**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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FORM 10-K
| **(Mark One)**                                                                                                                                                                                   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **x**                                                                                                                                                                                            | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| **For the fiscal year ended December 31, 2003**                                                                                                                                             |
| **OR**                                                                                                                                                                                           |
| **o**                                                                                                                                                                                            | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| **For the transition period from             to             ** |

**Commission file number1-13531**

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Trammell Crow Company

(Exact name of registrant as specified in its charter)

| **Delaware**(State or other  jurisdiction of  incorporation or organization)                   | **75-2721454**(IRS Employer  Identification Number) |
|------------------------------------------------------------------------------------------------|-----------------------------------------------------|
| **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)

Securities registered pursuant to Section 12(b) ofthe Act:

| ** **                    | **Title of each class** | ** **              | ** ** | ** ** | **Name of each exchange on  which registered** | ** ** |
|-------------------------------|-------------------------|-------------------------|------------|------------|------------------------------------------------|------------|
| Common Stock, $.01 par  value |                    | New York Stock Exchange |

Securitiesregistered pursuant to section 12(g) of the Act:

**None**

(Title of Class)

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

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K. x

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

The aggregate market value of the voting and non-votingcommon equity held by non-affiliates on June 30, 2003, was $361,276,336,based on the closing price of the registrant’s common stock, $10.61 per share,reported on the New York Stock Exchange on June 30, 2003.

There were 37,033,667 shares of the registrant’s commonstock outstanding as of March 1, 2004.

**DOCUMENTSINCORPORATED BY REFERENCE**

Portions of the registrant’s Proxy Statement to befurnished to stockholders in connection with its 2004 Annual Meeting ofStockholders are incorporated by reference in Part III of this Report.

 

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**PART I**

**ITEM1. BUSINESS**

**CompanyOverview**

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 leadingmultinational corporations, institutional investors and other users of realestate services. In the United States, the Company is a leading provider ofcommercial property and facilities management services, commercial propertybrokerage and transaction management services, commercial property developmentand construction services and project management services. In addition to itsfull service offices located throughout the United States, the Company hasoffices in Canada, Europe, Asia and Latin/South America focused on the deliveryof real estate services to users of commercial real estate. The Companydelivers brokerage services outside the United States through strategicalliances with leading providers—in Europe and Asia, through Savills plc (“Savills”),a leading property services company based in the United Kingdom; and in Canada,through JJ Barnicke, a leading Canadian real estate services provider. TheCompany, which is headquartered in Dallas, Texas, was founded in 1948 by Mr. TrammellCrow. From its founding through the 1980’s, the Company’s primary business wasthe development, ownership and management of industrial, office and retailprojects. In 1991, the Company was reconstituted as a real estate servicescompany. This reconstitution entailed the separation of the Company’scommercial real estate asset base and related operations from its real estateservices business. The Company continued to operate the real estate servicesbusiness while ownership of the commercial real estate asset base that existedin 1991 was segregated into a large number of separate entities distinct fromthe Company, with independent management and operations.

The Company delivers four core services—buildingmanagement services, brokerage services, project management services anddevelopment services—to both user and investor customers. The Company’sbusiness is organized under two separate national leadership structures. TheGlobal Services Group includes substantially all of the building managementservices, brokerage services, and project management services delivered to bothuser and investor customers. Substantially all of the Company’s real estatedevelopment, capital markets and investment activities are conducted throughthe Company’s Development and Investment Group. The Company’s revenues aregenerated primarily in the United States, with approximately 97% of itsrevenues derived from domestic operations in each of 2001, 2002 and 2003.Revenues derived from various foreign operations comprised approximately 3% ofthe Company’s total revenues in each of 2001, 2002 and 2003. Approximately 94%,92% and 91% of the Company’s long-lived assets at December 31, 2001, 2002and 2003, respectively, relate to the Company’s domestic operations, with theremaining portion of its long-lived assets relating to various foreignoperations.

Within the Global Services segment, with approximately5,900 full-time equivalent (“FTE”) employees, the Company provides services touser customers, including multinational corporations, hospitals anduniversities, who are typically the primary occupants of commercial properties,and investor customers that are not typically the primary occupants of thecommercial properties with respect to which services are performed. Thebuilding management services provided to user customers consist primarily offacilities management, which entails providing comprehensive day-to-dayoccupancy related services, principally to large corporations, healthcaresystems and other users that occupy commercial facilities in multiplelocations. These services include administration and day-to-day maintenance andrepair of customer-occupied facilities. Brokerage services provided touser customers include corporate advisory services such as portfolio managementand tenant representation. Project management services provided to usercustomers include facility planning and project management, such asconstruction oversight, space planning, site consolidations, facilities design,and workplace moves, adds, and changes. The building management servicesprovided to investor customers include property management services relating toall 

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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 investorcustomers include construction management services such as space planning andtenant finish and coordination. 

Within the Development andInvestment segment, encompassing approximately 180 FTE employees, the Companyprovides development activities and services to both investor and usercustomers—both those pursuant to which the Company takes an ownership positionand those pursuant to which the Company provides development services forothers on a fee basis. 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, project closeoutand project finance coordination. The Company will continue to focus itsefforts in this area on risk-mitigated opportunities for investor customers andfee development and build-to-suit projects for user customers, including thosein higher education and healthcare. From time to time the Company may pursuedevelopment 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.

**Long-Term Growth Strategy**

The Company’s long-term growth strategy is centeredaround taking advantage of its strong brand name; its scale and geographicscope; its large existing customer base; its comprehensive service offeringsand, in particular, its development capabilities, which are unique amongcommercial real estate companies, to grow with both user and investorcustomers, primarily in North America. The key components of this overallgrowth strategy are:

*Focuson Large Markets and Large Customers.**  *The Company is focused on operatingin large markets and believes that this focus will allow the Company to achievethe critical mass that fuels growth with large customers. The Company believesthat expanding its presence in these markets will create key hubs of growth,enabling the Company to more easily shift resources as needed, establish branddominance and recruit top talent. The Company intends to maintain its focus onlarge customers, which have historically fueled much of the Company’s revenuegrowth. The Company believes this focus on large customers will also benefitthe Company as the trend continues for both investors and users of space toconsolidate their requirements with a reduced number of service providers.While the Company has and will continue to focus on large markets as noted, itdoes have and will continue to have a presence in a number of small andmid-sized markets. This presence allows the Company to serve large customerswith needs in these markets and to be opportunistic relative to locallygenerated requirements.

*ProvideConsistent Quality Service.**  *The Company is focused on providing uniform productquality and service delivery across all markets in which it is active. TheCompany is also focused on improving its back office infrastructurecapabilities including information technology, accounting, and human resources.In the case of all of these capabilities, the effort is to improve them insupport of both internal and customer activity. The Company has aimedsubstantial resources at these areas over the past three years and hasreorganized each to make it more effective. The Company believes that thesector in which it competes has consistently been weak in these areas and thatcustomers are eager for service providers to demonstrate improved capabilities.Consequently, the Company believes its efforts in this regard should create along-term competitive advantage, particularly with large customers, and in turnshould create growth opportunities.

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*ExpandBrokerage Network.**  *TheCompany has committed significant resources to expand its brokerage network andto continue development of a highly competitive brokerage business. The Companyhas added two new senior executives to its national brokerage leadership team,in addition to adding brokers throughout its network in the U.S., as part ofits strategy to build stronger brokerage teams in major markets, withappropriate coverage in secondary markets. The Company employed 526 FTE brokersat December 31, 2003, in addition to 46 transaction managers who provideservices to national user customers. Also contributing to this initiative, in2003 the Company entered into a cross-border, exclusive brokerage alliance withJJ Barnicke, a Canadian-based real estate services company. In addition, theCompany maintains its strategic alliance with Savills, which has brokeragecapability throughout Europe, Asia-Pacific and Australia, to provide theCompany with a delivery platform to meet the needs of its customers in theseregions.

*Capitalizeon Outsourcing Opportunity.**  *While the commercial real estate-relatedoutsourcing business has been impacted by the economic downturn, it remains alarge growth opportunity well suited to the Company’s full service capabilityset. As an outsourcing industry leader, the Company will continue to focus itsresources, primarily in the U.S. and, to a lesser degree, in Europe, on addingnew customers and growing its substantial relationships with existingoutsourcing customers.

*Focus on DevelopmentOpportunities.**  *Witha national organization comprised of professionals dedicated fully todevelopment and investment activities, the Company pursues and executes newdevelopment business, with initiatives focused on programmatic business withthe Company’s large investor customers and, increasingly, build-to-suitprojects for user customers, including those in higher education and healthcare.The healthcare industry in particular has been less cyclical than the overalleconomy through the latest downturn, and the Company has increased its focus inthis industry. In 2003, the majority of the Company’s development starts, basedon budgeted project costs, stemmed from its user initiatives. In addition, fromtime to time the Company may pursue opportunistic property acquisitions or newdevelopment with its capital partners or for its own account.

**Global Services Segment**

The Company providesservices to both user and investor customers through its Global Servicessegment. Global Services segment revenues grew from $566.0 million in 1999to $650.5 million in 2003 (91.9% of 2003 revenues). At December 31,2001, 2002 and 2003, total assets attributable to the Global Services segmentwere $333.1 million, $253.0 million and $296.9 million,respectively. Other financial information about the Global Services segment iscontained in *“Item 8. FinancialStatements and Supplementary Data, Note 21.”*

***User Services***

The Company provides outsourcing services, includingfacilities management services, corporate advisory services and project managementservices, to user customers. As of December 31, 2003, the Company utilizedapproximately 3,000 FTE employees to provide services to approximately 24,000properties for its outsourcing customers. The goal of the Company’s userservices business is to align the facilities and support services of itscustomers with their operational and strategic business objectives. Occupancy-relatedcosts frequently represent the largest corporate expense item aftercompensation and benefits. The Company believes that organizations areincreasingly outsourcing their facility or real estate related functions toreduce costs, improve profitability and refocus management and other resourceson core competencies. The Company has developed expertise in providing realestate outsourcing services to customers in the financial services, healthcare,automotive, oil and gas and technology/communications industries. The Companybelieves that its expertise in servicing clients within these industriescreates additional growth opportunities.

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The Company administers outsourcing services using acentralized administrative, marketing and leadership organization combined withcustomer-based delivery systems. The Company offers the followingoutsourcing service delivery options: (i) dedicated Company employeeslocated at a customer site; (ii) a team of Company employees dedicated toa customer but located at Company offices; and (iii) a flexible,nationwide network of Company personnel providing the full menu of the Company’sreal estate services from the Company’s local offices. Most of the Company’soutsourcing engagements provide for on-site presence of Company employees,which the Company believes enhances customer communication, provides focusedpersonal service, enhances the protection of the customer’s proprietaryinformation and enables the Company to monitor customer satisfaction on anongoing basis.

The Company seeks to enter into multi-year,full-service outsourcing contracts with its customers. Most contracts arestructured so the Company receives a monthly base fee and annual incentives ifcertain agreed-upon performance targets are satisfied. Most contracts alsoprovide for the reimbursement of customer-dedicated personnel costs andassociated overhead expenses. In many cases, these revenue sources areaugmented by variable revenues from transaction services and project managementservices. The Company believes that significant growth opportunities existwithin its existing customer base.

The five largest customers for the Company’soutsourcing services business, measured in 2003 revenues from such customers,collectively represented 21.0% of the Company’s total revenues in 2003.

In addition to theservices described below, the Company also offers strategic services, such asconsulting, development, properties portfolio management, real estate assetmanagement, and management of accounting and information systems.

*FacilitiesManagement Services*

Facilities managementservices includes the day-to-day maintenance and repair of facilities, officeservices (such as security, reprographics, mail, cafeteria, shipping andreceiving, and reception services) and call center services (includingwork-order, dispatch, vendor management and emergency response). As of December 31,2003, the Company managed approximately 153.4 million square feet for itsoutsourcing customers. Revenues from facilities management services were$209.0 million in 2003 (29.5% of 2003 revenues), up from$108.3 million in 1999. The growth in revenues is due to the additionof new customers and the expansion of services provided to existingcustomers.

*Corporate AdvisoryServices*

Corporate advisoryservices include tenant representation and other transaction services such asacquisitions, dispositions, lease administration and lease audits. The Companyseeks to manage a customer’s entire firm-wide property acquisition anddivestiture program, but provides services to many customers on atransaction-by-transaction basis. Revenues from corporate advisory serviceswere $123.3 million in 2003 (17.4% of 2003 revenues), up from$104.3 million in 1999. A substantial portion of the growth in revenues isdue to a focus on larger transactions and expansion of services provided toexisting customers. During most of 2003, the Company’s corporate advisoryservices business continued to be adversely impacted by the weakness of theeconomy as a whole, with revenues decreasing $20.2 million, or 14.1%, fromtheir peak in 2000, as the downturn in the economy had a negative impact on thetiming and amount of tenant representation and other corporate advisoryrevenues earned by the Company. However, 2003 revenues increased 13.7% over2002 revenues as, in the fourth quarter of 2003, the Company experienced an18.0% increase in corporate advisory services revenue from the amount reportedin the fourth quarter of 2002, as there were signs of possible economicrecovery.

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*Project ManagementServices*

Project managementservices include facility planning and project management (such asconstruction, space planning, site consolidations, facilities design, workspacemoves, adds and changes, and management of furniture, signage and cablingrequirements). Revenues from project management services were$65.5 million in 2003 (9.3% of 2003 revenues), up from $31.4 millionin 1999. Although the downturn in the economy has had a negative impact on usercustomers’ project spending, and hence on the timing and amount of projectmanagement revenues earned by the Company, revenues increased because theCompany was successful in winning new business and expanding services withexisting customers.

***Investor Services***

The Company providesproperty management, brokerage, and construction management services toinvestors in commercial properties.

*Property ManagementServices*

As of December 31, 2003, the Company managedapproximately 247.7 million square feet of commercial property (excludingfacilities occupied by user customers) and served approximately 550 customersand 13,000 tenants nationwide through its locally based property managementteams. The Company managed 282.3 million, 312.7 million,291.7 million and 261.1 million square feet of commercial property atthe end of 1999, 2000, 2001 and 2002, respectively. Revenues in 2003 fromproperty management services were $143.7 million (20.3% of 2003 revenues),down from $155.4 million in 1999. The decrease in revenues is primarilythe result of the Company’s sale of portions of the businesses acquired in 1998from Faison & Associates and Faison Enterprises, Inc. (“Faison”)back to Faison in 2002 (see “*Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations”)*.The Company has also exited from certain less profitable property managementbusiness and has increased its focus on adding office product to its managementportfolio, which typically generates higher margins. In addition, propertymanagement revenues have been adversely impacted by the downturn in theeconomy, which has resulted in decreases in occupancy levels and rents, whichare drivers of these revenues.

The objective of the Company’s property managementbusiness is to enhance its customers’ investment values by maintaining highlevels of occupancy and lowering property operating costs by offering a widerange of property management services. The property management services offeredby the Company consist of (i) building management services such asmaintenance, landscaping, security, energy management, owner’s insurance, lifesafety and capital repairs (many of which may be subcontracted by the Companyto third-party providers); (ii) tenant relations services such aspromotional activities, processing tenant work orders and lease administrationservices; (iii) coordinating tenant finish; and (iv) relatedfinancial management services including accounting, financial reporting andanalysis.

The Company expects that a significant portion of itsnew property management engagements will result from (i) contract winsresulting from customers’ consolidation of service providers; (ii) propertytransfers; and (iii) projects that the Company develops for investorcustomers. To the extent that investors continue to make direct investments inreal estate, the Company believes that it will be in an advantageous positionto win new property management engagements due to its existing relationshipswith large investor customers and its ability to provide single-sourcesolutions for their multi-market and multi-functional requirements.

The properties managed by the Company are typicallyserved by locally-based teams of property managers and maintenancepersonnel supported by various corporate level service functions, includingtechnology support, accounting and purchasing. Large customer accounts aretypically managed by teams headquartered at the Company’s national office toensure consistency of quality and to ensure that all customer real estateservice requirements are appropriately addressed.

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The Company typically receives monthly management feesfor the property management services it provides, based upon a specifiedpercentage of the monthly gross income generated from the property undermanagement. In certain cases, the Company’s property management agreementsentitle it to receive the greater of a minimum agreed-upon base fee or a feebased upon monthly gross income as described above. The amount of themanagement fee varies depending upon local market conditions, product type andrents, the leasing engagement, arrangements for expense reimbursements andspecific services required. Incentive fees are sometimes negotiated inturnaround or other unusual circumstances. The Company also may be reimbursedfor a portion of its administrative and payroll costs, as well as certainout-of-pocket expenses, directly attributable to the properties undermanagement.

A typical property management agreement of the Companyprovides for an indefinite term, but permits the property owner or the Companyto terminate the agreement without cause upon thirty days prior written notice.The Company believes that these are customary termination provisions in theindustry. From time to time the Company loses assignments, most frequently incircumstances where a property has been sold and the new property owner assumesdirect responsibility for managing the property or retains one of the Company’scompetitors to manage the property.

The Company focuses onestablishing alliance relationships with certain of its investor customers inan effort to increase its share of the business of these large customers byobtaining longer-term management contracts across multiple cities and providingother services.

*Brokerage Services*

Brokerage services are primarily comprised of projectleasing (leasing space in real estate owned by investor customers) andinvestment sales (representing customers buying or selling land or income-producingreal estate). While, particularly in larger markets, some of the Company’s brokersmay specialize in specific types of transaction services (including tenantrepresentation activities, which are included in corporate advisory services),in many cases a broker may facilitate some combination of project leasing,investment sales and tenant representations transactions.

Revenues from investor brokerage services havedecreased from $135.7 million in 1999 to $95.6 million in 2003 (13.5%of 2003 revenues). A substantial portion of this decrease in revenues is due tothe decrease in the number of project leasing and investment sales brokers, areduction in transaction volume due to reluctance on the part of customers andothers to make new real estate commitments due to the downturn in the economyand a reduction in the Company’s development inventory available for lease as aresult of the decline in project starts. The Company employed approximately579, 574, 515, 501 and 526 total brokers (including tenant representationbrokers facilitating transactions for user customers) at the end of 1999, 2000,2001, 2002 and 2003, respectively.

The Company typically receives fees for brokerageservices based on a percentage of the value of the lease or sale transaction.Some transactions may stipulate a fixed fee or include an incentive bonuscomponent based on the performance of the brokerage professional or customersatisfaction. Although transaction volume, rental rates and sales prices areinfluenced by economic conditions (thus impacting total brokerage revenues,including tenant representation fees), percentage brokerage fee structures haveremained relatively constant through both economic upswings and downturns.

Project leasing revenues are derived from the turnoverof tenants and leasing of new space in the Company’s property management andleasing portfolios of approximately 332.1 million square feet at December 31,2003. As space “rolls” each year, the Company has the opportunity to earn acommission paid by the owner of the property for renewing the existing tenant’slease or releasing the space to a new tenant. In addition, the Company earnscommissions for leasing of first generation space in certain projects developedby the Company. Investment sales revenues generally increase in economicupswings as available capital drives the trading of income-producingproperties and demand for additional space drives 

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the purchase of land fornew development. Investment sales revenues generally decline in economicdownturns as capital resources are more cautious in purchasing income-producingproperties and demand for new space slackens. This decline was mitigated in themost recent downturn by historically low interest rates, which have allowedreal estate investments to remain attractive opportunities as compared to otherinvestment classes. During 2003, the Company’s brokerage services businesscontinued to be adversely impacted by the weakness of the economy as a whole.The downturn in the economy has had a negative impact on the timing and amountof project leasing revenues and to a lesser extent, investment sales revenuesearned by the Company, with total brokerage revenue decreasing$50.2 million from its peak in 2000. However, in the fourth quarter of2003, the Company experienced a 29.3% increase in brokerage revenue from the amountreported in the fourth quarter of 2002, as there were signs of possibleeconomic recovery. As a result of the strong 2003 fourth quarter, 2003brokerage revenue remained relatively flat as compared to 2002, with investmentsales revenue increasing 10.6% and project leasing revenue decreasing 6.6%.

The Company regards its brokerage force as an integralpart of marketing the broad array of services the Company provides to itscustomer base. The Company’s large network of experienced brokers is a valuableasset when seeking new facilities and property management, project managementand development services business. The presence of its brokers in on-siteproject leasing offices can provide the Company with insights into itscustomers’ non-brokerage real estate needs and early opportunities to win thecustomer’s real estate services business. The sheer number of transactions inwhich its brokers are involved can also be a source of information from whichthe Company can seek to identify business opportunities in specific local orregional markets.

Brokerage personnel earn commissions and are eligibleto receive other forms of incentive compensation including financial rewardsfor cross-selling efforts that result in new engagements for the Company,such as a development project or the acquisition of a new outsourcing account,which in turn enables the Company to acquire additional brokerage business.These incentives are designed to underscore the Company’s belief that thebrokerage business is often a key point of entry for new customers, and is thusintegral to firm wide efforts to cross-sell a full range of services.

The Company believes thatthe quality brand identification of its name, its large customer base, the fullrange of services it offers customers, the overall breadth and scope of theCompany’s real estate activities and the Company’s incentive-basedcompensation system create an environment conducive to attracting experiencedand capable brokerage professionals.

*ConstructionManagement*

Construction managementservices primarily include space planning and tenant finish coordination forinvestor customers in conjunction with property management and leasingassignments. These fees are typically based on a percentage of projectconstruction costs. In 2003, construction management revenues were$10.7 million (1.5% of 2003 revenues) as compared to $24.9 million in1999. During 2003, the timing and amount of construction management revenuesearned by the Company continued to be adversely impacted by the weakness of theeconomy as a whole, with revenues increasing only $0.7 million from 2002. Thedecrease in construction management revenues was also driven by the Company’sdisposition of several construction businesses in the second half of 2001 andin early 2002.

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**Development and Investment**

Revenues in theCompany’s Development and Investment segment primarily consist of developmentand construction fees, and gain on disposition of real estate. In addition,income is also generated from investments in unconsolidated subsidiaries.Historically, the Company has focused its commercial real estate developmentbusiness on investors in office, industrial and retail projects. The Companyhas the capability to implement active and sizeable development programs,primarily on behalf of its customers. With its Development and Investmentorganization, the Company has maintained development efforts on behalf of itsinvestor customers and has increased its focus on development for usercustomers, including those in the areas of higher education and healthcare. Inaddition, through High Street Residential, a wholly-owned subsidiary of theCompany, the Company is increasing its focus on development of mixed-usefacilities with a residential component. In 2003, revenues from development andinvestment activities were $57.4 million (8.1% of 2003 revenues) ascompared to $110.3 million in 1999. At December 31, 2001, 2002 and2003, total assets attributable to the Development and Investment segment were$359.2 million, $369.1 million and $333.2 million, respectively.Other financial information about the Development and Investment segment iscontained in *“Item 8. FinancialStatements and Supplementary Data, Note 21.”* From January 1,1999 through December 31, 2003, the Company commenced development ofapproximately 61.1 million square feet of projects with aggregate budgetedproject costs of approximately $5.5 billion.

The Company provides its customers with services thatare vital in all stages of the development and construction process, including:(i) evaluating project feasibility, budgeting, scheduling and cash flowanalysis; (ii) site identification, due diligence and acquisition; (iii) procurementof approvals and permits, including zoning and other entitlements; (iv) coordinationof project design and engineering; (v) construction bidding and managementand tenant finish coordination; (vi) project close-out and user movecoordination; and (vii) project finance advisory services.

The Company typically receives a fee for its developmentservices that is based on a negotiated percentage of a project’s budgetedconstruction and development cost. Incentive bonuses may be received forcompleting a project under budget and within certain critical time deadlines.The Company has also been aggressive in negotiating other incentivecompensation arrangements that allow the Company to participate in theinvestment returns on projects it develops for its customers. The Company maymake a co-investment with its customers, receive its pro rata return on itsinvestment in the project and also receive an incentive participation in theproject because of the Company’s role in sourcing the development projectand/or executing a variety of services in the development process. The Company’sco-investments in real estate projects typically result in an upside economicinterest substantially greater than the co-investment percentage. To facilitatedevelopment and investment activity, the Company established four discretionarydevelopment and investment funds, which through December 31, 2003, hadreceived funding commitments of $104.0 million, including$69.3 million from outside parties. Of the total funding commitments,$85.2 million had been invested through December 31, 2003, inprojects with an aggregate project cost of approximately $705.6 million,of which $369.6 million had been sold through December 31, 2003. Inaddition, during January 2004, the Company established a fifthdiscretionary development and investment fund with a total funding commitmentof $50.2 million, of which $40.2 million is from parties other than the Company.In February 2004, the Company announced the establishment of an industrialdevelopment program with ING Clarion. The Company will co-invest in theprogram, which is targeting up to $500 million of product with a focus on newbulk warehouse distribution centers in major markets throughout the UnitedStates. The Company may make significant direct investments in real estate projectswith or without customer participation.

 

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The market for development and investment services iscyclical and is driven by various economic conditions. During 2003, the Company’sdevelopment and investment business, particularly for investor customers,continued to be adversely impacted by the weakness of the economy as a whole.The downturn in the economy has had a negative impact on transaction volume,rental rates and sales prices. These factors have negatively impacted thetiming and amount of development and investment revenues (including incentivedevelopment fees) and profits earned by the Company, with revenues decreasing$77.3 million from their peak in 2000. In addition, the Company isexperiencing the consequences of diminished development starts as a result ofthe economic downturn. The impact of this reduction in development starts willcontinue to be felt in 2004. As the economy begins its recovery, the Company isstarting to experience favorable activity in new development starts, but therewill be a time-lag until these opportunities will contribute to the Developmentand Investment segment’s results of operations.

The Company’s developmentactivities generate business opportunities for the Company’s other servicelines, which contribute to the Company’s earnings. The Company believes thatits increased focus on development for user customers, including corporationsand those in the areas of higher education and healthcare, has mitigated aportion of the adverse effect on its revenues when speculative developmentactivities were curtailed in the recent market down cycle. From time to timethe Company may pursue opportunistic property acquisitions with its establishedcapital partners.

**Competition**

The Company competes inseveral market segments within the commercial real estate industry, each ofwhich is highly competitive on a national and a local level. The Company facescompetition from other real estate services providers, consulting firms andin-house corporate real estate departments. Some of the Company’s principalcompetitors in certain of these segments have capabilities and financialresources equal to or greater than those of the Company and a more substantialglobal presence. Many of the Company’s competitors are local or regional firms,which are smaller than the Company on an overall basis, but may besubstantially larger than the Company on a local or regional basis. While theCompany does not believe that any of its competitors are dominant in thebusiness lines in which the Company operates, the providers of real estate servicesthat compete with the Company on a national level include Jones Lang LaSalleIncorporated, CB Richard Ellis, Cushman & Wakefield, Inc. andGrubb & Ellis. The Company has faced increased competition in recentyears, which has, in some cases, resulted in lower service fees, orcompensation arrangements more closely aligned with the Company’s performancein rendering services to its customers. In recent years, there has been asignificant increase in real estate ownership by REITs, many of which self-managemost of their real estate assets. Continuation of this trend could shrink theasset base available to be managed by third party service providers, decreasethe demand for the Company’s services and thereby significantly increase itscompetition. In general, the Company expects the industry to becomeincreasingly competitive in the future. There can be no assurance that suchcompetition will not have a material adverse effect on the Company’s business,financial condition or results of operations.

**Employees**

As of March 1, 2004,the Company had approximately 6,300 employees. Management believes itsrelations with employees are good. Employees of the Company at certainproperties located in Reno, Nevada, New York, New York and Naperville, Illinoisare currently represented by a labor union. The unions represented at therespective locations are: Southern California—Nevada Regional Council ofCarpenters, Local #971; and Laborers’ International Union of NorthAmerica-AFL-CIO Local No. 169 (Reno, Nevada); International Union ofOperating Engineers Local Union #94-94A-94B AFL-CIO (New York, NewYork); and International Union of Operating Engineers Local No. 399(Naperville, Illinois).

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**Insurance**

The Company has the typesof insurance coverage, including comprehensive general liability and excessumbrella liability insurance, that it believes are appropriate for a company inthe lines of business in which it operates. The Company’s management uses itsdiscretion in determining the amounts, coverage limits and deductibilityprovisions of appropriate insurance coverage on the Company’s properties andoperations at a reasonable cost and on suitable terms. This might result ininsurance coverage that, in the event of a substantial loss, would not besufficient to pay the full value of the damages suffered by the Company.

**Trademarks**

The trade name “TrammellCrow” is material to the Company’s business. The Company is party to a licenseagreement with respect to such trade name (the “License Agreement”) with CF98,L.P., (“CF98”), an affiliate of Crow Realty Investors, L.P. d/b/a Crow Holdings(“Crow Holdings”), which is wholly-owned by certain descendants and affiliatesof Mr. Trammell Crow. See the information set forth under the heading *“Certain Relationships and Related Transactions”* contained in the Company’s definitive ProxyStatement to be filed pursuant to Regulation 14A of the Securities Exchange Actof 1934 (the “Exchange Act”) in connection with the Company’s 2004 AnnualMeeting of Stockholders.

**Environmental Liability**

Various federal, state, local and foreign laws andregulations impose liability on current or previous real property owners oroperators for the cost of investigating, cleaning up or removing contaminationcaused by hazardous or toxic substances at the property. If contaminationoccurs or is present during the Company’s role as a property or facilitymanager or developer, it could be held liable for such costs as a current “operator”of the property. Such liability may be imposed without regard to the legalityof the acts or omissions that caused the contamination and without regard towhether the Company knew of, or was responsible for, the presence of suchhazardous or toxic substances, and such liability may be joint and several withany other parties that are deemed legally liable for the contamination. If theliability is joint and several, the Company could be responsible for payment ofthe full amount of the liability, whether or not any other responsible party isalso liable. Under certain laws and common law principles, any failure by theCompany to disclose environmental contamination at a property could subject theCompany to liability to a buyer or lessee of the property. In addition, someenvironmental laws create a lien on a contaminated site for costs that agovernmental entity incurs in connection with the contamination. The operatorof a site also may be liable under common law to third parties for damages andinjuries resulting from exposure to hazardous substances or environmental contaminationat a site, including liabilities arising from exposure to asbestos-containingmaterials. There can be no assurance that any of these types of environmentalliabilities to which the Company or any of its affiliates become subject willnot have a material adverse effect on the Company’s business and results ofoperations.

Some of the propertiesowned, operated, managed or under development by the Company contain or areadjacent to or near properties that have contained in the past, or currentlycontain, underground and/or above-ground storage tanks used to storeregulated substances such as petroleum products or other hazardous or toxicsubstances. Some of the properties owned, operated or managed by the Companyare in the vicinity of properties which are currently, or have been, the siteof releases of regulated substances and remediation activity, and the Companyis currently aware of several properties owned, operated or managed by theCompany which may be impacted by regulated substances which may have migratedfrom adjacent or nearby properties or which may be within the borders of areassuspected to be impacted by regional groundwater contamination. In addition,the Company is aware of the presence or the potential presence of regulatedsubstances in the soil or groundwater at several properties owned, operated ormanaged by it, which may have resulted from historical or ongoing activities onthose properties. Based on 

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theinformation available to date, the Company believes that the environmentalissues described above are being or have been appropriately managed and willnot have a material adverse effect on the Company, but there can be noassurance that environmental liabilities or claims will not adversely affectthe Company in the future.

**Government Regulation**

The Company and its brokers, salespersons and, in someinstances, property managers are regulated by the states in which they dobusiness. These regulations include licensing procedures, prescribed fiduciaryresponsibilities and anti-fraud provisions. The Company’s activities are alsosubject to various local, state, national and international jurisdictions’ fairadvertising, trade, housing and real estate settlement laws and regulations andare affected by laws and regulations relating to real estate and real estatefinance and development. In particular, a number of jurisdictions have imposedenvironmental controls, permitting requirements and zoning restrictions on thedevelopment of real estate.

The Company is subject to laws governing itsrelationship with employees, including minimum wage requirements, overtime,working conditions and work permit requirements. The Company believes that ithas the necessary permits and approvals to operate each of its properties andtheir respective businesses.

Under the Americans withDisabilities Act of 1990 (“ADA”), all public accommodations are required tomeet certain federal requirements related to access and use by disabledpersons. While the Company believes that its properties in which it holds anequity interest are substantially in compliance with these requirements, adetermination that such properties are not in compliance with the ADA couldresult in the imposition of fines or an award of damages to private litigants.

**RiskFactors**

An investment in the Company involves certain risks.Readers should read this entire report carefully and should consider amongother things, the risks described below.

*TradeName License.**  *TheCompany has entered into a License Agreement with an affiliate of Crow Holdingsthat allows it to use the name “Trammell Crow” perpetually throughout the worldin any business except the residential real estate business, although theCompany can use this name in serving certain mixed-use properties or inproviding investment sales brokerage services to buyers and sellers of multi-familyresidential facilities. This license can be revoked if the Company fails tomaintain certain quality standards or infringes upon certain of the licensor’sintellectual property rights. If the Company loses the right to use theTrammell Crow name, the Company’s business could suffer significantly.

The License Agreement permits certain existing uses ofthe name “Trammell Crow” by affiliates of Crow Holdings. The use of theTrammell Crow name or other similar names by third parties may create confusionor reduce the value associated with the Trammell Crow name.

*EconomicUncertainty.**  *During2003, the Company’s business continued to be adversely impacted by the weaknessof the economy, which had a negative effect on transaction volume, rental ratesand sales prices. In addition, user customers’ project spending remained lowand there were limited attractive opportunities for investment of developmentcapital. These factors have had an adverse effect on the timing and amount ofthe Company’s revenues and profits generated from several of its services,including project leasing, investment sales, tenant representation, project management,construction management and development and investment activities.

While the economy has shown signs of improvement,resulting in the Company’s improved results in 2003, the recovery has beenrelatively jobless. Lack of job growth could continue to affect the real estateindustry as a whole, as real estate needs and opportunities may not immediatelyincrease. This could adversely impact the Company’s future results ofoperations.

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*RealEstate Investment and Co-investment Activities.**  *Selective investment in real estate projects is animportant part of the Company’s strategy and there is an inherent risk of lossof the Company’s investment. As of December 31, 2003, the Company has 35consolidated real estate projects with invested equity of $34.7 million and$10.3 million of recourse obligations. The estimated aggregate project cost ofthese consolidated real estate projects is $354.5 million. In addition, at December 31,2003, the Company was involved as a principal (in most cases, co-investing withone of its customers) in 39 unconsolidated real estate subsidiaries in whichthe Company had invested $35.5 million and had guaranteed notes payable ofthese unconsolidated subsidiaries of $4.9 million.

Because the disposition of a single significantinvestment can impact the Company’s financial performance in any period, itsreal estate investment activities could increase (and have historicallyincreased) fluctuations in the Company’s net earnings and cash flow. TheCompany has limited control over the timing of the disposition of theseinvestments and the recognition of any related gain or loss.

The commercial real estate market is cyclical anddepends on the perceptions of real estate investors as to general economicconditions. Because the Company’s investment strategy typically entails makingrelatively modest investments alongside its investor customers, its ability toconduct these activities depends in part on the supply of investment capitalfor commercial real estate and related assets. Furthermore, in real estatedown-cycles, economic conditions may make certain development project pursuitsless viable, and the Company may decide not to continue pursuing such projects.Consequently, the Company’s financial results in down cycles may be (and havebeen) adversely impacted by increased write-offs of pursuit costs that havebeen capitalized in connection with potential development projects that theCompany has determined not to pursue.

Building occupancies and rental rates typically declinein a down economy. Therefore, it may take longer for the Company to dispose ofreal estate investments or the selling prices may be lower than originallyanticipated. As a result, the carrying value of the Company’s real estateinvestments may become impaired and the Company could record losses as a resultof such impairment.

*Recruitingand Retention of Qualified Personnel.**  *The Company’s continued success ishighly dependent upon the efforts of its executive officers and key employees.If any of the Company’s key employees leave, its business may suffer. Thegrowth of the Company’s business is also largely dependent upon its ability toattract and retain qualified personnel in all areas of its business,particularly management. If the Company is unable to attract and retain suchqualified personnel, it may be forced to limit its growth, and its business andoperating results could suffer. Organizational changes within the Company couldimpact its ability to retain personnel.

*Relianceon Major Customers and Contract Retention.**  *A relatively small number of theCompany’s customers generate a significant portion of its revenues. The Company’sten largest customers accounted for approximately 29.2% of its total revenuesin 2003, including one customer (Bank of America Technology and Operations,Inc., which receives services primarily from the Company’s Global Servicessegment) that accounted for 10.4% of the Company’s total revenues. The loss ofone or more of its major customers could have a material adverse effect on theCompany’s business.

In 2003, revenue from property management and fromuser customers with whom the Company has outsourcing contracts constitutedapproximately 20.3% and 44.6%, respectively, of the Company’s total revenues.The Company’s property management contracts can generally be cancelled upon30 days notice by either party, and its outsourcing services contracts aretypically for multi-year terms with options to renew. Accordingly, contractsrepresenting a significant percentage of the Company’s revenues are terminableon short notice or may be scheduled to expire in any one year. The Company hasbeen successful in retaining and renewing a significant portion of itscontracts but may not be able to do so in the future. Moreover, increasedcompetition may force the Company to renew such contracts on less favorableterms.

