior to November 1, 2001, the interest rate swapagreement was not effectively designated as a hedge (although it was enteredinto for hedging purposes), and the Company recognized changes in fair value incurrent period earnings. For the period from January 1, 2001 through October 31,2001, $4,809 was charged to expense due to a change in fair value of theinterest rate swap agreement. As of November 1, 2001, in accordance withStatement of Financial Accounting Standards No. 133, *Accounting for Derivative Instruments and HedgingActivities* (“FAS 133”), the Company designated the interestrate swap agreement as a cash flow hedge of the Company’s variable interestflow exposure, and began assessing effectiveness of the cash flow hedge inaccordance with the hypothetical derivative method of FAS 133Implementation Issue G7. The hypothetical derivative method captured the impactof the $4,809 swap liability already existing at November 1, 2001, asfuture hedge ineffectiveness of the newly designated hedge relationship becausethe liability originated from interest rate movements prior to the applicationof hedge accounting. Accordingly, changes in fair value of the interest rateswap agreement attributable solely to the passage of time and payments made tosettle the liability serve to reduce the liability, therefore benefiting netincome in future periods. During the three months ended March 31, 2003, the Companyrecorded $588 of payments against its liability that would have been recordedto interest expense had the interest rate swap agreement been designated as ahedge since its inception. Changes in the fair value of the interest rate swapagreement attributable to changes in benchmark market interest ratesrepresented the effective portion of the hedge relationship. These changes infair value were recorded in other comprehensive income in accordancewith FAS 133 and were fully amortized over the remaining life of theinterest rate swap agreement. Any hedge ineffectiveness was recorded in currentperiod earnings. The interest rate swap agreement expired on March 24,2003, therefore the liability balance is zero at June 30, 2004.

In June 2004, the Company entered into aninterest rate cap agreement with a notional amount of $30,000 expiring September 27,2004, under which the Company will receive payments if the 30-day LIBORbased interest rate exceeds 2.2%. The interest rate cap agreement has beendesignated an effective hedge on certain variable rate debt of the Company,and, to the extent the hedging relationship remains effective, changes in fairvalue of the interest rate cap agreement will be recorded in othercomprehensive income.

In March 2003, 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 $11,400 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, andtherefore 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 March 1, 2005. Through June 30,2004, amounts recorded by the Company related to this interest rate capagreement were not material.

A consolidated real estate subsidiary of the Companyhas issued a mandatorily redeemable financial instrument. The instrument allowsformer lenders to the underlying real estate project to participate inoperating cash flows and the proceeds of the future sale of the property, afterpayment of a separate 

19

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**10.**  FinancialInstruments (Continued)

mortgage loan on theproperty and certain other distribution preferences to the Company, with nomaximum amount specified in the instrument. The instrument is redeemable at thediscretion of the former lenders upon sale of the real estate project, refinancingof the mortgage loan or maturity of the instrument on September 28, 2006.As of June 30, 2004, the Company has accrued the fair value of thefinancial instrument of $775, based on a pending sales contract on theunderlying real estate project.

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.

**11.**  Commitmentsand Contingencies

At June 30, 2004, the Company has guaranteedrepayment of a maximum of $6,380 of real estate notes payable of its unconsolidatedsubsidiaries, of which $5,004 of the underlying notes payable is outstanding. Thesenotes are secured by the underlying real estate and have maturity dates throughNovember 2005. At June 30, 2004, the Company has outstanding lettersof credit totaling $20,041, $5,044 of which collateralizes amounts recorded inother current liabilities. The letters of credit expire at varying datesthrough June 2005.

During 2004, the Company issued a debt repaymentguaranty of an unconsolidated subsidiary that was subject to the fair valueprovisions of FASB Interpretation No. 45, *Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including DirectGuarantees of Indebtedness of Others* (“FIN 45”). The Companydetermined that the fair value of this guaranty was equivalent to the amountnecessary to settle the guaranty using a letter of credit from a bank, and theamount was nominal. The Company did not issue or modify any other guarantees orletters of credit in 2004 that were subject to the fair value provisions of FIN45.

In addition, at June 30, 2004, the Company hasnumerous completion and budget guarantees relating to development projects.Each of these guarantees requires the Company to complete construction of therelevant project within a specified time frame and/or within a specifiedbudget, with the Company potentially being liable for costs to complete inexcess of such budget. However, the Company generally has “guaranteed maximumprice” contracts with reputable general contractors with respect to projectsfor which the Company provides these guarantees. These contracts are intendedto pass the budget risk to such contractors. Management does not expect toincur any material losses under these guarantees.

From time to time, theCompany acts as a general contractor with respect to construction projects. TheCompany does not consider these activities to be a material part of itsbusiness. In connection with these activities, the Company seeks to subcontractconstruction work for certain projects to reputable subcontractors. Shouldconstruction defects arise related to the underlying projects, the Companycould potentially be liable to the customer for the costs to repair suchdefects, but the Company would generally 

20

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**11.**  Commitments andContingencies (Continued)

look tothe subcontractor that performed the work to remedy the defect. Management doesnot expect to incur material losses with respect to construction defects.

The Company has made refundable and non-refundableearnest money deposits totaling $4,198 in conjunction with contracts to acquireapproximately $164,771 of real estate from other entities, some of which may beVIEs. Except as disclosed in Note 1, the Company has determined that it does nothave any significant variable interests in any of these entities. The Company’smaximum exposure to loss as a result of its involvement with these entities islimited to the total of its non-refundable deposits, or $2,908.

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 previously owned by the Bank. The suit alleges breach ofcontract, breach of fiduciary duty, negligent misrepresentation, fraudulentmisrepresentation and fraudulent concealment against the Company and/or itssubsidiary and alleges that the plaintiffs have been damaged in an unspecifiedamount in excess of $15,000. The plaintiffs seek to recover actual damages,punitive damages 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, 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 be determined.However, based on the information currently available, the Company does notbelieve that the resolution of any such matters to which it is currently aparty will have a material adverse effect on the Company’s results ofoperations, financial condition or liquidity.

**12.**  SegmentInformation

*Description ofServices by Segment*

The Global Servicessegment includes property and facilities management, brokerage and corporateadvisory, and project and construction management services delivered to bothuser and investor customers. The Development and Investment segment includesdevelopment activities performed on behalf of investor and user customers on afee basis, as well as development activity pursuant to which the Company takesan ownership position. The Development and Investment segment also includesactivities related to the Company’s operating real estate projects prior todisposition.

21

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**12.**  SegmentInformation (Continued)

*Measurement ofSegment Profit or Loss and Segment Assets*

The Company evaluatesperformance and allocates resources among its two reportable segments based onincome before income taxes. The accounting policies of the reportable segmentsare the same as those described in the summary of significant accountingpolicies.