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*Long-TermGrowth.**  *TheCompany will continue to focus on additions to its base business that should beless impacted by economic down cycles over time and are expected to createlong-term growth. The Company’s historical growth and any significant futuregrowth will continue to place demands on the Company’s resources. The Company’sfuture success and profitability will depend, in part, on its ability toenhance its management and operating systems, manage and adapt to rapid changesin technology, obtain financing for capital expenditures or strategicacquisitions and retain employees and customers through periods of internalchanges. The Company may not be able to successfully manage any significantexpansion or obtain adequate financing for such expansion on favorable terms,if at all. In addition, the Company is impacted by cycles in the generaleconomy and the commercial real estate industry and, as a result, its growthstrategy is directly impacted by those economic cycles.

*Acquisitions.**  *The Company may pursue strategicacquisitions in the future. However, the Company may not be able to acquirebusinesses on favorable terms, and may have to use a substantial portion of itscapital resources for any such acquisitions. Challenges and issues commonlyencountered in strategic acquisitions include:

·       diversionof management’s attention to assimilating the acquired business;

·       maintainingemployment relationships with the Company’s employees and employees of anacquired business;

·       adverseshort-term effects on operating results;

·       integratingfinancial and other administrative systems;

·       amortizationof any acquired intangible assets; and

·       maintaininguniform standards, controls, procedures and policies.

In addition, the acquired businesses’ customers couldcease to do business with the Company. Potential conflicts between the Company’scustomers and those of an acquired business could threaten its businessrelationships. If the Company is not able to manage these risks, its businesscould suffer significantly.

*International Operations.**  *The Company operates in severalmarkets outside the United States and is subject to the risks common forinternational operations and investments in foreign countries. These risksinclude:

·       difficultiesin staffing and managing geographically and culturally diverse, multinationaloperations;

·       lackof familiarity with local business customs and operating environments;

·       changesin foreign tax laws;

·       changesin currency exchange rates;

·       limitationson repatriation of earnings;

·       restrictiveactions by local governments;

·       nationalizationand expropriation; and

·       warand civil disturbances.

*Fluctuationsin Quarterly Operating Results.**  *In recent years, the Company’srevenues have been lower in each of the first three quarters than in the fourthquarter because its customers tend to close transactions toward the end oftheir fiscal years (typically the calendar year). This causes the Company toearn a significant portion of its revenues under transaction-orientedservice contracts in the fourth quarter. 

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In addition, a growingportion of the Company’s outsourcing contracts provide for bonus payments if itachieves certain performance targets. These incentive payments are generallyearned in the fourth quarter. Furthermore, revenues can be influenced by thetiming of significant individual transactions. The Company plans its capitaland operating expenditures based on its expectations of future revenues. Ifrevenues are below expectations in any given quarter, the Company may be unableto adjust expenditures to compensate for any unexpected revenue shortfall. TheCompany’s business could suffer as a consequence.

*Competition.**  *The Company competes in severalmarket segments within the commercial real estate industry, each of which ishighly competitive on an international, national and local level. The Companyfaces competition from other real estate services providers, consulting firmsand in-house corporate real estate and outsourcing services departments. Theadverse consequences of intense competition may include loss of customers anddownward pressure on pricing. In recent years, there has been a significantincrease in real estate ownership by REITs, many of which self-manage most of theirreal estate assets. Continuation of this trend could shrink the asset baseavailable to be managed by third party service providers, decrease the demandfor the Company’s services and thereby significantly increase its competition.

*EnvironmentalLiability.**  *Variouslaws and regulations impose liability on real property owners or operators forthe cost of investigating, cleaning up or removing contamination caused byhazardous or toxic substances at the property. In the Company’s role as aproperty or facility manager or developer, the Company could be held liable asan operator for such costs. This liability may be imposed without regard to thelegality of the original actions and without regard to whether the Company knewof, or was responsible for, the presence of the hazardous or toxic substances.If the Company fails to disclose environmental issues, the Company could alsobe liable to a buyer or lessee of the property. In addition, some environmentallaws create a lien on the contaminated site in favor of the government fordamages and costs incurred in connection with the contamination. If the Companyincurs any such liability, its business could suffer significantly.

*Anti-takeoverConsiderations.**  *Certainprovisions of the Company’s certificate of incorporation, bylaws and certainprovisions of Delaware law may deter or prevent a takeover attempt, includingan attempt that might result in a premium over the market price for its commonstock. These provisions include:

·       *Staggered Board of Directors.*  The Company’s Board of Directors is dividedinto three classes serving terms currently expiring in 2004, 2005 and 2006.Because the Company’s Board of Directors is divided into classes, members ofits Board of Directors may only be removed from office prior to the expirationof their terms if such removal is for “cause.” Therefore, the staggered termsof directors may limit the ability of holders of common stock to complete achange of control.

·       *Stockholder Proposals.*  The Company’s stockholders must follow an advancenotification procedure for certain stockholder nominations of candidates forthe Company’s Board of Directors and for certain other business to be conductedat any stockholders’ meeting. This limitation on stockholder proposals couldinhibit a change of control.

·       *Special Meetings of the Stockholders*.  Subject to limited exceptions, specialmeetings of stockholders may be called only by the Chairman of the Board ofDirectors or a majority of the members of the Board of Directors. Thislimitation on special meetings of the stockholders could inhibit a change ofcontrol.

·       *Preferred Stock.*  The Company’s certificate of incorporationauthorizes the Company’s Board of Directors to issue up to 30,000,000 shares ofpreferred stock having such rights as may be designated by the Company’s Boardof Directors, without stockholder approval. The issuance of such preferredstock could inhibit a change of control.

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·       *Delaware Anti-takeover Statute.* Section 203 of the Delaware GeneralCorporation Law restricts certain business combinations with interestedstockholders upon their acquiring 15% or more of the Company’s common stock.This statute may have the effect of inhibiting a non-negotiated merger or otherbusiness combination.

**Available Information**

The Company’s Internetaddress is www.trammellcrow.com. The Company makes available free of chargethrough its Internet website its annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K,and amendments to those reports filed or furnished pursuant to Section 13(a) or15(d) of the Exchange Act as soon as reasonably practicable after itelectronically files such material with, or furnishes it to, the Securities andExchange Commission.

**ITEM2. PROPERTIES**

The Company’s executiveoffices are located at 2001 Ross Avenue, 3400 Trammell Crow Center, Dallas,Texas 75201 and consist of approximately 46,898 square feet of leased officespace. The Company’s telephone number at such address is (214) 863-3000.The Company’s lease at its executive offices will expire on December 31,2004.

**ITEM 3. LEGAL PROCEEDINGS**

The Company and one of itssubsidiaries are defendants in a lawsuit styled*Bank One Oklahoma, N.A.*(the “Bank”)*, et al. 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 unspecified amountin excess of $15.0 million. 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-K,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 bedetermined. However, based on the information currently available, the Companydoes not believe that the resolution of any such matters to which it iscurrently a party will have a material adverse effect on the Company’s resultsof operations, financial condition or liquidity.

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

No matters were submitted to a vote of stockholders,through the solicitation of proxies or otherwise, during the quarter ended December 31,2003.

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**PART II**

**ITEM 5. MARKET FOR COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS**

TheCommon Stock is listed on the New York Stock Exchange (“NYSE”) and trades underthe symbol “TCC.” At March 1, 2004, 37,033,667 shares were held byapproximately 1,281 stockholders of record. The following table sets forth thehigh and low sales prices per share of Common Stock as reported on the NYSEComposite Transaction Tape on a quarterly basis for the last two fiscal years. 
| ** **     | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------|------------|----------|------------|---------|------------|
| **2002:**      |       |     |       |    |       |
| First Quarter  |       | $        | 15.17      |    | $          | 11.10 |   |
| Second Quarter |       | $        | 15.85      |    | $          | 13.07 |   |
| Third Quarter  |       | $        | 14.45      |    | $          | 9.36 |   |
| Fourth Quarter |       | $        | 10.34      |    | $          | 8.40 |   |
| **2003:**      |       |     |       |    |       |
| First Quarter  |       | $        | 9.67       |    | $          | 7.75 |   |
| Second Quarter |       | $        | 10.68      |    | $          | 7.75 |   |
| Third Quarter  |       | $        | 13.05      |    | $          | 10.50 |   |
| Fourth Quarter |       | $        | 14.15      |    | $          | 11.30 |   |

 

The Company has not historically paid dividends anddoes not anticipate paying dividends in the foreseeable future. Any futurepayment of dividends will be at the discretion of the Board of Directors andwill depend upon the Company’s results of operations, financial condition, cashrequirements and other factors deemed relevant by the Board of Directors,including the terms of the Company’s indebtedness. Provisions in agreementsgoverning the Company’s long-term indebtedness limit the amount of dividendsthat the Company may pay to its stockholders. See *“Item 7. Management*’*sDiscussion and Analysis of Financial Condition and Results ofOperations—Liquidity and Capital Resources.”*

In May 2001, theCompany announced that its Board of Directors approved a stock repurchaseprogram. The repurchase program contemplated the repurchase of up to$15.0 million of the Company’s common stock from time to time in openmarket purchases or through privately negotiated transactions. The repurchaseprogram was completed during the second quarter of 2003 and resulted in therepurchase of 1,593,900 shares at an average cost of $9.41 per share. Thepurchases were made with funds generated from operations and existing cash. TheCompany placed the repurchased shares in treasury. The Company intends toreissue such shares in connection with the Company’s employee stock purchaseplan and option exercises or restricted stock grants under the Company’slong-term incentive plan and other equity-based incentive plans, as well as forother corporate purposes.

**Securities Authorized for Issuance under EquityCompensation Plans**

The information requiredby Item 201(d) of Regulation S-K is set forth under the heading “*Item 12. Security Ownership of CertainBeneficial Owners and Management.*” 

**ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA**

The selected financial data set forth below have beenderived from the consolidated financial statements of the Company. Theconsolidated financial statements of the Company as of December 31, 2003and 2002, and for each of the three years in the period ended December 31,2003, have been audited by Ernst & Young LLP, independent auditors,whose report thereon appears elsewhere herein. 

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The selected financial data should be read inconjunction with *“Item 7. Management*’*s Discussion and Analysis of Financial Condition andResults of Operations*,*”*and the consolidated financial statements and notes thereto contained elsewherein this report.

In accordance withStatement of Financial Accounting Standards No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets* (“FAS 144”), certain revenues and expensesfor the three quarterly periods ended September 30, 2003 and the yearended December 31, 2002, have been reclassified to conform to thepresentation for the year ended December 31, 2003. As a result, certainbalances differ from the amounts reported in previously filed documents. See “*Item 7*. *Management’s Discussion and Analysis of Financial Conditionand Results of Operation—Income from Discontinued Operations, Net of IncomeTaxes,”* for additional information.
| ** **                                                                                                                                   | ** ** | **Years Ended December 31,**                                            | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                   | ** ** | **1999**                                                                               | ** ** | **2000** | ** ** | **2001** | ** ** | **2002** | ** ** | **2003** | ** ** |
| ** **                                                                                                                                   | ** ** | **(in thousands, except share and per share data)** | ** ** |
| **Statement  of Operations Data:**                                                                                                           | ** ** | ** **                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **REVENUES:**                                                                                                                                | ** ** | ** **                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ***User Services:***                                                                                                                         |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Facilities  management                                                                                                                       |       | $                                                                                      | 108,339    |   | $ | 151,515 |   | $ | 201,573 |   | $ | 233,756 |   | $ | 208,936 |   |
| Corporate advisory  services                                                                                                                 |       | 104,300                                                                                |       | 143,536 |   | 115,599 |   | 108,414 |   | 123,335 |   |
| Project management  services                                                                                                                 |       | 31,404                                                                                 |       | 53,430 |   | 52,973 |   | 58,134 |   | 65,500 |   |
|                                                                                                                                         |       | 244,043                                                                                |       | 348,481 |   | 370,145 |   | 400,304 |   | 397,771 |   |
| ***Investor Services:***                                                                                                                     |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Property  management                                                                                                                         |       | 155,425                                                                                |       | 165,081 |   | 174,279 |   | 147,613 |   | 143,727 |   |
| Brokerage                                                                                                                                    |       | 135,699                                                                                |       | 145,761 |   | 115,463 |   | 95,657 |   | 95,593 |   |
| Construction  management                                                                                                                     |       | 24,860                                                                                 |       | 22,672 |   | 13,082 |   | 10,006 |   | 10,736 |   |
|                                                                                                                                         |       | 315,984                                                                                |       | 333,514 |   | 302,824 |   | 253,276 |   | 250,056 |   |
| Development and  construction                                                                                                                |       | 73,288                                                                                 |       | 90,528 |   | 76,630 |   | 55,112 |   | 44,277 |   |
|                                                                                                                                         |       | 633,315                                                                                |       | 772,523 |   | 749,599 |   | 708,692 |   | 692,104 |   |
| Gain on disposition of  real estate                                                                                                          |       | 40,653                                                                                 |       | 47,119 |   | 28,456 |   | 24,218 |   | 13,420 |   |
| Other                                                                                                                                        |       | 2,284                                                                                  |       | 1,738 |   | 1,596 |   | 1,186 |   | 2,308 |   |
|                                                                                                                                         |       | 676,252                                                                                |       | 821,380 |   | 779,651 |   | 734,096 |   | 707,832 |   |
| **COSTS  AND EXPENSES:**                                                                                                                     |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Salaries, wages  and benefits                                                                                                                |       | 359,837                                                                                |       | 437,891 |   | 477,628 |   | 472,810 |   | 452,195 |   |
| Commissions                                                                                                                                  |       | 97,838                                                                                 |       | 119,702 |   | 94,655 |   | 87,396 |   | 98,957 |   |
| General and  administrative                                                                                                                  |       | 109,034                                                                                |       | 128,448 |   | 138,308 |   | 133,736 |   | 120,516 |   |
| Depreciation                                                                                                                                 |       | 8,431                                                                                  |       | 12,544 |   | 15,811 |   | 15,236 |   | 15,001 |   |
| Amortization                                                                                                                                 |       | 8,105                                                                                  |       | 9,335 |   | 8,164 |   | 2,579 |   | 1,991 |   |
| Interest                                                                                                                                     |       | 9,507                                                                                  |       | 16,947 |   | 15,057 |   | 10,219 |   | 7,074 |   |
| Writedowns due to  impairment of goodwill, intangibles and investments                                                                       |       | —                                                                                 |       | 40,347 |   | 31,968 |   | — |   | — |   |
| Change in fair  value of interest rate swap agreement                                                                                        |       | —                                                                                 |       | — |   | 4,809 |   | — |   | — |   |
| Restructuring  charges                                                                                                                       |       | —                                                                                 |       | — |   | 10,952 |   | — |   | — |   |
|                                                                                                                                         |       | 592,752                                                                                |       | 765,214 |   | 797,352 |   | 721,976 |   | 695,734 |   |
| Income (loss) from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries |       | $                                                                                      | 83,500     |   | $ | 56,166 |   | $ | (17,701 | ) | $ | 12,120 |   | $ | 12,098 |   |
| Income tax  (expense) benefit                                                                                                                |       | (32,761                                                                                | )          | (22,492 | ) | 5,893 |   | (5,402 | ) | (4,906 | ) |
| Minority interest,  net of income taxes                                                                                                      |       | (10,828                                                                                | )          | (2,567 | ) | 880 |   | 1,619 |   | 1,231 |   |
| Income from  investments in unconsolidated subsidiaries, net of income taxes                                                                 |       | 14,532                                                                                 |       | 4,347 |   | 5,717 |   | 4,961 |   | 9,839 |   |
| Income (loss) from  continuing operations                                                                                               |       | 54,443                                                                                 |       | 35,454 |   | (5,211 | ) | 13,298 |   | 18,262 |   |
| Income from  discontinued operations, net of income taxes(1)                                                                                 |       | —                                                                                 |       | — |   | — |   | 3,355 |   | 2,778 |   |
| Net income (loss)                                                                                                                            |       | $                                                                                      | 54,443     |   | $ | 35,454 |   | $ | (5,211 | ) | $ | 16,653 |   | $ | 21,040 |   |

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| **Statement of Operations Data (Continued):**                                          |   |       |    |       |   |       |   |       |   |       |   |
|----------------------------------------------------------------------------------------|--------|------------|---------|------------|--------|------------|--------|------------|--------|------------|--------|
| Income (loss) per share from continuing operations:                                    |   |       |    |       |   |       |   |       |   |       |   |
| Basic                                                                                  |   | $          | 1.56    |       | $      | 1.02       |   | $          | (0.15  | )          | $      | 0.38 |   | $ | 0.51 |   |
| Diluted(2)                                                                             |   | $          | 1.50    |       | $      | 0.98       |   | $          | (0.15  | )          | $      | 0.36 |   | $ | 0.49 |   |
| Income per share from  discontinued operations, net of income taxes:                   |   |       |    |       |   |       |   |       |   |       |   |
| Basic                                                                                  |   | $          | —  |       | $      | —     |   | $          | — |       | $      | 0.09 |   | $ | 0.08 |   |
| Diluted                                                                                |   | $          | —  |       | $      | —     |   | $          | — |       | $      | 0.09 |   | $ | 0.08 |   |
| Earnings (loss) per  share:                                                            |   |       |    |       |   |       |   |       |   |       |   |
| Basic                                                                                  |   | $          | 1.56    |       | $      | 1.02       |   | $          | (0.15  | )          | $      | 0.47 |   | $ | 0.59 |   |
| Diluted(2)                                                                             |   | $          | 1.50    |       | $      | 0.98       |   | $          | (0.15  | )          | $      | 0.45 |   | $ | 0.57 |   |
| Weighted average common  shares outstanding:                                           |   |       |    |       |   |       |   |       |   |       |   |
| Basic                                                                                  |   | 34,991,707 |    | 34,851,738 |   | 35,356,710 |   | 35,741,754 |   | 35,572,493 |   |
| Diluted(2)                                                                             |   | 36,411,063 |    | 36,147,744 |   | 35,356,710 |   | 36,797,012 |   | 36,780,515 |   |
| **Other Data:**                                                                        |   |       |    |       |   |       |   |       |   |       |   |
| Calculation of  EBITDA(3) and EBITDA, as adjusted(4):                             |   |       |    |       |   |       |   |       |   |       |   |
| Net income (loss)                                                                      |   | $          | 54,443  |       | $      | 35,454     |   | $          | (5,211 | )          | $      | 16,653 |   | $ | 21,040 |   |
| Income tax expense  (benefit)(5)                                                       |   | 35,154     |    | 23,681     |   | (926       | )      | 13,391     |   | 14,350     |   |
| Depreciation                                                                           |   | 8,431      |    | 12,544     |   | 15,811     |   | 15,236     |   | 15,001     |   |
| Amortization                                                                           |   | 8,105      |    | 9,335      |   | 8,164      |   | 2,593      |   | 1,995      |   |
| Interest expense                                                                       |   | 9,507      |    | 16,947     |   | 15,057     |   | 10,346     |   | 7,369      |   |
| EBITDA(3)                                                                              |   | 115,640    |    | 97,961     |   | 32,895     |   | 58,219     |   | 59,755     |   |
| Writedowns due to  impairment of goodwill, intangibles, and investments           |   | —     |    | 40,347     |   | 31,968     |   | —     |   | —     |   |
| Minority interest  related to goodwill writedown, before income tax expense       |   | —     |    | —     |   | (2,346     | )      | —     |   | —     |   |
| Change in fair  value of interest rate swap agreement                                  |   | —     |    | —     |   | 4,809      |   | —     |   | —     |   |
| Restructuring  charges                                                                 |   | —     |    | —     |   | 10,952     |   | —     |   | —     |   |
| EBITDA, as  adjusted(4)                                                                |   | $          | 115,640 |       | $      | 138,308    |   | $          | 78,278 |       | $      | 58,219 |   | $ | 59,755 |   |
| Net cash provided  by (used in) operating activities                                   |   | $          | (2,902  | )          | $      | 40,631     |   | $          | 28,826 |       | $      | 71,863 |   | $ | 48,769 |   |
| Net cash provided  by (used in) investing activities                                   |   | (19,267    | )       | (45,489    | )      | (7,862     | )      | 4,697      |   | 3,902      |   |
| Net cash provided  by (used in) financing activities                                   |   | (18,249    | )       | 12,967     |   | (38,542    | )      | (36,614    | )      | (25,060    | )      |
| **Balance Sheet Data:**                                                                |   |       |    |       |   |       |   |       |   |       |   |
| Cash and cash  equivalents                                                             |   | $          | 47,528  |       | $      | 55,637     |   | $          | 38,059 |       | $      | 78,005 |   | $ | 105,616 |   |
| Total assets                                                                           |   | 633,956    |    | 722,015    |   | 692,262    |   | 622,066    |   | 630,126    |   |
| Long-term  debt (excluding notes payable on real estate) and capital lease obligations |   | 64,084     |    | 88,242     |   | 62,013     |   | 22,717     |   | 13,106     |   |
| Notes payable on  real estate(6)                                                       |   | 134,827    |    | 148,098    |   | 158,226    |   | 113,807    |   | 103,267    |   |
| Total liabilities                                                                      |   | 348,561    |    | 391,274    |   | 377,565    |   | 273,841    |   | 273,601    |   |
| Minority interest                                                                      |   | 33,743     |    | 39,782     |   | 28,574     |   | 39,871     |   | 28,896     |   |
| Stockholders’  equity                                                             |   | 251,652    |    | 290,959    |   | 286,123    |   | 308,354    |   | 327,629    |   |

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(1)           Income from discontinued operationsincludes the operations of real estate properties and gain on disposition ofreal estate properties held for sale or sold subsequent to January 1,2002, in which the Company retained or expects to retain no continuinginvolvement, in accordance with FAS 144. Dispositions of real estate assetshave been and will continue to be a significant part of the Company’sactivities and, as a result of applying the 

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provisions of FAS 144, theCompany expects a greater amount of these activities to be classified asdiscontinued operations in future periods as fewer asset dispositions willqualify for grandfathered treatment under FAS 144.

(2)           The weighted average shares outstanding used tocalculate diluted earnings per share for 2001 excludes the dilutive effect ofoptions, as their inclusion would have been anti-dilutive.

(3)           EBITDA represents earnings before interest, incometaxes, depreciation and amortization. Management believes that EBITDA is ameaningful measure of the Company’s operating performance, cash generation andability to service debt. However, EBITDA should not be considered as analternative to: (i) net earnings (determined in accordance with accountingprinciples generally accepted in the United States (“GAAP”)); (ii) operatingcash flow (determined in accordance with GAAP); or (iii) liquidity. Managementalso believes that EBITDA is sometimes useful to compare the operating resultsof companies within an industry due to the fact that it eliminates the effectsof certain financing and accounting decisions. The Company’s calculation ofEBITDA may differ from similarly titled items reported by other companies.

(4)           EBITDA, as adjusted, represents EBITDA (as described innote (3) above) before the 2000 and 2001 writedowns due to impairment ofgoodwill, intangibles and investments, net of related minority interest, the2001 restructuring charges and the 2001 change in fair value of the Company’sinterest rate swap agreement. Management believes these items are not likely torecur within two years, and that excluding these items provides a morecomparable measure of the Company’s results over the five-year period.

(5)           Income tax (expense) benefit includes income taxesapplicable to minority interest, income from investments in unconsolidatedsubsidiaries and discontinued operations, each of which is presented net ofincome taxes in the Company’s consolidated statements of operations.

(6)           Notes payable on real estate includescurrent portion of notes payable on real estate, notes payable on real estate,less current portion and notes payable included in liabilities related to realestate and other assets held for sale.

**ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The following discussionshould be read in conjunction with the Company’s consolidated financialstatements and the notes thereto and the other information included in Item15(a)(1) and (2) of this Annual Report on Form 10-K.

**Overview**

The Company’s Global Services revenue streams consistprimarily of payments made pursuant to service contracts and variabletransaction-oriented payments. The Company typically receives basemonthly fees from customers for services provided under its facilitiesmanagement and property management contracts. The fees received by the Companyfor the provision of transaction services (corporate advisory services andbrokerage) are typically paid in connection with the consummation of atransaction such as the purchase or sale of commercial property or theexecution of a lease. The Company also earns fees from project and constructionmanagement that are typically determined by the size and cost of the project.The arrangement may be part of a management service contract or an individualproject engagement. In addition, the Company earns incentive fees under variousmanagement contracts that are based on quantitative and/or qualitativecriteria, such as achieving cost savings levels or certain customer serviceratings.

The Company’s Development and Investment revenuestreams consist primarily of payments related to individual real estatedevelopment projects. Revenues from the Company’s development activitiesconsist of development and construction fees, which are typically based upon anegotiated percentage of a project’s cost, and incentive development fees forcompleting a development project under budget, within certain critical timedeadlines and/or for achieving specified leasing targets. Income from theCompany’s investment activities primarily consists of gain on disposition ofreal estate and income from unconsolidated subsidiaries that hold real estateassets. The Company’s Development and Investment 

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revenue streams alsoinclude rental revenue earned by the Company’s consolidated operating realestate properties. The Company has limited control over the timing of thedisposition of these investments and the recognition of any related gain orloss. Because the disposition or impairment of a single significant investmentcan impact the Company’s financial performance in any period, these investmentactivities create fluctuations in the Company’s revenues. Because the Company’sinvestment strategy typically entails making relatively modest investmentsalongside its investor customers, its ability to conduct these activitiesdepends in part on the supply of investment capital for commercial real estateand related assets.

During 2003, the Company’s business continued to beadversely impacted by the weakness of the economy as a whole. The downturn inthe economy and its resultant work force layoffs and business failures have ledto higher than normal vacancy rates in many markets. That fact, coupled withuncertainty as to the timing of any economic recovery, has negatively impactedthe timing and the amount of revenues and profits generated from several of theCompany’s services, including project leasing, investment sales, tenantrepresentation, construction management and development and investmentactivities. However, in the fourth quarter of 2003, the Company experiencedsignificant increases from the amount reported in the fourth quarter of 2002 inits brokerage, corporate advisory services and construction management servicelines (29.3%, 18.0% and 8.9%, respectively), as there were signs of possibleeconomic recovery. Development and investment activities, however, continued tobe impacted by the downturn in the economy, largely due to the decrease in theCompany’s development starts in recent years.

The Company’s expenses typically consist of salaries,wages and benefits, commissions, general and administrative expenses,depreciation and amortization expense and interest. Salaries, wages andbenefits and commissions constitute a majority of the Company’s total costs andexpenses.

Over the last three years,an average of 53.5% of the Company’s income (loss) from continuing operations(adjusted to add back non-recurring charges in 2001 relating to writedowns dueto impairment of goodwill, intangibles and investments, net of related minorityinterest, the 2001 restructuring charges and change in fair value of theCompany’s interest rate swap agreement, net of interest expense offset) hasbeen generated in the fourth quarter, due primarily to a demonstrated tendencyof participants in the commercial real estate industry to complete transactionstoward year-end. In addition, certain of the Company’s property management andoutsourcing contracts provide for incentive payments if the Company achievescertain performance targets, which are generally recognized in the fourthquarter. In contrast, the Company’s non-variable operating expenses, which aretreated as expenses when incurred during the year, are relatively constant on aquarterly basis. See *“—Quarterly Results ofOperations and Seasonality.”*

**Critical Accounting Policies**

Management of the Companyis required to make certain estimates and assumptions in connection with thepreparation of its consolidated financial statements in accordance with GAAP.These estimates and assumptions impact the reported amount of assets andliabilities and disclosures of contingent assets and liabilities as of the dateof the consolidated financial statements. They also impact the reported amountof net earnings during any period. Actual results could differ from thoseestimates. Certain of the Company’s accounting policies and estimates have amore significant impact on its financial statements than others, due to themagnitude of the underlying financial statement elements.

*Consolidation*

The Company’s determination of the appropriateaccounting method with respect to its investments in subsidiaries is based onthe amount of control the Company has (combined with its ownership interest) inthe underlying entity, or, if the entity is a variable interest entity (“VIE”)under Financial Accounting Standards Board (“FASB”) Interpretation No. 46,*Consolidation of Variable Interest Entities*(“FIN46”), 

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based on the factorsdescribed in the following paragraph. The Company’s consolidated financialstatements include the accounts of the Company, its wholly-owned subsidiaries,and other subsidiaries over which the Company has control. In addition, withrespect to entities formed subsequent to January 31, 2003, the Companyconsolidates any VIE of which the Company is the primary beneficiary. TheCompany’s investments in subsidiaries (including VIEs of which the Company isnot the primary beneficiary) in which it has the ability to exercisesignificant influence over operating and financial policies, but does notcontrol (including subsidiaries where the Company has less than 20% ownership),are accounted for on the equity method. All other investments of the Companyare accounted for on the cost method.

The Company determines if an entity is a VIE under FIN46 based on several factors, including whether the entity’s total equityinvestment at risk upon inception is sufficient to finance the entity’sactivities without additional subordinated financial support provided by anyparties, including equity holders. The Company makes judgments regarding thesufficiency of the equity at risk based first on qualitative analysis, thenquantitative analysis if necessary. In a quantitative analysis, the Companyincorporates various estimates, including estimated future cash flows, assethold periods and discount rates, as well as estimates of the probabilities ofvarious scenarios occurring. If the entity is a VIE, the Company thendetermines whether it will absorb the majority of expected losses and/orreceive the majority of expected returns, and if so, consolidates the entity asthe primary beneficiary. The Company is not required to reconsider the entity’sVIE status if the entity incurs losses that exceed expectations, but isrequired to reconsider the status if the structure of the entity changes. TheCompany determines whether an entity is a VIE and, if so, whether it should beconsolidated by utilizing judgments and estimates that are inherentlysubjective. If the Company made different judgments or utilized differentestimates in these evaluations, it could result in differing conclusions as towhether or not an entity is a VIE and whether or not to consolidate suchentity.

The Company does not have any unconsolidatedinvestments in VIEs with respect to entities formed subsequent to January 31,2003. The Company will apply the provisions of FIN 46R (a revision of FIN 46)as of March 31, 2004 to entities formed prior to February 1, 2003that are not considered to be special-purpose entities. None of the entities inwhich the Company has an investment are considered to be special-purposeentities.

Accounting for aninvestment as either consolidated or by the equity method would have no impacton the Company’s net income (loss) or stockholders’ equity in any accountingperiod, but a change in treatment would impact individual income statement andbalance sheet items, as consolidation would effectively “gross up” the Company’sincome statement and balance sheet. However, if control aspects of aninvestment accounted for by the cost method were different, it could result inthe Company being required to account for an investment by consolidation or bythe equity method. Under the cost method, the investor only records its shareof the underlying entity’s earnings to the extent that it receives dividendsfrom the investee; when the dividends received by the investor exceed theinvestor’s share of the investee’s earnings subsequent to the date of theinvestor’s investment, the investor records a reduction in the basis of itsinvestment. Under the cost method, the investor does not record its share oflosses of the investee. Conversely, under either consolidation or equity methodaccounting, the investor effectively records its share of the underlying entity’snet income or loss, to the extent of its investment or its guarantees of theunderlying entity’s debt. At December 31, 2003, $2.5 million of theCompany’s $65.0 million total investment in unconsolidated subsidiariesrelates to investments that are accounted for using the cost method. Accountingfor an investment under either the equity or cost method has no impact on theevaluation of impairment of the underlying investment; under either method,impairment losses are recognized upon evidence of permanent losses of value. 

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*Revenue Recognition*

The Companyrecognizes revenue in accordance with Staff Accounting Bulletin No. 104, *Revenue Recognition in Financial Statements*,which has four basic criteria that must be met before revenue is recognized: 

·       existenceof persuasive evidence that an arrangement exists; 

·       deliveryhas occurred or services have been rendered; 

·       theseller’s price to the buyer is fixed and determinable; and 

·       collectibilityis reasonably assured. 

The Company’s various revenue recognition policies areconsistent with these criteria. The revenues of the Company’s business that aresubject to the most judgment are its brokerage commission revenues andincentive-based management and development fees. 

The Company’s brokerage commission revenues arecomprised of commissions earned for investment sales, project leasing andtenant representation transactions. Revenues from investment sales transactionsare recognized upon the closing of a sale and are generally paid to the Companyby the seller out of the sale proceeds; therefore, there is generally noestimation or judgment involved in the recognition of these revenues. Projectleasing and tenant representation commissions are generally recorded half uponexecution of a lease contract, and the remainder upon tenant occupancy. TheCompany performs thousands of project leasing and tenant representationtransactions annually, each of which is typically governed by a separatecommission agreement. While the majority of these agreements generally providethat half of the commission is earned upon execution of a lease contract andhalf upon tenant occupancy, agreements do vary as to their terms andcomplexity, usually due to negotiation of the commission agreement languagewith the customer. If there are any contingencies with respect to any portionof the commission, that portion of the commission is not recognized as revenueuntil the contingency is resolved. The unique nature and complexity of eachbrokerage transaction require the Company to use varying levels of judgment indetermining timing of revenue recognition. The judgment involved in revenuerecognition is understanding the complex terms of the agreements anddetermining the appropriate time to recognize revenue for each transactionbased on such terms. Each transaction is evaluated to determine: (1) atwhat point in time revenues are earned, (2) whether there arecontingencies involved that would impact the timing of recognition of revenue,and (3) how and when such contingencies will be resolved. The actual timingof revenue recognition could vary if different judgments were made. 

The Company earnsincentive development and management fees from its development services,property management services and certain services provided to user customers inthe Company’s Global Services segment, including facilities managementservices, project management services and corporate advisory services. Thesefees are recognized when quantitative criteria have been met (such as specifiedleasing or budget targets, customer service levels, or achieved levels ofoperating expense savings) or, for those incentive fees based on qualitativecriteria, upon approval of the fee by the customers. The Company’s incentivedevelopment and management fee revenues are not recognized to the extent thatsuch revenues are subject to future performance contingencies, but rather oncethe contingency has been resolved. Certain of these fees may require estimatesand judgment by the Company and, as such, actual revenue may differ from theCompany’s estimates. 

*Carrying Value ofReal Estate, Goodwill and Intangible Assets*

As of December 31,2003, the Company’s total real estate, goodwill and intangible assets were$167.0 million, $74.3 million and $5.9 million, respectively(26.5%, 11.8% and 0.9% of total assets, respectively). Goodwill reflects theexcess of the purchase price over the fair value of the net assets of real 

23

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estateservice companies acquired by the Company primarily in 1998 and 1999.Intangible assets primarily include management contracts andemployment/non-compete agreements for certain employees entered into inconnection with these acquisitions and in connection with the hiring of certainother employees. Intangible assets also include upfront cash payments made tocustomers and certain contract acquisition costs incurred upon initiation ofnew long-term outsourcing contracts. The Company accounts for its real estate,goodwill and other intangibles in accordance with Statements of FinancialAccounting Standards No. 142, *Goodwilland Other Intangible Assets* (“FAS 142”) and FAS 144. Thesestatements require the Company to evaluate the carrying value of its realestate, goodwill and intangible assets based on assumptions and estimates offair value and future cash flow information. These assumptions and estimatesdeveloped by the Company may differ from actual results. If differentassumptions and estimates were used, carrying values could be adverselyimpacted, resulting in writedowns that would adversely affect the Company’searnings. 

*Real Estate*

With respect to the Company’s real estate assets,FAS 144 establishes restrictive criteria to classify an asset as “held forsale.” At December 31, 2003, assets included in real estate held for saleinclude only completed assets or land for sale in its present condition thatmeet all of the FAS 144 “held for sale” criteria. All other real estateassets are classified in one of the following line items in the Company’sbalance sheet: (i) real estate under development (current), which includesreal estate that the Company is in the process of developing that is expectedto be completed and disposed of within one year of the balance sheet date; (ii) realestate under development (non-current), which includes real estate that theCompany is in the process of developing that is expected to be completed anddisposed of more than one year from the balance sheet date; or (iii) realestate held for investment, which consists of completed assets not expected tobe disposed of within one year of the balance sheet date and land on whichdevelopment activities have not yet commenced. Any asset reclassified from realestate held for sale to real estate under development (current or non-current)or real estate held for investment is measured individually at the lower of itscarrying amount before it was classified as “held for sale,” adjusted (in thecase of real estate held for investment) for any depreciation that would havebeen recognized had the asset been continuously classified as real estate heldfor investment, or the fair value at the date of the reclassification. 

Real estate held for sale is recorded at the lower ofcost or estimated fair value less cost to sell. If an asset’s fair value lesscost to sell, based on discounted future cash flows or market comparisons, isless than its carrying amount, an allowance is recorded against the asset. 

Real estate under development and real estate held forinvestment are carried at cost less depreciation, as applicable. Whenindicators of impairment are present, real estate under development and realestate held for investment are evaluated for impairment and losses are recordedwhen undiscounted cash flows estimated to be generated by an asset are lessthan the asset’s carrying amount. The amount of the impairment loss iscalculated as the excess of the asset’s carrying value over its fair value,which is determined using a discounted cash flow analysis or marketcomparisons. Buildings and improvements included in real estate held forinvestment are depreciated using the straight-line method over estimated usefullives, generally 39 years. Tenant improvements included in real estateheld for investment are amortized using the straight-line method over theshorter of their estimated useful life or the terms of the respective leases. 

The Company evaluates each of its real estate assetson a quarterly basis in order to determine the classification of each asset inthe Company’s balance sheet. This evaluation requires judgment by the Companyin determining certain criteria that must be evaluated under FAS 144, suchas the estimated time to complete assets that are under development and thetimeframe in which the Company expects to sell its real estate assets. Theclassification of real estate assets determines which real estate assets are tobe depreciated as well as what method is used to evaluate and measureimpairment. Had the Company 

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evaluated its assetsdifferently, the balance sheet classification of such assets, depreciationexpense and impairment losses could have been different. 

When acquiring real estate with existing buildings,the Company allocates the purchase price between land, building and intangiblesrelated to in-place leases, if any, based on their relative fair values. Thefair values of acquired land and buildings are determined based on an estimateddiscounted future cash flow model with lease-up assumptions as if the buildingwas vacant upon acquisition. The fair value of in-place leases includes thevalue of net lease intangibles for above or below-market rents and tenantorigination costs, determined on a lease by lease basis using assumptions formarket rates, absorption periods, lease commissions and tenant improvements. Thecapitalized values for both net lease intangibles and tenant origination costsare amortized over the term of the underlying leases. Amortization related tonet lease intangibles is recorded as either an increase to or a reduction of rentalincome and amortization for tenant origination costs is recorded to amortizationexpense. If the Company used different estimates in these valuations, theallocation of purchase price to each component could differ, which could causethe amount of amortization related to lease intangibles and tenant originationcosts to be different, as well as depreciation of the related building.

FAS 144 extends thereporting of a discontinued operation to a “component of an entity,” andfurther requires that a component be classified as a discontinued operation ifthe operations and cash flows of the component have been or will be eliminatedfrom the ongoing operations of the entity in the disposal transaction and theentity will not have any significant continuing involvement in the operationsof the component after the disposal transaction. As defined in FAS 144, a “componentof an entity” comprises operations and cash flows that can be clearlydistinguished, operationally and for financial reporting purposes, from therest of the entity. Because each of the Company’s real estate assets isgenerally accounted for in a discrete subsidiary, almost every real estateasset constitutes a component of an entity under FAS 144, increasing thelikelihood that the disposition of assets the Company holds for sale in theordinary course of business must be reported as a discontinued operation unlessthe Company has significant continuing involvement in the operations of theasset after its disposition. Furthermore, operating profits and losses on suchassets are required to be recognized and reported as operating profits andlosses on discontinued operations in the periods in which they occur. 

*Goodwill*

Under FAS 142, which was effective January 1,2002, the Company determined its reporting units, which are the basis of itsfuture annual goodwill impairment tests. The required impairment tests arebased on a comparison of the fair value of each of the Company’s reportingunits to the carrying value of such unit. A writedown of goodwill must berecorded if the fair value of a reporting unit falls below its carrying value.The Company has identified its reporting units to mirror its two segments,Global Services and Development and Investment, as each segment’s underlyingbusiness units have similar long-term economic characteristics and servicedeliveries. If the Company defined its reporting units differently, the resultsof its annual impairment tests could be impacted. The Company performed itsrequired annual impairment tests of goodwill in 2003, and has determined thatno impairment of goodwill exists at December 31, 2003. 

Also, under FAS 142,effective January 1, 2002, goodwill is no longer amortized, which wouldhave decreased 2001 net loss by approximately $2.7 million ($0.08 pershare) had FAS 142 been in effect in 2001. 

*Intangible Assets*

The Company’s intangible assets are evaluated forimpairment when indicators of impairment are present. Impairment losses arerecorded when estimates of undiscounted future cash flows are less than 

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the value of theunderlying asset. The amount of any impairment loss is calculated as the excessof the intangible asset’s carrying value over its fair value, which isdetermined using a discounted cash flow analysis. The determination of futurecash flows is based on assumptions and estimates of forecasted financialinformation that may differ from actual results. 

In 2002, the Company recognized a writedown of$1.1 million (recorded as a reduction of facilities management revenues)due to the impairment of an intangible related to an upfront cash payment madeto a customer upon inception of a management contract in a previous period. TheCompany and the customer mutually agreed to terminate the contract in 2002.Also, in 2001 the Company recognized a writedown of $2.1 million (recordedas a reduction of project management services revenues) due to the impairmentof an intangible related to an upfront contract payment made to a customer uponinception of the underlying agreement in a previous period. The Company haddetermined that the future cash flows from the underlying contract did notsupport the value of the intangible, and it was the Company’s intent toterminate the contract. The Company and the customer mutually agreed toterminate the contract in 2002. 

The Company has consideredthe average life of its management contracts to determine the period over whichto amortize intangible assets related to acquired management contracts, whichis the Company’s estimate of the useful life of the underlying managementcontracts. This estimate requires judgment by the Company, and had the Companychosen a shorter time period over which to amortize such intangible assets,amortization expense would have increased, adversely impacting the Company’s resultsof operations. The Company amortizes intangible assets resulting fromemployment/non-compete agreements to compensation expense over the period oftime that future services to the Company are required, as stipulated in theapplicable agreement, or over the period of time that the employee is obligatedto repay such amounts to the Company if his employment is terminated.Intangible assets related to upfront cash payments made to customers andcertain contract acquisition costs are amortized as a reduction of the relatedrevenue over the non-cancelable term of the underlying contract.

*Self-Insurance*

The Company is self-insured for portions of its healthand workers’ compensation benefits to employees and general and automotiveliability claims.

The Company self-insures (through a health and welfarebenefit trust) its health insurance benefits provided to substantially all of itsemployees and has purchased stop-loss insurance to cover individual claims inexcess of $250,000. On a quarterly basis, the Company utilizes an independentactuary to evaluate the estimate of incurred but not reported claims under theCompany’s health insurance programs. Each quarter, the Company adjusts itsaccrual to this estimate plus its share of unpaid reported claims. Theactuarial estimate of the Company’s exposure to health insurance claims issubjective, and the amount of claims actually incurred could differ, whichcould result in increased or decreased expense in future periods. As of December 31,2003, the Company’s liability to the trust, primarily for unpaid claims (bothreported and not reported) related to these health insurance benefits, is $3.0million, included in accrued expenses on the Company’s consolidated balancesheet.

The Company’s wholly-ownedcaptive insurance company, which is subject to applicable insurance rules andregulations, insures the Company’s exposure related to workers’ compensationbenefits provided to employees, and buys excess coverage from an unrelatedinsurance carrier. The Company buys general liability and automotive insurancethrough an unrelated insurance carrier. The captive insurance company reinsuresthe deductibles. Given the nature of these types of claims, it may take severalyears for resolution and determination of the cost of these claims. The Companyis required to estimate the cost of these claims in its financial statements. Exposureto workers’ compensation, general liability and automotive claims is evaluatedon an annual basis during the Company’s fourth quarter by an independentactuary. 

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TheCompany adjusts its annual expense based on this actuarial estimate, andutilizes this estimate as the basis for the next year’s expense, until theactuary calculates the next annual estimate. The estimates that the Companyutilizes to record its potential losses on claims are inherently subjective,and actual claims could differ from amounts recorded, which could result inincreased or decreased expense in future periods. As of December 31, 2003,the Company’s reserve for claims under these insurance programs is $9.3million, of which $2.8 million is included in other current liabilities and theremainder is included in other liabilities on the Company’s consolidatedbalance sheet.

**Results of Operations**

Thefollowing table sets forth items from the Company’s consolidated statements ofoperations for each of the three years in the period ended December 31,2003, as a percent of total revenue for the periods indicated. 
| ** **                                                                                                                                   | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                                   | ** ** | **2001**                                    | ** ** | **2002** | ** ** | **2003** | ** ** |
| **REVENUES:**                                                                                                                                |       |                                        |       |   |   |   |   |
| ***User  Services:***                                                                                                                        |       |                                        |       |   |   |   |   |
| Facilities management                                                                                                                        |       | 25.9                                        | %          | 31.8 | % | 29.5 | % |
| Corporate advisory services                                                                                                                  |       | 14.8                                        | %          | 14.8 | % | 17.4 | % |
| Project management services                                                                                                                  |       | 6.8                                         | %          | 7.9 | % | 9.3 | % |
|                                                                                                                                         |       | 47.5                                        | %          | 54.5 | % | 56.2 | % |
| ***Investor  Services:***                                                                                                                    |       |                                        |       |   |   |   |   |
| Property management                                                                                                                          |       | 22.4                                        | %          | 20.1 | % | 20.3 | % |
| Brokerage                                                                                                                                    |       | 14.8                                        | %          | 13.0 | % | 13.5 | % |
| Construction management                                                                                                                      |       | 1.7                                         | %          | 1.4 | % | 1.5 | % |
|                                                                                                                                         |       | 38.9                                        | %          | 34.5 | % | 35.3 | % |
| Development and construction                                                                                                                 |       | 9.8                                         | %          | 7.5 | % | 6.3 | % |
|                                                                                                                                         |       | 96.2                                        | %          | 96.5 | % | 97.8 | % |
| Gain on disposition of real estate                                                                                                           |       | 3.6                                         | %          | 3.3 | % | 1.9 | % |
| Other                                                                                                                                        |       | 0.2                                         | %          | 0.2 | % | 0.3 | % |
|                                                                                                                                         |       | 100.0                                       | %          | 100.0 | % | 100.0 | % |
| **COSTS AND EXPENSES:**                                                                                                                      |       |                                        |       |   |   |   |   |
| Salaries, wages and benefits                                                                                                                 |       | 61.3                                        | %          | 64.4 | % | 63.9 | % |
| Commissions                                                                                                                                  |       | 12.2                                        | %          | 11.9 | % | 14.0 | % |
| General and administrative                                                                                                                   |       | 17.7                                        | %          | 18.2 | % | 17.0 | % |
| Depreciation                                                                                                                                 |       | 2.0                                         | %          | 2.1 | % | 2.1 | % |
| Amortization                                                                                                                                 |       | 1.1                                         | %          | 0.4 | % | 0.3 | % |
| Interest                                                                                                                                     |       | 1.9                                         | %          | 1.4 | % | 1.0 | % |
| Writedowns due to impairment of goodwill, intangibles  and investments                                                                       |       | 4.1                                         | %          | — | % | — | % |
| Change in fair value of interest rate swap agreement                                                                                         |       | 0.6                                         | %          | — | % | — | % |
| Restructuring charges                                                                                                                        |       | 1.4                                         | %          | — | % | — | % |
|                                                                                                                                         |       | 102.3                                       | %          | 98.4 | % | 98.3 | % |
| Income (loss) from continuing operations before  income taxes, minority interest and income from investments in unconsolidated  subsidiaries |       | (2.3                                        | )%         | 1.6 | % | 1.7 | % |
| Income tax expense (benefit)                                                                                                                 |       | 0.8                                         | %          | (0.7 | )% | (0.7 | )% |
| Minority interest, net of income taxes                                                                                                       |       | 0.1                                         | %          | 0.2 | % | 0.2 | % |
| Income from investment in unconsolidated  subsidiaries, net of income taxes                                                                  |       | 0.7                                         | %          | 0.7 | % | 1.4 | % |
| Income (loss) from continuing operations                                                                                                     |       | (0.7                                        | )%         | 1.8 | % | 2.6 | % |
| Income from discontinued operations, net of income  taxes                                                                                    |       | 0.0                                         | %          | 0.5 | % | 0.4 | % |
| Net income (loss)                                                                                                                            |       | (0.7                                        | )%         | 2.3 | % | 3.0 | % |

 

27

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**Results of Operations—Year Ended December 31,2003 Compared to Year Ended December 31, 2002**

Inaccordance with Statement of Financial Accounting Standards No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets* (“FAS 144”), certain revenues and expensesfor the three quarterly periods ended September 30, 2003 and the yearended December 31, 2002, have been reclassified to conform to thepresentation for the year ended December 31, 2003. As a result, certainbalances differ from the amounts reported in previously filed documents. See *Income (Loss) fromDiscontinued Operations, Net of Income Taxes*, below, for additionalinformation. 
| ** **                                                                                                                            | ** ** | **For the Years  Ended  December 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                                                                                                            | ** ** | **2003**                                              | ** ** | **2002**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                                                                                                            | ** ** | **($ in millions)**                         | ** ** |
| **REVENUES:**                                                                                                                         |       |                                                  |       |       |       |              |       |   |   |   |   |   |   |
| ***User  Services:***                                                                                                                 |       |                                                  |       |       |       |              |       |   |   |   |   |   |   |
| Facilities  management                                                                                                                |       | $                                                     | 209.0      |       | $          | 233.8             |       |   | $ | (24.8 | ) |   |   | (10.6 | )% |   |
| Corporate  advisory services                                                                                                          |       | 123.3                                                 |       | 108.4      |       |              | 14.9       |   |   |   | 13.7 | % |   |
| Project  management services                                                                                                          |       | 65.5                                                  |       | 58.1       |       |              | 7.4        |   |   |   | 12.7 | % |   |
|                                                                                                                                  |       | 397.8                                                 |       | 400.3      |       |              | (2.5       | ) |   |   | (0.6 | )% |   |
| ***Investor  Services:***                                                                                                             |       |                                                  |       |       |       |              |       |   |   |   |   |   |   |
| Property  management                                                                                                                  |       | $                                                     | 143.7      |       | $          | 147.6             |       |   | $ | (3.9 | ) |   |   | (2.6 | )% |   |
| Brokerage                                                                                                                             |       | 95.6                                                  |       | 95.7       |       |              | (0.1       | ) |   |   | (0.1 | )% |   |
| Construction  management                                                                                                              |       | 10.7                                                  |       | 10.0       |       |              | 0.7        |   |   |   | 7.0 | % |   |
|                                                                                                                                  |       | 250.0                                                 |       | 253.3      |       |              | (3.3       | ) |   |   | (1.3 | )% |   |
| Development and construction                                                                                                          |       | 44.3                                                  |       | 55.1       |       |              | (10.8      | ) |   |   | (19.6 | )% |   |
|                                                                                                                                  |       | 692.1                                                 |       | 708.7      |       |              | (16.6      | ) |   |   | (2.3 | )% |   |
| Gain on disposition of real estate                                                                                                    |       | 13.4                                                  |       | 24.2       |       |              | (10.8      | ) |   |   | (44.6 | )% |   |
| Other                                                                                                                                 |       | 2.3                                                   |       | 1.2        |       |              | 1.1        |   |   |   | 91.7 | % |   |
|                                                                                                                                  |       | 707.8                                                 |       | 734.1      |       |              | (26.3      | ) |   |   | (3.6 | )% |   |
| **COST AND EXPENSES:**                                                                                                                |       |                                                  |       |       |       |              |       |   |   |   |   |   |   |
| Salaries, wages  and benefits                                                                                                         |       | 452.2                                                 |       | 472.8      |       |              | (20.6      | ) |   |   | (4.4 | )% |   |
| Commissions                                                                                                                           |       | 98.9                                                  |       | 87.4       |       |              | 11.5       |   |   |   | 13.2 | % |   |
| General and  administrative                                                                                                           |       | 120.5                                                 |       | 133.8      |       |              | (13.3      | ) |   |   | (9.9 | )% |   |
| Depreciation                                                                                                                          |       | 15.0                                                  |       | 15.2       |       |              | (0.2       | ) |   |   | (1.3 | )% |   |
| Amortization                                                                                                                          |       | 2.0                                                   |       | 2.6        |       |              | (0.6       | ) |   |   | (23.1 | )% |   |
| Interest                                                                                                                              |       | 7.1                                                   |       | 10.2       |       |              | (3.1       | ) |   |   | (30.4 | )% |   |
|                                                                                                                                  |       | 695.7                                                 |       | 722.0      |       |              | (26.3      | ) |   |   | (3.6 | )% |   |
| Income from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries |       | 12.1                                                  |       | 12.1       |       |              | —     |   |   |   | — | % |   |
| Income tax  expense                                                                                                                   |       | (4.9                                                  | )          | (5.4       | )          |              | 0.5        |   |   |   | (9.3 | )% |   |
| Minority  interest, net of income taxes                                                                                               |       | 1.2                                                   |       | 1.6        |       |              | (0.4       | ) |   |   | (25.0 | )% |   |
| Income from  investments in unconsolidated subsidiaries, net of income taxes                                                          |       | 9.8                                                   |       | 5.0        |       |              | 4.8        |   |   |   | 96.0 | % |   |
| Income from  continuing operations                                                                                                    |       | 18.2                                                  |       | 13.3       |       |              | 4.9        |   |   |   | 36.8 | % |   |
| Income from  discontinued operations, net of income taxes                                                                             |       | 2.8                                                   |       | 3.4        |       |              | (0.6       | ) |   |   | (17.6 | )% |   |
| **Net  income**                                                                                                                       |       | $                                                     | 21.0       |       | $          | 16.7              |       |   | $ | 4.3 |   |   |   | 25.7 | % |   |

*** ***

28

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***Revenues.******  ***Facilitiesmanagement revenue decreased primarily due to the Company’s exit from certainunprofitable contracts and the loss of other customers during 2002 and thefirst half of 2003, including certain customer relationships terminated as partof the Company’s wind-down of its centralized call center operations.Reimbursement of salaries, wages, benefits, and out-of-pocket general andadministrative costs, a component of facilities management revenue, decreased$10.4 million in 2003, compared to 2002. The composition of facilitiesmanagement revenue, including management fees and reimbursements, can varysignificantly from period to period based on the terms of the underlyingmanagement agreements in effect each period.

Corporate advisory services revenues began to increasefrom the prior year in the second quarter 2003 as customers began showing lessreluctance to make new real estate commitments. In addition, during 2003 theCompany increased the number of tenant representation brokers as part of itsfocus on expanding its brokerage network. The Company was successful in closingseveral significant tenant representation transactions and other transactionson behalf of its user customers.

Project management revenue growth was primarily due tothe addition of new customers and the expansion of services provided toexisting customers. The growth was partially offset by the sale of a majorityof the operations of the Company’s joint venture with Savills into theAsia-Pacific region (“Trammell Crow Savills Asia-Pacific”) and the terminationof a contract in the fourth quarter of 2002. 

The decrease in property management revenue wasprimarily the result of a reduction in square footage under management in 2003,in addition to the Company’s sale of its mall management business to anaffiliate of Faison Enterprises, Inc. (the “Faison Sale”) in the firstquarter of 2002. 

Brokerage revenue remained relatively flat from 2002to 2003. However, revenues in the fourth quarter of 2003 were significantlyahead of the comparable period in the prior year. This is in part the result ofan increase in the number of project leasing and investment sales brokers, aspart of the Company’s focus on expanding its brokerage network. In addition,the Company was successful in closing several significant transactions in the2003 fourth quarter, driven by stabilization of the economy and decreasingreluctance on the part of customers to make new real estate commitments.

Construction management revenue is generated fromservices including space planning and tenant finish coordination for investorcustomers in conjunction with property management and leasing assignments, andis directly related to tenants’ real estate demands. Revenues remainedrelatively flat from 2002 to 2003. 

The decrease in development and construction revenuewas primarily due to a $5.9 million decrease in rental revenue from operatingreal estate properties, resulting from the sale of various operating propertiesthat generated rental revenue in 2002. In addition, development andconstruction fees decreased due to the downturn in the economy, which hasresulted in a decrease in the Company’s development starts in recent years. Typically,the impact of decreases and increases in the Company’s development starts isnot reflected in results immediately and the Company experienced theconsequences of reduced previous periods’ starts in its development andconstruction revenues for 2003. These decreases in revenue were offset in 2003by $1.6 million of revenue relating to the Company’s receipt of a distributionfrom a cost method investment. This distribution was the result of thedisposition of the underlying real estate project. 

The Company’s gain on disposition of real estatedecreased significantly in 2003 from 2002. In 2003, the Company sold 19 realestate projects for an aggregate net sales price of $67.1 million,resulting in an aggregate gain on disposition of $13.4 million, includingrecognition of deferred gain of $0.3 million relating to a disposition ina previous period. In 2002, the Company sold 36 real estate projects for an aggregatenet sales price of $142.1 million, resulting in an aggregate gain ondisposition of $24.2 million, including recognition of deferred gain of$0.9 million relating to dispositions in previous periods. 

29

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Some of the Company’s development resources focus onproviding development services to investor customers 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 product 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 corporate customers. 

***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 decrease in 2003 was driven by a$23.9 million decrease in salaries and benefits for unreimbursed employeesoffset by a $3.3 million increase in salaries, wages and benefits forreimbursed employees. The decrease in unreimbursed salaries, wages and benefitsis a result of the Company’s continued efforts to control costs as part of theCompany’s cost reduction efforts undertaken beginning in the second quarter of2001, in addition to a reduction in headcount resulting from the Faison Saleand wind-down of call center operations. These decreases in unreimbursedsalaries, wages and benefits were partially offset by increases due to newhiring in 2003. The increase in reimbursed salaries, wages and benefits wasdriven by an increase in project management services provided to customers,offset by a reduction in headcount due to the wind-down of call centeroperations. 

The increase in commission expense was primarilydriven by the increase in the Company’s corporate advisory services revenue,which was the result of an increase in headcount of tenant representationbrokers and the closing of several significant transactions during 2003 as theeconomy began to stabilize in the second half of 2003. 

The overall decrease in general and administrativeexpenses was comprised of a $17.0 million decrease in costs that are notreimbursed by customers, offset by a $3.8 million increase in out-of-pocketgeneral and administrative expenses that are reimbursed by customers. Thedecrease in unreimbursed general and administrative expenses for 2003 is theresult of a $5.4 million decrease in pursuit cost expense, mainly due to awriteoff of capitalized pursuit costs in the second quarter of 2002 whennegotiations on an international venture concluded unsuccessfully, as well ascontinuing efforts by the Company to control costs company-wide. In addition,costs were incurred in 2002 to restructure or exit outsourcing contracts thatwere unprofitable or otherwise judged likely to be unsuccessful in the longrun. The overall decrease in general and administrative expenses in 2003 waspartially offset by $5.9 million of writedowns on real estate due toimpairment and provisions to reflect real estate held for sale assets at fairvalue less cost to sell recorded in 2003 as compared to $2.4 million of suchwritedowns and provisions in 2002. 

Depreciation and amortization expenses decreasedbecause certain non-compete agreements became fully amortized in 2002 andcertain assets related to computer hardware became fully depreciated during2003 and therefore were not depreciated for a full year in 2003. This wasoffset by an increase in depreciation expense related to real estate assetsclassified as held for investment, in accordance with FAS 144.

The decrease in interest expense is primarily theresult of the dispositions in late 2002 of several operational real estateprojects that incurred interest expense in 2002. Also, during 2003, the Companyhad lower average outstanding balances on its revolving line of credit.

***Income from ContinuingOperations Before Income Taxes, Minority Interest and Income from Investmentsin Unconsolidated Subsidiaries.***   The Company’s income from continuing operationsbefore income taxes, 

30

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minorityinterest and income from investments in unconsolidated subsidiaries remainedflat due to the fluctuations in revenues and expenses described above. 

***Minority Interest,Net of Income Taxes.******  ***Thedecrease in minority interest income, net of income taxes, is primarily aresult of decreased losses in 2003 in the Company’s consolidated internationalentities in which outside parties have an interest. This decrease was partiallyoffset by an increase in minority interest income, net of income taxes, due tolarger 2003 losses in certain consolidated real estate entities driven by 2003charges for impairment of real estate. 

***Income fromInvestments in Unconsolidated Subsidiaries, Net of Income Taxes.******  ***Income from investments inunconsolidated subsidiaries fluctuates from period to period based on thevolume and profitability of transactions carried out by the underlyingunconsolidated subsidiaries. The Company’s share of income from suchtransactions is typically driven by its ownership percentage in theunconsolidated subsidiaries. The 2003 increase in income from unconsolidatedsubsidiaries was primarily driven by significant real estate sales by certainunconsolidated subsidiaries and increased income from the 10% investment thatthe Company owns in Savills, which it acquired upon initial formation of itsstrategic alliance with Savills. 

***Income fromContinuing Operations.******  ***The Company’sincome from continuing operations in 2003 increased from the comparable periodin the prior year, due to the fluctuations in revenues and expenses describedabove. 

***Income fromDiscontinued Operations, Net of Income Taxes.******  ***Income fromdiscontinued operations includes the operations of real estate properties andgain on disposition of real estate properties held for sale or sold subsequentto the adoption of FAS 144 effective January 1, 2002, that wereconsidered components of an entity under FAS 144 and in which the Companyretained or expects to retain no 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 of FAS 144,the Company expects a greater amount of these activities to be classified asdiscontinued operations in future periods as fewer asset dispositions willqualify for grandfathered treatment under FAS 144. In 2003, the Companysold four real estate projects that were considered discontinued operations foran aggregate net sales price of $25.1 million. These sales resulted in anaggregate gain on disposition of real estate (before income taxes) of $5.3million. In 2002, the Company sold four real estate projects with a gain ondisposition of real estate (before income taxes) of $6.6 million for anaggregate net sales price of $31.2 million. 

***Net Income.******  ***Net incomeincreased due to the fluctuations in revenues and expenses described above, inaddition to a decrease in the Company’s effective tax rate driven by theincrease in the Company’s income from its investment in Savills. 

31

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**Year Ended December 31, 2002 Compared to YearEnded December 31, 2001**
| ** **                                                                                                                                   | ** ** | **For the Years  Ended  December 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                                                                                                                   | ** ** | **2002**                                              | ** ** | **2001**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| ** **                                                                                                                                   | ** ** | **($ in millions)**                         | ** ** |
| **REVENUES:**                                                                                                                                |       |                                                  |       |       |       |              |       |   |   |   |   |   |   |
| ***User  Services:***                                                                                                                        |       |                                                  |       |       |       |              |       |   |   |   |   |   |   |
| Facilities  management                                                                                                                       |       | $                                                     | 233.8      |       | $          | 201.5             |       |   | $ | 32.3 |   |   |   | 16.0 | % |   |
| Corporate  advisory services                                                                                                                 |       | 108.4                                                 |       | 115.6      |       |              | (7.2       | ) |   |   | (6.2 | )% |   |
| Project  management services                                                                                                                 |       | 58.1                                                  |       | 53.0       |       |              | 5.1        |   |   |   | 9.6 | % |   |
|                                                                                                                                         |       | 400.3                                                 |       | 370.1      |       |              | 30.2       |   |   |   | 8.2 | % |   |
| ***Investor  Services:***                                                                                                                    |       |                                                  |       |       |       |              |       |   |   |   |   |   |   |
| Property  management                                                                                                                         |       | 147.6                                                 |       | 174.3      |       |              | (26.7      | ) |   |   | (15.3 | )% |   |
| Brokerage                                                                                                                                    |       | 95.7                                                  |       | 115.5      |       |              | (19.8      | ) |   |   | (17.1 | )% |   |
| Construction  management                                                                                                                     |       | 10.0                                                  |       | 13.1       |       |              | (3.1       | ) |   |   | (23.7 | )% |   |
|                                                                                                                                         |       | 253.3                                                 |       | 302.9      |       |              | (49.6      | ) |   |   | (16.4 | )% |   |
| Development and construction                                                                                                                 |       | 55.1                                                  |       | 76.6       |       |              | (21.5      | ) |   |   | (28.1 | )% |   |
|                                                                                                                                         |       | 708.7                                                 |       | 749.6      |       |              | (40.9      | ) |   |   | (5.5 | )% |   |
| Gain on disposition of real estate                                                                                                           |       | 24.2                                                  |       | 28.5       |       |              | (4.3       | ) |   |   | (15.1 | )% |   |
| Other                                                                                                                                        |       | 1.2                                                   |       | 1.6        |       |              | (0.4       | ) |   |   | (25.0 | )% |   |
|                                                                                                                                         |       | 734.1                                                 |       | 779.7      |       |              | (45.6      | ) |   |   | (5.8 | )% |   |
| **COST AND EXPENSES:**                                                                                                                       |       |                                                  |       |       |       |              |       |   |   |   |   |   |   |
| Salaries, wages  and benefits                                                                                                                |       | $                                                     | 472.8      |       | $          | 477.6             |       |   | $ | (4.8 | ) |   |   | (1.0 | )% |   |
| Commissions                                                                                                                                  |       | 87.4                                                  |       | 94.6       |       |              | (7.2       | ) |   |   | (7.6 | )% |   |
| General and  administrative                                                                                                                  |       | 133.8                                                 |       | 138.3      |       |              | (4.5       | ) |   |   | (3.3 | )% |   |
| Depreciation                                                                                                                                 |       | 15.2                                                  |       | 15.8       |       |              | (0.6       | ) |   |   | (3.8 | )% |   |
| Amortization                                                                                                                                 |       | 2.6                                                   |       | 8.2        |       |              | (5.6       | ) |   |   | (68.3 | )% |   |
| Interest                                                                                                                                     |       | 10.2                                                  |       | 15.1       |       |              | (4.9       | ) |   |   | (32.5 | )% |   |
| Writedowns due to  impairment of goodwill, intangibles and investments                                                                       |       | —                                                |       | 32.0       |       |              | (32.0      | ) |   |   | (100.0 | )% |   |
| Change in fair  value of interest rate swap agreement                                                                                        |       | —                                                |       | 4.8        |       |              | (4.8       | ) |   |   | (100.0 | )% |   |
| Restructuring  charges                                                                                                                       |       | —                                                |       | 11.0       |       |              | (11.0      | ) |   |   | (100.0 | )% |   |
|                                                                                                                                         |       | 722.0                                                 |       | 797.4      |       |              | (75.4      | ) |   |   | (9.5 | )% |   |
| Income (loss)  from continuing operations before income taxes, minority interest and income  from investments in unconsolidated subsidiaries |       | 12.1                                                  |       | (17.7      | )          |              | 29.8       |   |   |   | (168.4 | )% |   |
| Income tax  (expense) benefit                                                                                                                |       | (5.4                                                  | )          | 5.9        |       |              | (11.3      | ) |   |   | (191.5 | )% |   |
| Minority  interest, net of income taxes                                                                                                      |       | 1.6                                                   |       | 0.9        |       |              | 0.7        |   |   |   | 77.8 | % |   |
| Income from  investments in unconsolidated subsidiaries, net of income taxes                                                                 |       | 5.0                                                   |       | 5.7        |       |              | (0.7       | ) |   |   | (12.3 | )% |   |
| Income (loss)  from continuing operations                                                                                                    |       | 13.3                                                  |       | (5.2       | )          |              | 18.5       |   |   |   | (355.8 | )% |   |
| Income from  discontinued operations, net of income taxes                                                                                    |       | 3.4                                                   |       | —     |       |              | 3.4        |   |   |   | 100.0 | % |   |
| **Net  income (loss)**                                                                                                                       |       | $                                                     | 16.7       |       | $          | (5.2              | )          |   | $ | 21.9 |   |   |   | (421.2 | )% |   |

*** ***

***Revenues.******  ***Facilitiesmanagement revenue growth primarily resulted from the addition of several newcustomers and the expansion of services provided to existing customers, offsetby customer losses. The increase in revenue was partially offset by a charge torevenue of $1.1 million in 2002, due to the writedown for impairment inthe value of an intangible asset. The intangible asset written down includedupfront cash 

32

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payments to a customermade upon inception of the underlying management contract in a previous year. TheCompany and the customer mutually agreed to terminate the contract in 2002 andaccordingly, the value of the related intangible asset was written down tozero. Reimbursement of salaries, wages, benefits and out-of-pocket general andadministrative costs, a component of facilities management revenue, increased$33.7 million to $180.9 million in 2002, from $147.2 million in2001. The composition of facilities management revenue, including managementfees and reimbursements, can vary significantly from period to period based onthe structure of the underlying management agreements in effect in each period.

While the Company had a slight increase in the numberof tenant representation brokers in 2002 as compared to 2001, corporateadvisory services revenue decreased due to a reduction in transaction volumeand value as a result of increased reluctance on the part of customers andothers to make new real estate commitments due to the downturn in the economy,which resulted in decreased demand for commercial space.

Revenues from project management services increased asa result of the addition of several new customers and the expansion of servicesprovided to existing customers. The increase was partially offset by the lossof certain customers and a reduction in project spending by certain other usercustomers as a result of the deterioration in the economy. Additionally, 2001revenues reflect a charge to revenue of $2.1 million due to the writedownfor impairment in the value of an intangible asset comprised of upfront cashpayments made to a customer upon inception of the underlying managementagreement in a previous year. The Company determined that the future cash flowsfrom the underlying agreement did not support the value of the intangible andit was the Company’s intent to terminate the agreement. The managementagreement was subsequently terminated in 2002.

Property management revenue decreased, primarily as aresult of the Faison Sale in the first quarter of 2002. Revenue also decreaseddue to an overall reduction in average square footage under management, ascompared to the prior year, primarily as a result of the Company’s exit fromcertain unprofitable markets. Reimbursement of salaries, wages, benefits, andout-of-pocket general and administrative costs (a component of propertymanagement revenue) decreased from $83.4 million in 2001 to$70.1 million in 2002.

Brokerage revenue decreased due to a reduction intransaction volume and value as a result of increased reluctance on the part ofcustomers and others to make new real estate commitments due to the downturn inthe economy and uncertain economic outlook. The economic downturn resulted indecreased demand for commercial space, which, in turn, drove a decrease in theaverage number of project leasing and investment sales brokers employed by theCompany during 2002, as compared to the prior year.

The decrease in construction management revenues from2001 to 2002 is primarily attributable to a reduction in transaction volume dueto increased reluctance on the part of customers and others to make new realestate commitments due to the downturn in the economy, in addition to adecrease in the average square footage managed by the Company. Also, a portionof the decrease in construction management revenues was driven by the Company’sdisposition of several construction businesses in the second half of 2001 andin 2002.

Development and construction revenues decreased due toa decrease of $17.0 million in development fees and incentive developmentfees, as well as revenue generated from services including construction biddingand management, project closeout, and general contracting. The decrease is aresult of a reduction in transaction volume due to an increasing reluctance onthe part of customers and others to make new real estate commitments due to thedownturn in the economy and uncertain economic outlook. In addition, rentalrevenues decreased $2.5 million in 2002, primarily due to the sale ofvarious operating properties that generated rental revenues in 2001.

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In 2002, the Company sold 36 real estate projects foran aggregate net sales price of $142.1 million, resulting in an aggregategain on disposition of $24.2 million, including recognition of deferredgain of $0.9 million relating to dispositions in previous periods. Inaddition, in 2002 the Company sold four real estate projects with an aggregatenet sales price of $31.2 million for which the Company did not have anysignificant continuing involvement in the operations of the projects aftertheir disposal. The aggregate gain on disposition of $6.6 million (beforeincome taxes) for these four sales is reflected as discontinued operations,rather than gain on disposition of real estate, in accordance with therequirements of FAS 144. In 2001, the Company sold 46 real estate projectsfor an aggregate net sales price of $170.4 million, resulting in anaggregate gain on disposition of $28.5 million (before income taxes),including recognition of deferred gain of $0.3 million relating to dispositionsin previous periods.

***Costs and Expenses.******  ***The Company’scosts and expenses decreased in 2002, primarily due to the Company’s 2001recognition of $32.0 million of writedowns due to impairment of goodwill,intangibles and investments, offset by $2.3 million of related minorityinterest income. In 2001, the Company also recorded $4.8 million due tothe change in fair value of its interest rate swap agreement, which was offsetby a benefit to interest expense of $0.6 million, and recorded$11.0 million in restructuring charges. See below for further discussion.

Salaries, wages and benefits expense decreased in 2002due to a $28.2 million decrease in salaries and benefits for unreimbursedemployees, as a result of the Company’s cost reduction efforts begun in secondquarter 2001, offset by a $23.4 million increase in salaries and benefitsfor reimbursed employees associated with growth in reimbursed headcount(resulting primarily from growth in the Company’s outsourcing business).

The decrease in commission expense was primarilydriven by the overall decrease in the Company’s corporate advisory services andbrokerage revenue, due to a reduction in transaction volume and value as aresult of increased reluctance on the part of customers and others to make newreal estate commitments due to the downturn in the economy and uncertaineconomic outlook, which resulted in decreased demand for commercial space. Thepercentage decrease in commission expense does not correspond directly to thepercentage decrease in corporate advisory services and brokerage revenue due tochanges made to compensation structures for various project leasing andinvestment sales brokers at the beginning of 2002; the compensation structuresin 2002 include less fixed compensation and more variable compensation athigher commission rates.

The overall decrease in general and administrativeexpenses was comprised of an $8.4 million decrease in costs that are notreimbursed by customers, offset by a $3.9 million increase inout-of-pocket general and administrative expenses that are reimbursed bycustomers. The decrease in unreimbursed general and administrative expenses wasthe result of company-wide cost reduction efforts undertaken beginning in thesecond quarter of 2001. The Company’s cost reductions were partially offset bycosts associated with the Company’s efforts to restructure or exit severaloutsourcing contracts that were unprofitable or otherwise judged likely to beunsuccessful in the long run. General and administrative expenses in 2002 alsoinclude $2.4 million for provision for losses on real estate due toimpairment and for adjustments to carrying value of real estate assetsreclassified from real estate held for sale to real estate held for investment,while provision for losses on real estate due to impairment totaled $0.4 millionin 2001.

The decrease in depreciation and amortization expensesis primarily the result of a decrease in amortization expense of$5.6 million in 2002. $4.7 million of this decrease was due to theCompany’s adoption of FAS 142, which provides that goodwill and intangibleassets deemed to have indefinite lives are no longer amortized, effective January 1,2002. In addition, the Company also incurred less amortization expense as aresult of intangible asset writedowns recorded in the fourth quarter of 2001.

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Thedecrease in interest expense is a result of lower interest rates related to theCompany’s revolving line of credit and lower average outstanding balances in2002. In addition, in 2002 the Company recorded $3.6 million of paymentsagainst its interest rate swap agreement liability as compared to$0.6 million of such payments in 2001. These payments would have beenrecorded to interest expense had the interest rate swap agreement not beendesignated as an effective hedge as of November 1, 2001.