*Factors ManagementUsed to Identify the Company’s Reportable Segments*

The Company’s reportable segments are defined by thenature of the service provided and activities conducted. Because developmentservices require specialized knowledge, the Company’s organizational structureallows the group of individuals with specialized knowledge and experience indevelopment activities to perform these services with greater focus through theCompany’s Development and Investment segment. The organizational structure ofthe Global Services segment allows the Company to leverage resources inspecific geographic areas, as non-development services provided to user andinvestor customers often require similar expertise.

Virtually all of the Company’s revenues are fromcustomers located in the United States. For the three and six months ended June 30,2004, one individual customer accounts for $19,730, or 11%, and $36,224, or11%, respectively, of the Company’s consolidated revenues. For the three andsix months ended June 30, 2003, the same customer accounted for $20,663,or 12%, and $36,422, or 11%, respectively, of the Company’s consolidatedrevenues. Revenues from this customer are included primarily in the Company’sGlobal Services segment.

Summarizedfinancial information for reportable segments is as follows:
| ** **                                                                                                                            | ** ** | **For the Three Months  Ended June 30,** | ** ** | **For the Six Months  Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **2004**                                                          | ** ** | **2003**                                                        | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Global Services:**                                                                                                                  | ** ** | ** **                                                        | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total revenues                                                                                                                        |       | $                                                                 | 170,159    |                                                            | $          | 161,361 |   | $ | 320,370 |   | $ | 308,647 |   |
| Costs and  expenses(1)                                                                                                                |       | 162,048                                                           |       | 158,455                                                         |       | 313,693 |   | 302,394 |   |
| Income from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries |       | 8,111                                                             |       | 2,906                                                           |       | 6,677 |   | 6,253 |   |
| Minority  interest, before income taxes                                                                                               |       | (17                                                               | )          | 404                                                             |       | (17 | ) | 262 |   |
| Income from  investments in unconsolidated subsidiaries, before income taxes                                                          |       | 1,354                                                             |       | 1,759                                                           |       | 2,558 |   | 590 |   |
| Income from  continuing operations, before income taxes                                                                               |       | 9,448                                                             |       | 5,069                                                           |       | 9,218 |   | 7,105 |   |
| Income from  discontinued operations, before income taxes                                                                             |       | —                                                            |       | —                                                          |       | — |   | 253 |   |
| Income before income  taxes                                                                                                           |       | $                                                                 | 9,448      |                                                            | $          | 5,069 |   | $ | 9,218 |   | $ | 7,358 |   |

 

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**12.**  SegmentInformation (Continued)
| ** **                                                                                                                                   | ** ** | **For the Three Months  Ended June 30,** | ** ** | **For the Six Months  Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                                                                                                   | ** ** | **2004**                                                          | ** ** | **2003**                                                        | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Development and Investment:**                                                                                                              |       |                                                              |       |                                                            |       |   |   |   |   |
| Total revenues                                                                                                                               |       | $                                                                 | 12,800     |                                                            | $          | 7,943 |   | $ | 21,954 |   | $ | 21,443 |   |
| Costs and  expenses(1)                                                                                                                       |       | 15,609                                                            |       | 14,809                                                          |       | 30,694 |   | 29,985 |   |
| Loss from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries          |       | (2,809                                                            | )          | (6,866                                                          | )          | (8,740 | ) | (8,542 | ) |
| Minority  interest, before income taxes                                                                                                      |       | (1,018                                                            | )          | 1,559                                                           |       | (1,078 | ) | 2,090 |   |
| Income from  investments in unconsolidated subsidiaries, before income taxes                                                                 |       | 78                                                                |       | 5,892                                                           |       | 9,160 |   | 7,153 |   |
| Income (loss)  from continuing operations, before income taxes                                                                               |       | (3,749                                                            | )          | 585                                                             |       | (658 | ) | 701 |   |
| Income (loss)  from discontinued operations, before income taxes                                                                             |       | —                                                            |       | (175                                                            | )          | 755 |   | (553 | ) |
| Income (loss)  before income taxes                                                                                                           |       | $                                                                 | (3,749     | )                                                               | $          | 410 |   | $ | 97 |   | $ | 148 |   |
| **Total:**                                                                                                                                   |       |                                                              |       |                                                            |       |   |   |   |   |
| Total revenues                                                                                                                               |       | $                                                                 | 182,959    |                                                            | $          | 169,304 |   | $ | 342,324 |   | $ | 330,090 |   |
| Costs and  expenses(1)                                                                                                                       |       | 177,657                                                           |       | 173,264                                                         |       | 344,387 |   | 332,379 |   |
| Income (loss)  from continuing operations before income taxes, minority interest and income  from investments in unconsolidated subsidiaries |       | 5,302                                                             |       | (3,960                                                          | )          | (2,063 | ) | (2,289 | ) |
| Minority  interest, before income taxes                                                                                                      |       | (1,035                                                            | )          | 1,963                                                           |       | (1,095 | ) | 2,352 |   |
| Income from  investments in unconsolidated subsidiaries, before income taxes                                                                 |       | 1,432                                                             |       | 7,651                                                           |       | 11,718 |   | 7,743 |   |
| Income from  continuing operations, before income taxes                                                                                      |       | 5,699                                                             |       | 5,654                                                           |       | 8,560 |   | 7,806 |   |
| Income (loss)  from discontinued operations, before income taxes                                                                             |       | —                                                            |       | (175                                                            | )          | 755 |   | (300 | ) |
| Income before  income taxes                                                                                                                  |       | $                                                                 | 5,699      |                                                            | $          | 5,479 |   | $ | 9,315 |   | $ | 7,506 |   |

----

(1)          Costsand expenses for the three and six months ended June 30, 2004, includenon-cash compensation expense related to the amortization of employmentcontracts and unearned stock compensation of $1,469 and $2,485 related to theGlobal Services segment and $658 and $1,133 related to the Development andInvestment segment, respectively. Costs and expenses for the three and sixmonths ended June 30, 2003, include non-cash compensation expense relatedto the amortization of employment contracts and unearned stock compensation of$1,084 and $1,840 related to the Global Services segment and $352 and $525 relatedto the Development and Investment segment, respectively.

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2004 (in thousands, except share and per share data) (Unaudited)**

**12.**  SegmentInformation (Continued)
| ** **                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **2004**          | ** ** | **2003**              | ** ** |
| **Total Assets:**           |       |              |       |                  |       |   |   |
| Global Services             |       | $                 | 279,667    |                  |       | $ | 296,876 |   |   |
| Development and  Investment |       | 352,600           |       |                  | 333,250    |   |   |
| Total  consolidated assets  |       | $                 | 632,267    |                  |       | $ | 630,126 |   |   |

 

**13.**  RestructuringCharges

During 2001, the Company announced an internal reorganization of its businessdesigned to consolidate all of the property and facilities management,brokerage and corporate advisory, and construction and project managementservices delivered to both user and investor customers under a singleleadership structure. As part of its restructuring plans, primarily during thefourth quarter of 2001, the Company closed several offices and identifiedoffices with excess space that it intends to sublease to third parties. TheCompany recorded restructuring charges primarily comprised of leaseobligations, costs to sublease excess space (offset by estimated futuresublease income) and miscellaneous furniture and equipment writeoffs. Theseaccruals will be relieved over the remaining terms of the underlying leasesthrough March 2012.