In2001, the Company recorded writedowns due to impairment of goodwill,intangibles and investments of $32.0 million, offset by $2.3 million of relatedminority interest. Of these writedowns, $20.5 million is due to impairment of goodwilland related intangibles recorded in connection with the Company’s acquisitionof portions of the businesses of Faison & Associates and FaisonEnterprises, Inc.. The impairment resulted from 2001 operating losses anddeclining forecasts for future operations in the retail center development andmall management portions of these businesses (primarily due to continuingconsolidation of regional mall ownership into REITs, which tend to self-managetheir properties), in addition to the losses of several large managementagreements in 2001, which left the Company with no significant business incertain geographic areas. The writedown included 100% of the goodwillattributable to the retail center development and mall management businessesand the business units affected by management agreement losses. Effective March1, 2002, the Company sold the retail center development and mall managementbusinesses to an affiliate of Faison Enterprises (the Faison Sale). The Companyretained the net working capital in these businesses and carried interests incertain development projects, but otherwise received nominal consideration uponcompletion of the transaction.

Alsoincluded in the Company’s total 2001 writedowns is a writedown of $4.8 million,offset by $2.3 million of related minority interest, due to impairment ofgoodwill recorded in connection with the Company’s 2000 expansion with Savillsof Trammell Crow Savills Asia-Pacific. The impairment resulted from 2001operating losses and business strategy changes that impact the Company’s growthstrategy in Asia-Pacific markets. The Company intends to allocate existing oradditional resources to Asia-Pacific markets as its U.S. customers requireservices in these markets but does not intend to aggressively pursue newcustomers in these markets. In 2002, Trammell Crow Savills Asia-Pacific soldthree of its operations, primarily engaged in project management services, toan unrelated third party.

Inaddition, the Company recorded $5.5 million of the total writedowns to reflectimpairment in the value of certain e-commerce investments made in 1999, 2000and 2001. The impairment was triggered by: (i) the status at the time of thewritedowns of the e-commerce industry (many technology companies had ceasedoperations, the availability of capital for e-commerce and internet companieshad been dramatically reduced, and the Dow Jones Internet Index was down) and(ii) the financial status of the companies in which the Company has invested.In evaluating the extent of the impairment related to its e-commerceinvestments, the Company considered the following factors: (i) 2001 financialresults of the investees versus their original business plans, (ii) the valueof the investee companies based on solicitations for additional financing,(iii) the investees’ revised business plans and (iv) the investees’ need forand limited availability of future funding.

Theremaining $1.2 million of writedowns in 2001 related to various investment andasset impairments, none of which were individually significant to the Company.

On September 1,2002, as a result of a decrease in the Company’s floating interest rate debt,the Company dedesignated $50.0 million of the Company’s$150.0 million interest rate swap agreement previously designated as ahedge in order to maintain the relationship between the notional amount of thedesignated portion of the interest rate swap agreement and the amount of theCompany’s floating rate debt. On November 30, 2002, an additional$25.0 million was dedesignated. As a result of these changes, the Companyrecognized $0.1 million of expense in 2002 related to the change in fairvalue of the portion of the interest rate swap agreement that is not designatedas a hedge. Prior to November 1, 2001, the $150.0 million interest rateswap agreement was not effectively designated as a hedge (although it wasentered into for hedging purposes), and the Company recognized changes in fairvalue in current period earnings. This resulted in $4.8 million beingrecognized as expense related to the interest rate swap 

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agreement for the period from January 1, 2001,through October 31, 2001, due to a change in fair value of the interestrate swap agreement. As of November 1, 2001, the Company effectivelyelected hedge accounting treatment and began using the hypothetical derivativemethod as defined by Statement of Financial Accounting Standards No. 133, *Accounting for Derivatives Instruments and HedgingActivities* (“FAS 133”), to measure hedge effectiveness for itsinterest rate swap agreement.

During2001, the Company incurred a total of $11.0 million in restructuringcharges as a result of an internal reorganization of its business designed toconsolidate all of the property and facilities management, brokerage andcorporate advisory, and construction and project management services deliveredto both user and investor customers under a single leadership structure. Aspart of the reorganization, the Company terminated approximately 300 employeesacross all functions and levels as part of a cost-cutting effort focusing oninefficiencies and redundancies. The Company incurred restructuring charges of$3.7 million related to these terminations. In addition, also in 2001, theCompany formalized and communicated its previously announced internal reorganizationdesigned to centralize and improve the efficiency of its accounting operations.The accounting restructuring plan contemplated the termination of approximately200 accounting personnel, 80 of whom ultimately resigned or were placed intoopen positions or onto new customer accounts. The Company incurredrestructuring charges of $1.5 million related to these terminations. Alsoas part of its restructuring plans, in 2001, the Company closed several officesand identified offices with excess space that it intends to sublease to thirdparties. The Company recorded $5.8 million of restructuring chargesrelated to these activities, primarily comprised of future rent charges andcost to sublease (offset by estimated future sublease income) and miscellaneousfuture and equipment write-offs. No restructuring charges were incurred in theyear ended December 31, 2002.

***Income (Loss) from Continuing Operations Before IncomeTaxes, Minority Interest and Income from Investments in UnconsolidatedSubsidiaries.***   The Company’s income fromcontinuing operations before income taxes, minority interest, and income frominvestments in unconsolidated subsidiaries increased due to the fluctuations inrevenues and expenses described above.

***Minority Interest, Net of Income Taxes.******  ***The increase in minorityinterest, net of income taxes, is primarily a result of larger 2002 losses inconsolidated entities in which outside parties have an interest, as compared to2001. In addition, in 2001, the Company recorded $2.3 million of minorityinterest income related to goodwill writedowns associated with Trammell CrowSavills Asia-Pacific. 

***Income from Investments in Unconsolidated Subsidiaries,Net of Income Taxes.******  ***Incomefrom investments in unconsolidated subsidiaries fluctuates from period toperiod based on the volume and profitability of transactions carried out by theunderlying unconsolidated subsidiaries. The Company’s share of income from suchtransactions is typically driven by its ownership percentage in theunconsolidated subsidiaries.

***Income (Loss) from Continuing Operations.******  ***The Company’sincome (loss) from continuing operations increased due to the fluctuations inrevenues and expenses above.

***Income from Discontinued Operations, Net of IncomeTaxes.******  ***The Company’s income from discontinuedoperations, net of income taxes, related to the operations and gains ondispositions of real estate for three real estate properties that wereconsidered components of an entity under FAS 144 and in which the Companyretained no continuing involvement. There were no such discontinued operationsin 2001 because, prior to the adoption of FAS 144, the operations andgains on dispositions of real estate were included in income (loss) fromcontinuing operations. As a result of applying the provisions of FAS 144,the Company expects a greater amount of its activities to be classified asdiscontinued operations in future periods.

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**Quarterly Results of Operations and Seasonality**

Thefollowing table presents unaudited quarterly results of operations data for theCompany for each of the eight quarters in 2003 and 2002. This quarterlyinformation is unaudited but, in the opinion of management, reflects alladjustments (consisting only of normal recurring adjustments) necessary for afair presentation of the information for the periods presented. The results ofoperations for any quarter are not necessarily indicative of results for any futureperiod. Revenues and net income during the fourth fiscal quarter historicallyhave been somewhat greater than in each of the first three fiscal quarters,primarily because the Company’s customers 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 and otherfactors may also cause quarterly fluctuations in the Company’s results ofoperations. 
| ** **                                                          | ** ** | **Quarter Ended**  | ** ** |
|---------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                          | ** ** | **March 31**       | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                                          | ** ** | **(in thousands)** | ** ** |
| **2003:**                                                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                                      |       | $                       | 160,785    |   | $ | 169,305 |   |   | $ | 167,272 |   |   |   | $ | 210,470 |   |   |
| Income (loss)  from discontinued operations, net of income taxes(1) |       | 879                     |       | 12 |   |   | (167 | ) |   |   | 2,054 |   |   |
| Net income                                                          |       | 1,144                   |       | 3,072 |   |   | 1,783 |   |   |   | 15,041 |   |   |
| **2002:**                                                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                                      |       | $                       | 172,127    |   | $ | 178,941 |   |   | $ | 177,489 |   |   |   | $ | 205,539 |   |   |
| Income (loss)  from discontinued operations, net of income taxes(1) |       | (22                     | )          | (14 | ) |   | 844 |   |   |   | 2,547 |   |   |
| Net income                                                          |       | 196                     |       | 3,744 |   |   | 3,731 |   |   |   | 8,982 | (2) |   |

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(1)          Discontinued operationsinclude the operations of real estate properties and gain on disposition ofreal estate properties held for sale or sold in which the Company retained orexpects to retain no continuing involvement, in accordance with FAS 144.

(2)          Inthe fourth quarter of 2002, the Company recorded $1,260 of provision for losseson real estate and a $212 charge to income from investments in unconsolidatedsubsidiaries (before income taxes) as a result of reclassifying certain assetspreviously classified as real estate held for sale to real estate held forinvestment, partially offset by $514 of related minority interest, inaccordance with FAS 144. 

**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 customers before collection of relatedbillings; the funding of capital investments, including the acquisition of or investmentsin other real estate service companies; the repurchase of its shares ifauthorized by the Board of Directors; expenditures for real estate and paymentson notes payable associated with its development and investment activities; andexpenditures related to upgrading the Company’s management information systems.The Company finances its operations with internally generated funds andborrowings under the Credit Facility (described below). The portion of theCompany’s development and investment business that includes the acquisition anddevelopment of real estate is financed with loans secured by underlying realestate, external equity, internal sources of funds, or a combination thereof. 

Net cash provided by operating activities totaled$48.8 million for the year ended December 31, 2003, compared to $71.9million for the same period in 2002. Cash provided by operating activities,excluding the change in real estate and related borrowings, decreased to $52.4million in 2003, compared to $62.6 million in 2002, primarily due to greatercollections of accounts receivable in 2002, due to higher average 

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receivable balances in2002. In addition, cash used in real estate activities (exclusive of realestate held for investment), net of related borrowings, was $3.6 million in2003, compared to $9.3 million of net cash provided by real estate activities,net of related borrowings, for the same period in 2002, primarily driven by alower number of real estate dispositions in 2003. 

Net cash provided by investing activities totaled$3.9 million for the year ended December 31, 2003, compared to $4.7million for the same period in 2002. This change is partially due to capitalexpenditures for furniture and equipment, primarily related to the Company’supgrades of computer equipment, of $10.5 million in 2003, compared to capitalexpenditures of $4.3 million in 2002. In addition, the decrease in cash was dueto $9.8 million of expenditures made in 2003 related to real estate classifiedas “held for investment” in accordance with FAS 144. Prior to December 31,2002, all of the Company’s real estate was classified as “held for sale,” andthe related cash flows were all included as operating activities. Thesedecreases in cash were offset by distributions from investments in unconsolidatedsubsidiaries, net of contributions, of $24.2 million in 2003, compared to $7.1million in 2002, driven by several significant dispositions of underlying realestate projects. In addition, cash provided by investing activities in 2002included consolidation of certain entities previously accounted for under theequity method that had cash balances totaling $1.9 million.

Net cash used in financing activities totaled$25.1 million for the year ended December 31, 2003, compared to$36.6 million for the same period in 2002. This change is primarilyattributable to the Company’s repurchase of common stock through its repurchaseprogram in 2003 of $10.4 million and principal payments, net of additionalborrowings, in 2003 of $11.8 million, primarily under the Credit Facility(described below), compared to principal payments, net of additionalborrowings, of $37.9 million in 2002. In addition, the Company madedistributions, net of contributions, to minority interest holders of$8.0 million in 2003, compared to $3.0 million in 2002. The Companyalso received $3.2 million in 2003 from the exercise of stock options andissuance of common stock, compared to $4.3 million in proceeds from theexercise of stock options and issuance of common stock in 2002. Also, in 2003,the Company received proceeds from borrowings, net of payments, of $1.9 millionunder notes payable on real estate held for investment. 

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. Under the terms of the Credit Facility, the Company can obtainloans, which are Base Rate Loans or Eurodollar Rate Loans. Base Rate Loans bearinterest 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 certainrestrictions on investments and acquisitions that can be made by the Company. Inaddition, the Company may not pay dividends, repurchase common shares, or makeother distributions on account of its common stock exceeding 50% of theprevious year’s net income before depreciation and amortization. The CreditFacility is guaranteed by certain significant subsidiaries of the Company andis secured by a pledge of stock of such significant subsidiaries and a pledgeof 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 rate indebtednessin excess of $30.0 million (other than construction loans under which interestis capitalized in accordance with accounting principles generally accepted inthe United States (“GAAP”)) ensuring the net interest on such 

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excess is fixed, capped orhedged. In March 2001, the Company renewed an existing interest rate swapagreement for a two-year period ending March 24, 2003, with a fixedinterest pay rate of 4.68% and a notional amount of $150.0 million. Theinterest rate swap agreement expired on March 24, 2003, and the relatedweighted average receive rate was 1.37% for the three months ended March 31,2003. Subsequent to the expiration of the interest rate swap agreement, theCompany has entered into various short-term interest rate agreements to complywith the requirements of the Credit Facility. In December 2003, theCompany entered into an agreement to lock the LIBOR based interest rate on its$10.0 million of borrowings outstanding under the Credit Facility for 90 days.Seeking to mitigate the impact of interest rate fluctuations on its otherfloating rate debt, in December 2003, the Company also entered into aninterest rate cap agreement with a notional amount of $10.0 million expiring March 24,2004, under which the Company will receive payments if the 30-day LIBOR basedinterest rate exceeds 1.3%. The interest rate cap agreement has been designatedan effective hedge, and, to the extent the hedging relationship remainseffective, changes in fair value of the interest rate cap agreement will be recordedin other comprehensive income.

The Company also has a $25.0 milliondiscretionary line of credit (the “Discretionary Line”) with Bank ofAmerica, N.A. Each loan obtained by the Company under the DiscretionaryLine matures in five business days, but no later than June 28, 2004, andbears interest at a rate agreed upon between the Company and the bank.Borrowings under the Discretionary Line are unsecured and reduce borrowingcapacity under the Credit Facility. 

At December 31, 2003, the Company had outstandingborrowings of $10.0 million under the Credit Facility and no borrowingsoutstanding under the Discretionary Line. The covenants contained in the CreditFacility and the amount of the Company’s other borrowings and contingentliabilities may have the effect of limiting the credit available to the Companyunder the Credit Facility to an amount less than the $150.0 millioncommitment. As it takes longer for the Company to dispose of real estateinvestments in a weaker economy, the current economic slowdown could adverselyimpact the Company’s ability to comply with certain of the real estate-relatedfinancial covenants in the Company’s Credit Facility, which could negativelyimpact the Company’s borrowing capacity. Also, since many of the financial covenantsin the Credit Facility are dependent on the Company’s “EBITDA,” as defined inthe Credit Agreement and calculated on a trailing four quarter basis, a declinein the Company’s overall operations could adversely impact the Company’sability to comply with these financial covenants and, in turn, the Company’sborrowing capacity or the amount of its investments in real estate. The Company’sunused borrowing capacity (taking into account letters of credit and borrowingsoutstanding) under the Credit Facility was $124.1 million at December 31,2003. The Company expects to continue to borrow under the Credit Facility tofinance future strategic acquisitions, fund its co-investment activities andprovide the Company with an additional source of working capital. 

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TheCompany has various contractual obligations at December 31, 2003, thatcould impact its liquidity as summarized below (in millions): 

**ContractualObligations**
| ** **                                     | ** ** | **Payments due by Period** | ** ** |
|------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                     | ** ** | **Total**                                 | ** ** | **Less than 1  year** | ** ** | **1-3 years** | ** ** | **3-5 Years** | ** ** | **After  5 years** | ** ** |
| Long-term  debt(1)                             |       | $                                         | 11.1       |   |   | $ | 1.1 |   |   |   | $ | 10.0 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Capital lease  obligations                     |       | 2.0                                       |       |   | 1.3 |   |   |   | 0.7 |   |   |   | — |   |   |   | — |   |   |
| Operating leases                               |       | 58.7                                      |       |   | 20.3 |   |   |   | 25.7 |   |   |   | 9.4 |   |   |   | 3.3 |   |   |
| Notes payable on  real estate (recourse)(2)    |       | 10.4                                      |       |   | 6.8 |   |   |   | 3.6 | (3) |   |   | — |   |   |   | — |   |   |
| Notes payable on  real estate (nonrecourse)(2) |       | 92.9                                      |       |   | 31.2 |   |   |   | 21.4 |   |   |   | 40.3 |   |   |   | — |   |   |
| Other obligations                              |       | 5.8                                       |       |   | 5.8 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| **Total  Contractual Obligations**             |       | $                                         | 180.9      |   |   | $ | 66.5 |   |   |   | $ | 61.4 |   |   |   | $ | 49.7 |   |   |   | $ | 3.3 |   |   |

 

**Other Commitments**
| ** **                 | ** ** | **Amount of Commitments by Time of Expiration** | ** ** |
|----------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                 | ** ** | **Total  Amounts  Committed**                                                 | ** ** | **Less than 1  year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **After  5 years** | ** ** |
| Standby letters  of credit |       |                                                                          | $          | 8.9 |   |   |   | $ | 8.8 |   |   |   | $ | 0.1 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Guarantees                 |       |                                                                          | 4.9        |   |   |   | 3.2 |   |   |   | 1.7 |   |   |   | — |   |   |   | — |   |   |
| Capital  commitments       |       |                                                                          | 3.0        |   |   |   | 3.0 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| **Total  Commitments**     |       |                                                                          | $          | 16.8 |   |   |   | $ | 15.0 |   |   |   | $ | 1.8 |   |   |   | $ | — |   |   |   | $ | — |   |   |

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(1)          Primarily relates toborrowings under the Credit Facility and excludes related interest payments,which accrue at a variable rate, or 2.92% at December 31, 2003.

(2)          Includes notes relatedto the Company’s various real estate projects and excludes future interest. Thenotes have either fixed or variable interest rates, ranging from 3.22% to 12%at December 31, 2003. In general, interest is drawn on the underlyingconstruction loan and subsequently paid with principal with proceeds upon saleof the real estate project.

(3)          With respect to aproject to which $3.0 million of these obligations relate, the Company has anagreement with an investor customer to purchase the project upon completion,the proceeds of which will be used to repay the related note payable.

The Company does not anticipate paying any dividendsin the foreseeable future. The Company believes that funds generated from operations,together with existing cash and available credit under the Credit Facility andloans secured by underlying real estate, will be sufficient to finance itscurrent operations, planned capital expenditure requirements, paymentobligations for development purchases, share repurchases, acquisitions ofservice companies 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 its 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.

In May 2001, theCompany announced that its Board of Directors had approved a stock repurchaseprogram. The repurchase program authorized the repurchase of up to$15.0 million of the Company’s common stock from time to time in openmarket purchases or through privately negotiated transactions. 

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Therepurchase program was completed during the second quarter of 2003 and resultedin the repurchase of 1,593,900 shares at an average cost of $9.41 per share. Thepurchases were made with funds generated from operations and existing cash. TheCompany placed the repurchased shares in treasury. The Company intends toreissue such shares in connection with the Company’s employee stock purchaseplan and option exercises or restricted stock grants under the Company’slong-term incentive plan and other equity-based incentive plans, as wellas for other corporate purposes.

**Off-balance Sheet Arrangements**

The Company does not haveany off-balance sheet arrangements, as defined in Regulation S-K Item303(a)(4)(ii)(A)-(D), that have or are reasonably likely to have a current orfuture effect on the Company’s financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources that is material to investors.

**Effectsof Inflation**

The Company does notbelieve that inflation has had a significant impact on its results ofoperations in recent years. However, there can be no assurance that the Company’sbusiness will not be affected by inflation in the future.

**Forward-Looking Statements**

Certain statementscontained or incorporated by reference in this Annual Report on Form 10-K,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 actualresults, performance or achievements of the Company or industry results to bematerially different from any future results, performance or achievementsexpressed or implied by such forward-looking statements. Such risks,uncertainties and other matters include, but are not limited to:

·       thetiming of individual transactions,

·       theability of the Company to identify, implement and maintain the benefit of costreduction measures and achieve economies of scale,

·       theability of the Company to compete effectively in the international arena,

·       theability of the Company to retain its major customers and renew its contracts,

·       theability of the Company to attract new user and investor customers,

·       theability of the Company to manage fluctuations in net earnings and cash flowwhich could result from the Company’s participation as a principal in real estateinvestments,

·       theCompany’s ability to continue to pursue its growth strategy,

·       theCompany’s ability to pursue strategic acquisitions on favorable terms andmanage challenges and issues commonly encountered as a result of thoseacquisitions,

·       theCompany’s ability to compete in highly competitive national and local businesslines, and

·       theCompany’s ability to attract and retain qualified personnel in all areas of itsbusiness (particularly senior management).

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In addition, the Company’sability to achieve certain anticipated results will be subject to other factorsaffecting the Company’s business that are beyond the Company’s control,including but not limited to general economic conditions (including the costand availability of capital for investment in real estate and customers’willingness to make real estate commitments) and the effect of governmentregulation on the conduct of the Company’s business. Given these uncertainties,readers are cautioned not to place undue reliance on such forward-lookingstatements. The Company disclaims any obligation to update any such statementsor publicly announce any updates or revisions to any of the forward-lookingstatements contained herein to reflect any change in the Company’s expectationwith regard thereto or any change in events, conditions, circumstances orassumptions underlying such statements.

**ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

The Company’s primary market risk exposure is tochanges in interest rates. The Company is exposed to market risk related to itsCredit Facility and loans secured by real estate properties as discussed in *“Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Liquidity and Capital Resources.”*The Credit Facility and the majority of the loans secured by real estate bearinterest at variable rates and are subject to fluctuations in the market. Fromtime to time, the Company purchases interest rate agreements to hedge aportion, but not all, of its exposure to fluctuations in interest rates.

If an increase or decrease in market interest rates of100 basis points were to have occurred at December 31, 2003, the Company’stotal estimated interest costs for 2004 would increase or decrease, andestimated income from continuing operations before income taxes, minorityinterest and income from investments in unconsolidated subsidiaries woulddecrease or increase accordingly, by approximately $0.9 million. Thisanalysis includes the effects of the Company’s interest rate cap agreement witha notional amount of $10.0 million and the Company’s arrangement to lockthe interest rate on its $10.0 million of debt outstanding under its CreditFacility, both of which expire March 24, 2004. The Company’s sensitivityanalysis is based on borrowings outstanding as of December 31, 2003. Ifthe market interest rates for variable rate debt had been 100 basis pointshigher or lower in 2003, the Company’s total interest costs would haveincreased or decreased accordingly, and income from continuing operationsbefore income taxes, minority interest and income from investments inunconsolidated subsidiaries would have decreased or increased accordingly, byapproximately $0.4 million, after considering the effect of the interestrate agreements in effect during 2003. Interest costs include both interestthat is expensed and interest that is capitalized as part of the cost of realestate. A portion of the interest relating to the Company’s real estate debt($103.3 million at December 31, 2003) is capitalized. This analysisdoes not consider the effects of the reduced level of overall economic activitythat could exist in a higher interest rate environment.

The Company’s earnings aresomewhat affected by fluctuations in the value of the U.S. dollar as comparedto foreign currencies as a result of its operations in Canada, Europe, Asia andAustralia. At December 31, 2003, a uniform 10% strengthening or weakeningin the value of the dollar relative to the currencies in which the Company’sforeign operations are denominated would result in an estimated decrease orincrease accordingly in income from continuing operations before income taxes,minority interest and income from investments in unconsolidated subsidiaries ofapproximately $0.4 million for the year ending December 31, 2004. If,during the year ended December 31, 2003, a uniform 10% strengthening orweakening in the value of the dollar relative to the currencies in which theCompany’s foreign operations are denominated had occurred, it would haveresulted in a decrease or increase accordingly in income from continuingoperations before income taxes, minority interest and income from investmentsin unconsolidated subsidiaries of approximately $0.3 million. Thesecalculations assume that each exchange rate would change in the same directionrelative to the U.S. dollar and are based on either the Company’s actual 2003or an estimate of 2004 income from continuing operations before income taxes,minority interest and income from investments in unconsolidated subsidiariesfrom foreign operations. The 

42

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Company’ssensitivity analysis of the effects of changes in foreign currency exchangerates does not factor in potential changes to its 2004 anticipated level offoreign operations or local currency prices.

**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

Reference is made to theList of Financial Statements and Financial Statement Schedule on page F-2for a listing of the Company’s financial statements and notes thereto and forthe financial statement schedule contained herein.

**ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE**

None.

**ITEM 9A. 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 Exchange Act. Based on thatevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures are effective in timelyalerting them to material information relating to the Company (including itsconsolidated subsidiaries) required to be included in this report. There wereno changes in the Company’s internal control over financial reporting (asdefined in Rule 13a-15(f) under the Exchange Act) that occurredduring the Company’s last fiscal quarter that have materially affected or arereasonably likely to materially affect the Company’s internal control overfinancial reporting.

43

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**PART III**

**ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THEREGISTRANT**

The information set forthunder the headings *“Proposal One—Election of Class IDirectors,” “Directors,” “Executive Officers,” “Meetings and Committees ofDirectors,” “Code of Business Conduct and Ethics”* and *“Section 16(a) Beneficial Ownership Reporting Compliance”*contained in the Company’s definitive Proxy Statement to be filed pursuant toRegulation 14A of the Exchange Act in connection with the Company’s 2004Annual Meeting of Stockholders is incorporated herein by reference. 

**ITEM 11. EXECUTIVE COMPENSATION**

The information set forthunder the heading *“Executive Compensation”*containedin the Company’s definitive Proxy Statement to be filed pursuant toRegulation 14A of the Exchange Act in connection with the Company’s 2004Annual Meeting of Stockholders is incorporated herein by reference. 

**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT**

At December 31,2003, securities authorized for issuance under the Company’s equitycompensation plans are as follows: 
| **Plan category**                                      | ** ** | ** ** | ** ** | **Number of securities  to be issued upon  exercise of  outstanding options,  warrants and rights  (a)** | ** ** | **Weighted-average  exercise price of  outstanding  options,  warrants and  rights  (b)** | ** ** | **Number of securities  remaining available for  future issuance under equity  compensation plans  (excluding securities reflected  in column (a))  (c)** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders     |       |       | 6,378,154  |                                                                                                                                                  |       |                                                                                                     | $          | 12.91                                                                                                                                                                                                                 |       |   |   | 1,847,260 |   |   |
| Equity  compensation plans not approved by security holders |       |       | 24,500     |                                                                                                                                                  |       |                                                                                                     | $          | 11.46                                                                                                                                                                                                                 |       |   |   | — |   |   |
| Total                                                       |       |       | 6,402,654  |                                                                                                                                                  |       |                                                                                                     | $          | 12.90                                                                                                                                                                                                                 |       |   |   | 1,847,260 |   |   |

 

The options to acquire 24,500 shares issuable underplans that were not approved by stockholders were granted between May 1,2000, and July 17, 2000, and vest one-quarter each year on each of thefirst four anniversaries of the grant date. The options expire ten years fromthe date of grant. 

The information set forthunder the heading *“Security Ownership ofCertain Beneficial Owners, Directors and Management”* contained inthe Company’s definitive Proxy Statement to be filed pursuant toRegulation 14A of the Exchange Act in connection with the Company’s 2004Annual Meeting of Stockholders is incorporated herein by reference. 

**ITEM 13. CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

The information set forthunder the headings *“Executive Compensation”*and *“Certain Relationships and RelatedTransactions”* contained in the Company’s definitive Proxy Statementto be filed pursuant to Regulation 14A of the Exchange Act in connectionwith the Company’s 2004 Annual Meeting of Stockholders is incorporated hereinby reference. 

**ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

The information set forthunder the heading *“Principal Accountant Fees and Services”*contained in the Company’s definitive Proxy Statement to be filed pursuant toRegulation 14A of the Exchange Act in connection with the Company’s 2004 AnnualMeeting of Stockholders is incorporated herein by reference.

44

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**PART IV**

**ITEM15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K**

(a)(1)          Thefinancial statements filed as part of this Report at Item 8 are listed in theList of Financial Statements and Financial Statement Schedule on page F-2of this Report. 

(a)(2)          Thefinancial statement schedule filed as part of this Report at Item 8 is listedin the List of Financial Statements and Financial Statement Schedule on page F-2of this Report. 

(a)(3)          Thefollowing documents are filed or incorporated by reference as exhibits to thisReport: 
| 3.1(1)     | Certificate of Incorporation of the Company                                                                                                                                              |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2(1)     | Bylaws of the Company                                                                                                                                                                    |
| 3.2.1(5)   | First Amendment to Bylaws of the Company                                                                                                                                                 |
| 3.2.2(11)  | Second Amendment to Bylaws of the Company                                                                                                                                                |
| 3.2.3      | Third Amendment to Bylaws of the Company                                                                                                                                                 |
| 4.1(1)     | Form of certificate for shares of Common Stock  of the Company                                                                                                                      |
| 10.1(6)    | Amended and Restated Credit Agreement dated  December 18, 2000, among the Company, Bank of America, N.A. as  Administrative Agent and the lender parties thereto                    |
| 10.1.1(8)  | First Amendment of Amended and Restated Credit  Agreement dated December 31, 2001, among the Company, Bank of America,  N.A. as Administrative Agent and the lender parties thereto |
| 10.1.2(9)  | Credit Agreement dated June 28, 2002, among the  Company, Bank of America, N.A. as Administrative Agent and the lender parties  thereto                                             |
| 10.2(1)    | Form of License Agreement among the Company and  CFH                                                                                                                                |
| 10.2.1(9)  | First Amendment to License Agreement dated  July 31, 2002, between the Company and CFH                                                                                              |
| 10.3(10)   | Form of Indemnification Agreement, with  schedule of signatures                                                                                                                     |
| 10.4(1)    | Predecessor Company’s 1997 Stock Option Plan                                                                                                                                        |
| 10.5(1)    | Company’s Long-Term Incentive Plan                                                                                                                                                  |
| 10.5.1(2)  | Amendment No. 1 to Long-Term Incentive  Plan                                                                                                                                        |
| 10.5.2(11) | Second Amendment to Long-Term Incentive Plan                                                                                                                                             |
| 10.6(1)    | Company’s 1995 Profit Sharing Plan                                                                                                                                                  |
| 10.7(3)    | Company’s Employee Stock Purchase Plan                                                                                                                                              |
| 10.7.1(4)  | First Amendment to the Company’s Employee Stock  Purchase Plan                                                                                                                      |
| 10.7.2(6)  | Second Amendment to the Company’s Employee Stock  Purchase Plan                                                                                                                     |
| 10.7.3(7)  | Third Amendment to the Company’s Employee Stock  Purchase Plan                                                                                                                      |
| 10.7.4(12) | Fourth Amendment to the Company’s Employee Stock  Purchase Plan                                                                                                                     |
| 10.7.5(12) | Fifth Amendment to the Company’s Employee Stock  Purchase Plan                                                                                                                      |
| 10.8(1)    | Form of Stockholders’ Agreement among the  Company, Crow Family Partnership L.P., CFH Trade-Names, L.P., J.  McDonald Williams and certain other signatories thereto           |
| 10.9(9)    | Consulting Agreement dated as of June 1, 2002,  between the Company and J. McDonald Williams                                                                                        |
| 10.10(12)  | Employment Agreement dated as of October 17,  2003, between the Company and Robert E. Sulentic                                                                                      |
| 10.11(12)  | Employment Agreement dated as of October 17,  2003, between the Company and Derek R. McClain                                                                                        |
| 10.12(12)  | Employment Agreement dated as of October 17,  2003, between the Company and James R. Groch                                                                                          |

45

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| 10.13(12) | Employment Agreement dated as of November 13,  2003, between the Company and William F. Concannon                                                                 |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.14     | Employment Agreement dated as of January 9,  2004, between the Company and Michael J. Lafitte                                                                     |
| 10.15     | Employment Agreement dated as of March 2, 2004,  between the Company and John A. Stirek                                                                           |
| 14.1      | Code of Business Conduct and Ethics                                                                                                                                    |
| 21.1      | Subsidiaries of the Company                                                                                                                                            |
| 23.1      | Consent of Ernst & Young LLP                                                                                                                                  |
| 24.1      | Power of Attorney for Derek R. McClain                                                                                                                                 |
| 24.2      | Power of Attorney for Arlin E. Gaffner                                                                                                                                 |
| 24.3      | Power of Attorney for Curtis F. Feeny                                                                                                                                  |
| 24.4      | Power of Attorney for Rebecca A. McDonald                                                                                                                              |
| 24.5      | Power of Attorney for J. McDonald Williams                                                                                                                             |
| 24.6      | Power of Attorney for William F. Concannon                                                                                                                             |
| 24.7      | Power of Attorney for James R. Erwin                                                                                                                                   |
| 24.8      | Power of Attorney for Jeffrey M. Heller                                                                                                                                |
| 24.9      | Power of Attorney for Rowland T. Moriarty                                                                                                                              |
| 24.10     | Power of Attorney for Robert E. Sulentic                                                                                                                               |
| 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 |

----

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

(2)                 Previouslyfiled as an exhibit to the Company’s Form S-8 (File Number 333-50585)filed with the Securities and Exchange Commission on June 24, 1999 andincorporated herein by reference.

(3)                 Previouslyfiled as an exhibit to the Company’s Form S-8 (File Number 333-50579)filed with the Securities and Exchange Commission on April 21, 1998 andincorporated herein by reference.

(4)                 Previouslyfiled as an exhibit to the Company’s Form S-8 (File Number 333-50579)filed with the Securities and Exchange Commission on June 24, 1999 andincorporated herein by reference.

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

(6)                 Previouslyfiled as an exhibit to the Company’s Form 10-K filed with the Securitiesand Exchange Commission on March 29, 2001 and incorporated herein byreference.

(7)                 Previouslyfiled as an exhibit to the Company’s Form S-8 (File Number 333-62884)filed with the Securities and Exchange Commission on June 13, 2001 andincorporated herein by reference.

46

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(8)                 Previouslyfiled as an exhibit to the Company’s Form 10-K filed with the Securitiesand Exchange Commission on March 29, 2002 and incorporated herein byreference.

(9)                 Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with the Securitiesand Exchange Commission on August 14, 2002 and incorporated herein byreference.

(10)             Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with the Securitiesand Exchange Commission on November 14, 2002 and incorporated herein byreference.

(11)             Previouslyfiled as an exhibit to the Company’s Form 10-K filed with the Securitiesand Exchange Commission on March 31, 2003 and incorporated herein byreference.

(12)             Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with the Securitiesand Exchange Commission on November 14, 2003 and incorporated herein byreference.

(b)          Reports on Form 8-K

On November 12, 2003, the Company filed a CurrentReport on Form 8-K furnishing the Company’s press release announcing itsfinancial results for the three and nine months ended September 30, 2003and furnishing the following financial statements: (i) Statements ofIncome for the Three and Nine Months Ended September 30, 2003 and 2002; (ii) BalanceSheet as of September 30, 2003 and December 31, 2002; (iii) SummarizedOperating Data by Segment for the Three and Nine Months Ended September 30,2003 and 2002; and (iv) Other Data as of September 30, 2003 and December 31,2002.

(c)           The exhibits requiredby Item 601 of Regulation S-K are filed as part of this Report.

(d)          The required financial statementsand financial schedule are filed as part of this Report.

 

47

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**SIGNATURE**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|                      | Trammell Crow Company |
|---------------------------|-----------------------|
|                      | By:                   | /s/  Robert E. Sulentic |
|                      |                  | Robert E.  Sulentic*Chairman of the Board, President and* |
| Date: March 15, 2004 |                  | *Chief  Executive Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated. 
| ** **              | **Name** | ** **                                                  | ** ** | ** **           | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|-------------------------|----------|-------------------------------------------------------------|------------|----------------------|-----------|------------|------------|------------|----------|------------|
| /s/  Robert E. Sulentic |     | Chairman of the  Board, President                           |       | March 15,  2004 |
| Robert E.  Sulentic     |     | and Chief Executive  Officer  (Principal Executive Officer) |       |                 |
| *                       |     | Executive Vice President  and                               |       | March 15,  2004 |
| Derek R. McClain        |     | Chief Financial Officer                                     |       |                 |
| *                       |     | Executive Vice President  and                               |       | March 15,  2004 |
| Arlin E. Gaffner        |     | Chief Accounting Officer                                    |       |                 |
| *                       |     | Director                                                    |       | March 15,  2004 |
| Curtis F. Feeny         |     |                                                        |       |                 |
| *                       |     | Director                                                    |       | March 15,  2004 |
| Rebecca A.  McDonald    |     |                                                        |       |                 |
| *                       |     | Chairman Emeritus                                           |       | March 15,  2004 |
| J. McDonald  Williams   |     |                                                        |       |                 |
| *                       |     | Vice Chairman                                               |       | March 15,  2004 |
| William F.  Concannon   |     |                                                        |       |                 |
| *                       |     | Director                                                    |       | March 15,  2004 |
| James R. Erwin          |     |                                                        |       |                 |
| *                       |     | Director                                                    |       | March 15,  2004 |
| Jeffrey M. Heller       |     |                                                        |       |                 |
| *                       |     | Director                                                    |       | March 15,  2004 |
| Rowland T.  Moriarty    |     |                                                        |       |                 |

 

RobertSulentic, by signing his name hereto, does hereby sign this Annual Report on Form 10-Kon behalf of each of the above-named directors and officers of theCompany on the date indicated below, pursuant to powers of attorney executed byeach of such directors and officers and contemporaneously filed herewith withthe Commission.
| *By:   | /s/ Robert E. Sulentic                |   |   | March 15,  2004 |
|--------|---------------------------------------|--------|--------|----------------------|
|   | Robert E.  Sulentic*Attorney-in-fact* |   |   |                 |

 

48

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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(5)                |       | First  Amendment to Bylaws of the Company                                                                                                                                                 |
| 3.2.2(11)               |       | Second  Amendment to Bylaws of the Company                                                                                                                                                |
| 3.2.3                   |       | Third  Amendment to Bylaws of the Company                                                                                                                                                 |
| 4.1(1)                  |       | Form of  certificate for shares of Common Stock of the Company                                                                                                                       |
| 10.1(6)                 |       | Amended  and Restated Credit Agreement dated December 18, 2000, among the  Company, Bank of America, N.A. as Administrative Agent and the lender parties  thereto                    |
| 10.1.1(8)               |       | First  Amendment of Amended and Restated Credit Agreement dated December 31,  2001, among the Company, Bank of America, N.A. as Administrative Agent and  the lender parties thereto |
| 10.1.2(9)               |       | Credit  Agreement dated June 28, 2002, among the Company, Bank of America, N.A.  as Administrative Agent and the lender parties thereto                                              |
| 10.2(1)                 |       | Form of  License Agreement among the Company and CFH                                                                                                                                 |
| 10.2.1(9)               |       | First  Amendment to License Agreement dated July 31, 2002, between the Company  and CFH                                                                                              |
| 10.3(10)                |       | Form of  Indemnification Agreement, with schedule of signatures                                                                                                                      |
| 10.4(1)                 |       | Predecessor  Company’s 1997 Stock Option Plan                                                                                                                                        |
| 10.5(1)                 |       | Company’s  Long-Term Incentive Plan                                                                                                                                                  |
| 10.5.1(2)               |       | Amendment  No. 1 to Long-Term Incentive Plan                                                                                                                                         |
| 10.5.2(11)              |       | Second  Amendment to Long-Term Incentive Plan                                                                                                                                             |
| 10.6(1)                 |       | Company’s  1995 Profit Sharing Plan                                                                                                                                                  |
| 10.7(3)                 |       | Company’s  Employee Stock Purchase Plan                                                                                                                                              |
| 10.7.1(4)               |       | First  Amendment to the Company’s Employee Stock Purchase Plan                                                                                                                       |
| 10.7.2(6)               |       | Second  Amendment to the Company’s Employee Stock Purchase Plan                                                                                                                      |
| 10.7.3(7)               |       | Third  Amendment to the Company’s Employee Stock Purchase Plan                                                                                                                       |
| 10.7.4(12)              |       | Fourth  Amendment to the Company’s Employee Stock Purchase Plan                                                                                                                      |
| 10.7.5(12)              |       | Fifth  Amendment to the Company’s Employee Stock Purchase Plan                                                                                                                       |
| 10.8(1)                 |       | Form of  Stockholders’ Agreement among the Company, Crow Family Partnership L.P., CFH  Trade-Names, L.P., J. McDonald Williams and certain other signatories  thereto           |
| 10.9(9)                 |       | Consulting  Agreement dated as of June 1, 2002, between the Company and J. McDonald  Williams                                                                                   |
| 10.10(12)               |       | Employment  Agreement dated as of October 17, 2003, between the Company and Robert  E. Sulentic                                                                                      |
| 10.11(12)               |       | Employment  Agreement dated as of October 17, 2003, between the Company and Derek R.  McClain                                                                                        |
| 10.12(12)               |       | Employment  Agreement dated as of October 17, 2003, between the Company and James R.  Groch                                                                                          |
| 10.13(12)               |       | Employment  Agreement dated as of November 13, 2003, between the Company and William  F. Concannon                                                                                   |
| 10.14                   |       | Employment  Agreement dated as of January 9, 2004, between the Company and Michael  J. Lafitte                                                                                       |
| 10.15                   |       | Employment  Agreement dated as of March 2, 2004, between the Company and John A.  Stirek                                                                                             |
| 14.1                    |       | Code  of Business Conduct and Ethics                                                                                                                                                      |
| 21.1                    |       | Subsidiaries  of the Company                                                                                                                                                              |
| 23.1                    |       | Consent  of Ernst & Young LLP                                                                                                                                                    |
| 24.1                    |       | Power  of Attorney for Derek R. McClain                                                                                                                                                   |
| 24.2                    |       | Power  of Attorney for Arlin E. Gaffner                                                                                                                                                   |
| 24.3                    |       | Power  of Attorney for Curtis F. Feeny                                                                                                                                                    |
| 24.4                    |       | Power  of Attorney for Rebecca A. McDonald                                                                                                                                                |

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| 24.5  |   | Power  of Attorney for J. McDonald Williams                                                                                                                            |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 24.6  |   | Power  of Attorney for William F. Concannon                                                                                                                            |
| 24.7  |   | Power  of Attorney for James R. Erwin                                                                                                                                  |
| 24.8  |   | Power  of Attorney for Jeffrey M. Heller                                                                                                                               |
| 24.9  |   | Power  of Attorney for Rowland T. Moriarty                                                                                                                             |
| 24.10 |   | Power  of Attorney for Robert E. Sulentic                                                                                                                              |
| 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 filedas an exhibit to the Company’s Registration Statement on Form S-1(File Number 333-34859) filed with the Securities and Exchange Commissionon September 3, 1997 and incorporated herein by reference.

(2)                 Previouslyfiled as an exhibit to the Company’s Form S-8 (File Number 333-50585)filed with the Securities and Exchange Commission on June 24, 1999 andincorporated herein by reference.

(3)                 Previouslyfiled as an exhibit to the Company’s Form S-8 (File Number 333-50579)filed with the Securities and Exchange Commission on April 21, 1998 andincorporated herein by reference.

(4)                 Previouslyfiled as an exhibit to the Company’s Form S-8 (File Number 333-50579)filed with the Securities and Exchange Commission on June 24, 1999 andincorporated herein by reference.

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

(6)                 Previouslyfiled as an exhibit to the Company’s Form 10-K filed with theSecurities and Exchange Commission on March 29, 2001 and incorporatedherein by reference.

(7)                 Previouslyfiled as an exhibit to the Company’s Form S-8 (File Number 333-62884)filed with the Securities and Exchange Commission on June 13, 2001 andincorporated herein by reference.

(8)                 Previouslyfiled as an exhibit to the Company’s Form 10-K filed with theSecurities and Exchange Commission on March 29, 2002 and incorporatedherein by reference.

(9)                 Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with theSecurities and Exchange Commission on August 14, 2002 and incorporatedherein by reference.

(10)             Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with theSecurities and Exchange Commission on November 14, 2002 and incorporatedherein by reference.

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

(12)             Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with theSecurities and Exchange Commission on November 14, 2003 and incorporatedherein by reference.

50

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**ANNUALREPORT ON FORM 10-K**

**ITEM 8, ITEM 15(a)(1) and(2), (c) and (d)**

**LIST OF FINANCIALSTATEMENTS AND FINANCIAL STATEMENT SCHEDULE**

**FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

**CERTAIN EXHIBITS**

**FINANCIAL STATEMENTSCHEDULE**

**YEAR ENDED DECEMBER31, 2003**

**TRAMMELL CROW COMPANY AND SUBSIDIARIES**

**DALLAS, TEXAS**

F-1

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**FORM 10-K-ITEM15(a)(1) and (2)**

**TRAMMELL CROWCOMPANY AND SUBSIDIARIES**

**LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENTSCHEDULE**

Thefollowing consolidated financial statements of Trammell Crow Company andSubsidiaries for the year ended December 31, 2003, are included inItem 8: 
| Report of  Independent Auditors                                                                                                     |   | F-3    |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Consolidated Balance Sheets as of  December 31, 2003 and 2002                                                                  |   | F-4    |
| Consolidated Statements of  Operations for the Years Ended December 31, 2003, 2002 and 2001                                    |   | F-5    |
| Consolidated Statements of  Stockholders’ Equity for the Years Ended December 31, 2003, 2002 and  2001                    |   | F-6    |
| Consolidated Statements of Cash  Flows for the Years Ended December 31, 2003, 2002 and 2001                                    |   | F-7    |
| Consolidated  Statements of Comprehensive Income (Loss) for the Years Ended  December 31, 2003, 2002 and 2001                  |   | F-8    |
| Notes to Consolidated Financial  Statements                                                                                         |   | F-9    |
| The following  consolidated financial statement schedule of Trammell Crow Company and  Subsidiaries is included in Item 15(d): |   |   |
| Schedule  III-Real Estate Investments and Accumulated Depreciation                                                                  |   | F-50   |
| Note to Schedule III-Real  Estate Investments and Accumulated Depreciation                                                          |   | F-52   |

 

All other schedules for which provision is made in theapplicable accounting regulation of the Securities and Exchange Commission arenot required under the related instructions or are inapplicable and thereforehave been omitted.

F-2

----

 

**REPORT OF INDEPENDENT AUDITORS**

Board of Directors and StockholdersTrammell Crow Company

We have audited the accompanying consolidated balancesheets of Trammell Crow Company and Subsidiaries as of December 31, 2003and 2002, and the related consolidated statements of operations, stockholders’equity, cash flows and comprehensive income (loss) for each of the three yearsin the period ended December 31, 2003. Our audits also included thefinancial statement schedule listed in the Index at Item 15(a). These financialstatements and schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andschedule based on our audits.

We conducted our audits in accordance with auditingstandards generally accepted in the United States. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the consolidatedfinancial position of Trammell Crow Company and Subsidiaries at December 31,2003 and 2002, and the consolidated results of their operations and their cashflows for each of the three years in the period ended December 31, 2003,in conformity with accounting principles generally accepted in the UnitedStates. Also, in our opinion, the related financial statement schedule, whenconsidered in relation to the basic financial statements taken as a whole,presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidatedfinancial statements, in 2002 the Company changed its method of accounting forgoodwill.

ERNST & YOUNG LLP

Dallas, TexasFebruary 13, 2004

F-3

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**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS**
| ** **                                                                                                                                                                                                  | ** **                        | **December 31,**                                                         | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|-------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                  | ** **                        | **2003**                                                                      | ** ** | **2002** | ** ** |
| ** **                                                                                                                                                                                                  | ** **                        | **(in thousands, except share  and per share data)** | ** ** |
| **ASSETS**                                                                                                                                                                                                  |                              |
| Current assets                                                                                                                                                                                              |                              |                                                                          |       |   |   |
| Cash and cash equivalents                                                                                                                                                                                   |                              | $                                                                             | 105,616    |   | $ | 78,005 |   |
| Restricted cash                                                                                                                                                                                             |                              | 7,647                                                                         |       | 8,921 |   |
| Accounts receivable, net  of allowance for doubtful accounts of $3,886 in 2003 and $4,663 in 2002                                                                                                           |                              | 97,479                                                                        |       | 116,316 |   |
| Receivables from  affiliates                                                                                                                                                                                |                              | 1,593                                                                         |       | 3,838 |   |
| Notes and other  receivables                                                                                                                                                                                |                              | 9,944                                                                         |       | 14,806 |   |
| Deferred income taxes                                                                                                                                                                                       |                              | 3,754                                                                         |       | 3,654 |   |
| Real estate under  development                                                                                                                                                                              |                              | 49,208                                                                        |       | 2,008 |   |
| Real estate and other  assets held for sale                                                                                                                                                                 |                              | 14,684                                                                        |       | 50,969 |   |
| Other current assets                                                                                                                                                                                        |                              | 21,897                                                                        |       | 8,498 |   |
| Total current assets                                                                                                                                                                                        |                              | 311,822                                                                       |       | 287,015 |   |
| Furniture and equipment,  net                                                                                                                                                                               |                              | 21,305                                                                        |       | 23,172 |   |
| Deferred income taxes                                                                                                                                                                                       |                              | 19,898                                                                        |       | 20,904 |   |
| Real estate under  development                                                                                                                                                                              |                              | 6,345                                                                         |       | 57,254 |   |
| Real estate held for  investment                                                                                                                                                                            |                              | 98,076                                                                        |       | 65,108 |   |
| Investments in  unconsolidated subsidiaries                                                                                                                                                                 |                              | 65,025                                                                        |       | 71,463 |   |
| Goodwill, net                                                                                                                                                                                               |                              | 74,346                                                                        |       | 74,178 |   |
| Receivables from  affiliates                                                                                                                                                                                |                              | 14,485                                                                        |       | — |   |
| Other assets                                                                                                                                                                                                |                              | 18,824                                                                        |       | 22,972 |   |
|                                                                                                                                                                                                        |                              | $                                                                             | 630,126    |   | $ | 622,066 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                              |                              |
| Current liabilities                                                                                                                                                                                         |                              |                                                                          |       |   |   |
| Accounts payable                                                                                                                                                                                            |                              | $                                                                             | 16,183     |   | $ | 20,175 |   |
| Accrued expenses                                                                                                                                                                                            |                              | 116,731                                                                       |       | 105,102 |   |
| Payables to affiliates                                                                                                                                                                                      |                              | 104                                                                           |       | — |   |
| Income taxes payable                                                                                                                                                                                        |                              | 7,468                                                                         |       | 3,121 |   |
| Current portion of long-term  debt                                                                                                                                                                          |                              | 1,081                                                                         |       | 70 |   |
| Current portion of  capital lease obligations                                                                                                                                                               |                              | 1,297                                                                         |       | 2,989 |   |
| Current portion of notes  payable on real estate                                                                                                                                                            |                              | 68,192                                                                        |       | 28,854 |   |
| Liabilities related to  real estate and other assets held for sale                                                                                                                                          |                              | 12,695                                                                        |       | 40,260 |   |
| Other current liabilities                                                                                                                                                                                   |                              | 9,894                                                                         |       | 8,124 |   |
| Total current liabilities                                                                                                                                                                                   |                              | 233,645                                                                       |       | 208,695 |   |
| Long-term debt,  less current portion                                                                                                                                                                       |                              | 10,014                                                                        |       | 19,000 |   |
| Capital lease  obligations, less current portion                                                                                                                                                            |                              | 714                                                                           |       | 658 |   |
| Notes payable on real estate,  less current portion                                                                                                                                                         |                              | 22,769                                                                        |       | 45,402 |   |
| Other liabilities                                                                                                                                                                                           |                              | 6,459                                                                         |       | 86 |   |
| Total liabilities                                                                                                                                                                                           |                              | 273,601                                                                       |       | 273,841 |   |
| Minority interest                                                                                                                                                                                           |                              | 28,896                                                                        |       | 39,871 |   |
| 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 36,862,242  shares outstanding in 2003, and 36,227,820 shares issued and 36,179,173  shares outstanding in 2002 |                              | 377                                                                           |       | 362 |   |
| Paid-in capital                                                                                                                                                                                             |                              | 192,336                                                                       |       | 178,977 |   |
| Retained earnings                                                                                                                                                                                           |                              | 151,560                                                                       |       | 130,874 |   |
| Accumulated other  comprehensive income (loss)                                                                                                                                                              |                              | 1,106                                                                         |       | (589 | ) |
| Less:                                                                                                                                                                                                       | Treasury stock                    |                                                                          | (8,363     | ) | (464 | ) |
|                                                                                                                                                                                                        | Unearned stock  compensation, net |                                                                          | (9,387     | ) | (806 | ) |
| Total stockholders’  equity                                                                                                                                                                            |                              | 327,629                                                                       |       | 308,354 |   |
|                                                                                                                                                                                                        |                              | $                                                                             | 630,126    |   | $ | 622,066 |   |

 

See accompanying notes.

F-4

----

**TRAMMELL CROW COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS**
| ** **                                                                                                                                            | ** ** | **Years Ended December 31,**                                              | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                            | ** ** | **2003**                                                                                 | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                                                                                            | ** ** | **(in thousands, except share and per   share data)** | ** ** |
| **REVENUES**                                                                                                                                          | ** ** | ** **                                                                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| ***User  Services:***                                                                                                                                 |       |                                                                                     |       |   |   |   |   |
| Facilities  management                                                                                                                                |       | $                                                                                        | 208,936    |   | $ | 233,756 |   | $ | 201,573 |   |
| Corporate advisory  services                                                                                                                          |       | 123,335                                                                                  |       | 108,414 |   | 115,599 |   |
| Project management  services                                                                                                                          |       | 65,500                                                                                   |       | 58,134 |   | 52,973 |   |
|                                                                                                                                                  |       | 397,771                                                                                  |       | 400,304 |   | 370,145 |   |
| ***Investor  Services:***                                                                                                                             |       |                                                                                     |       |   |   |   |   |
| Property  management                                                                                                                                  |       | 143,727                                                                                  |       | 147,613 |   | 174,279 |   |
| Brokerage                                                                                                                                             |       | 95,593                                                                                   |       | 95,657 |   | 115,463 |   |
| Construction  management                                                                                                                              |       | 10,736                                                                                   |       | 10,006 |   | 13,082 |   |
|                                                                                                                                                  |       | 250,056                                                                                  |       | 253,276 |   | 302,824 |   |
| Development and  construction                                                                                                                         |       | 44,277                                                                                   |       | 55,112 |   | 76,630 |   |
|                                                                                                                                                  |       | 692,104                                                                                  |       | 708,692 |   | 749,599 |   |
| Gain on  disposition of real estate                                                                                                                   |       | 13,420                                                                                   |       | 24,218 |   | 28,456 |   |
| Other                                                                                                                                                 |       | 2,308                                                                                    |       | 1,186 |   | 1,596 |   |
|                                                                                                                                                  |       | 707,832                                                                                  |       | 734,096 |   | 779,651 |   |
| **COSTS AND EXPENSES**                                                                                                                                |       |                                                                                     |       |   |   |   |   |
| Salaries, wages  and benefits                                                                                                                         |       | 452,195                                                                                  |       | 472,810 |   | 477,628 |   |
| Commissions                                                                                                                                           |       | 98,957                                                                                   |       | 87,396 |   | 94,655 |   |
| General and  administrative                                                                                                                           |       | 120,516                                                                                  |       | 133,736 |   | 138,308 |   |
| Depreciation                                                                                                                                          |       | 15,001                                                                                   |       | 15,236 |   | 15,811 |   |
| Amortization                                                                                                                                          |       | 1,991                                                                                    |       | 2,579 |   | 8,164 |   |
| Interest                                                                                                                                              |       | 7,074                                                                                    |       | 10,219 |   | 15,057 |   |
| Writedowns due to  impairment of goodwill, intangibles and investments                                                                                |       | —                                                                                   |       | — |   | 31,968 |   |
| Change in fair  value of interest rate swap agreement                                                                                                 |       | —                                                                                   |       | — |   | 4,809 |   |
| Restructuring  charges                                                                                                                                |       | —                                                                                   |       | — |   | 10,952 |   |
|                                                                                                                                                  |       | 695,734                                                                                  |       | 721,976 |   | 797,352 |   |
| Income (loss) from  continuing operations before income taxes, minority interest and income from  investments in unconsolidated subsidiaries          |       | 12,098                                                                                   |       | 12,120 |   | (17,701 | ) |
| Income tax  (expense) benefit                                                                                                                         |       | (4,906                                                                                   | )          | (5,402 | ) | 5,893 |   |
| Minority interest,  net of income tax expense of $839, $1,302 and $662 in 2003, 2002 and 2001,  respectively                                          |       | 1,231                                                                                    |       | 1,619 |   | 880 |   |
| Income from  investments in unconsolidated subsidiaries, net of income tax expense of  $6,711, $3,988 and $4,305 in 2003, 2002 and 2001, respectively |       | 9,839                                                                                    |       | 4,961 |   | 5,717 |   |
| Income (loss) from  continuing operations                                                                                                             |       | 18,262                                                                                   |       | 13,298 |   | (5,211 | ) |
| Income from  discontinued operations, net of income tax expense of $1,894 and $2,699 in  2003 and 2002, respectively                                  |       | 2,778                                                                                    |       | 3,355 |   | — |   |
| Net income (loss)                                                                                                                                     |       | $                                                                                        | 21,040     |   | $ | 16,653 |   | $ | (5,211 | ) |
| Income (loss) per share from continuing operations:                                                                                                   |       |                                                                                     |       |   |   |   |   |
| Basic                                                                                                                                                 |       | $                                                                                        | 0.51       |   | $ | 0.38 |   | $ | (0.15 | ) |
| Diluted                                                                                                                                               |       | $                                                                                        | 0.49       |   | $ | 0.36 |   | $ | (0.15 | ) |
| Income per share from discontinued operations, net of  income taxes:                                                                                  |       |                                                                                     |       |   |   |   |   |
| Basic                                                                                                                                                 |       | $                                                                                        | 0.08       |   | $ | 0.09 |   | $ | — |   |
| Diluted                                                                                                                                               |       | $                                                                                        | 0.08       |   | $ | 0.09 |   | $ | — |   |
| Net income (loss) per share:                                                                                                                          |       |                                                                                     |       |   |   |   |   |
| Basic                                                                                                                                                 |       | $                                                                                        | 0.59       |   | $ | 0.47 |   | $ | (0.15 | ) |
| Diluted                                                                                                                                               |       | $                                                                                        | 0.57       |   | $ | 0.45 |   | $ | (0.15 | ) |
| Weighted average common shares outstanding:                                                                                                           |       |                                                                                     |       |   |   |   |   |
| Basic                                                                                                                                                 |       | 35,572,493                                                                               |       | 35,741,754 |   | 35,356,710 |   |
| Diluted                                                                                                                                               |       | 36,780,515                                                                               |       | 36,797,012 |   | 35,356,710 |   |

 

See accompanying notes.

F-5

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**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYYears ended December 31, 2003, 2002 and 2001(in thousands, except share data)**
| ** **                                                        | ** ** | **Common Shares** | ** ** | **Common  Stock Par** | ** ** | **Paid-In** | ** ** | **Retained** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Treasury**           | ** ** | **Unearned  Stock** | ** ** | ** **       | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|-------------|------------|--------------|------------|---------------------------------------|------------|------------------------|------------|---------------------|------------|------------------|------------|
| ** **                                                        | ** ** | **Issued**             | ** ** | **Treasury**               | ** ** | **Value**   | ** ** | **Capital**  | ** ** | **Earnings**                          | ** ** | **Income (Loss)** | ** ** | **Stock**           | ** ** | **Compensation** | ** ** | **Total** | ** ** |
| Balance at  January 1, 2001                             |       | 35,850,308             |       | 500,736                    |       |        | $          | 358          |       |                                  | $          | 176,374                |       | $                   | 123,207    |             |       | $ | (366 | ) |   | $ | (5,841 | ) |   | $ | (2,773 | ) |   | $ | 290,959 |   |
| Net loss                                                          |       | —                 |       | —                     |       |        | —     |         |       | —                                |       | (5,211                 | )          |                | —     |             |       | — |   |   | — |   |   | (5,211 | ) |
| Issuance of  restricted stock                                     |       | —                 |       | (7,562                     | )          |        | —     |         |       | —                                |       | (2                     | )          |                | —     |             |       | 88 |   |   | (86 | ) |   | — |   |
| Forfeiture of  restricted stock                                   |       | —                 |       | 39,992                     |       |        | —     |         |       | (132                                  | )          | —                 |       |                | —     |             |       | (410 | ) |   | 275 |   |   | (267 | ) |
| Amortization of  unearned stock compensation                      |       | —                 |       | —                     |       |        | —     |         |       | —                                |       | —                 |       |                | —     |             |       | — |   |   | 1,192 |   |   | 1,192 |   |
| Issuance of common  stock                                         |       | 29,207                 |       | (697,574                   | )          |        | 1          |         |       | 112                                   |       | (2,910                 | )          |                | —     |             |       | 7,856 |   |   | — |   |   | 5,059 |   |
| Stock repurchase                                                  |       | —                 |       | 459,500                    |       |        | —     |         |       | —                                |       | —                 |       |                | —     |             |       | (4,644 | ) |   | — |   |   | (4,644 | ) |
| Foreign currency  translation adjustments, net of tax             |       | —                 |       | —                     |       |        | —     |         |       | —                                |       | —                 |       |                | (1,094     | )                |       | — |   |   | — |   |   | (1,094 | ) |
| Change in fair  value of interest rate swap agreement, net of tax |       | —                 |       | —                     |       |        | —     |         |       | —                                |       | —                 |       |                | 129        |             |       | — |   |   | — |   |   | 129 |   |
| Balance at  December 31, 2001                                |       | 35,879,515             |       | 295,092                    |       |        | 359        |         |       | 176,354                               |       | 115,084                |       |                | (1,331     | )                |       | (2,951 | ) |   | (1,392 | ) |   | 286,123 |   |
| Net income                                                        |       | —                 |       | —                     |       |        | —     |         |       | —                                |       | 16,653                 |       |                | —     |             |       | — |   |   | — |   |   | 16,653 |   |
| Issuance of  restricted stock                                     |       | 30,000                 |       | —                     |       |        | —     |         |       | 417                                   |       | —                 |       |                | —     |             |       | — |   |   | (417 | ) |   | — |   |
| Forfeiture of  restricted stock                                   |       | —                 |       | 41,614                     |       |        | —     |         |       | (96                                   | )          | —                 |       |                | —     |             |       | (398 | ) |   | 163 |   |   | (331 | ) |
| Amortization of  unearned stock compensation                      |       | —                 |       | —                     |       |        | —     |         |       | —                                |       | —                 |       |                | —     |             |       | — |   |   | 840 |   |   | 840 |   |
| Issuance of common  stock                                         |       | 318,305                |       | (288,059                   | )          |        | 3          |         |       | 2,302                                 |       | (863                   | )          |                | —     |             |       | 2,885 |   |   | — |   |   | 4,327 |   |
| Foreign currency  translation adjustments, net of tax             |       | —                 |       | —                     |       |        | —     |         |       | —                                |       | —                 |       |                | 1,208      |             |       | — |   |   | — |   |   | 1,208 |   |
| Change in fair  value of interest rate swap agreement, net of tax |       | —                 |       | —                     |       |        | —     |         |       | —                                |       | —                 |       |                | (466       | )                |       | — |   |   | — |   |   | (466 | ) |
| Balance at  December 31, 2002                                |       | 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 adjustments, 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 |   |

 

See accompanying notes.

F-6

----

**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS**
| ** **                                                                   | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                   | ** ** | **2003**                                    | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                   | ** ** | **(in thousands)**                     | ** ** |
| **Operating activities**                                                     |       |                                        |       |   |   |   |   |
| Cash flows from earnings:                                                    |       |                                        |       |   |   |   |   |
| Net income (loss)                                                            |       | $                                           | 21,040     |   | $ | 16,653 |   | $ | (5,211 | ) |
| Reconciliation of net  income (loss) to net cash provided by earnings:       |       |                                        |       |   |   |   |   |
| Depreciation                                                                 |       | 15,001                                      |       | 15,236 |   | 15,811 |   |
| Amortization                                                                 |       | 1,995                                       |       | 2,593 |   | 8,164 |   |
| Amortization of  employment contracts and unearned stock compensation        |       | 5,103                                       |       | 2,467 |   | 2,880 |   |
| Amortization of  contract intangibles                                        |       | 2,079                                       |       | 2,718 |   | 3,855 |   |
| Bad debt expense                                                             |       | 2,764                                       |       | 4,762 |   | 4,359 |   |
| Provision for  losses and writedowns for impairment on real estate           |       | 5,908                                       |       | 2,422 |   | 420 |   |
| Writedowns due to  impairment of goodwill, intangibles and investments  |       | —                                      |       | 1,149 |   | 34,044 |   |
| Minority interest                                                            |       | (2,070                                      | )          | (2,921 | ) | (1,542 | ) |
| Deferred income  tax provision                                               |       | (356                                        | )          | 4,087 |   | (13,482 | ) |
| Change in fair  value of interest rate swap agreement                        |       | —                                      |       | 72 |   | 4,809 |   |
| Income from  investments in unconsolidated subsidiaries                      |       | (16,550                                     | )          | (8,949 | ) | (10,022 | ) |
| Net cash provided  by earnings                                               |       | 34,914                                      |       | 40,289 |   | 44,085 |   |
| Changes in operating  assets and liabilities:                                |       |                                        |       |   |   |   |   |
| Restricted cash                                                              |       | 1,274                                       |       | (8,921 | ) | — |   |
| Accounts  receivable                                                         |       | 16,834                                      |       | 39,267 |   | (16,747 | ) |
| Receivables from  affiliates                                                 |       | (12,240                                     | )          | 1,162 |   | 1,838 |   |
| Notes receivable  and other assets                                           |       | (7,715                                      | )          | 11,839 |   | 7,029 |   |
| Real estate held  for sale and under development                             |       | (7,271                                      | )          | 35,617 |   | (12,863 | ) |
| Notes payable on  real estate held for sale and under development            |       | 3,651                                       |       | (26,438 | ) | 6,288 |   |
| Accounts payable  and accrued expenses                                       |       | 6,167                                       |       | (15,099 | ) | 489 |   |
| Payables to  affiliates                                                      |       | 104                                         |       | (1,609 | ) | (282 | ) |
| Income taxes  payable/recoverable                                            |       | 4,347                                       |       | 148 |   | (619 | ) |
| Other liabilities                                                            |       | 8,704                                       |       | (4,392 | ) | (392 | ) |
| Net cash flows  (outlays) from changes in working capital                    |       | 13,855                                      |       | 31,574 |   | (15,259 | ) |
| Net cash provided  by operating activities                                   |       | 48,769                                      |       | 71,863 |   | 28,826 |   |
| **Investing activities**                                                     |       |                                        |       |   |   |   |   |
| Expenditures for  furniture and equipment                                    |       | (10,458                                     | )          | (4,314 | ) | (11,339 | ) |
| Additions to real  estate held for investment                                |       | (9,783                                      | )          | — |   | — |   |
| Acquisitions of  real estate service companies                               |       | —                                      |       | — |   | (1,548 | ) |
| Cash related to  consolidation of entities (See Note 4)                      |       | —                                      |       | 1,873 |   | — |   |
| Investments in  unconsolidated subsidiaries                                  |       | (6,594                                      | )          | (6,975 | ) | (11,419 | ) |
| Distributions from  unconsolidated subsidiaries                              |       | 30,737                                      |       | 14,113 |   | 16,444 |   |
| Net cash provided  by (used in) investing activities                         |       | 3,902                                       |       | 4,697 |   | (7,862 | ) |
| **Financing activities**                                                     |       |                                        |       |   |   |   |   |
| Principal payments  on long-term debt and capital lease obligations          |       | (98,695                                     | )          | (228,125 | ) | (389,730 | ) |
| Proceeds from long-term  debt                                                |       | 86,923                                      |       | 190,214 |   | 360,439 |   |
| Contributions from  minority interest                                        |       | 3,488                                       |       | 4,778 |   | 4,843 |   |
| Distributions to  minority interest                                          |       | (11,497                                     | )          | (7,808 | ) | (14,509 | ) |
| Proceeds from  notes payable on real estate held for investment              |       | 5,148                                       |       | — |   | — |   |
| Payments on notes  payable on real estate held for investment                |       | (3,259                                      | )          | — |   | — |   |
| Purchase of common  stock                                                    |       | (10,435                                     | )          | — |   | (4,644 | ) |
| Proceeds from  exercise of stock options                                     |       | 904                                         |       | 1,763 |   | 1,252 |   |
| Proceeds from  issuance of common stock                                      |       | 2,363                                       |       | 2,564 |   | 3,807 |   |
| Net cash used in  financing activities                                       |       | (25,060                                     | )          | (36,614 | ) | (38,542 | ) |
| Net increase  (decrease) in cash and cash equivalents                        |       | 27,611                                      |       | 39,946 |   | (17,578 | ) |
| Cash and cash  equivalents, beginning of year                                |       | 78,005                                      |       | 38,059 |   | 55,637 |   |
| Cash and cash  equivalents, end of year                                      |       | $                                           | 105,616    |   | $ | 78,005 |   | $ | 38,059 |   |

 

See accompanying notes.

F-7

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**TRAMMELLCROW COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS)**
| ** **                                                                                                                           | ** ** | **Years Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                           | ** ** | **2003**                                    | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                                                                           | ** ** | **(in thousands)**                     | ** ** |
| Net income (loss)                                                                                                                    |       | $                                           | 21,040     |   | $ | 16,653 |   | $ | (5,211 | ) |
| Other  comprehensive income (loss):                                                                                                  |       |                                        |       |   |   |   |   |
| Foreign currency translation adjustments, net of tax  expense (benefit) of $1,033 in 2003, $1,093 in 2002 and $(700) in 2001         |       | 1,358                                       |       | 1,208 |   | (1,094 | ) |
| Change in fair value of interest rate swap  agreement, net of tax expense (benefit) of $229 in 2003, $(317) in 2002 and  $88 in 2001 |       | 337                                         |       | (466 | ) | 129 |   |
| Comprehensive income  (loss)                                                                                                         |       | $                                           | 22,735     |   | $ | 17,395 |   | $ | (6,176 | ) |

 

See accompanying notes.

F-8

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2003 (in thousands, except share and per share data)**

**1.**   Organization and Summaryof Significant Accounting Policies

*Organization*

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 leadingmultinational corporations, institutional investors and other users of realestate services. In the United States, the Company is a leading provider ofcommercial property and facilities management services, commercial propertybrokerage and transaction management services, commercial property developmentand construction services and project management services. In addition to itsfull service offices located throughout the United States, the Company hasoffices in Canada, Europe, Asia and Latin/South America focused on the deliveryof real estate services to users of commercial real estate. The Companydelivers brokerage services outside the United States through strategicalliances with leading providers—in Europe and Asia, through Savills plc, (“Savills”)a leading 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 andInvestment Group.

Within the Global Services segment, with approximately5,900 full-time equivalent (“FTE”) employees, the Company provides services touser customers, including multinational corporations, hospitals anduniversities who are typically the primary occupants of commercial properties,and investor customers that are not typically the primary occupants of thecommercial properties with respect to which services are performed. Thebuilding management services provided to user customers consist primarily offacilities management, which entails providing comprehensive day-to-dayoccupancy related services, principally to large corporations, healthcaresystems and other users that occupy commercial facilities in multiplelocations. These services include administration and day-to-day maintenance andrepair of customer-occupied facilities. Brokerage services provided touser customers include user advisory services such as portfolio management andtenant representation. Project management services provided to user customersinclude facility planning and project management, such as constructionoversight, space planning, site consolidations, facilities design and workspacemoves, adds and changes. The building management services provided to investorcustomers include property management services relating to all aspects ofbuilding operations, tenant relations and oversight of building improvementprocesses. Brokerage services provided to investor customers include projectleasing and investment sales services whereby the Company advises buyers,sellers and landlords in connection with the leasing, purchase and sale ofoffice, industrial and retail space and land. Project management servicesprovided to investor customers include construction management services such asspace planning and tenant finish and coordination.

Within the Development andInvestment segment, encompassing approximately 180 FTE employees, the Companyprovides development services to both investor and user customers and performsother development activities—both those pursuant to which the Company takes anownership position in a 

F-9

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**1.**   Organization and Summary ofSignificant Accounting Policies (Continued)

projectand those pursuant to which the Company provides development services to othersin exchange 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.

*Reclassifications*

In accordance withStatement of Financial Accounting Standards No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets* (“FAS 144”), certain assets and liabilities at December 31,2002, and certain revenues and expenses for the first three quarters of 2003,and the year ended December 31, 2002, have been reclassified to conform tothe presentation at and for the year ended December 31, 2003 (see Notes 8and 13). As a result, certain balances differ from the amounts reported inpreviously filed documents.

*Use of Estimates*

Thepreparation of the financial statements in accordance with accountingprinciples generally accepted in the United States (“GAAP”) requires managementto make estimates and assumptions that affect the amounts reported in thefinancial statements and accompanying notes. Actual results could differ fromthose estimates.

*Consolidation*

The accompanyingconsolidated financial statements include the accounts of the Company, itswholly-owned subsidiaries, and other subsidiaries over which the Company hascontrol, or, with respect to entities formed subsequent to January 31,2003, any variable interest entities (“VIEs”) of which the Company is theprimary beneficiary in accordance with Financial Accounting Standards Board (“FASB”)Interpretation No. 46, *Consolidation of VariableInterest Entities* (“FIN 46”) (see Note 1 *New AccountingPronouncements* and Note 4). Intercompany accounts and transactionshave been eliminated. The Company’s investments in subsidiaries (includingsubsidiaries where the Company has less than 20% ownership) in which it has theability to exercise significant influence over operating and financialpolicies, but does not control, 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 (loss). Investments in other subsidiaries are carriedat cost. These unconsolidated subsidiaries primarily own or invest in realestate development projects.

F-10

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**1.**   Organization and Summary ofSignificant Accounting Policies (Continued)

*Revenue Recognition*

The Company recognizes fees from property managementand facilities management services over the terms of the respective managementcontracts. Most of the property management contracts are cancelable at will orwith 30 days’ notice. The terms of the facilities management contractsgenerally range from three to five years, although many provide for shorterterms or earlier termination rights under certain circumstances. Also, theCompany earns incentive fees for property management and facilities managementservices based on various quantitative and/or qualitative criteria specified inthe management agreement. These fees are recognized when quantitative criteriahave been met or, for those incentive fees based on qualitative criteria, uponapproval of the fee by the customer. The Company’s management and incentive feerevenues are not recognized to the extent that such revenues are subject tofuture performance contingencies, but rather once the contingency has beenresolved.