Norestructuring charges have been incurred or recorded since 2001. Activityrelated to the Company’s lease obligations and related costs included inrestructuring accruals for the quarter ended June 30, 2004, is as follows:
| Balance at  December 31, 2003 |   | $   | 1,864  |   |
|------------------------------------|--------|-----|--------|--------|
| Cash payments                      |   | 188 |   |
| Balance at June 30,  2004     |   | $   | 1,676  |   |

 

**14.**  SupplementalCash Flow Information

Supplementalcash flow information is summarized below:
| ** **                                       | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                       | ** ** | **2004**                                      | ** ** | **2003** | ** ** |
| **Non-cash  activities:**                        |       |                                          |       |   |   |
| Issuance of restricted stock, net of forfeitures |       | $                                             | 8,235      |   | $ | 11,154 |   |
| Capital lease obligations                        |       | 658                                           |       | 846 |   |
|                                                  |            |                                               |            |  |  |  |  |

 

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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 thelargest diversified commercial real estate service companies in the UnitedStates. The Company delivers a comprehensive range of services to leading multinationalcorporations, institutional investors and other users of real estate services.In the United States, the Company is a leading provider of commercial propertyand facilities management services, commercial property brokerage andtransaction management services, commercial property development andconstruction services and project management services. In addition to its fullservice offices located throughout the United States, the Company has officesin Canada, Europe, Asia and Latin/South America focused on the delivery of realestate services to users of commercial real estate. The Company deliversbrokerage services outside the United States through strategic alliances withleading providers—in Europe and Asia, through Savills plc, (“Savills”) aleading property services company based in the United Kingdom; and in Canada,through JJ Barnicke, a leading Canadian real estate services provider. TheCompany delivers four core services—building management services, brokerageservices, project management services and development services—to both user andinvestor customers. The Company’s business is organized under two separatenational leadership structures. The Global Services Group includessubstantially all of the building management services, brokerage services, andproject management services delivered to both user and investor customers.Substantially all of the Company’s real estate development, capital markets andinvestment activities are conducted through the Company’s Development and InvestmentGroup.

Within the Global Services segment, with approximately6,100 full-time equivalent (“FTE”) employees, the Company provides services touser customers, including multinational corporations, hospitals anduniversities, who are typically the primary occupants of the commercialproperties with respect to which services are performed, and investor customersthat are not typically the primary occupants of the commercial properties withrespect to which services are performed. The building management servicesprovided to user customers consist primarily of facilities management, whichentails providing comprehensive day-to-day occupancy related services,principally to large corporations, healthcare systems and other users thatoccupy commercial facilities in multiple locations. These services includeadministration and day-to-day maintenance and repair of customer-occupiedfacilities. Brokerage services provided to user customers include corporateadvisory services such as portfolio management and tenant representation.Project management services provided to user customers include facilityplanning and project management, such as construction oversight, spaceplanning, site consolidations, facilities design, and workplace moves, adds,and changes. The building management services provided to investor customersinclude property management services relating to all aspects of buildingoperations, tenant relations and oversight of building improvement processes.Brokerage services provided to investor customers include project leasing andinvestment sales services whereby the Company advises buyers, sellers andlandlords in connection with the leasing and sale of office, industrial andretail space, and land. Project management services provided to investor customersinclude construction management services such as space planning and tenantfinish and coordination.

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Within the Development andInvestment segment, encompassing approximately 190 FTE employees, the Companyprovides development services to both investor and user customers—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 customersand fee development and build-to-suit projects for user customers, includingthose in higher education and healthcare. From time to time, the Company maypursue development and investment activities, including opportunistic propertyacquisitions and new development, for its own account. With an organizationcomprised of professionals dedicated fully to development and investmentactivities, the Company is positioned to pursue and execute new developmentbusiness, particularly programmatic business with the Company’s large investorcustomers, and exploit niche market opportunities.

**Results ofOperations—Three and Six Months Ended June 30, 2004 Compared to Three andSix Months Ended June 30, 2003**

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 quarterly period ended March 31,2004 and the three and six months ended June 30, 2003, have beenreclassified to conform to the presentation for the three months ended June 30,2004. As a result, certain balances differ from the amounts reported inpreviously filed documents. See *Income (Loss) fromDiscontinued Operations, Net of Income Taxes*, below, for additionalinformation.