The Company’s project leasing and tenantrepresentation transactions are subject to commission agreements between theCompany and the customer which typically describe the calculation of the fee andwhen the Company earns such fee. The recognition of revenue for eachtransaction is dictated by the terms of the relevant commission agreement, eachof which may be unique. The commission agreements generally provide that 50% ofthe commission is earned and payable upon execution of the lease and 50% isearned and payable upon the tenant’s occupancy of the space. Generally thefirst 50% of the commission is not contingent on the subsequent occupancy ofthe space. However, sometimes these agreements contain refund provisionswhereby the first 50% of the commission may be refundable should the tenant notoccupy the subject space. In cases where refund provisions or othercontingencies exist, the Company does not recognize the revenue until thecontingency is eliminated. Investment sales brokerage revenue is recognizedupon closing of the underlying real estate transaction. The Company does notrecognize these revenues until there is evidence of an arrangement, serviceshave been rendered, the price is determinable, and collectibility is reasonablyassured. These policies have been in place since the Company’s initial publicoffering in 1997.

Development services and project management servicesgenerate fees from development and construction management projects and netconstruction revenues, which are gross construction revenues net of subcontractcosts. For projects with estimated time tables exceeding three months, fees arerecognized using the percentage-of-completion method based on costs incurred asa percentage of total expected costs. For contracts under three months, feesare recognized upon completion of the contract. Gross construction servicesrevenues totaled $33,526, $45,065 and $115,977 and subcontract costs totaled$26,215, $33,332 and $96,533 in 2003, 2002 and 2001, respectively. Someconstruction management and project management assignments are subject toagreements between the Company and the customer that describe the calculationof fees and when the Company earns such fees. The earnings terms of theseagreements dictate when the Company recognizes the related revenues. TheCompany also earns incentive development fees by reaching specified leasing orbudget targets, as defined in the relevant development services agreement. TheCompany recognizes such fees when the specified target is attained.

Gains on disposition of real estate are recognizedupon sale of the underlying project in accordance with Statement of FinancialAccounting Standards No. 66, *Accountingfor Sales of Real Estate*.

F-11

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**1.**   Organization and Summary ofSignificant Accounting Policies (Continued)

The Company records deferred income to the extent thatcash payments have been received, or amounts have been billed, in accordancewith the terms of underlying agreements, but such amounts have not yet met thecriteria for revenue recognition in accordance with GAAP. When such revenuesmeet the appropriate criteria, the Company recognizes revenue as permitted.

Certain of the Company’scontracts provide for reimbursement for employee related costs which theCompany recognizes as revenue. Also, in accordance with EITF 01-14, *Income Statement Characterization of ReimbursementsReceived for “Out-of-Pocket” Expenses Incurred*, certainreimbursements received from customers for out-of-pocket expenses arecharacterized as revenue in the statement of operations rather than as areduction of the expenses incurred. Since the Company is the primary obligor,has supplier discretion and bears credit risk for such expenses, the Companyrecords reimbursement revenue for such out-of-pocket expenses. Reimbursementrevenue is recognized when the underlying reimbursable costs are incurred.

*Long-Lived Assets*

*Real Estate*

The Company classifies real estate in accordance withthe criteria of FAS 144 as follows: (i) Real estate held for sale, whichincludes only completed assets or land for sale in its present condition thatmeets all of the FAS 144 “held for sale” criteria, (ii) Real estateunder development (current), which includes real estate that the Company is inthe process of developing that is expected to be completed and disposed ofwithin one year of the balance sheet date; (iii) Real estate underdevelopment (non-current), which includes real estate that the Company is inthe process of developing that is expected to be completed and disposed of morethan one year from the balance sheet date; or (iv) Real estate held forinvestment, which consists of completed assets not expected to be disposed ofwithin one year of the balance sheet date and land on which developmentactivities have not yet commenced. Any asset reclassified from real estate heldfor sale to real estate under development (current or non-current) or realestate held for investment is measured individually at the lower of itscarrying amount before it was classified as “held for sale,” adjusted (in thecase of real estate held for investment) for any depreciation that would havebeen recognized had the asset been continuously classified as real estate heldfor investment, or the fair value at the date of the reclassification.

Real estate held for sale is recorded at the lower ofcost or fair value less cost to sell. If an asset’s fair value less cost tosell, based on discounted future cash flows or market comparisons, is less thanits carrying amount, an allowance is recorded against the asset.

Real estate under development and real estate held forinvestment are carried at cost less depreciation, as applicable. Whenindicators of impairment are present, real estate under development and realestate held for investment are evaluated for impairment and losses are recordedwhen undiscounted cash flows estimated to be generated by an asset are lessthan the asset’s carrying amount. The amount of the impairment loss iscalculated as the excess of the asset’s carrying value over its fair value,which is determined using a discounted cash flow analysis or marketcomparisons. Buildings and improvements included in real estate held forinvestment are depreciated using the straight-line method over estimated usefullives, generally 39 years. Tenant improvements included in real estateheld for investment are 

F-12

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**1.**   Organization and Summary ofSignificant Accounting Policies (Continued)

amortized using thestraight-line method over the shorter of their estimated useful lives or termsof the respective leases.

When acquiring real estate with existing buildings,the Company allocates the purchase price between land, building and intangiblesrelated to in-place leases, if any, based on their relative fair values. Thefair values of acquired land and buildings are determined based on an estimateddiscounted future cash flow model with lease-up assumptions as if the buildingwas vacant upon acquisition. The fair value of in-place leases includes thevalue of net lease intangibles for above or below-market rents and tenantorigination costs, determined on a lease by lease basis. The capitalized valuesfor both net lease intangibles and tenant origination costs are amortized overthe term of the underlying leases. Amortization related to net leaseintangibles is recorded as either an increase to or a reduction of rentalincome and amortization for tenant origination costs is recorded toamortization expense.

FAS 144 extends thereporting of a discontinued operation to a “component of an entity,” butfurther requires that, a component be classified as a discontinued operation ifthe operations and cash flows of the component have been or will be eliminatedfrom the ongoing operations of the entity in the disposal transaction and theentity will not have any significant continuing involvement in the operationsof the component after the disposal transaction. As defined in FAS 144, a “componentof an entity” comprises operations and cash flows that can be clearlydistinguished, operationally and for financial reporting purposes, from therest of the entity. Because each of the Company’s real estate assets isgenerally accounted for in a discrete subsidiary, almost every real estateasset constitutes a component of an entity under FAS 144, increasing thelikelihood that the disposition of assets the Company holds for sale in theordinary course of business must be reported as a discontinued operation unlessthe Company has significant continuing involvement in the operations of theasset after its disposition. Furthermore, operating profits and losses on suchassets are required to be recognized and reported as operating profits andlosses on discontinued operations in the periods in which they occur.

*Goodwill and Indefinite Lived Intangibles*

Goodwill reflects the excess of purchase price overthe fair value of specifically identified net assets purchased. Accumulatedamortization of goodwill was $9,957 and $9,930 at December 31, 2003 and2002, respectively. Effective January 1, 2002, the Company adoptedStatement of Financial Accounting Standards No. 142, *Goodwill and Other Intangibles* (“FAS 142”).In accordance with this statement, goodwill and intangible assets deemed tohave indefinite lives are no longer amortized but are subject to annualimpairment tests. These impairment tests are based on the comparison of thefair value of each of the Company’s reporting units to the carrying value ofsuch unit. If the fair value of the reporting unit falls below its carryingvalue, goodwill is deemed to be impaired and a writedown of goodwill isrecognized. The Company identified its reporting units to mirror its twosegments, Global Services and Development and Investment, as each segment’sunderlying business units have similar long-term economic characteristics andservice delivery capabilities. All of the Company’s goodwill relates to itsGlobal Services segment. The Company has performed the required impairmenttests under FAS 142 and has determined that no impairment of its goodwillexists at December 31, 2003.

F-13

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**1.**   Organization and Summary ofSignificant Accounting Policies (Continued)

Prior to the adoption of FAS 142, the carryingamount of goodwill was reviewed if indicators of impairment were present thatsuggested goodwill may be impaired. This review was based on the estimatedundiscounted cash flows of the Company’s operations at the lowest level forwhich there were identifiable cash flows. If the review indicated impairment,the goodwill was adjusted to its fair value through a charge to operations. SeeNote 14 for discussion of impairment losses recognized in 2001. Prior tothe adoption of FAS 142, the Company amortized its goodwill balances on astraight-line basis over 20 to 30 years.

Thefollowing table is a reconciliation of net loss as reported for 2001 to proforma net loss had the non-amortization provisions of FAS 142 been appliedas of January 1, 2001:
| ** **                                                   | ** ** | **2001** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|
| Net loss—as  reported                                   |       | $        | (5,211     | ) |
| Add back goodwill  amortization expense, net of income taxes |       | 2,718    |       |
| Net loss—pro  forma                                     |       | $        | (2,493     | ) |
| Diluted net loss per share—as reported                  |       | $        | (0.15      | ) |
| Add back goodwill  amortization expense, net of income taxes |       | 0.08     |       |
| Diluted net loss per  share—pro forma                   |       | $        | (0.07      | ) |

 

*Intangible Assets*

The Company’s intangible assets primarily includecontract intangibles, employment related contracts and the value of managementcontracts acquired by the Company through business acquisitions. Intangibleassets are evaluated when indicators of impairment are present and losses arerecorded when undiscounted cash flows estimated to be generated by an asset areless than an asset’s carrying amount. The amount of the impairment loss iscalculated as the excess of the asset’s carrying value over its fair value,which is determined using a discounted cash flow analysis.

The Company’s contract intangibles consist of upfrontcash payments to customers and direct third party costs incurred in order toenter into new long-term outsourcing contracts. These costs are considered partof the total contract cost when negotiating the future revenue to be receivedunder a new contract. These payments and costs are capitalized and amortized asa reduction of the related revenue over the life of the underlying contract.The Company also classifies any writedowns of such capitalized upfront paymentsor costs due to impairment in value, such as might occur upon the earlytermination of a contract, as a reduction of revenue. See Note 14 fordiscussion of impairment losses recognized on contract intangibles in 2002 and2001.

From time to time, the Company enters into contractswith certain management level employees and brokers, as well as employees hiredin connection with acquisitions of real estate services companies. To theextent that any amount paid or loaned to an employee (generally at the inceptionof the employment relationship or in connection with employee relocations) inaccordance with these agreements is contractually tied to an employee’s futureemployment with the Company, the amount is expensed as compensation over theperiod of time that such future services to the Company are required, asstipulated in the applicable agreement, or over the period of time that theemployee is obligated to repay such amounts to the Company if his or heremployment is terminated.

F-14

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**1.**   Organization and Summary ofSignificant Accounting Policies (Continued)

In connection with certainacquisitions, the Company has recorded intangible assets related to the valueof certain management contracts acquired. These intangible assets are amortizedover periods from five to six years.

*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 will be ineffect when the differences reverse.

*Cash and CashEquivalents*

Cash and cash equivalentsconsist of cash and short-term, highly liquid investments with originalmaturities of 90 days or less when purchased.

*Restricted Cash*

At December 31, 2003and 2002, restricted cash consisted of $7,647 and $8,921, respectively,received by the Company from a customer in 2002 for future development costs onbuildings being renovated by the Company on behalf of such customer.Contractual restrictions provide that these funds can only be used to pay forconstruction costs related to the underlying renovation projects.

*Furniture andEquipment*

Furniture and equipmentare stated at cost and include assets under capital leases. Depreciation iscomputed using the straight-line method over estimated useful lives, whichgenerally range from three to five years, and includes amortization of assetsrecorded under capital leases. Leasehold improvements are amortized over theshorter of the remaining lease term or the remaining useful life.

*Concentration ofCredit Risk*

The Company providesservices to owners and users of real estate assets primarily in the UnitedStates. The Company generally does not require collateral from its customers.The risk associated with this concentration is limited because of the largenumber of customers and their geographic dispersion.

*Earnings Per Share*

The weighted-averagecommon shares outstanding used to calculate diluted earnings per share for 2003and 2002 include 1,208,022 and 1,055,258 shares, respectively, to reflect thedilutive effect of unvested restricted stock and options to purchase shares ofcommon stock. For 2001, the weighted-average common shares outstandingused to calculate diluted earnings per share excludes the dilutive effect ofunvested restricted stock and options, as their inclusion would have beenantidilutive.

F-15

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**1.**   Organization and Summary ofSignificant Accounting Policies (Continued)

*Stock-BasedCompensation*

The Company has elected to use the intrinsic methodunder Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees* (“APB25”), to account for its stock-based compensation arrangements (seeNote 9). Compensation expense for stock options is recognized to theextent the market price of the underlying stock on the date of grant exceedsthe exercise price of the option. The Company recognizes compensation expenserelated to restricted stock awards over the vesting period of the underlyingaward in an amount equal to the fair market value of the Company’s stock on thedate of grant.

Pro forma information regarding net income (loss) andnet income (loss) per share, shown in the table below, has been determined asif the Company had applied the fair value recognition provisions of Statementof Financial Accounting Standards No. 123, *Accounting for Stock-Based Compensation*. The fairvalue for these options was estimated at the date of grant using a Black-Scholesoption pricing model with the following weighted-average assumptions for2003, 2002 and 2001, respectively: risk-free interest rates of 3.21%, 4.86% and5.30%; a dividend yield of 0.00%; volatility factors of the expected marketprice of the Company’s common stock of 0.407, 0.420 and 0.432; and a weighted-averageexpected life of the options of seven years.

The Company elected to use the intrinsic method inaccounting for its stock based compensation arrangements in part because thealternative fair value accounting requires the use of option valuation modelsthat were not developed for use in valuing employee stock options. The Black-Scholesoption valuation model was developed for use in estimating the fair value oftraded options, which have no vesting restrictions and are fully transferable.In addition, option valuation models require the input of highly subjectiveassumptions including the expected stock price volatility. Because the Company’semployee stock options have characteristics significantly different than thoseof traded options, and because changes in the subjective input assumptions canmaterially affect the fair value estimate, in management’s opinion, theexisting models do not necessarily provide a reliable single measure of thefair value of its employee stock options.

F-16

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**1.**   Organization and Summary ofSignificant Accounting Policies (Continued)

For the purpose of proforma disclosures, the estimated fair value of the options is amortized toexpense over the options’ vesting period. Pro forma information is as follows:
| ** **                                                                                                                                        | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                                        | ** ** | **2003**                                    | ** ** | **2002** | ** ** | **2001** | ** ** |
| Net income  (loss), as reported                                                                                                                   |       | $                                           | 21,040     |   | $ | 16,653 |   | $ | (5,211 | ) |
| Add: Stock-based  employee compensation expense included in net income, net of related tax  effects                                               |       | 2,216                                       |       | 287 |   | 509 |   |
| Deduct: Stock-based  employee compensation expense (benefit) determined under fair value based  method for all awards, net of related tax effects |       | 5,034                                       |       | (15 | ) | 3,060 |   |
| Pro forma net  income (loss)                                                                                                                      |       | $                                           | 18,222     |   | $ | 16,955 |   | $ | (7,762 | ) |
| Net income (loss) per  share:                                                                                                                     |       |                                        |       |   |   |   |   |
| Basic—as  reported                                                                                                                           |       | $                                           | 0.59       |   | $ | 0.47 |   | $ | (0.15 | ) |
| Basic—pro  forma                                                                                                                             |       | $                                           | 0.51       |   | $ | 0.47 |   | $ | (0.22 | ) |
| Net income (loss) per  share(1):                                                                                                                  |       |                                        |       |   |   |   |   |
| Diluted—as  reported                                                                                                                         |       | $                                           | 0.57       |   | $ | 0.45 |   | $ | (0.15 | ) |
| Diluted—pro  forma                                                                                                                           |       | $                                           | 0.50       |   | $ | 0.46 |   | $ | (0.22 | ) |

 

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(1)          For2001, the weighted-average common shares outstanding used to calculatediluted net income per share excludes the dilutive effect of options, as theirinclusion would have been anti-dilutive.

*Guarantees*

In the first quarter of2003, the Company adopted FASB Interpretation No. 45, *Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, Including Direct Guarantees of Indebtedness of Others*(“FIN 45”). FIN 45 requires that guarantors recognize a liability for certainguarantees at the fair value of the obligation undertaken in issuing theguarantee at the inception of the guarantee, even if the likelihood ofperformance under the guarantee is remote. The initial recognition andmeasurement provisions of FIN 45 are applicable on a prospective basis toguarantees issued or modified after December 31, 2002. See Note 19 fordisclosures related to the Company’s guarantees in accordance with FIN 45.

F-17

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**1.**   Organization and Summary ofSignificant Accounting Policies (Continued)

*New AccountingPronouncements*

In January 2003, the FASB issued FIN 46, whichaddresses consolidation of VIEs by business enterprises. As required, theCompany has applied the provisions of FIN 46 to entities formed after January 31,2003. In December 2003, the FASB issued a revision to FIN 46, orInterpretation No. 46 (revised December 2003), *Consolidationof Variable Interest Entities.*This revision (“FIN 46R”) requiresapplication for entities formed prior to February 1, 2003 that are notconsidered to be special-purpose entities as of March 31, 2004. Since theCompany’s entities are not considered to be special-purpose entities, theCompany will apply the provisions of FIN 46R to such entities as of March 31,2004. The Company is in process of evaluating its interests in entities formedprior to February 1, 2003, under the provisions of FIN 46R. The Companybelieves that although it does have interests in VIEs, implementation of FIN 46Rwill not require the Company to consolidate interests which are currentlyunconsolidated (see Note 4).

In May 2003, the FASB issued Statement ofFinancial Accounting Standards No. 150, *Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity* (“FAS 150”). Certain provisions of FAS 150 would haverequired the Company to classify non-controlling interests in consolidatedlimited life subsidiaries as liabilities adjusted to their settlement values inthe Company’s financial statements for the year ended December 31, 2003.In November 2003, the FASB indefinitely deferred application of themeasurement and recognition provisions (but not the disclosure requirements) ofFAS 150 with respect to these non-controlling interests. As of December 31,2003, the estimated settlement value of non-controlling interests in theCompany’s consolidated limited life subsidiaries is $9,218, as compared to bookvalue (included in minority interest on the Company’s balance sheet) of $8,437.The excess of settlement value over book value is driven by an even largerestimated appreciation of certain consolidated real estate assets andinvestments from the Company’s book value, offset by selling costs and debtprepayment penalties, if any.

F-18

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**2.**   Real Estate

TheCompany provides build-to-suit services for its customers and also develops orpurchases projects which it intends to sell to institutional investors uponproject completion or redevelopment. Therefore, the Company has ownership ofreal estate until such projects are sold. All real estate is included in theCompany’s Development and Investment segment (see Note 21). At December 31,real estate consists of the following:
| ** **                                                 | ** ** | **2003** | ** ** |
|------------------------------------------------------------|------------|----------|------------|
| ** **                                                 | ** ** | **Land** | ** ** | **Buildings and  Improvements** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Real estate under  development (current)                   |       | $        | 33,180     |   |   | $ | 16,028 |   |   | $ | — |   | $ | 49,208 |   |
| Real estate  included in assets held for sale (see Note 8) |       | 3,846    |       |   | 9,480 |   |   | — |   | 13,326 | (1) |
| Real estate under  development (non-current)               |       | 5,760    |       |   | 585 |   |   | — |   | 6,345 |   |
| Real estate held  for investment                           |       | 57,597   |       |   | 40,355 | (2) |   | 124 | (3) | 98,076 |   |
|                                                       |       | $        | 100,383    |   |   | $ | 66,448 |   |   | $ | 124 |   | $ | 166,955 |   |

 
| ** **                                                 | ** ** | **2002** | ** ** |
|------------------------------------------------------------|------------|----------|------------|
| ** **                                                 | ** ** | **Land** | ** ** | **Buildings and  Improvements** | ** ** | **Total** | ** ** |
| Real estate under  development (current)                   |       | $        | 2,008      |   |   | $ | — |   |   | $ | 2,008 |   |
| Real estate  included in assets held for sale (see Note 8) |       | 20,427   |       |   | 29,376 |   |   | 49,803 | (1) |
| Real estate under  development (non-current)               |       | 45,598   |       |   | 11,656 |   |   | 57,254 |   |
| Real estate held  for investment                           |       | 27,990   |       |   | 37,118 | (2) |   | 65,108 |   |
|                                                       |       | $        | 96,023     |   |   | $ | 78,150 |   |   | $ | 174,173 |   |

----

(1)          Net of allowance of$1,048 and $539 at December 31, 2003 and 2002 to reflect assets at fairvalue less cost to sell.

(2)          Net of accumulateddepreciation of $1,066 and $0 at December 31, 2003 and 2002, respectively.

(3)          Includes balances forlease intangibles and tenant origination costs of $101 and $23, respectively.In 2003, the Company recorded lease intangibles and tenant origination costsupon acquiring buildings with in-place leases. The balances are shown net ofamortization (recorded as a reduction of rental income for lease intangiblesand as amortization expense for tenant origination costs).

In 2003 and 2002, the Company recorded provisions forlosses on real estate (included in general and administrative expenses in theconsolidated statement of operations) of $1,903 and $539, respectively, toincrease the allowances on real estate held for sale to reflect assets at fairvalue less cost to sell. With respect to one project to which these allowancesrelate, the related non-recourse note payable has matured. The Company is inthe process of conveying the underlying property to the lender in order tosatisfy the note.

During 2003, the Companyrecorded writedowns for impairment of real estate (not classified as held forsale at the time of such writedowns) totaling $4,005, which is included ingeneral and administrative expenses in the consolidated statement of operations.The provisions include a writedown for impairment of a vacant, single-tenantindustrial distribution facility. This real estate project is located in amarket 

F-19

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**2.**   Real Estate(Continued)

wherethere are high vacancy rates and other buildings that are likely to lease upprior to this building. The note payable balance, of which $1,350 is recourseto the Company, was not repaid upon maturity in February 2004 and aone-year extension of the note is being negotiated with the lender. The fairvalue of the asset was based on market comparisons obtained by the Company. Theprovisions also reflect a writedown for impairment related to a single-tenantoffice/industrial real estate project. The non-recourse note payable related tothe real estate project had matured and subsequently, the Company conveyed theunderlying property to the lender to satisfy the note. The fair value of theasset was determined based on a discounted cash flow projection prior to theconveyance of the property to the lender. In 2002, the Company recorded awritedown for impairment of $623 (included in general and administrativeexpenses in the consolidated statement of operations) primarily related to aland parcel located in an office park heavily dependent on the telecomindustry. Due to significant layoffs in the telecom industry, and the resultingvacancies in office space, the Company obtained market comparisons for the landparcel and determined that, based on those market comparisons, the value of theland was impaired.

In 2002, the Company recorded adjustments totaling$1,472 to the carrying amount of buildings and improvements previouslyclassified as “held for sale,” but reclassified to real estate held forinvestment, when adopting the provisions of FAS 144. The adjustments were madeto reflect depreciation that would have been recorded had the assets beencontinuously classified as real estate held for investment since the Company’sacquisition of the assets. Of the total $1,472 adjustment, $1,260 was recordedas provision for losses on real estate (included in general and administrativeexpenses in the statement of operations). Certain assets owned by Trammell CrowInvestment Fund IV, L.P. (“Fund IV”), which was accounted for using the equitymethod until December 31, 2002 (see Note 4), were reclassified from realestate held for sale to real estate held for investment. Accordingly, incomefrom investments in unconsolidated subsidiaries (before income taxes) reflectsan adjustment of $212 for depreciation on these assets since thereclassification of these assets occurred prior to the consolidation of Fund IVby the Company.

In 2003, the Company sold a parcel of land for $1,750,of which $1,125 of the consideration received was in the form of aninterest-bearing note from the buyer. The Company retained a unilateral rightto repurchase 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 December 31, 2003, real estate and other assets heldfor sale includes $844 of real estate and $1,125 of notes receivable, andliabilities related to real estate and other assets held for sale includes$1,750 of notes payable related to this parcel of land.

Prior to the adoption of FAS 144 in 2002, all ofthe Company’s real estate was reflected as “held for sale” since the Company’smanagement had committed to plans to dispose of the assets and the requirementsfor classification as “held for sale” under the previous guidance were met.

The estimated costs to complete the 17 projects underdevelopment or to be developed by the Company as of December 31, 2003,total $183,479. At December 31, 2003, the Company had commitments for thesale of three of the projects.

F-20

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**2.**   Real Estate(Continued)

Rental revenues (which areincluded in development and construction revenue) and expenses (which areincluded in general and administrative expenses) relating to the Company’soperational real estate properties, excluding those reported as discontinuedoperations, were $9,411 and $5,479, respectively, in 2003, $15,271 and $6,454,respectively, in 2002 and $16,994 and $5,563, respectively, in 2001.

**3.   Furniture andEquipment**

Furnitureand equipment consist of the following at December 31:
| ** **                                                     | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|
| Owned assets, at  cost                                         |       | $        | 61,427     |     | $          | 61,181 |   |
| Less: Accumulated  depreciation on owned assets                |       | (41,011  | )          | (42,525  | )          |
|                                                           |       | 20,416   |       | 18,656   |       |
| Assets under capital  leases                                   |       | 4,185    |       | 22,871   |       |
| Less: Accumulated  amortization on assets under capital leases |       | (3,296   | )          | (18,355  | )          |
|                                                           |       | 889      |       | 4,516    |       |
| Furniture and equipment,  net                                  |       | $        | 21,305     |     | $          | 23,172 |   |

 

**4.**   Investments in UnconsolidatedSubsidiaries

Investmentsin unconsolidated subsidiaries consist of the following at December 31:
| ** **  | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Real estate |       | $        | 35,546     |     | $          | 45,433 |   |
| Other       |       | 29,479   |       | 26,030   |       |
|        |       | $        | 65,025     |     | $          | 71,463 |   |

 

As part of its real estate development activities, theCompany has numerous investments in unconsolidated subsidiaries, generally withunrelated parties. These underlying entities typically own real estateinvestments and carry debt related to the financing of such real estate.

With respect to entities formed subsequent to January 31,2003, the Company does not have any investments in unconsolidated subsidiariesthat are VIEs. Because the Company has not yet completed its analysis of itsinvestments in entities formed prior to February 1, 2003, under theprovisions of FIN 46R, it cannot reasonably estimate its maximum exposure toloss with respect to its involvement with VIEs. Under the current provisions ofFIN 46R, the Company believes that its maximum exposure to loss as a result ofits involvement with VIEs would be limited to the amount of its investments insuch entities plus any commitments to contribute additional capital, plus theamount of any guarantees of debt of the underlying investments. VIEs of whichthe Company is not the primary beneficiary would be accounted for on the equityor cost method. The Company’s maximum exposure to loss with respect to *all* of its investments accounted for onthe equity or cost method is the amount of its investments (as noted in thetable above), plus commitments to contribute additional capital and the amountof any guarantees of debt of the underlying investments, both of which aredisclosed in Note 19.

F-21

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**4.**   Investments inUnconsolidated Subsidiaries (Continued)

On December 31, 2002, the Company paid $13 topurchase all of the outstanding shares of common stock of Realty Holdings, Inc.(“RHI”), a corporation that was formed to invest in real estate partnerships(the “RHI Purchase”). As a result, the Company became the sole shareholder ofRHI on such date. Prior to the RHI purchase, the Company had invested $100 inexchange for all of the 500 shares of non-voting preferred stock of RHI, andeleven individuals, all of whom were current or former executives of theCompany, collectively owned the 990 shares of outstanding common stock of RHI(with each of these individuals investing $1). These executives’ ownership ofcommon stock of RHI was not contingent on continued employment with theCompany. However, a majority of the stockholders of RHI had the ability tocause RHI to purchase any other stockholder’s shares of RHI at any time for anyreason. RHI also had the right of first refusal to purchase the shares of acommon stockholder if such stockholder wished to sell his shares and had a bonafide written offer from a third party. RHI is controlled by its Board ofDirectors, which is elected by the common shareholders. Each of the threedirectors is an officer of the Company, but none was a stockholder of RHI.Through December 31, 2001, RHI had invested in five single-purpose realestate projects as a 0.5% or 1.0% general partner, with wholly-ownedsubsidiaries of the Company as 99.5% or 99.0% limited partners. RHI and theCompany each had minimal investments in such subsidiaries, since the underlyingreal estate projects were 100% financed with third-party debt.

RHI has controlling interests in each of the entitiesin which it invests. Prior to the RHI Purchase, the Company did not control RHIand, as such, it accounted for its investment in RHI under the equity methodand, accordingly, recorded its share of profits and losses of such underlyingentities as income (loss) from unconsolidated subsidiaries. As a result of theRHI Purchase, the Company owns 100% of RHI, and accordingly, on December 31,2002, began to account for RHI as a consolidated subsidiary.

RHI has a 0.5% general partnership interest in FundIV, a discretionary development and investment fund in which the Company holdsa 37.0% limited partnership interest, with the remaining limited partnerinterests held by unrelated parties. Since RHI controls Fund IV, and RHI is awholly-owned subsidiary of the Company as of December 31, 2002, theCompany began consolidating Fund IV on December 31, 2002.

The Company’s share of income (loss) of RHI and FundIV was $341 and $(379), respectively, for 2002 (up to the time that RHI andFund IV were consolidated by the Company) and $625 and $(250), respectively,for 2001. RHI and Fund IV had no operations prior to 2001.

F-22

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**4.**   Investments in UnconsolidatedSubsidiaries (Continued)

The consolidation of RHIand Fund IV on December 31, 2002, resulted in the following non-cashchanges in the Company’s balance sheet:
| Assets:                                                        |   |   |   |
|----------------------------------------------------------------|--------|--------|--------|
| Real estate                                                    |   | $      | 67,208 |   |
| Investments in unconsolidated subsidiaries                     |   | (6,001 | )      |
| Accounts receivable                                            |   | 410    |   |
| Notes and other receivables                                    |   | 279    |   |
| Other current assets                                           |   | 776    |   |
| Other assets                                                   |   | 47     |   |
| Net non-cash  change in assets                                 |   | 62,719 |   |
| Liabilities:                                                   |   |   |   |
| Notes payable on real estate                                   |   | 47,341 |   |
| Accounts payable                                               |   | 1,580  |   |
| Accrued expenses                                               |   | 1,044  |   |
| Other current liabilities                                      |   | 75     |   |
| Net non-cash  change in liabilities                            |   | 50,040 |   |
| Minority interest                                              |   | 14,552 |   |
| Cash from consolidation  of previously unconsolidated entities |   | $      | 1,873  |   |

 

The Company owns approximately 10% of the outstandingstock of Savills, a property services firm headquartered in the United Kingdomand a leading provider of real estate services in Europe, Asia-Pacific andAustralia. The investment is classified as an “other” investment in the firsttable of this Note 4. The Company accounts for its interest in Savills onthe equity method because it has significant influence over Savills due to thefollowing factors: (i) the Company has the right to designate two membersof Savills’ board of directors (which has significant influence over themanagement of Savills), which is comparable to the rights of investors owningapproximately 20% at the time the Company acquired the shares; and (ii) theCompany has strategically significant commercial relationships with Savills.The Company also has an option giving it the right to purchase from Savills thenumber of shares necessary to increase its share ownership to 20% of theSavills shares then outstanding. This option is exercisable at any time duringthe period from June 30, 2003 through June 30, 2005 at 120% of themarket price prevailing at the time of exercise. In accordance with adoption ofFAS 142 effective January 1, 2002, the difference between thecarrying value of the investment and the amount of underlying equity in netassets at June 30, 2000, is no longer amortized, but is evaluated forimpairment, as required. Prior to the adoption of FAS 142, this differencewas being amortized over 20 years. The Company’s portion of Savills’undistributed earnings totals $5,813 at December 31, 2003, and is includedin retained earnings. The aggregate market value of the investment at December 31,2003, is $36,285.

In 2001, 2000 and 1999, the Company made variousinvestments in e-commerce related companies. In December 2001, the Companyrecorded writedowns of $5,528, due to impairment in the value of thesee-commerce investments. The impairment was triggered by: (i) the status ofthe e-commerce industry at the time of the impairment (many technologycompanies had ceased operations, the availability of capital for 

F-23

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**4.**   Investments inUnconsolidated Subsidiaries (Continued)

e-commerce and internetcompanies had been dramatically reduced, and the Dow Jones Internet Index wasdown) and (ii) the financial status of the companies in which the Companyhas invested. In evaluating the extent of the impairment related to itse-commerce investments, the Company considered the following factors: (i) the2001 financial results of the investees versus their original business plans, (ii) thevalue of the investees based on solicitations for additional financing, (iii) theinvestees’ revised business plans and (iv) the investees’ need for andlimited availability of future funding.

Summarized financialinformation for unconsolidated subsidiaries accounted for on the equity methodis as follows:
| ** **                    | ** ** | **December 31** | ** ** |
|-------------------------------|------------|----------------------|------------|
| ** **                    | ** ** | **2003**             | ** ** | **2002** | ** ** |
| **Real Estate:**              |       |                 |       |   |   |
| Real estate                   |       | $                    | 377,482    |   | $ | 550,733 |   |
| Other assets                  |       | 35,025               |       | 47,302 |   |
| Total assets                  |       | $                    | 412,507    |   | $ | 598,035 |   |
| Notes payable on  real estate |       | $                    | 234,765    |   | $ | 349,348 |   |
| Other liabilities             |       | 15,320               |       | 22,287 |   |
| Equity                        |       | 162,422              |       | 226,400 |   |
| Total liabilities and equity  |       | $                    | 412,507    |   | $ | 598,035 |   |
| **Other:**                    |       |                 |       |   |   |
| Current assets                |       | $                    | 332,544    |   | $ | 270,780 |   |
| Non-current  assets           |       | 122,010              |       | 110,014 |   |
| Total assets                  |       | $                    | 454,554    |   | $ | 380,794 |   |
| Current  liabilities          |       | $                    | 197,846    |   | $ | 154,693 |   |
| Non-current  liabilities      |       | 55,121               |       | 48,627 |   |
| Minority interest             |       | 2,620                |       | 3,004 |   |
| Equity                        |       | 198,967              |       | 174,470 |   |
| Total liabilities and equity  |       | $                    | 454,554    |   | $ | 380,794 |   |
| **Total:**                    |       |                 |       |   |   |
| Assets                        |       | $                    | 867,061    |   | $ | 978,829 |   |
| Liabilities                   |       | $                    | 503,052    |   | $ | 574,955 |   |
| Minority interest             |       | 2,620                |       | 3,004 |   |
| Equity                        |       | 361,389              |       | 400,870 |   |
| Total liabilities  and equity |       | $                    | 867,061    |   | $ | 978,829 |   |

 

F-24

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**4.**   Investments in Unconsolidated Subsidiaries (Continued)
| ** **       | ** ** | **Years Ended December 31,** | ** ** |
|------------------|------------|---------------------------------------------|------------|
| ** **       | ** ** | **2003**                                    | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Real Estate:** |       |                                        |       |   |   |   |   |
| Total revenues   |       | $                                           | 41,936     |   | $ | 64,083 |   | $ | 91,676 |   |
| Total expenses   |       | 35,507                                      |       | 45,860 |   | 76,974 |   |
| Net income       |       | $                                           | 6,429      |   | $ | 18,223 |   | $ | 14,702 |   |
| **Other:**       |       |                                        |       |   |   |   |   |
| Total revenues   |       | $                                           | 561,939    |   | $ | 450,087 |   | $ | 373,772 |   |
| Total expenses   |       | 525,668                                     |       | 433,911 |   | 361,341 |   |
| Net income       |       | $                                           | 36,271     |   | $ | 16,176 |   | $ | 12,431 |   |
| **Total:**       |       |                                        |       |   |   |   |   |
| Total revenues   |       | $                                           | 603,875    |   | $ | 514,170 |   | $ | 465,448 |   |
| Total expenses   |       | 561,175                                     |       | 479,771 |   | 438,315 |   |
| Net income       |       | $                                           | 42,700     |   | $ | 34,399 |   | $ | 27,133 |   |

 

**5.   Accrued Expenses**

Accruedexpenses consist of the following at December 31:
| ** **                                                                                                          | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Payroll and  bonuses                                                                                                |       | $        | 42,316     |     | $          | 43,180 |   |
| Commissions                                                                                                         |       | 38,337   |       | 33,260   |       |
| Development costs                                                                                                   |       | 15,045   |       | 12,262   |       |
| Deferred income                                                                                                     |       | 5,691    |       | 3,294    |       |
| Interest                                                                                                            |       | 1,175    |       | 911      |       |
| Insurance                                                                                                           |       | 3,032    |       | 44       |       |
| Restructuring  charges (see Note 16)                                                                                |       | 1,864    |       | 2,609    |       |
| Other                                                                                                               |       | 9,584    |       | 10,111   |       |
|                                                                                                                |       | 117,044  |       | 105,671  |       |
| Less: Accrued  expenses included in liabilities related to real estate and other assets held  for sale (See Note 8) |       | (313     | )          | (569     | )          |
|                                                                                                                |       | $        | 116,731    |     | $          | 105,102 |   |

 

F-25

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**6.   Long-Term Debtand Capital Lease Obligations**

Long-termdebt consists of the following at December 31:
| ** **                                                                                                     | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Borrowings under  $150,000 line of credit with a bank (the “Credit Facility”)                        |       | $        | 10,000     |     | $          | 19,000 |   |
| Borrowings under  a $25,000 discretionary line of credit with a bank                                           |       | —   |       | —   |       |
| Borrowings under  a £3,900 short-term borrowing facility with a bank (the “European  Facility”) |       | —   |       | —   |       |
| Other                                                                                                          |       | 1,095    |       | 70       |       |
| Total long-term  debt                                                                                          |       | 11,095   |       | 19,070   |       |
| Less current  portion of long-term debt                                                                        |       | 1,081    |       | 70       |       |
|                                                                                                           |       | $        | 10,014     |     | $          | 19,000 |   |

 

During June 2002, the Company entered into theCredit Facility. Borrowings under the Credit Facility are due in June 2005,and bear interest at 1) the greater of prime or the Federal FundsEffective Rate plus 0.5%, plus a margin up to 0.75%, or 2) theEurocurrency rate, plus a margin ranging from 1.75% to 2.5%, payable monthly.The weighted average interest rate for borrowings under the Credit Facility was2.99% in 2003.

The shares of certain subsidiaries of the Company,accounting for at least 80% of Adjusted Gross EBITDA, as defined in the CreditFacility agreement, are pledged as security for the Credit Facility.

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 dividends,repurchase common shares, or make other distributions on account of its commonstock exceeding 50% of the previous year’s net income before depreciation andamortization, and there are certain restrictions on investments andacquisitions that can be made by the Company. At December 31, 2003, theCompany is in compliance with all debt covenants.

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 Companyunder the Credit Facility to an amount less than the $150,000 commitment. At December 31,2003, the Company has unused borrowing capacity of $124,083 (taking intoaccount letters of credit and borrowings outstanding) under its CreditFacility.

Under the Credit Facility, the Company pays aquarterly fee equal to 0.25% of the unused commitments under the line. Inaddition, the Credit Facility requires the Company to enter into one or moreinterest rate agreements for the Company’s floating rate indebtedness in excessof $30,000 (other than construction loans under which interest is capitalizedin accordance with GAAP) ensuring the net interest is fixed, capped or hedged(see Note 18).

F-26

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**6.**   Long-Term Debtand Capital Lease Obligations (Continued)

Borrowings underthe Company’s $25,000 discretionary line of credit are unsecured and reduce theborrowing capacity under the Credit Facility dollar for dollar. Each loan underthe line matures in five business days, no later than June 28, 2004. Eachloan bears interest at a rate agreed upon between the Company and the bank(weighted average borrowing rate of 2.92% in 2003), payable at the maturity ofeach loan.

The European Facility is held by the Company’sEuropean outsourcing subsidiary. Borrowings under the European Facility arepayable on demand, bear interest at the bank’s base rate plus 2.75% (weightedaverage borrowing rate of 6.63% in 2003), are payable quarterly, and arerecourse to the Company.

Principalmaturities of long-term debt at December 31, 2003, are as follows:
| 2004   |   | $      | 1,081  |   |
|--------|--------|--------|--------|--------|
| 2005   |   | 10,006 |   |
| 2006   |   | 5      |   |
| 2007   |   | 3      |   |
|   |   | $      | 11,095 |   |

 

The Company has obligations under capital leases,primarily for furniture and equipment, with maturity dates through September 2005,and bearing interest at various rates ranging from 0.41% to 9.023% per annum atDecember 31, 2003. Capital lease obligations are secured by the underlyingassets.

Capitallease obligations consist of the following at December 31:
| ** **                                          | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|
| Capital lease  obligations                          |       | $        | 2,011      |     | $          | 3,647 |   |
| Less: Current  portion of capital lease obligations |       | 1,297    |       | 2,989    |       |
|                                                |       | $        | 714        |     | $          | 658 |   |

 

Futureminimum payments under capital lease obligations at December 31, 2003, are asfollows: 
| 2004                                         |   | $     | 1,330  |   |
|----------------------------------------------|--------|-------|--------|--------|
| 2005                                         |   | 720   |   |
| Total minimum  lease payments                |   | 2,050 |   |
| Amount  representing interest                |   | (39   | )      |
| Present value of net  minimum lease payments |   | $     | 2,011  |   |

 

F-27

----

**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**7.**   Notes Payable on Real Estate

TheCompany has loans secured by real estate (the majority of which areconstruction loans) consisting of the following at December 31:
| ** **                                                                                                                | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Current portion  of notes payable on real estate                                                                          |       | $        | 68,192     |     | $          | 28,854 |   |
| Notes payable on  real estate included in liabilities related to real estate and other assets  held for sale (see Note 8) |       | 12,306   |       | 39,551   |       |
| Total notes  payable on real estate, current portion                                                                      |       | 80,498   |       | 68,405   |       |
| Notes payable on  real estate, non-current portion                                                                        |       | 22,769   |       | 45,402   |       |
| Total notes payable on  real estate                                                                                       |       | $        | 103,267    |     | $          | 113,807 |   |

 

Notes payable on real estate held for sale areincluded in liabilities related to real estate and other assets held for sale. Notespayable on real estate under development (current) are included in currentportion of notes payable on real estate. Notes payable on real estate underdevelopment (non-current) and real estate held for investment are classifiedaccording to payment terms and maturity date.

At December 31, 2003, $9,958 of the currentportion and $380 of the non-current portion of notes payable on real estate arerecourse to the Company. With respect to a project to which $3,021 of thecurrent recourse obligations relate, the Company has an agreement with aninvestor customer to purchase the project upon completion, the proceeds ofwhich will be used to repay the related note payable.

Principalmaturities of notes payable on real estate at December 31, 2003, are asfollows:
| 2004   |   | $      | 37,988  |   |
|--------|--------|--------|---------|--------|
| 2005   |   | 2,327  |    |
| 2006   |   | 22,647 |    |
| 2007   |   | 34,924 |    |
| 2008   |   | 5,381  |    |
|   |   | $      | 103,267 |   |

 

Interest rates on loans outstanding at December 31,2003, range from 3.22% to 12.0%. Generally, interest only is payable on thereal estate loans (and is generally drawn on the underlying construction loan),with all unpaid principal and interest due at maturity. Capitalized interest in2003 and 2002 totaled $2,726 and $1,269, respectively.

In 2003, in conjunction with the purchase of a realestate project held for investment, the Company assumed the seller’sobligations on a note with respect to the project, resulting in a non-cashincrease in notes payable on real estate totaling $796.

The Company has a participating mortgage loanobligation related to a real estate project that is classified as real estateunder development (current). The participating mortgage loan is subordinate toa construction loan on the underlying project. The amounts of the participationliability and the related debt discount are both $2,800 at December 31,2003. The lender participates in net operating cash flow of the mortgaged realestate project, if any, and capital proceeds, net of related expenses, upon thesale of the 

F-28

----

**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**7.**   NotesPayable on Real Estate (Continued)

project, after payment ofamounts due under the construction loan. The lender receives 6% fixed intereston the outstanding balance of its note, compounded monthly, and participates in35% to 80% of proceeds remaining after the construction loan is paid, based onreaching various internal rates of return.

The Company has classifieda note payable related to one real estate project that, at December 31,2003, matures on September 30, 2004 as a non-current note payable. In February 2004,the Company and lender agreed to extend the maturity date of the note to September 28,2006. The balance of the note is $13,268 at December 31, 2003.

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

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 December 31, 2003, that were not classifiedas such at December 31, 2002, have been reclassified to real estate andother assets held for sale in the Company’s balance sheet as of December 31,2002.

Realestate and other assets held for sale and related liabilities are as follows atDecember 31:
| ** **                                                               | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Assets:                                                                  |       |     |       |     |       |
| Cash and cash equivalents                                                |       | $        | —     |     | $          | 92 |   |
| Accounts receivable, net of allowance for doubtful  accounts             |       | —   |       | 143      |       |
| Notes and other receivables                                              |       | 1,125    |       | 267      |       |
| Real estate held for sale (see Note 2)                                   |       | 13,326   |       | 49,803   |       |
| Other current assets                                                     |       | 233      |       | 400      |       |
| Other assets                                                             |       | —   |       | 264      |       |
| Total real estate  and other assets held for sale                        |       | 14,684   |       | 50,969   |       |
| Liabilities:                                                             |       |     |       |     |       |
| Accounts payable                                                         |       | —   |       | 59       |       |
| Accrued expenses (see Note 5)                                            |       | 313      |       | 569      |       |
| Notes payable on real estate held for sale (see Note  7)                 |       | 12,306   |       | 39,551   |       |
| Other current liabilities                                                |       | 76       |       | 81       |       |
| Total liabilities  related to real estate and other assets held for sale |       | 12,695   |       | 40,260   |       |
| Net real estate and  other assets held for sale                          |       | $        | 1,989      |     | $          | 10,709 |   |

 

F-29

----

**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**9.**   Stockholders’ Equity

The holders of shares of the Company’s common stockare entitled to one vote for each share held on all matters submitted to a voteof common stockholders. Each share of common stock is entitled to participateequally in dividends, when and if declared, and in the distribution of assetsin the event of liquidation, dissolution or winding up of the Company, subjectin all cases to any rights of outstanding shares of preferred stock.

Under the Trammell Crow Company 1997 Option Plan (the “AssumedOption Plan”), the Company issued options to purchase 2,423,769 shares of theCompany’s common stock at an exercise price of $3.85 per share. All optionsavailable under the Assumed Option Plan were granted on August 1, 1997.The options vested at the closing of the Company’s initial public offering on December 1,1997, and became exercisable 30 days after that date. The options expire10 years from the date of grant and are not contingent on continuedemployment with the Company. At December 31, 2003, common shares reservedfor future issuance under the Assumed Option Plan total 956,649.

The Trammell Crow Long-Term Incentive Plan (the “Long-TermPlan”) originally provided for the issuance of up to 5,334,878 shares of commonstock. In May 1999, the Long-Term Plan was amended to increase the numberof shares available for future awards to 8,634,878 shares of common stock.Options to acquire shares of common stock granted by the Company under theLong-Term Plan have exercise prices equal to the fair market value of thecommon stock on the date of grant and expire 7 to 10 years from the dateof grant. Except for options granted to members of the Board of Directors andoptions granted in connection with acquisitions of real estate servicecompanies, options vest over periods ranging from three to five years, andgenerally have partial vesting on anniversaries of the grant date.

The Long-Term Plan also provides for the awards ofStock Appreciation Rights, Restricted Stock and Performance Units. In 2003, 2002and 2001, the Company granted 1,636,500 shares, 30,000 shares and 7,562 shares,respectively, of restricted stock under the Long-Term Plan. The restrictedstock vests over periods of up to five years.  The weighted-average grant date fairvalue per share of the Company’s restricted stock issued in 2003, 2002 and 2001was $8.75, $13.90 and $11.44, respectively. The Company recognized compensationexpense of $3,727, $519 and $892 in 2003, 2002 and 2001, respectively, relatedto the grants of restricted shares, net of forfeitures.

At December 31, 2003, common shares reserved forfuture issuance under the Long-Term Plan total 6,846,258 shares.

F-30

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**9.**   Stockholders’Equity (Continued)

A summary of the Company’sstock option activity and related information, for the years ended December 31,2003, 2002 and 2001, is as follows:
| ** **                                      | ** ** | **2003**                                                                                        | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **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:**                        |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning of year                               |       |                                                                                            | 1,017,395  |   |   |   | 3,295,486 |   |   |   | 2,285,885 |   |   |   | 165,447 |   |   | 6,764,213 |   |
| Granted                                         |       |                                                                                            | —     |   |   |   | 153,314 |   |   |   | — |   |   |   | — |   |   | 153,314 |   |
| Exercised                                       |       |                                                                                            | (60,746    | ) |   |   | (59,000 | ) |   |   | — |   |   |   | — |   |   | (119,746 | ) |
| Forfeited                                       |       |                                                                                            | —     |   |   |   | (181,875 | ) |   |   | (199,544 | ) |   |   | (13,708 | ) |   | (395,127 | ) |
| Expired                                         |       |                                                                                            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| End of year                                     |       |                                                                                            | 956,649    |   |   |   | 3,207,925 |   |   |   | 2,086,341 |   |   |   | 151,739 |   |   | 6,402,654 |   |
| **Weighted-average exercise price of options:** |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Granted                                         |       |                                                                                            | —     |   |   |   | $ | 9.74 |   |   |   | — |   |   |   | — |   |   |   |   |
| Exercised                                       |       |                                                                                            | $          | 3.85 |   |   |   | $ | 10.94 |   |   |   | — |   |   |   | — |   |   |   |   |
| Forfeited                                       |       |                                                                                            | —     |   |   |   | $ | 11.95 |   |   |   | $ | 17.66 |   |   |   | $ | 32.10 |   |   |   |   |
| Outstanding at end of year                      |       |                                                                                            | $          | 3.85 |   |   |   | $ | 11.73 |   |   |   | $ | 17.70 |   |   |   | $ | 28.76 |   |   |   |   |
| Weighted-average fair value of options granted  |       |                                                                                            | —     |   |   |   | $ | 4.63 |   |   |   | — |   |   |   | — |   |   |   |   |
| Weighted-average remaining contractual life     |       |                                                                                            | 3.6 years  |   |   |   | 5.4 years |   |   |   | 4.6 years |   |   |   | 4.4 years |   |   |   |   |
| **Options  exercisable:**                       |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number of options                               |       |                                                                                            | 956,649    |   |   |   | 1,642,633 |   |   |   | 2,049,674 |   |   |   | 151,739 |   |   | 4,800,695 |   |
| Weighted-average  exercise price                |       |                                                                                            | $          | 3.85 |   |   |   | $ | 11.29 |   |   |   | $ | 17.69 |   |   |   | $ | 28.76 |   |   |   |   |

 
| ** **                                       | ** ** | **2002**                                                                                        | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                                       | ** ** | **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:**                         |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning of year                                |       |                                                                                            | 1,288,179  |   |   |   | 2,863,453 |   |   |   | 2,979,552 |   |   |   | 217,298 |   |   | 7,348,482 |   |
| Granted                                          |       |                                                                                            | —     |   |   |   | 1,228,533 |   |   |   | — |   |   |   | — |   |   | 1,228,533 |   |
| Exercised                                        |       |                                                                                            | (270,784   | ) |   |   | (65,000 | ) |   |   | — |   |   |   | — |   |   | (335,784 | ) |
| Forfeited                                        |       |                                                                                            | —     |   |   |   | (731,500 | ) |   |   | (693,667 | ) |   |   | (51,851 | ) |   | (1,477,018 | ) |
| Expired                                          |       |                                                                                            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| End of year                                      |       |                                                                                            | 1,017,395  |   |   |   | 3,295,486 |   |   |   | 2,285,885 |   |   |   | 165,447 |   |   | 6,764,213 |   |
| **Weighted-average exercise price of  options:** |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Granted                                          |       |                                                                                            | —     |   |   |   | $ | 13.90 |   |   |   | — |   |   |   | — |   |   |   |   |
| Exercised                                        |       |                                                                                            | $          | 3.85 |   |   |   | $ | 11.08 |   |   |   | — |   |   |   | — |   |   |   |   |
| Forfeited                                        |       |                                                                                            | —     |   |   |   | $ | 11.51 |   |   |   | $ | 17.62 |   |   |   | $ | 31.64 |   |   |   |   |
| Outstanding at end of year                       |       |                                                                                            | $          | 3.85 |   |   |   | $ | 11.82 |   |   |   | $ | 17.69 |   |   |   | $ | 29.04 |   |   |   |   |
| Weighted-average fair value of options granted   |       |                                                                                            | —     |   |   |   | $ | 7.19 |   |   |   | — |   |   |   | — |   |   |   |   |
| Weighted-average remaining contractual life      |       |                                                                                            | 4.6 years  |   |   |   | 6.3 years |   |   |   | 5.6 years |   |   |   | 5.3 years |   |   |   |   |
| **Options exercisable:**                         |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number of options                                |       |                                                                                            | 1,017,395  |   |   |   | 925,028 |   |   |   | 2,082,132 |   |   |   | 152,103 |   |   | 4,176,658 |   |
| Weighted-average  exercise price                 |       |                                                                                            | $          | 3.85 |   |   |   | $ | 11.15 |   |   |   | $ | 17.70 |   |   |   | $ | 29.09 |   |   |   |   |

 

F-31

----

**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**9.**   Stockholders’Equity (Continued)
| ** **                                       | ** ** | **2001**                                                                                        | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                                       | ** ** | **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:**                         |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning of year                                |       |                                                                                            | 1,613,123  |   |   |   | 1,567,343 |   |   |   | 3,626,449 |   |   |   | 231,416 |   |   | 7,038,331 |   |
| Granted                                          |       |                                                                                            | —     |   |   |   | 1,567,610 |   |   |   | — |   |   |   | — |   |   | 1,567,610 |   |
| Exercised                                        |       |                                                                                            | (324,944   | ) |   |   | — |   |   |   | — |   |   |   | — |   |   | (324,944 | ) |
| Forfeited                                        |       |                                                                                            | —     |   |   |   | (271,500 | ) |   |   | (646,897 | ) |   |   | (14,118 | ) |   | (932,515 | ) |
| Expired                                          |       |                                                                                            | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| End of year                                      |       |                                                                                            | 1,288,179  |   |   |   | 2,863,453 |   |   |   | 2,979,552 |   |   |   | 217,298 |   |   | 7,348,482 |   |
| **Weighted-average  exercise price of options:** |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Granted                                          |       |                                                                                            | —     |   |   |   | $ | 10.27 |   |   |   | — |   |   |   | — |   |   |   |   |
| Exercised                                        |       |                                                                                            | $          | 3.85 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   |   |
| Forfeited                                        |       |                                                                                            | —     |   |   |   | $ | 11.44 |   |   |   | $ | 17.67 |   |   |   | $ | 29.03 |   |   |   |   |
| Outstanding at end of year                       |       |                                                                                            | $          | 3.85 |   |   |   | $ | 10.83 |   |   |   | $ | 17.68 |   |   |   | $ | 29.66 |   |   |   |   |
| Weighted-average fair value of options granted   |       |                                                                                            | —     |   |   |   | $ | 5.50 |   |   |   | — |   |   |   | — |   |   |   |   |
| Weighted-average remaining contractual life      |       |                                                                                            | 5.6 years  |   |   |   | 7.3 years |   |   |   | 6.6 years |   |   |   | 6.4 years |   |   |   |   |
| **Options exercisable:**                         |       |                                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number of options                                |       |                                                                                            | 1,288,179  |   |   |   | 411,779 |   |   |   | 2,260,942 |   |   |   | 187,707 |   |   | 4,148,607 |   |
| Weighted-average  exercise price                 |       |                                                                                            | $          | 3.85 |   |   |   | $ | 11.30 |   |   |   | $ | 17.66 |   |   |   | $ | 29.85 |   |   |   |   |

 

**10.**   Income Taxes

Theprovision (benefit) for income taxes consists of the following for the yearsended December 31:
| ** **    | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|---------------|------------|----------|------------|----------|------------|----------|------------|
| Current       |       |     |       |     |       |     |       |
| Federal       |       | $        | 11,505     |     | $          | 7,133    |       | $ | 10,495 |   |
| State         |       | 2,323    |       | 1,440    |       | 2,118    |       |
| International |       | (384     | )          | 731      |       | —   |       |
|          |       | 13,444   |       | 9,304    |       | 12,613   |       |
| Deferred      |       |     |       |     |       |     |       |
| Federal       |       | (315     | )          | 3,401    |       | (11,266  | )          |
| State         |       | (64      | )          | 686      |       | (2,273   | )          |
| International |       | 1,285    |       | —   |       | —   |       |
|          |       | 906      |       | 4,087    |       | (13,539  | )          |
|          |       | $        | 14,350     |     | $          | 13,391   |       | $ | (926 | ) |

 

F-32

----

**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**10.**   Income Taxes (Continued)

The components of the netdeferred tax asset are summarized below as of December 31:
| ** **                                             | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax  assets                                   |       |     |       |     |       |
| Bad debts                                              |       | $        | 1,151      |     | $          | 1,818 |   |
| Depreciation                                           |       | 1,740    |       | 1,336    |       |
| Basis difference on real estate                        |       | 342      |       | 470      |       |
| Compensation expense relating to stock options         |       | 4,798    |       | 5,123    |       |
| Compensation expense related to restricted stock       |       | 2,784    |       | 1,200    |       |
| Impairment of investments                              |       | 16,630   |       | 17,188   |       |
| Interest rate swap agreement                           |       | —   |       | 474      |       |
| Restructuring  charges relating to future rent expense |       | 732      |       | 1,025    |       |
| Foreign currency translation adjustments               |       | —   |       | 62       |       |
| Other                                                  |       | 3,306    |       | 1,722    |       |
|                                                   |       | 31,483   |       | 30,418   |       |
| Less: valuation allowance                              |       | (1,026   | )          | (680     | )          |
| Total deferred tax assets                              |       | 30,457   |       | 29,738   |       |
| Deferred tax  liabilities                              |       |     |       |     |       |
| State taxes                                            |       | (97      | )          | (517     | )          |
| Goodwill amortization                                  |       | (2,648   | )          | (2,625   | )          |
| Foreign currency translation adjustments               |       | (1,223   | )          | —   |       |
| Other                                                  |       | (2,837   | )          | (2,038   | )          |
| Total deferred tax liabilities                         |       | (6,805   | )          | (5,180   | )          |
| Net deferred tax asset                                 |       | $        | 23,652     |     | $          | 24,558 |   |

 

Statement of Financial Accounting Standards No. 109,*Accounting for Income Taxes*, requires avaluation allowance to reduce the deferred tax assets reported if, based on theweight of the evidence, it is more likely than not that some portion or all ofthe deferred tax assets will not be realized. After consideration of all theevidence, both positive and negative, the Company has determined that a $1,026valuation allowance at December 31, 2003, is necessary to reduce thedeferred tax assets relating to certain nonqualified stock options to theamount that will more likely than not be realized. The change in the valuationallowance for the current year is $346.

Components of deferredincome taxes are as follows at December 31:
| ** **              | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Current                 |       | $        | 3,754      |     | $          | 3,654 |   |
| Noncurrent              |       | 19,898   |       | 20,904   |       |
| Net deferred tax  asset |       | $        | 23,652     |     | $          | 24,558 |   |

 

F-33

----

**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**10.**   Income Taxes (Continued)

The differences betweenthe provisions for income taxes and the amounts computed by applying thestatutory federal income tax rates to income (loss) from continuing operationsbefore income taxes for the years ended December 31 are:
| ** **                                                                                     | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Tax at statutory  rate applied to income (loss) from continuing operations before income taxes |       | $        | 10,237     |     | $          | 8,858    |       | $ | (2,148 | ) |
| State income  taxes, net of federal tax benefit                                                |       | 1,255    |       | 1,086    |       | (263     | )          |
| International                                                                                  |       | (384     | )          | 731      |       | —   |       |
| Non-deductible  meals                                                                          |       | 704      |       | 727      |       | 692      |       |
| Change in  valuation allowance                                                                 |       | 346      |       | (702     | )          | 256      |       |
| Other                                                                                          |       | 298      |       | (8       | )          | 537      |       |
|                                                                                           |       | $        | 12,456     |     | $          | 10,692   |       | $ | (926 | ) |

 

**11.**   Operating Leases

The Company has commitments under operating leases foroffice space and office equipment. During the years ended December 31,2003, 2002 and 2001, rent expense was $22,909, $25,353 and $26,712, including$604 paid in 2001 to affiliates of the Company.

Minimumfuture rentals to be paid and received under noncancelable operating lease andsublease commitments in effect at December 31, 2003, are as follows:
| ** ** | ** ** | **Leases** | ** ** | **Subleases** | ** ** | **Net** | ** ** |
|------------|------------|------------|------------|---------------|------------|---------|------------|
| 2004       |       | $          | 21,831     |          | $          | (1,426  | )          | $ | 20,405 |   |
| 2005       |       | 16,277     |       | (1,401        | )          | 14,876  |       |
| 2006       |       | 12,455     |       | (1,404        | )          | 11,051  |       |
| 2007       |       | 7,770      |       | (1,216        | )          | 6,554   |       |
| 2008       |       | 3,495      |       | (473          | )          | 3,022   |       |
| Thereafter |       | 4,381      |       | (1,063        | )          | 3,318   |       |
|       |       | $          | 66,209     |          | $          | (6,983  | )          | $ | 59,226 |   |

 

**12.**   Employee Benefit Plans

The Company’s employees participate in a definedcontribution savings plan, which provides the opportunity for pretaxcontributions by employees. The Company matches 50% of the employee’scontributions up to 6% of the employee’s annual earnings or a maximum of $6 peremployee per annum. The Company’s contribution expense for 2003, 2002 and 2001,including amounts reimbursed by customers, was $7,035, $7,102 and $7,068,respectively.

F-34

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**12.**   Employee Benefit Plans (Continued)

The Company has also established the Trammell CrowCompany Employee Stock Purchase Plan (the “ESPP”). Employees may elect to havebi-weekly payroll deductions of 1.0% to 10.0% of gross earnings, which is usedto purchase, on a semi-annual basis, stock of the Company at a 15% discountfrom market value. The ESPP is available to all employees and requires asix-month holding period for stock purchased under the plan. The Company hasreserved 2,000,000 shares of common stock for issuance under the ESPP, of which1,577,493 have been issued as of December 31, 2003.

**13.**   Gain on Disposition of Real Estate andDiscontinued Operations

Realestate dispositions excluding those accounted for as discontinued operationsduring the years ended December 31 were as follows:
| ** **     | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|----------------|------------|----------|------------|----------|------------|----------|------------|
| Projects sold  |       | 19       |       | 36       |       | 46       |       |
| Net sale price |       | $        | 67,115     |     | $          | 142,149  |       | $ | 170,389 |   |
| Gain on sale   |       | $        | 13,420     |     | $          | 24,218   |       | $ | 28,456 |   |

 

The net sale price for 2003 noted above includes anote receivable for $230 from a purchaser of one real estate project.

In 2003, the Company conveyed a single-tenantoffice/industrial real estate project to the lender in order to satisfy theunderlying non-recourse note that had matured. With respect to thisdisposition, the Company recorded a gain on disposition of real estate of $798,of which $677 was extinguishment of debt. Also in 2003, the Company sold its50% partnership interest in a consolidated subsidiary to the other partner inthe partnership for a net sales price of $1,032. The transaction resulted in anon-cash decrease in real estate and other assets held for sale of $11,004(accounts receivable of $4 and real estate held for sale of $11,000), adecrease in cash (included in real estate and other assets held for sale) of$92, and a non-cash reduction in liabilities related to real estate and otherassets held for sale of $11,804 (decrease in accounts payable of $61, increasein accrued expenses of $164 and a decrease in notes payable on real estate of$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.

In connection with a sale in 2002, the purchaserassumed a portion of the Company’s note with respect to such project, resultingin a non-cash decrease in notes payable on real estate totaling $12,000. TheCompany repaid the remaining balance of the note with the sales proceeds. TheCompany recorded a loss on disposition of real estate related to this projecttotaling $797.

F-35

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

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

In 2002, uponsubstantial completion of two real estate projects under development, theCompany and outside partners contributed a total of $2,703 and $30,398,respectively, to the Company’s consolidated real estate subsidiaries owningsuch projects. The funds were used to pay off debt totaling $33,101, and theCompany was released from its guarantees relating to such debt. As it no longerexercised control over the entities, the Company began using the equity methodof accounting for these two real estate subsidiaries, resulting in a non-cashreduction of real estate held for sale totaling $33,776 and a non-cash  increase in investments in unconsolidatedsubsidiaries totaling $675. Also in 2002, the Company contributed its interestin a real estate project to a new partnership owned 48% by the Company, 32% bya non-wholly-owned partnership controlled and consolidated by the Company and20% by partners unrelated to the Company. Because the outside partners controlthe new partnership, the Company accounts for its interest in this partnershipas an equity method investment. The transaction resulted in a non-cashreduction in real estate held for sale totaling $23,711, a non-cash reductionin notes payable on real estate held for sale totaling $9,400, a non-cashreduction in accrued interest totaling $795, a non-cash increase in investmentin unconsolidated subsidiaries totaling $18,310, and a non-cash increase inminority interest totaling $4,000. Additionally, in another transaction  during 2002, the partnership agreement of areal estate partnership that was consolidated by the Company was amended,eliminating the Company’s control of the partnership. As it no longer exercisedcontrol over the partnership, the Company began using the equity method ofaccounting for this real estate subsidiary, resulting in a non-cash reductionin real estate held for sale of $15,931, a non-cash reduction in notes payableon real estate held for sale of $10,821, a non-cash increase in investments inunconsolidated subsidiaries of $1,591, and a non-cash reduction in minorityinterest of $3,710. No gains or losses were recognized on these transactions.

In 2001, the Company sold 75% of its interest in awholly-owned partnership that owned real estate at a sales price equal to $2,238(75% of the partnership’s net book value) and provided partial financing of thepurchase in the amount of $186. In addition, the Company purchased, for anamount approximating book value, the 1% general partnership interest of apartnership that owned real estate in which the Company was a 99% limitedpartner prior to the transaction. As a result of the transaction, the Companyacquired $11,644 of assets, including cash of $202, and assumed liabilitiestotaling $11,046. In another transaction, for an amount approximating bookvalue, the Company sold its 1% general partnership interest in a partnershipthat owned real estate, while retaining its 99% limited partnership interest.As a result, the Company disposed of $8,869 of assets, including cash of $287,and $8,869 of liabilities. No gains or losses were recognized on thesetransactions.

F-36

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

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

In 2003, the Company soldfour real estate projects that were considered discontinued operations underFAS 144. The aggregate sales price for these four projects was $25,064, and theCompany recognized an aggregate gain on disposition of $5,336. In 2002, theCompany sold four real estate projects that were considered discontinuedoperations under FAS 144. The aggregate sales price for these four projects was$31,151, and the Company recognized an aggregate gain on disposition of $6,559.The components of discontinued operations for the years ended December 31,2003 and 2002, including these dispositions and operations of real estateproperties where the Company does not expect to have significant continuinginvolvement, are as follows (there were no such discontinued operations in2001):
| ** **                                                | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
| **Revenues:**                                             |       |     |       |     |       |
| Development and  construction                             |       | $        | 181        |     | $          | 416 |   |
| Gain on  disposition of real estate                       |       | 5,336    |       | 6,559    |       |
| Other                                                     |       | 23       |       | 1        |       |
|                                                      |       | 5,540    |       | 6,976    |       |
| **Expenses:**                                             |       |     |       |     |       |
| Salaries, wages  and benefits                             |       | 55       |       | 110      |       |
| Commissions                                               |       | 279      |       | 423      |       |
| General and  administrative                               |       | 235      |       | 248      |       |
| Depreciation and  amortization                            |       | 4        |       | 14       |       |
| Interest                                                  |       | 295      |       | 127      |       |
|                                                      |       | 868      |       | 922      |       |
| Income from  discontinued operations, before income taxes |       | 4,672    |       | 6,054    |       |
| Income tax  expense                                       |       | (1,894   | )          | (2,699   | )          |
| Income from discontinued  operations, net of income taxes |       | $        | 2,778      |     | $          | 3,355 |   |

 

F-37

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**14.   Goodwill,Intangible Assets and Acquisitions of Real Estate Service Companies**

In 2003, the Company strengthened and extended through2008 its strategic alliance with Savills. The strategic alliance was initiallyformed in 2000 for the purposes of providing each company’s customers access tothe commercial real estate service capabilities of the other. As part of the2003 agreement, the Company subscribed to $9 of additional capital in TrammellCrow Savills Limited, the Company’s consolidated European venture jointly ownedwith Savills, effectively increasing the Company’s ownership in this venture toapproximately 95%. In addition, the Company purchased all of Savills’ ownershipin Trammell Crow Savills Asia-Pacific Limited, the Company’s consolidated Asianjoint venture, for a nominal amount, increasing the Company’s ownership of thisventure to substantially 100%. While the Company recorded no gain or loss onthis transaction, it recorded a non-cash increase in minority interest of $693,and an offsetting non-cash decrease in furniture and equipment. In addition,the Company and Savills have an arrangement whereby, at either party’sdiscretion, the Company may acquire Savills’ remaining ownership in TrammellCrow Savills Limited of approximately 5% for nominal consideration.

In December 2001, the Company recorded totalwritedowns due to impairment of goodwill and intangibles of $26,440, offset by$2,346 of related minority interest. Of these writedowns, $20,479 is due toimpairment of goodwill and related intangibles recorded in connection with theCompany’s acquisition of portions of the businesses of Faison &Associates and Faison Enterprises, Inc. (the “Faison Acquisition”). Theimpairment resulted from 2001 operating losses and declining forecasts for futureoperations in the retail center development and mall management portions ofthese businesses (primarily due to continuing consolidation of regional mallownership into REITs, which tend to self-manage their properties), in additionto the losses of several large management agreements in 2001, which left theCompany with no significant business in certain geographic areas. Also,effective March 1, 2002, the Company sold the retail center developmentand mall management businesses to an affiliate of Faison Enterprises, Inc.(the “Faison Sale”) (see Note 15). The writedown in 2001 included 100% ofthe goodwill attributable to the retail center development and mall managementbusinesses and the business units affected by management agreement losses.

Also included in the Company’s total 2001 writedownsis a writedown of $4,788, offset by $2,346 of related minority interest, due toimpairment of goodwill recorded in connection with the Company’s 2000 expansionof its joint venture with Savills into the Asia-Pacific region (“Trammell CrowSavills Asia-Pacific”). The impairment resulted from 2001 operating losses andbusiness strategy changes that impacted the Company’s growth strategy inAsia-Pacific markets. The Company intends to allocate existing or additionalresources to Asia-Pacific markets only as its U.S. customers require servicesin these markets but does not intend to aggressively pursue new customers inthese markets. In 2002, Trammell Crow Savills Asia-Pacific sold three of itsoperations, primarily engaged in project management services, to an unrelatedthird party (see Note 15).

The remaining $1,173 of writedowns in 2001 related tovarious investment and asset impairments, none of which were individuallysignificant to the Company.

F-38

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**14.**   Goodwill, Intangible Assets and Acquisitions of Real EstateService Companies (Continued)

Intangible assets,excluding goodwill, consist of the following at December 31:
| ** **                                      | ** ** | **2003**                    | ** ** | **2002**                      | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                                      | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Contract  intangibles                           |       | $                           | 13,299     |                          |       | $ | (8,181 | ) |   | $ | 12,085 |   |   | $ | (5,121 | ) |   |
| Employment  contracts and noncompete agreements |       | 11,201                      |       |                          | (10,952    | ) |   | 11,991 |   |   | (10,966 | ) |   |
| Acquired  management contracts                  |       | 8,094                       |       |                          | (7,546     | ) |   | 9,141 |   |   | (7,199 | ) |   |
|                                            |       | $                           | 32,594     |                          |       | $ | (26,679 | ) |   | $ | 33,217 |   |   | $ | (23,286 | ) |   |

 

In 2002, the Company recorded a writedown of $1,149,recognized as a reduction of facilities management revenue, due to impairmentof a contract intangible for which the underlying management agreement wasterminated in 2002. The contract intangible was written down to zero. In 2001,the Company recorded a writedown of $2,076, recognized as a reduction ofproject management services revenue, due to impairment of a contract intangiblefor which the future cash flows of the underlying management agreement did notsupport the value of the contract intangible, and the Company’s intent was toterminate the related management agreement. The management agreement wassubsequently terminated in 2002. The related contract intangible was writtendown to zero.

Theestimated future charges for the intangible asset balance at December 31,2003, are as follows:
| 2004                |   | $     | 2,786  |   |
|---------------------|--------|-------|--------|--------|
| 2005                |   | 1,612 |   |
| 2006                |   | 1,011 |   |
| 2007                |   | 424   |   |
| 2008 and thereafter |   | 82    |   |
|                |   | $     | 5,915  |   |

 

**15.   Dispositions ofBusinesses**

The Faison Sale was completed effective March 1,2002, and involved the sale of businesses that were engaged primarily in thedevelopment of retail centers and the management and leasing of regional mallsand were acquired in 1998 as part of the Faison Acquisition. The Companycontinues to provide leasing and management services of non-retail assets andcertain retail projects under contracts acquired in connection with the FaisonAcquisition. The Company retained most of the net working capital in thedisposed businesses and carried interests in certain development projects andreceived approximately $1,825 in exchange for such businesses and relatedassets upon completion of the transaction. Because the Company has continuing involvementwith the disposed businesses, the operations have not been reported asdiscontinued operations. The Company’s writedowns of goodwill and intangiblesin the fourth quarter of 2001 (see Note 14), included $11,731 related toassets that were disposed of in the Faison Sale, and the Company recorded again of $79 upon disposition of the businesses in the first quarter of 2002.The Faison 

F-39

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**15.**   Dispositions ofBusinesses (Continued)

Sale was motivated bychanges in the Company’s overall retail strategy, operating losses incurred inthese businesses, and declining forecasts for future operations of thesebusinesses (primarily due to the downturn in the real estate investment marketand continuing consolidation of regional mall ownership into REIT’s, which tendto self-manage their properties). Henry J. Faison, Chairman of the Board ofFaison Enterprises, served on the Company’s Board of Directors from the time ofthe Faison Acquisition until May 24, 2002, the day of the Company’s 2002annual meeting of stockholders.