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| ** **                                                                                                                          | ** ** | **For the Six Months  Ended June 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                                                                                                          | ** ** | **2004**                                                        | ** ** | **2003**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                                                                                                          | ** ** | **($ in thousands)**                                  | ** ** |
| **REVENUES:**                                                                                                                       |       |                                                            |       |       |       |              |       |   |   |   |   |
| ***User  Services:***                                                                                                               |       |                                                            |       |       |       |              |       |   |   |   |   |
| Facilities  management                                                                                                              |       | $                                                               | 101,312    |       | $          | 104,916           |       | $ | (3,604 | ) |   | (3.4 | )% |   |
| Corporate  advisory services                                                                                                        |       | 56,278                                                          |       | 52,316     |       | 3,962             |       |   | 7.6 | % |   |
| Project  management services                                                                                                        |       | 37,637                                                          |       | 30,331     |       | 7,306             |       |   | 24.1 | % |   |
|                                                                                                                                |       | 195,227                                                         |       | 187,563    |       | 7,664             |       |   | 4.1 | % |   |
| ***Investor  Services:***                                                                                                           |       |                                                            |       |       |       |              |       |   |   |   |   |
| Property  management                                                                                                                |       | 69,324                                                          |       | 73,438     |       | (4,114            | )          |   | (5.6 | )% |   |
| Brokerage                                                                                                                           |       | 50,859                                                          |       | 41,098     |       | 9,761             |       |   | 23.8 | % |   |
| Construction  management                                                                                                            |       | 4,061                                                           |       | 4,784      |       | (723              | )          |   | (15.1 | )% |   |
|                                                                                                                                |       | 124,244                                                         |       | 119,320    |       | 4,924             |       |   | 4.1 | % |   |
| Development and construction                                                                                                        |       | 17,134                                                          |       | 17,554     |       | (420              | )          |   | (2.4 | )% |   |
|                                                                                                                                |       | 336,605                                                         |       | 324,437    |       | 12,168            |       |   | 3.8 | % |   |
| Gain on disposition of real estate                                                                                                  |       | 4,353                                                           |       | 4,841      |       | (488              | )          |   | (10.1 | )% |   |
| Other                                                                                                                               |       | 1,366                                                           |       | 812        |       | 554               |       |   | 68.2 | % |   |
|                                                                                                                                |       | $342,324                                                        |       | $          | 330,090    |              | $          | 12,234 |   |   | 3.7 | % |   |
| **COST  AND EXPENSES:**                                                                                                             |       |                                                            |       |       |       |              |       |   |   |   |   |
| Salaries, wages  and benefits                                                                                                       |       | $                                                               | 228,945    |       | $          | 221,955           |       | $ | 6,990 |   |   | 3.1 | % |   |
| Commissions                                                                                                                         |       | 48,004                                                          |       | 40,149     |       | 7,855             |       |   | 19.6 | % |   |
| General and  administrative                                                                                                         |       | 59,281                                                          |       | 57,027     |       | 2,254             |       |   | 4.0 | % |   |
| Depreciation and  amortization                                                                                                      |       | 6,100                                                           |       | 9,405      |       | (3,305            | )          |   | (35.1 | )% |   |
| Interest                                                                                                                            |       | 2,057                                                           |       | 3,843      |       | (1,786            | )          |   | (46.5 | )% |   |
|                                                                                                                                |       | 344,387                                                         |       | 332,379    |       | 12,008            |       |   | 3.6 | % |   |
| Loss from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries |       | (2,063                                                          | )          | (2,289     | )          | 226               |       |   | (9.9 | )% |   |
| Income tax benefit                                                                                                                  |       | 880                                                             |       | 1,004      |       | (124              | )          |   | (12.4 | )% |   |
| Minority  interest, net of income taxes                                                                                             |       | (625                                                            | )          | 1,321      |       | (1,946            | )          |   | (147.3 | )% |   |
| Income from  investments in unconsolidated subsidiaries, net of income taxes                                                        |       | 6,683                                                           |       | 4,349      |       | 2,334             |       |   | 53.7 | % |   |
| Income from  continuing operations                                                                                                  |       | 4,875                                                           |       | 4,385      |       | 490               |       |   | 11.2 | % |   |
| Income (loss)  from discontinued operations, net of income taxes                                                                    |       | 438                                                             |       | (169       | )          | 607               |       |   | (359.2 | )% |   |
| **Net income**                                                                                                                      |       | $                                                               | 5,313      |       | $          | 4,216             |       | $ | 1,097 |   |   | 26.0 | % |   |
|                                                                                                                                     |            |                                                                 |            |            |            |                   |            |  |  |  |  |  |  |  |  |

 

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| ** **                                                                                                                                   | ** ** | **For the Three Months  Ended June 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                                                                                                                   | ** ** | **2004**                                                          | ** ** | **2003**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                                                                                                                   | ** ** | **($ in thousands)**                                    | ** ** |
| **REVENUES:**                                                                                                                                |       |                                                              |       |       |       |              |       |   |   |   |   |
| ***User  Services:***                                                                                                                        |       |                                                              |       |       |       |              |       |   |   |   |   |
| Facilities  management                                                                                                                       |       | $                                                                 | 50,556     |       | $          | 53,453            |       | $ | (2,897 | ) |   | (5.4 | )% |   |
| Corporate  advisory services                                                                                                                 |       | 33,744                                                            |       | 29,644     |       | 4,100             |       |   | 13.8 | % |   |
| Project  management services                                                                                                                 |       | 19,675                                                            |       | 15,884     |       | 3,791             |       |   | 23.9 | % |   |
|                                                                                                                                         |       | 103,975                                                           |       | 98,981     |       | 4,994             |       |   | 5.0 | % |   |
| ***Investor  Services:***                                                                                                                    |       |                                                              |       |       |       |              |       |   |   |   |   |
| Property  management                                                                                                                         |       | 34,762                                                            |       | 36,015     |       | (1,253            | )          |   | (3.5 | )% |   |
| Brokerage                                                                                                                                    |       | 28,710                                                            |       | 23,604     |       | 5,106             |       |   | 21.6 | % |   |
| Construction  management                                                                                                                     |       | 2,343                                                             |       | 2,744      |       | (401              | )          |   | (14.6 | )% |   |
|                                                                                                                                         |       | 65,815                                                            |       | 62,363     |       | 3,452             |       |   | 5.5 | % |   |
| Development and construction                                                                                                                 |       | 8,805                                                             |       | 7,729      |       | 1,076             |       |   | 13.9 | % |   |
|                                                                                                                                         |       | 178,595                                                           |       | 169,073    |       | 9,522             |       |   | 5.6 | % |   |
| Gain on disposition of real estate                                                                                                           |       | 3,885                                                             |       | 73         |       | 3,812             |       |   | 5,221.9 | % |   |
| Other                                                                                                                                        |       | 479                                                               |       | 158        |       | 321               |       |   | 203.2 | % |   |
|                                                                                                                                         |       | $                                                                 | 182,959    |       | $          | 169,304           |       | $ | 13,655 |   |   | 8.1 | % |   |
| **COST  AND EXPENSES:**                                                                                                                      |       |                                                              |       |       |       |              |       |   |   |   |   |
| Salaries, wages  and benefits                                                                                                                |       | $                                                                 | 112,793    |       | $          | 112,308           |       | $ | 485 |   |   | 0.4 | % |   |
| Commissions                                                                                                                                  |       | 27,982                                                            |       | 22,798     |       | 5,184             |       |   | 22.7 | % |   |
| General and  administrative                                                                                                                  |       | 32,860                                                            |       | 31,357     |       | 1,503             |       |   | 4.8 | % |   |
| Depreciation and  amortization                                                                                                               |       | 2,869                                                             |       | 5,236      |       | (2,367            | )          |   | (45.2 | )% |   |
| Interest                                                                                                                                     |       | 1,153                                                             |       | 1,565      |       | (412              | )          |   | (26.3 | )% |   |
|                                                                                                                                         |       | 177,657                                                           |       | 173,264    |       | 4,393             |       |   | 2.5 | % |   |
| Income (loss)  from continuing operations before income taxes, minority interest and income  from investments in unconsolidated subsidiaries |       | 5,302                                                             |       | (3,960     | )          | 9,262             |       |   | (233.9 | )% |   |
| Income tax  (expense) benefit                                                                                                                |       | (2,211                                                            | )          | 1,732      |       | (3,943            | )          |   | (227.7 | )% |   |
| Minority  interest, net of income taxes                                                                                                      |       | (590                                                              | )          | 1,101      |       | (1,691            | )          |   | (153.6 | )% |   |
| Income from investments  in unconsolidated subsidiaries, net of income taxes                                                                 |       | 713                                                               |       | 4,297      |       | (3,584            | )          |   | (83.4 | )% |   |
| Income from  continuing operations                                                                                                           |       | 3,214                                                             |       | 3,170      |       | 44                |       |   | 1.4 | % |   |
| Loss from  discontinued operations, net of income taxes                                                                                      |       | —                                                            |       | (98        | )          | 98                |       |   | (100.0 | )% |   |
| **Net income**                                                                                                                               |       | $                                                                 | 3,214      |       | $          | 3,072             |       | $ | 142 |   |   | 4.6 | % |   |
|                                                                                                                                              |            |                                                                   |            |            |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

***Revenues.*****  **Facilitiesmanagement revenue decreased for the three and six months ended June 30,2004, from comparable periods in the prior year. The decrease is primarily dueto the termination of certain customer relationships as part of the Company’swind-down of its centralized call center operations. The composition offacilities management revenue, including management fees and reimbursements,can vary significantly from period to period based on the terms of theunderlying management agreements in effect during each period.

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Corporate advisory services revenue increased for thethree and six months ended June 30, 2004, from comparable periods in theprior year, primarily driven by increased commission revenues in 2004. Theincrease is the result of growth in the number of tenant representation brokersas part of the Company’s focus on expanding its brokerage network. In addition,transaction volumes have increased, reflecting customers’ increased confidencein the economic recovery.

Revenue from project management services increased forthe three and six months ended June 30, 2004, from comparable periods inthe prior year. The revenue growth was primarily due to the expansion ofservices provided to existing customers (due to increases in either thecustomers’ portfolios or the scope of the Company’s services). Also, there hasbeen growth in the volume of projects for the Company’s existing customer baseand additions of new customers.

Property management revenue decreased for the threeand six months ended June 30, 2004, from comparable periods in the prioryear. This decrease was partially the result of decreased occupancy levels andrents in buildings managed by the Company in certain markets, which drive thisrevenue. In addition, the revenue decrease was impacted by a reduction insquare footage under management in 2004 as compared to 2003. The reduction insquare footage primarily resulted from sales of buildings in the Company’smanagement portfolio to REITs or other investors that self-manage theirproperties, partially offset by additions to square footage from new business.

Brokerage revenue increased for the three and sixmonths ended June 30, 2004, from comparable 2003 periods. This increasewas driven by an increase in investment sales commissions, while projectleasing commissions remained relatively flat. Favorable capital market factors,including low interest rates, led to increased transaction volumes, whichcontributed to the improvement in investment sales commissions.

Construction management revenues decreased for thethree and six months ended June 30, 2004, from comparable periods in theprior year due to a smaller number of construction/tenant finish projects in2004. Construction management revenue is generated from services includingspace planning and tenant finish coordination for investor customers inconjunction with property management and leasing assignments, and are directlyrelated to customers’ real estate demands.

Revenues from development and construction increasedfor the three months ended June 30, 2004, and decreased for the six monthsended June 30, 2004, from comparable periods in the prior year. Developmentfees improved slightly in the second quarter of 2004 because of an increase inincentive development fees, largely due to the timing of significanttransactions in 2004 as compared to 2003. The decrease for the 2004 six-monthperiod is due to a decrease in the Company’s development starts in recent years.Typically, the impact of decreases and increases in the Company’s developmentstarts is not reflected in financial results until later periods, and theCompany has experienced reductions in its 2004 development and constructionrevenue as a consequence of reduced 2002 and 2003 development starts. However,development starts began trending up in 2004 with starts for the first half of2004 exceeding those for all of 2003.

Some of the Company’s development resources focus onproviding development services to investor clients that invest in speculativecommercial real estate projects. Since the latter part of 1999, speculativereal estate development has declined significantly. The decline reflects thefact that demand for new products in many of the markets in which the Companyoperates has declined as vacancy rates have risen with the overall downturn inthe economy. As a result, the Company has responded by shifting focus andresources to user-driven development areas such as development and constructionactivities for healthcare and higher education customers and fee developmentfor user customers.

Gain on disposition of real estate increased for thethree months ended June 30, 2004, and decreased for the six months ended June 30,2004, from comparable periods in the prior year. During the three 

29

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months ended June 30,2004, the Company sold three real estate projects for an aggregate net salesprice of $15.1 million, resulting in an aggregate gain on disposition of $3.8million, and recognized deferred gain of $0.1 million relating to a previousperiod disposition. For the three months ended June 30, 2003, the Companysold one real estate project for an aggregate net sales price of $0.3 million,resulting in an aggregate gain on disposition of $0.1 million. For the sixmonths ended June 30, 2004, the Company sold four real estate projects foran aggregate net sales price of $15.6 million, resulting in an aggregate gainon disposition of $4.1 million, and recognized deferred gain of $0.3 millionrelating to a disposition in a previous period. For the six months ended June 30,2003, the Company sold five real estate projects for an aggregate net salesprice of $6.1 million, resulting in an aggregate gain on disposition of $4.5million, and recognized deferred gain of $0.3 million relating to a dispositionin a previous period.

***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 bycustomers (“reimbursed employees”); salaries, benefits and annual incentivebonuses for employees whose compensation is not so reimbursed (“unreimbursedemployees”); and transaction-related incentive compensation other thanbrokerage commissions, primarily paid in connection with development andinvestment transactions. The increases in the three and six months ended June 30,2004 were primarily driven by growth in salaries, wages and benefits forreimbursed employees. This growth is primarily due to project managementheadcount additions resulting from customer expansions and the addition of newcustomers.

The 2004 increase in commission expense was directlyattributable to the increase in the Company’s corporate advisory services andbrokerage revenue discussed above.

General and administrative expenses increased for thethree and six months ended June 30, 2004, from comparable periods in theprior year. The overall increase in general and administrative expenses primarilyresulted from increased customer-reimbursed out-of-pocket general andadministrative expenses, driven by the growth in the Company’s projectmanagement service line.

Depreciation and amortization decreased for the threeand six months ended June 30, 2004, from comparable periods in the prioryear. The Company has replaced many of its computer assets at a lower cost thanthe assets that were retired, which has reduced the Company’s depreciationexpense.

The decrease in interest expense is primarily theresult of the expiration of the interest rate swap at the end of the firstquarter of 2003 for which the Company recorded $0.6 million of interest expensein 2003. The Company also had lower average outstanding balances on itsrevolving line of credit during the 2004 periods as compared to the 2003periods.

***Income (Loss) from Continuing Operations Before Income Taxes, MinorityInterest and Income from Investments in Unconsolidated Subsidiaries.***   The Company’sincome (loss) from continuing operations before income taxes, minority interestand income from investments in unconsolidated subsidiaries in the three and sixmonths ended June 30, 2004, varied favorably from comparable periods inthe prior year due to the fluctuations in revenues and expenses describedabove.

***Minority Interest, Net of Income Taxes.***   Minority interest fluctuated from income in 2003to expense in 2004. This change is primarily a result of 2004 gains ondispositions of consolidated real estate projects in which outside parties havean interest. In addition, the results of operations of certain consolidatedreal estate entities with outside owners improved due to lower charges forimpairment of real estate held by these entities in 2004, as compared to 2003.

***Income from Investments in Unconsolidated Subsidiaries, Net of IncomeTaxes.***   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 

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development and investmentactivities. Income from investments in unconsolidated subsidiaries fluctuatesfrom period to period based on the volume and profitability of transactionscarried out by the underlying unconsolidated subsidiaries. The Company’s shareof income from such transactions is typically driven by its ownershippercentage in the unconsolidated subsidiaries. As a result of transactiontiming, 2004 income from investments in unconsolidated subsidiaries wasconcentrated in the first quarter, while amounts in 2003 were concentrated inthe second quarter. The overall increase in the six months ended June 30,2004, was primarily driven by significant income from an unconsolidatedsubsidiary that sold its building portfolio in the first quarter of 2004.

***Income from Continuing Operations.***   The Company’s income from continuing operationsslightly increased in the three and six months ended June 30, 2004, fromcomparable periods in the prior year, due to the fluctuations in revenues andexpenses described above.

***Income (Loss) from Discontinued Operations, Net of Income Taxes.***   Income (loss) from discontinued operationsincludes the operations of real estate properties and gain on disposition ofreal estate properties held for sale or sold subsequent to the adoption ofFAS 144 effective January 1, 2002, that were considered components ofan entity under FAS 144 and in which the Company has not retained or doesnot expect to retain significant continuing involvement. Dispositions of realestate assets have been and will continue to be a significant part of theCompany’s activities and, as a result of applying the provisions ofFAS 144, the Company expects a greater amount of these activities to beclassified as discontinued operations in future periods as fewer assetdispositions will qualify for grandfathered treatment under FAS 144. Therewere no sales that were considered to be discontinued operations in the threemonths ended June 30, 2004 and 2003. In the six months ended June 30,2004, the Company sold one real estate project that was considered adiscontinued operation for a net sales price of $11.3 million. This saleresulted in a gain on disposition of real estate (before income taxes) of $0.8million, including interest forgiveness of $0.3 million. In the six monthsended June 30, 2003, the Company sold two real estate projects that wereconsidered discontinued operations for an aggregate sales price of $12.4million, resulting in an aggregate gain on disposition of $1.7 million. Incomefrom discontinued operations for the six months ended June 30, 2003,includes a provision for loss of $1.4 million to reflect a real estate held forsale asset at fair value less cost to sell. The related real estate asset wassold in the first quarter of 2004.

***Net Income.***   Net income increased in the three and six monthsended June 30, 2004, as compared to the same period in the prior year, dueto the fluctuations in revenues and expenses described above.

**Quarterly Results of Operations and Seasonality**

The results of operationsfor any quarter are not necessarily indicative of results for any future period.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 towards 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.

**Liquidity and Capital Resources**

The Company’s liquidity and capital resourcesrequirements include the funding of working capital needs, primarily costsincurred in providing services to its clients before collection of relatedbillings; the funding of capital investments, including the acquisition of orinvestments in other real estate service companies; the repurchase of itsshares if authorized by the Board of Directors; expenditures for real estateand payments on notes payable associated with its development and investmentactivities; and expenditures related to upgrading the Company’s managementinformation systems. The Company 

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finances its operationswith internally generated funds and borrowings under the Credit Facility(described below). The portion of the Company’s development and investmentbusiness that includes the acquisition and development of real estate isfinanced with loans secured by underlying real estate, external equity,internal sources of funds, or a combination thereof.

Net cash used in operating activities totaled $16.7 millionfor the first six months of 2004, compared to $2.9 million for the sameperiod in 2003. Cash used in operating activities, excluding the change in realestate and related borrowings, increased to $15.8 million in 2004 ascompared to $2.5 million in 2003, primarily due to greater collections ofaccounts receivable in 2003, resulting from higher receivable balances in 2002.Also, although net income for the first six months of 2004 exceeded net incomefor the same period in 2003, cash provided by earnings decreased from $11.3million in 2003 to $5.9 million in 2004. This decrease was largely due to $11.7million (before income taxes) of the Company’s earnings for the first half of2004 being generated from investments in unconsolidated subsidiaries, for whichthe related cash provided is reflected as an investing activity (as describedbelow), as compared to $7.7 million (before income taxes) in the same period of2003. In addition, cash used in real estate activities, net of relatedborrowings, was $0.9 million in the first six months of 2004, compared to$0.4 million for the same period in 2003 as a result of greater realestate acquisitions and fewer dispositions in 2004.

Net cash used in investing activities totaled $7.0 millionfor the first six months of 2004, compared to $0.8 million for the same periodin 2003. This change is partially due to $28.9 million of expenditures made in2004 related to real estate classified as “held for investment,” as compared tosimilar expenditures of $9.6 million in 2003. These 2004 expenditures wereoffset by $14.9 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 no such proceeds in 2003. In addition,distributions from investments in unconsolidated subsidiaries, net ofcontributions, decreased to $10.4 million in 2004, compared to $12.4 million in2003.

Net cash used in financing activities totaled $3.4 millionfor the first six months of 2004, compared to $15.1 million for the sameperiod in 2003. The decrease in cash used is primarily attributable to theCompany’s repurchases of common stock of $10.4 million in 2003, as compared tono such repurchases in 2004. In addition, the Company received contributions,net of distributions, from minority interest holders of $10.1 million in2004, compared to distributions, net of contributions, of $3.5 million in2003. This increase in cash is primarily the result of contributions receivedrelated to the Company’s new discretionary development and investment fundformed in 2004. In 2004, the Company made payments, net of borrowings, of $3.5million on notes payable on real estate held for investment, primarily due tothe dispositions of real estate projects, noted above, as compared toborrowings, net of payments of $4.7 million in 2003. In addition, the Companymade principal payments, net of additional borrowings, of $11.4 million in2004, primarily under the Credit Facility (described below), compared to$6.9 million in 2003.

In June 2002, the Company obtained a$150.0 million revolving line of credit (the “Credit Facility”) arrangedby Bank of America, N.A., as the administrative agent (the “AdministrativeAgent”), which replaced the Company’s previous $150.0 million revolvingline of credit. The Company can obtain loans under the terms of the CreditFacility, which are Base Rate Loans or Eurodollar Rate Loans. Base Rate Loansbear interest at a base rate plus a margin up to 0.75% depending on the Company’sleverage ratio. The base rate is the higher of the prime lending rate announcedfrom time to time by the Administrative Agent or an average federal funds rateplus 0.5%. Eurodollar Rate Loans bear interest at the Eurocurrency rate plus amargin, which ranges from 1.75% to 2.5%, depending upon the Company’s leverageratio. The Credit Facility contains various covenants such as the maintenanceof minimum equity, liquidity, revenues, interest coverage ratios and fixedcharge ratios. The Credit Facility also includes restrictions on recourseindebtedness and total indebtedness, restrictions on liens and certain restrictionson investments and acquisitions that can be made by the Company. In addition,the Company may not pay 

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dividends, repurchasecommon shares, or make other distributions on account of its common stockexceeding 50% of the previous year’s net income before depreciation andamortization. The Credit Facility is guaranteed by certain significantsubsidiaries of the Company and is secured by a pledge of a stock of suchsignificant subsidiaries and a pledge of certain intercompany indebtedness.

The Company’s participation in derivative transactionshas been limited to hedging purposes, and derivative instruments are not heldfor trading purposes. The Credit Facility requires the Company to enter intoone or more interest rate agreements for the Company’s floating rateindebtedness in excess of $30.0 million (other than construction loansunder which interest is capitalized in accordance with accounting principlesgenerally accepted in the United States (“GAAP”)) ensuring the net interest onsuch excess is fixed, capped or hedged. In March 2001, the Company renewedan existing interest rate swap agreement for a two-year period ending March 24,2003, with a fixed interest pay rate of 4.68% and a notional amount of$150.0 million. The interest rate swap agreement expired on March 24,2003, and the related weighted average receive rate was 1.37% for the threemonths ended March 31, 2003. Subsequent to the expiration of the interestrate swap agreement, the Company has entered into various short-term interestrate agreements to comply with the requirements of the Credit Facility. In June 2004,the Company entered into an interest rate cap agreement with a notional amountof $30.0 million expiring September 27, 2004, under which the Company willreceive payments if the 30-day LIBOR based interest rate exceeds 2.2%. Theinterest rate cap agreement has been designated an effective hedge, and, to theextent the hedging relationship remains effective, changes in fair value of theinterest rate cap agreement will be recorded in other comprehensive income.

The Company also has a $25.0 milliondiscretionary line of credit (the “Discretionary Line”) with Bank of America,N.A. Each loan obtained by the Company under the Discretionary Line matures infive business days, but no later than June 28, 2005, and bears interest ata LIBOR-based rate (plus a bank margin negotiated from time to time). Borrowingsunder the Discretionary Line are unsecured and reduce borrowing capacity underthe Credit Facility.

At June 30, 2004, the Company had no borrowingsunder the Credit Facility or the Discretionary Line. The Company’s unusedborrowing capacity (taking into account letters of credit and borrowingsoutstanding and limitations from certain financial covenants) under the CreditFacility was $103.7 million at June 30, 2004. The covenants containedin the Credit Facility and the amount of the Company’s other borrowings andcontingent liabilities may have the effect of limiting the borrowing capacityavailable to the Company under the Credit Facility to an amount less than the$150.0 million commitment. Since it takes longer for the Company todispose of real estate investments in a weaker economy, the recent economicslow down could adversely impact the Company’s ability to comply with certainof the real estate-related financial covenants in the Company’s CreditFacility, which could negatively impact the Company’s borrowing capacity. Also,since many of the financial covenants in the Credit Facility are dependent onthe Company’s “EBITDA”, as defined in the Credit Facility agreement andcalculated on a trailing four quarter basis, a decline in the Company’s overalloperations could adversely impact the Company’s ability to comply with thesefinancial covenants and, in turn, the Company’s borrowing capacity.

At June 30, 2004, the Company was in compliancewith all covenants of the Credit Facility. The Company expects to continue toborrow under the Credit Facility to finance future strategic acquisitions, fundits co-investment activities and provide the Company with an additional sourceof working capital.

In March 2003, 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 $11.4 million and the Company will receive payments ifthe LIBOR-based interest rate exceeds 3.5%. The interest rate capagreement has not been designated as a hedge, and therefore the interest ratecap agreement will be marked to market each period with the change in fairmarket value recognized in current period earnings. 

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The interest rate capagreement expires on March 1, 2005. As of June 30, 2004, amountsrecorded by the Company related to this interest rate cap agreement were notmaterial.

As of June 30,2004, the Company has various commitments that could impact its liquidity assummarized below (in millions):
| ** **                 | ** ** | ** **                    | ** ** | **Amount of Commitments by  Time of Expiration** | ** ** |
|----------------------------|------------|-------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                 | ** ** | **Total  Amounts  Committed** | ** ** | **Less than  1 year**                                           | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **After 5  years** | ** ** |
| Standby letters  of credit |       |                          | $          | 15.0                                                                      |       |   |   | $ | 15.0 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Debt repayment  guarantees |       |                          | 5.0        |                                                                      |       |   | 3.8 |   |   |   | 1.2 |   |   |   | — |   |   |   | — |   |   |
| Total commitments          |       |                          | $          | 20.0                                                                      |       |   |   | $ | 18.8 |   |   |   | $ | 1.2 |   |   |   | $ | — |   |   |   | $ | — |   |   |

 

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, sharerepurchases, acquisitions of service companies, signing bonuses or loans fornew employees and internal growth for the foreseeable future. The Company’sneed, if any, to raise additional funds to meet its working capital and capitalrequirements will depend upon numerous factors, including the success and paceof implementation of its growth strategy. The Company regularly considerscapital raising alternatives to be able to take advantage of available avenuesto supplement its working capital, including strategic corporate partnershipsor other alliances, bank borrowings and the sale of equity and/or debtsecurities.

**Off-balance Sheet Arrangements**

The Company does not haveany off-balance sheet arrangements, as defined in Regulation S-KItem 303(a)(4)(ii)(A)-(D), that have or are reasonably likely to have acurrent or future effect on the Company’s financial condition, changes infinancial condition, revenues or expenses, results of operations, liquidity,capital expenditures or capital resources that is material to investors.

**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,”“forecast,” “will,” “may,” “expect,” “envision,” “project,” “budget,” “target,”“estimate,” “should,” “intend,” “foresee,” “look for” and words of similarimport, are forward-looking statements within the meaning of the federalsecurities laws. Such forward-looking statements involve known andunknown risks, uncertainties and other matters which may cause the actual results,performance or achievements of the Company or industry results to be materiallydifferent from any future results, performance or achievements expressed orimplied by such forward-looking statements. Such risks, uncertainties andother matters include, but are not limited to (i) the timing of individualtransactions, (ii) the ability of the Company to identify, implement andmaintain the benefit of cost reduction measures and achieve economies of scale,(iii) the ability of the Company to compete effectively in theinternational arena, (iv) the ability of the Company to retain its majorcustomers and renew its contacts, (v) the ability of the Company toattract new user and investor customers, (vi) the ability of the Companyto manage fluctuations in net earnings and cash flow which could result fromthe Company’s participation as a principal in real estate investments,  (vii) the Company’s ability to continueto pursue its growth strategy, (viii) the Company’s ability to pursuestrategic acquisitions on favorable terms and manage challenges and issuescommonly encountered as a result of those acquisitions,  (ix) theCompany’s ability to compete in highly competitive national and local businesslines, and (x) the Company’s ability to attract and retain qualifiedpersonnel in all areas of its business 

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(particularlysenior management). In addition, the Company’s ability to achieve certainanticipated results will be subject to other factors affecting the Company’sbusiness that are beyond the Company’s control, including but not limited togeneral economic conditions (including the cost and availability of capital forinvestment in real estate and customers’ willingness to make real estatecommitments) and the effect of government regulation on the conduct of theCompany’s business. Given these uncertainties, readers are cautioned not toplace undue reliance on such forward-looking statements. The Companydisclaims any obligation to update any such statements or publicly announce anyupdates or revisions to any of the forward-looking statements containedherein to reflect any change in the Company’s expectation with regard theretoor any change in events, conditions, circumstances or assumptions underlyingsuch statements. Reference is hereby made to the disclosures contained underthe heading “Risk Factors” in “Item 1. Business” of the Company’s AnnualReport on Form 10-K filed with the Securities and ExchangeCommission on March 15, 2004.

**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 5 and 6 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. From time to time, the Company purchases interest rate agreements tohedge, cap or lock a portion, but not all, of its exposure to fluctuations in interestrates, and, as such, the effects of interest rate changes are expected to belimited. The Company’s earnings are also somewhat affected by fluctuations inthe value of the U.S. dollar as compared to foreign currencies as a result ofits operations in Europe, Asia and Australia. There have been no significantchanges in the interest rate or foreign currency market risks since December 31,2003.

**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 Securities Exchange Act of1934 (the “Exchange Act”)). Based on that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that the Company’s disclosurecontrols and procedures are effective in timely alerting them to materialinformation relating to the Company (including its consolidated subsidiaries)required to be included in the Company’s periodic filings with the Securitiesand Exchange Commission. There were no changes in the Company’s internalcontrol over financial reporting (as defined in Rule 13a-15(f) underthe Exchange Act) that occurred during the Company’s last fiscal quarter thathave materially affected or are reasonably likely to materially affect theCompany’s internal control over financial reporting.

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**PART II—OTHERINFORMATION**

**ITEM 1.**   *Legal Proceedings*

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$15.0 million. The plaintiffs seek to recover actual damages, punitive damagesand reasonable attorneys’ fees. The suit is in the process of discovery, and notrial date has been set. As of the date of this Form 10-Q, theoutcome 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 the information currentlyavailable, the Company does not believe that the resolution of any such mattersto which it is currently a party will have a material adverse effect on theCompany’s results of operations, financial condition or liquidity.

**ITEM 4.**   *Submission of Matters to a Vote of Security Holders*

At the AnnualMeeting of Stockholders held on May 19, 2004, the following proposals weresubmitted to stockholders with the following results:

1.                Electionof the individuals named below to serve as Class I Directors of theCompany until its Annual Meeting of Stockholders in 2007 and until theirrespective successors are duly elected and qualified or until their earlierdeath, resignation or removal from office. 
| ** **         | ** ** | **Number of Shares** | ** ** |
|--------------------|------------|--------------------------------|------------|
| ** **         | ** ** | **For**                        | ** ** | **Withheld** | ** ** |
| Curtis F. Feeny    |       | 33,099,090                     |       | 745,313 |   |
| Robert E. Sulentic |       | 33,567,983                     |       | 276,420 |   |

 

The followingindividuals are Class II Directors of the Company, whose terms expire atthe Company's Annual Meeting of Stockholders in 2005: James R. Erwin andJeffrey M. Heller. The following individuals are Class III Directorsof the Company, whose terms expire at the Company’s Annual Meeting ofStockholders in 2006: William F. Concannon, Rowland T. Moriarty, andJ. McDonald Williams.

2.                Ratificationof the selection of Ernst & Young LLP as independent auditors of theCompany for the fiscal year ended December 31, 2004. 
| ** ** | ** ** | **Number of Shares** | ** ** |
|------------|------------|--------------------------------|------------|
| For        |       |                           | 33,103,460 |   |   |
| Against    |       |                           | 106,845    |   |   |
| Abstain    |       |                           | 634,098    |   |   |

 

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**ITEM 6.**   *Exhibits and Reports on Form 8-K*

(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)          Previously filed as anexhibit to the Company’s Registration Statement on Form S-1 (FileNumber 333-34859) filed with the Securities and Exchange Commissionon September 3, 1997 and incorporated herein by reference.

(2)          Previously filed as anexhibit to the Company’s Form 10-Q filed with the Securities andExchange Commission on August 11, 2000, and incorporated herein byreference.

(3)          Previously filed as anexhibit to the Company’s Form 10-K filed with the Securities andExchange Commission on March 31, 2003, and incorporated herein byreference.

(4)          Previously filed asExhibit 3.2.3 to the Company’s Form 10-K filed with theSecurities and Exchange Commission on March 15, 2004, and incorporatedherein by reference.

(5)          Previously filed asExhibit 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.

(b)          Reportson Form 8-K filed during the three months ended June 30, 2004:

On April 29, 2004, the Company filed a Current Reporton Form 8-K furnishing the Company’s press release announcing itsfinancial results for the quarter ended March 31, 2004 and furnishing thefollowing financial statements: (i) Statements of Income for the ThreeMonths Ended March 31, 2004 and 2003; (ii) Balance Sheet as of March 31,2004 and December 31, 2003; (iii) Summarized Operating Data bySegment for the ThreeMonths Ended March 31, 2004 and 2003; and (iv) Other Data asof March 31, 2004 and December 31, 2003.

On May 19, 2004, the Company filed a Current Report onForm 8-K furnishing the Company’s press release announcing the resignation ofRebecca A. McDonald from its Board of Directors, effective immediately.

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**SIGNATURE**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|        |   | 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: August 9, 2004

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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)          Previously filed as anexhibit to the Company’s Registration Statement on Form S-1 (FileNumber 333-34859) filed with the Securities and Exchange Commissionon September 3, 1997 and incorporated herein by reference.

(2)          Previously filed as anexhibit to the Company’s Form 10-Q filed with the Securities andExchange Commission on August 11, 2000, and incorporated herein byreference.

(3)          Previously filed as anexhibit to the Company’s Form 10-K filed with the Securities andExchange Commission on March 31, 2003, and incorporated herein byreference.

(4)          Previously filed asExhibit 3.2.3 to the Company’s Form 10-K filed with theSecurities and Exchange Commission on March 15, 2004, and incorporatedherein by reference.

(5)          Previously filed asExhibit 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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