On November 25, 2002,Trammell Crow Savills Asia-Pacific completed the sale to an unrelated thirdparty of three of its operations primarily engaged in project managementservices, effective October 1, 2002 (the “Transfer Date”). The purchaseprice of approximately $2,607, which was settled in the second quarter of 2003,was offset by $414 for amounts to be paid to the purchaser as a provision forlosses on certain assets and contracts transferred to the purchaser on theTransfer Date. In addition, $320 was offset against the purchase price formanagement services that the purchaser provided to the remaining Trammell CrowSavills Asia-Pacific operations for one year following the completion of thesale. The Company recorded a loss of approximately $297 in the fourth quarterof 2002 with respect to the sale, including professional fees and provisions tobe made to the seller, offset by minority interest. Because there were notclearly distinguishable operations and cash flows for the operations sold, theoperations have not been reported as discontinued operations.

**16.   RestructuringCharges**

During 2001, the Company announced an internalreorganization of its business designed to consolidate all of the property andfacilities management, brokerage and corporate advisory, and construction andproject management services delivered to both user and investor customers undera single leadership structure. As part of the reorganization, the Companyadvised approximately 300 employees across all functions and levels that theirjobs were being eliminated as part of a cost-cutting effort focusing oninefficiencies and redundancies. As of December 31, 2002, all of suchemployees had been terminated under the restructuring plan. In addition, alsoin 2001, the Company formalized and communicated its previously announcedinternal reorganization designed to centralize and improve the efficiency ofits accounting operations. The accounting restructuring plan contemplated thetermination of approximately 200 accounting personnel, 80 of whom ultimatelyresigned or were placed into open positions or onto new customer accounts. Asof December 31, 2002, all planned employee terminations of such employeeshad been completed pursuant to the accounting restructuring plan.

As part of its restructuring plans, primarily duringthe fourth 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.

F-40

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**16.**   Restructuring Charges (Continued)

No restructuring chargeswere incurred or recorded in 2003 or 2002. Activity related to the Company’srestructuring accruals for the years ended December 31, 2003, 2002 and2001, was as follows:
| ** **                         | ** ** | **Severance and   Related Costs** | ** ** | **Lease Obligations   and Related Costs** | ** ** | **Total** | ** ** |
|------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------|------------|-----------|------------|
| Initial charge                     |       |                                             | $          | 5,153                                                         |       |      |       | $ | 5,799 |   |   | $ | 10,952 |   |
| Cash payments                      |       |                                             | 3,304      |                                                          |       |      | 822        |   |   | 4,126 |   |
| Balance at  December 31, 2001 |       |                                             | 1,849      |                                                          |       |      | 4,977      |   |   | 6,826 |   |
| Cash payments                      |       |                                             | 1,849      |                                                          |       |      | 2,368      |   |   | 4,217 |   |
| Balance at December 31,  2002 |       |                                             | —     |                                                          |       |      | 2,609      |   |   | 2,609 |   |
| Cash payments                      |       |                                             | —     |                                                          |       |      | 745        |   |   | 745 |   |
| Balance at  December 31, 2003 |       |                                             | $          | —                                                        |       |      |       | $ | 1,864 |   |   | $ | 1,864 |   |

 

**17.   Related PartyTransactions**

In 2003, 2002 and 2001, the Company derived 2%, 4%,and 6%, respectively, of its total revenues from services provided principallyto one current and one former stockholder of the Company. In addition, in 2003,2002 and 2001, the Company derived 2%, 1% and less than 1%, respectively, ofits total revenues from services provided to a customer of which one of theCompany’s directors is an officer.

The Company has agreementsto provide development and brokerage services to certain of its unconsolidatedsubsidiaries accounted for under the equity method under terms that the Companybelieves are consistent with the terms in similar agreements with unrelatedparties. In each of the years ended December 31, 2003, 2002 and 2001, theCompany derived 1% of its total revenues from such unconsolidated subsidiaries.

**18.   FinancialInstruments**

As required under the Company’s Credit Facility, theCompany has entered into various interest rate agreements to manage marketrisks related to changes in interest rates. The Company’s participation inderivative transactions has been limited to hedging purposes. Derivativeinstruments are not held or issued for trading purposes.

On March 24, 2000, the Company renewed anexisting interest rate swap agreement for a 12-month period ending March 24,2001, with a notional amount of $150,000 through June 26, 2000, a notionalamount of $125,000 through September 25, 2000, and a notional amount of$100,000 through March 24, 2001. This interest rate swap agreementestablished a fixed interest pay rate of 6.65% on a portion of the Company’svariable rate debt. On March 24, 2001, the interest rate swap agreementwas renewed for a 24-month period ending March 24, 2003, with a notionalamount of $150,000. This interest rate swap agreement established a fixedinterest pay rate of 4.68% on a portion of the Company’s variable rate debt.Under these interest rate swap agreements, if the actual LIBOR-based ratewas less than the specified fixed interest rate, the Company was obligated topay the differential interest amount, such amount being recorded as incrementalinterest expense. Conversely, if the LIBOR-based rate was greater thanthe specified fixed interest rate, the differential interest amount was paid tothe Company and recorded as a 

F-41

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**18.**   FinancialInstruments (Continued)

reduction of interestexpense. The weighted average receive rates under the interest rate swapagreement for 2003, 2002 and 2001 were 1.37%, 1.80% and 4.07%, respectively. Inconnection with these agreements, the Company recorded incremental interestexpense, excluding the liability reduction described below, of $567 in 2003,$765 in 2002 and $848 in 2001. Since the interest rate swap agreement expiredon March 24, 2003, there was no related interest expense recorded in thenine months ended December 31, 2003.

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. The Company recorded payments of $588, $3,611 and$609 in 2003, 2002 and 2001, respectively, against its liability that wouldhave been recorded to interest expense had the interest rate swap agreementbeen designated as a hedge since its inception. Changes in the fair value ofthe interest rate swap agreement attributable to changes in benchmark marketinterest rates represent the effective portion of the hedge relationship andwere recorded in other comprehensive income in accordance with FAS 133.Any hedge ineffectiveness was recorded in current period earnings. The interestrate swap agreement expired on March 24, 2003, therefore the liabilitybalance is zero at December 31, 2003.

On September 1, 2002, as a result of a decreasein the Company’s floating interest rate debt, the Company dedesignated $50,000of the interest rate swap agreement previously designated as a hedge in orderto maintain the relationship between the notional amount of the designatedportion of the interest rate swap agreement and the amount of the Company’sfloating rate debt. On November 30, 2002, an additional $25,000 wasdedesignated. By dedesignating a portion of the interest rate swap agreement asa hedge, the remaining designated portion was still deemed an effective hedge.As a result of these changes, the Company recognized $(4) and $72 ofexpense in the years ended December 31, 2003 and 2002, respectively,related to the change in fair value of the portion of the interest rate swapagreement that is not designated as a hedge.

In March 2003, the Company entered into aninterest rate cap agreement in order to limit its interest expense on a constructionloan with a 30-day LIBOR-based floating interest rate related to consolidatedreal estate project. The interest rate cap agreement has a notional amount of$11,400 and the Company will receive payments if the LIBOR-based interest rateexceeds 3.5%. The interest rate cap agreement has not been designated as aneffective hedge, and therefore the interest rate cap agreement will be markedto market each period with the change in fair market value recognized incurrent period earnings. The 

F-42

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**18.**   FinancialInstruments (Continued)

interest rate capagreement expires on March 1, 2005. Through December 31, 2003,amounts recorded by the Company related to this interest rate cap agreementwere not material.

The Company holds a mandatorily redeemable financialinstrument related to a consolidated real estate project. 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 mortgage loan on the property and certain otherdistribution preferences to the Company, with no maximum amount specified inthe instrument. The instrument is redeemable at the discretion of the formerlenders upon sale of the real estate project, refinancing of the mortgage loanor maturity of the instrument, which was extended to September 28, 2006when the underlying mortgage loan was extended in February 2004 (see Note7). As of December 31, 2003, the fair value of the financial instrument iszero, based on hypothetical liquidation of the underlying real estate projecton December 31, 2003.

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.

**19.   Commitments andContingencies**

At December 31, 2003, the Company has guaranteedrepayment of a maximum of $5,725 of real estate notes payable of itsunconsolidated subsidiaries of which $4,893 of the underlying notes payable isoutstanding as of December 31, 2003. These notes are secured by the underlyingreal estate and have maturity dates through May 2005. The Company did notissue or modify any guarantees in 2003 that were required to be recorded atfair value in the Company’s financial statements.

The Company has a commitment to loan up to $4,500 toan unconsolidated subsidiary, of which $1,500 was funded in the first quarterof 2003. The remaining commitment of $3,000 was funded in January 2004.Loans made under the commitment accrue interest from the date advanced untilthe date repaid at an annual rate of 18% through June 30, 2004, andthereafter at an annual rate of 25%. The loans are due and payable on June 16,2006, but may be repaid prior to such date should the unconsolidated subsidiaryobtain alternate financing from a third party lender. Repayment of the loans issubordinate to other debt and the unconsolidated subsidiary’s obligations topay certain preferred returns.

At December 31, 2003, the Company has outstandingletters of credit totaling $15,917, of which $5,044 collateralizes amountsrecorded in other current liabilities. The letters of credit expire at varyingdates through January 2005.

In addition, at December 31, 2003, the Companyhas numerous 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, which are intended to passthe budget risk to such contractors. Management does not expect to incur anymaterial losses under these guarantees.

F-43

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**19.**   Commitments andContingencies (Continued)

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

The Company and one of itssubsidiaries are defendants in a lawsuit styled* **Bank One Oklahoma, N.A.*(the “Bank”)*, et al. v.Trammell Crow Services, Inc. and Trammell Crow Company*, No. 03C 3624, 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$15,000. The plaintiffs seek to recover actual damages, punitive damages andreasonable attorneys’ fees. The suit is in the process of discovery, and notrial date has been set. As of the date of this Form 10-K, the outcome ofthe suit cannot be predicted with any certainty, and the Company cannot at thistime estimate an amount or range of potential loss in the event of anunfavorable outcome. While the Company cannot predict with any certainty theoutcome of this matter, the Company currently believes the plaintiffs’ claimsare 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 bedetermined. However, based on the information currently available, the Companydoes not believe that the resolution of any such matters to which it iscurrently a party will have a material adverse effect on the Company’s resultsof operations, financial condition or liquidity.

F-44

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**20.   SupplementalCash Flow Information**

Supplementalcash flow information is summarized below for the three years ended December 31:
| ** **                                                                                  | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|---------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Interest paid                                                                               |       | $        | 8,347      |     | $          | 10,875   |       | $ | 15,330 |   |
| Income taxes paid                                                                           |       | 8,998    |       | 8,611    |       | 13,232   |       |
| Non cash activities:                                                                        |       |     |       |     |       |     |       |
| Issuance of restricted stock, net of forfeitures                                            |       | 12,289   |       | (77      | )          | (322     | )          |
| Capital lease obligations                                                                   |       | 2,161    |       | 1,180    |       | 3,062    |       |
| Recognition of deferred gains related to  dispositions in previous periods                  |       | 339      |       | 941      |       | 281      |       |
| Writeoff of furniture and equipment against prior  year restructuring reserve               |       | —   |       | 876      |       | —   |       |
| Conversion to  equity of note payable to minority shareholder of consolidated joint venture |       | —   |       | 2,406    |       | —   |       |
|                                                                                             |            |          |            |          |            |          |            |  |  |  |

 

**21.**   Segment Information

*Description of Services 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.

*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 in specificgeographic areas, as non-development services provided to user and investorcustomers often require similar expertise.

F-45

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**21.**   Segment Information (Continued)

Approximately 97%of the Company’s revenues are from customers located in the United States. In2003, one individual customer accounts for $73,668, or 10%, of the Company’sconsolidated revenues. Revenues from this customer are included primarily inthe Company’s Global Services segment.  No individual customer accounted for more than10% of the Company’s consolidated revenues in 2002 or 2001.

Summarized financialinformation for reportable segments is as follows:
| ** **                                                                                                                                         | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                                         | ** ** | **2003**                                    | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Global Services:**                                                                                                                               |       |                                        |       |   |   |   |   |
| Total revenues                                                                                                                                     |       | $                                           | 650,480    |   | $ | 657,114 |   | $ | 677,209 |   |
| Costs and  expenses(1)                                                                                                                             |       | 628,234                                     |       | 648,293 |   | 697,224 |   |
| Income (loss) from continuing operations before  income taxes, minority interest and income from investments in unconsolidated  subsidiaries  |       | 22,246                                      |       | 8,821 |   | (20,015 | ) |
| Minority  interest, before income taxes                                                                                                            |       | 675                                         |       | 3,323 |   | 3,872 |   |
| Income from  investments in unconsolidated subsidiaries, before income taxes                                                                       |       | 3,913                                       |       | 1,789 |   | 1,719 |   |
| Income (loss) from  continuing operations, before income taxes                                                                                     |       | 26,834                                      |       | 13,933 |   | (14,424 | ) |
| Discontinued  operations, before income taxes                                                                                                      |       | 376                                         |       | 791 |   | — |   |
| Income (loss)  before income taxes                                                                                                                 |       | 27,210                                      |       | 14,724 |   | (14,424 | ) |
| Writedowns due to  impairment of goodwill, intangibles and investments                                                                             |       | —                                      |       | — |   | 27,561 |   |
| Minority interest  related to goodwill writedowns                                                                                                  |       | —                                      |       | — |   | (2,346 | ) |
| Change in fair  value of interest rate swap agreement                                                                                              |       | —                                      |       | — |   | 3,917 |   |
| Restructuring  charges                                                                                                                             |       | —                                      |       | — |   | 8,237 |   |
| Income before income taxes, as adjusted(2)                                                                                                         |       | $                                           | 27,210     |   | $ | 14,724 |   | $ | 22,945 |   |

 

F-46

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**21.**   SegmentInformation (Continued)
| ** **                                                                                                                                         | ** ** | **Years Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                                         | ** ** | **2003**                                    | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Development  and Investment:**                                                                                                                   |       |                                        |       |   |   |   |   |   |
| Total revenues                                                                                                                                     |       | 57,352                                      |       | 76,982 |   | 102,442 |   |   |
| Costs and  expenses(1)                                                                                                                             |       | 67,500                                      |       | 73,683 |   | 100,128 |   |   |
| Income (loss) from continuing operations before  income taxes, minority interest and income from investments in unconsolidated  subsidiaries  |       | (10,148                                     | )          | 3,299 |   | 2,314 |   |   |
| Minority  interest, before income taxes                                                                                                            |       | 1,395                                       |       | (402 | ) | (2,330 | ) |   |
| Income from  investments in unconsolidated subsidiaries, before income taxes                                                                       |       | 12,637                                      |       | 7,160 |   | 8,303 |   |   |
| Income from  continuing operations, before income taxes                                                                                            |       | 3,884                                       |       | 10,057 |   | 8,287 |   |   |
| Discontinued  operations, before income taxes                                                                                                      |       | 4,296                                       |       | 5,263 |   | — |   |   |
| Income before  income taxes                                                                                                                        |       | 8,180                                       |       | 15,320 |   | 8,287 |   |
| Writedowns due to  impairment of goodwill, intangibles and investments                                                                             |       | —                                      |       | — |   | 4,407 |   |
| Minority interest  related to goodwill writedowns                                                                                                  |       | —                                      |       | — |   | — |   |
| Change in fair  value of interest rate swap agreement                                                                                              |       | —                                      |       | — |   | 892 |   |
| Restructuring  charges                                                                                                                             |       | —                                      |       | — |   | 2,715 |   |
| Income before income taxes, as adjusted(2)                                                                                                         |       | $                                           | 8,180      |   | $ | 15,320 |   | $ | 16,301 |   |
| **Total:**                                                                                                                                         |       |                                        |       |   |   |   |   |
| Total revenues                                                                                                                                     |       | $                                           | 707,832    |   | $ | 734,096 |   | $ | 779,651 |   |
| Costs and  expenses(1)                                                                                                                             |       | 695,734                                     |       | 721,976 |   | 797,352 |   |
| Income (loss)  from continuing operations before income taxes, minority interest and income  from investments in unconsolidated subsidiaries  |       | 12,098                                      |       | 12,120 |   | (17,701 | ) |
| Minority  interest, before income taxes                                                                                                            |       | 2,070                                       |       | 2,921 |   | 1,542 |   |
| Income from  investments in unconsolidated subsidiaries, before income taxes                                                                       |       | 16,550                                      |       | 8,949 |   | 10,022 |   |
| Income (loss) from  continuing operations, before income taxes                                                                                     |       | 30,718                                      |       | 23,990 |   | (6,137 | ) |
| Discontinued  operations, before income taxes                                                                                                      |       | 4,672                                       |       | 6,054 |   | — |   |
| Income (loss)  before income taxes                                                                                                                 |       | 35,390                                      |       | 30,044 |   | (6,137 | ) |
| Writedowns due to  impairment of goodwill, intangibles and investments                                                                             |       | —                                      |       | — |   | 31,968 |   |
| Minority interest  related to goodwill writedowns                                                                                                  |       | —                                      |       | — |   | (2,346 | ) |
| Change in fair  value of interest rate swap agreement                                                                                              |       | —                                      |       | — |   | 4,809 |   |
| Restructuring  charges                                                                                                                             |       | —                                      |       | — |   | 10,952 |   |
| Income before  income taxes, as adjusted(2)                                                                                                        |       | $                                           | 35,390     |   | $ | 30,044 |   | $ | 39,246 |   |
|                                                                                                                                                    |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-47

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**21.**   Segment Information (Continued)
| ** **                  | ** ** | **December 31**                                     | ** ** |
|-----------------------------|------------|----------------------------------------------------------|------------|
| ** **                  | ** ** | **    2003    ** | ** ** | **    2002    ** | ** ** |
| **Total  Assets:**          |       |                                                     |       |   |   |
| Global Services             |       | $                                                        | 296,876    |   | $ | 253,018 |   |
| Development and  Investment |       | 333,250                                                  |       | 369,048 |   |
| Total  consolidated assets  |       | $                                                        | 630,126    |   | $ | 622,066 |   |

----

(1)          Costs and expensesinclude non-cash compensation expense related to the amortization of employmentcontracts and unearned stock compensation of $3,701, $2,319 and $2,516 relatedto the Global Services segment and $1,402, $148 and $364 related to theDevelopment and Investment segment in 2003, 2002 and 2001, respectively.

(2)          Incomebefore income taxes, as adjusted, represents pre-tax income before writedownsdue to impairment of goodwill, intangibles and investments, net of relatedminority interest, the change in fair value of the Company’s interest rate swapagreement and restructuring charges. Management excludes the effects of theseitems to provide a meaningful measure of the operating performance of theCompany and its segments, in addition to utilizing this information in makingdecisions regarding resource allocation among its segments. This measure maydiffer from similarly titled items reported by other companies.

F-48

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**TRAMMELL CROW COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**December 31, 2003 (in thousands, except share and per share data)**

**22.   UnauditedInterim Financial Information**

Unauditedsummarized financial information by quarter is as follows:
| ** **                                                          | ** ** | **Quarter Ended**  | ** ** |
|---------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                          | ** ** | **March 31**       | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                                          | ** ** | **(in thousands)** | ** ** |
| **2003:**                                                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                                      |       | $                       | 160,785    |   | $ | 169,305 |   |   | $ | 167,272 |   |   |   | $ | 210,470 |   |   |
| Income (loss)  from discontinued operations, net of income taxes(1) |       | 879                     |       | 12 |   |   | (167 | ) |   |   | 2,054 |   |   |
| Net income                                                          |       | 1,144                   |       | 3,072 |   |   | 1,783 |   |   |   | 15,041 |   |   |
| Net income per share:                                               |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                               |       | $                       | 0.03       |   | $ | 0.09 |   |   | $ | 0.05 |   |   |   | $ | 0.42 |   |   |
| Diluted                                                             |       | $                       | 0.03       |   | $ | 0.08 |   |   | $ | 0.05 |   |   |   | $ | 0.41 |   |   |
| **2002:**                                                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                                      |       | $                       | 172,127    |   | $ | 178,941 |   |   | $ | 177,489 |   |   |   | $ | 205,539 |   |   |
| Income (loss)  from discontinued operations, net of income taxes(1) |       | (22                     | )          | (14 | ) |   | 844 |   |   |   | 2,547 |   |   |
| Net income                                                          |       | 196                     |       | 3,744 |   |   | 3,731 |   |   |   | 8,982 | (2) |   |
| Net income per share:                                               |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                               |       | $                       | 0.01       |   | $ | 0.11 |   |   | $ | 0.10 |   |   |   | $ | 0.25 | (2) |   |
| Diluted                                                             |       | $                       | 0.01       |   | $ | 0.10 |   |   | $ | 0.10 |   |   |   | $ | 0.24 | (2) |   |

----

(1)          Discontinuedoperations include the operations of real estate properties and gain ondisposition of real estate properties held for sale or sold in which theCompany retained or expects to retain no continuing involvement, in accordancewith FAS 144.

(2)          Inthe fourth quarter of 2002, the Company recorded $1,260 of provision for losseson real estate and a $212 charge to income from investments in unconsolidatedsubsidiaries (before income taxes) as a result of reclassifying certain assetspreviously classified as real estate held for sale to real estate held forinvestment, partially offset by $514 of related minority interest, inaccordance with FAS 144 (see Note 2).

F-49

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**TRAMMELL CROW COMPANY AND SUBSIDIARIESSCHEDULE III—REAL ESTATE INVESTMENTS AND ACCUMULATEDDEPRECIATIONDecember 31, 2003(In thousands)**
| ** **      | ** ** | ** ** | ** ** | **Initial Cost**     | ** ** | ** ** | ** ** | **Balance at December 31, 2003** | ** ** | ** ** | ** ** | ** **                      | ** ** | ** ** | ** ** |
|-----------------|------------|------------|------------|---------------------------|------------|------------|------------|------------------------------------------------------|------------|------------|------------|---------------------------------|------------|------------|------------|
| ** **      | ** ** | ** ** | ** ** | ** **                | ** ** | **Costs**  | ** ** | ** **                                           | ** ** | ** ** | ** ** | ** **                      | ** ** | ** ** | ** ** |
| **Description** | ** ** | ** ** | ** ** | **Related  Encumbrances** | ** ** | **Land**   | ** ** | **Buildings  and  Improvements**                     | ** ** | **Other**  | ** ** | **Subsequent  to  Acquisition** | ** ** | **Land**   | ** ** | **Buildings  and  Improvements** | ** ** | **Other** | ** ** | **Total(A),  (D),(E)** | ** ** | **Accumulated  Depreciation** | ** ** | **Depreciable  Lives in  Years(B)** | ** ** | **Date of  Construction** | ** ** | **Date  Acquired** | ** ** |
|                 |            |            |            |                           |            |            |            |                                                      |            |            |            |                                 |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **REAL ESTATE UNDER DEVELOPMENT (CURRENT)**       | ** ** |   | ** ** |   |   | ** ** | ** ** |   | ** ** |   |   |   |   |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | ** ** |   |   |   |   |   |   |
|---------------------------------------------------|------------|--------|------------|--------|--------|------------|------------|--------|------------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|------------|--------|--------|--------|--------|--------|--------|
| **Retail**                                        |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| Fairway Center, Pasadena, TX                      |       |   | —     |   |   | 1,167      |       |   | —     |   |   |   | — |   |   |   | 3,136      |   |   | 2,318  |   |   | 1,985  |   |   |   | — |   |   |   | 4,303  |   |   |   | — |   |   |   | —     |   |   |   | 2003       |   |   |   | 2001   |   |   |
| Parmer Lane Village, Austin, TX                   |       |   | 187        |   |   | 252        |       |   | —     |   |   |   | — |   |   |   | 168        |   |   | 313    |   |   | 107    |   |   |   | — |   |   |   | 420    |   |   |   | — |   |   |   | —     |   |   |   | 2003       |   |   |   | 2003   |   |   |
| Plaza Volente, Austin, TX                         |       |   | 2,626      |   |   | 4,410      |       |   | —     |   |   |   | — |   |   |   | 829        |   |   | 5,197  |   |   | 42     |   |   |   | — |   |   |   | 5,239  |   |   |   | — |   |   |   | —     |   |   |   | 2003       |   |   |   | 2003   |   |   |
| **Office**                                        |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| Rockwall Heath Medical Office Building, Heath, TX |       |   | 1          |   |   | 163        |       |   | —     |   |   |   | — |   |   |   | 162        |   |   | 163    |   |   | 162    |   |   |   | — |   |   |   | 325    |   |   |   | — |   |   |   | —     |   |   |   | 2003       |   |   |   | 2003   |   |   |
| **Industrial**                                    |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| South River One, Cranbury Township, NJ            |       |   | 3,021      |   |   | 2,206      |       |   | —     |   |   |   | — |   |   |   | 704        |   |   | 2,262  |   |   | 648    |   |   |   | — |   |   |   | 2,910  |   |   |   | — |   |   |   | —     |   |   |   | 2003       |   |   |   | 2003   |   |   |
| **Residential (Multi-Family)**                    |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| High Street Columbia,  Washington, D.C.           |       |   | 34,924     |   |   | 19,169     |       |   | 7,693      |   |   |   | — |   |   |   | 9,150      |   |   | 22,927 |   |   | 13,085 |   |   |   | — |   |   |   | 36,012 |   |   |   | — |   |   |   | —     |   |   |   | 2002       |   |   |   | 2002   |   |   |
| **REAL ESTATE HELD FOR SALE**                     | ** ** |   | ** ** |   |   | ** ** | ** ** |   | ** ** |   |   |   |   |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |   |   |   | ** ** |   |   |   |   |   |   |
| **Industrial**                                    |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| Broadway Trade Center, San Antonio, TX            |       |   | 10,555     |   |   | 1,079      |       |   | 9,861      |   |   |   | — |   |   |   | (385       | )      |   | 1,075  |   |   | 9,480  |   |   |   | — |   |   |   | 10,555 | (C)    |   |   | — |   |   |   | —     |   |   |   | 2001       |   |   |   | 2001   |   |   |
| **Land**                                          |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| Killeen, Killeen, TX                              |       |   | —     |   |   | 490        |       |   | —     |   |   |   | — |   |   |   | 3          |   |   | 493    |   |   | — |   |   |   | — |   |   |   | 493    |   |   |   | — |   |   |   | —     |   |   |   | N/A        |   |   |   | 1999   |   |   |
| Hampden Town Center, Denver, CO                   |       |   | 1,750      |   |   | —     |       |   | —     |   |   |   | — |   |   |   | 844        |   |   | 844    |   |   | — |   |   |   | — |   |   |   | 844    |   |   |   | — |   |   |   | —     |   |   |   | N/A        |   |   |   | 1999   |   |   |
| Sierra Corporate Center, Reno, NV                 |       |   | —     |   |   | 300        |       |   | —     |   |   |   | — |   |   |   | 232        |   |   | 532    |   |   | — |   |   |   | — |   |   |   | 532    |   |   |   | — |   |   |   | —     |   |   |   | N/A        |   |   |   | 1999   |   |   |
| Wood Village, Portland, OR                        |       |   | —     |   |   | 748        |       |   | —     |   |   |   | — |   |   |   | 154        |   |   | 902    |   |   | — |   |   |   | — |   |   |   | 902    | (C)    |   |   | — |   |   |   | —     |   |   |   | N/A        |   |   |   | 2000   |   |   |
| **REAL ESTATE UNDER DEVELOPMENT (NON-CURRENT)**   |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| **Retail**                                        |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| Rosewood, Houston, TX                             |       |   | 998        |   |   | 1,363      |       |   | —     |   |   |   | — |   |   |   | 2,211      |   |   | 2,989  |   |   | 585    |   |   |   | — |   |   |   | 3,574  |   |   |   | — |   |   |   | —     |   |   |   | 2002       |   |   |   | 2002   |   |   |
| **Land**                                          |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| Fairway Center, Pasadena, TX                      |       |   | —     |   |   | 1,546      |       |   | —     |   |   |   | — |   |   |   | 1,225      |   |   | 2,771  |   |   | — |   |   |   | — |   |   |   | 2,771  |   |   |   | — |   |   |   | —     |   |   |   | N/A        |   |   |   | 2001   |   |   |
| **REAL ESTATE HELD FOR INVESTMENT**               |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| **Retail**                                        |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| Westview Plaza, Lebanon, TN                       |       |   | 1,984      |   |   | 788        |       |   | 1,822      |   |   |   | — |   |   |   | 159        |   |   | 788    |   |   | 1,981  |   |   |   | — |   |   |   | 2,769  |   |   |   | (65    | )      |   |   | 39         |   |   |   | 1987       |   |   |   | 1999   |   |   |
| **Office**                                        |       |   |       |   |   |       |       |   |       |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |       |   |   |   |   |   |   |
| 411 W. Seventh, Fort Worth, TX                    |       |   | 1,945      |   |   | 325        |       |   | 2,400      |   |   |   | — |   |   |   | 561        |   |   | 325    |   |   | 2,961  |   |   |   | — |   |   |   | 3,286  |   |   |   | (73    | )      |   |   | 39         |   |   |   | 2000       |   |   |   | 2000   |   |   |
| Freeport #2, Irving, TX                           |       |   | 13,268     |   |   | 2,619      |       |   | —     |   |   |   | — |   |   |   | 12,937     |   |   | 2,945  |   |   | 12,611 |   |   |   | — |   |   |   | 15,556 |   |   |   | (350   | )      |   |   | 39         |   |   |   | 1998       |   |   |   | 1998   |   |   |
| Meridian Tower, Tulsa, OK                         |       |   | 6,077      |   |   | 1,200      |       |   | 7,489      |   |   |   | — |   |   |   | 830        |   |   | 1,200  |   |   | 8,319  |   |   |   | — |   |   |   | 9,519  |   |   |   | (224   | )      |   |   | 39         |   |   |   | 1981       |   |   |   | 2001   |   |   |

 

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**TRAMMELL CROW COMPANY AND SUBSIDIARIESSCHEDULE III—REALESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION (Continued)December 31, 2003(In thousands)**
| ** **      | ** ** | ** ** | ** **                | **Initial Cost** | ** ** | ** ** | ** **                       | ** ** | **Balance at December 31, 2003** | ** ** | ** **                      | ** ** | ** ** | ** ** | ** **                       | ** ** |
|-----------------|------------|------------|---------------------------|-----------------------|------------|------------|----------------------------------|------------|------------------------------------------------------|------------|---------------------------------|------------|------------|------------|----------------------------------|------------|
| ** **      | ** ** | ** ** | ** **                | ** **            | ** ** | ** ** | ** **                       | ** ** | ** **                                           | **Costs**  | ** **                      | ** ** | ** ** | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** |
| **Description** | ** ** | ** ** | **Related  Encumbrances** | ** **            | **Land**   | ** ** | **Buildings  and  Improvements** | ** ** | **Other**                                            | ** ** | **Subsequent  to  Acquisition** | ** ** | **Land**   | ** ** | **Buildings  and  Improvements** | ** ** | **Other** | ** ** | **Total(A),  (D),(E)** | ** ** | **Accumulated  Depreciation** | ** ** | **Depreciable  Lives in  Years(B)** | ** ** | **Date of  Construction** | ** ** | **Date  Acquired** | ** ** |
|                 |            |            |                           |                       |            |            |                                  |            |                                                      |            |                                 |            |            |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| **REAL ESTATE HELD FOR INVESTMENT (Continued)** |   |   | $      | 0       |   |   | $      | 0      |   |   | $      | 0      |   |   |   | $      | 0      |   |   |   | $      | 0      |   |   | $      | 0       |   |   | $      | 0      |   |   |   | $      | 0      |   |   |   | $      | 0       |   |   |   | $      | 0      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| **Industrial**                                  |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |
| 82 Inverness, Denver, CO                        |   |   | 3,628  |    |   | 1,530  |   |   | 3,812  |   |   |   | — |   |   |   | (2,244 | )      |   | 1,530  |   |   | 1,568  |   |   |    | — |   |   |   | 3,098  |   |   |   | (98    | )      |   |   | 39     |    |   |   | 1979   |   |   |   | 2001   |   |   |
| Barton, Lenexa, KS                              |   |   | — |    |   | 198    |   |   | 535    |   |   |   | 40     |   |   |   | — |   |   | 198    |   |   | 548    |   |   |    | 27     |   |   |   | 773    |   |   |   | (6     | )      |   |   | 39     |    |   |   | 1989   |   |   |   | 2003   |   |   |
| Kearney Villa, San Diego, CA                    |   |   | 8,978  |    |   | 5,300  |   |   | 7,200  |   |   |   | — |   |   |   | (1,477 | )      |   | 5,300  |   |   | 5,723  |   |   |    | — |   |   |   | 11,023 |   |   |   | (95    | )      |   |   | 39     |    |   |   | 1981   |   |   |   | 2001   |   |   |
| TCDFW Division, Arlington, TX                   |   |   | 2,027  |    |   | 1,175  |   |   | 2,446  |   |   |   | 234    |   |   |   | (191   | )      |   | 1,175  |   |   | 2,489  |   |   |    | — |   |   |   | 3,664  |   |   |   | (42    | )      |   |   | 39     |    |   |   | 1971   |   |   |   | 2003   |   |   |
| TCDFW Division–Ave E, Arlington, TX        |   |   | 965    |    |   | 445    |   |   | 1,162  |   |   |   | — |   |   |   | 140    |   |   | 445    |   |   | 1,302  |   |   |    | — |   |   |   | 1,747  |   |   |   | (22    | )      |   |   | 39     |    |   |   | 1968   |   |   |   | 2003   |   |   |
| TCDFW Division–Ave F, Arlington, TX        |   |   | 1,953  |    |   | 1,370  |   |   | 1,970  |   |   |   | 226    |   |   |   | (43    | )      |   | 1,371  |   |   | 2,055  |   |   |    | 97     |   |   |   | 3,523  |   |   |   | (35    | )      |   |   | 39     |    |   |   | 1960   |   |   |   | 2003   |   |   |
| Walnut Creek, Austin, TX                        |   |   | 1,805  |    |   | 716    |   |   | — |   |   |   | — |   |   |   | 1,867  |   |   | 720    |   |   | 1,863  |   |   |    | — |   |   |   | 2,583  |   |   |   | (56    | )      |   |   | 39     |    |   |   | 2000   |   |   |   | 2000   |   |   |
| **Land**                                        |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |   |   |
| Arrowwood, Charlotte, NC                        |   |   | — |    |   | 321    |   |   | — |   |   |   | — |   |   |   | — |   |   | 321    |   |   | — |   |   |    | — |   |   |   | 321    |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 1999   |   |   |
| Ballpark Way, Houston, TX                       |   |   | 5,380  |    |   | 6,401  |   |   | — |   |   |   | — |   |   |   | 1,634  |   |   | 8,035  |   |   | — |   |   |    | — |   |   |   | 8,035  |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2000   |   |   |
| Bee Caves, Austin, TX                           |   |   | — |    |   | 153    |   |   | — |   |   |   | — |   |   |   | 10     |   |   | 163    |   |   | — |   |   |    | — |   |   |   | 163    |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2003   |   |   |
| Cameron, Alexandria, VA                         |   |   | — |    |   | 3,359  |   |   | — |   |   |   | — |   |   |   | 3,102  |   |   | 6,461  |   |   | — |   |   |    | — |   |   |   | 6,461  |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2000   |   |   |
| Cleveland, Cleveland, TN                        |   |   | — |    |   | 260    |   |   | — |   |   |   | — |   |   |   | (60    | )      |   | 200    |   |   | — |   |   |    | — |   |   |   | 200    |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 1996   |   |   |
| DC Land, Douglas County, CO                     |   |   | — |    |   | 1,888  |   |   | — |   |   |   | — |   |   |   | 2,917  |   |   | 4,805  |   |   | — |   |   |    | — |   |   |   | 4,805  |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 1999   |   |   |
| Fairway Center, Pasadena, TX                    |   |   | — |    |   | 875    |   |   | — |   |   |   | — |   |   |   | 660    |   |   | 1,535  |   |   | — |   |   |    | — |   |   |   | 1,535  |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2001   |   |   |
| Glendale & 91st, Phoenix, AZ                |   |   | 398    |    |   | 6,788  |   |   | — |   |   |   | — |   |   |   | 323    |   |   | 7,111  |   |   | — |   |   |    | — |   |   |   | 7,111  |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2001   |   |   |
| Greenhill, Tulsa, OK                            |   |   | — |    |   | 327    |   |   | — |   |   |   | — |   |   |   | 38     |   |   | 365    |   |   | — |   |   |    | — |   |   |   | 365    |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2002   |   |   |
| Lake Park Plaza, Lewisville, TX                 |   |   | — |    |   | 926    |   |   | — |   |   |   | — |   |   |   | 591    |   |   | 1,517  |   |   | — |   |   |    | — |   |   |   | 1,517  |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 1999   |   |   |
| Lakeline Retail, Cedar Park, TX                 |   |   | — |    |   | 75     |   |   | — |   |   |   | — |   |   |   | (70    | )      |   | 5      |   |   | — |   |   |    | — |   |   |   | 5      |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2000   |   |   |
| Louisiana Station, Denver, CO                   |   |   | 797    |    |   | 1,203  |   |   | — |   |   |   | — |   |   |   | 26     |   |   | 1,229  |   |   | — |   |   |    | — |   |   |   | 1,229  |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2003   |   |   |
| Sierra Corporate Center,  Reno, NV              |   |   | — |    |   | 926    |   |   | — |   |   |   | — |   |   |   | 1,088  |   |   | 2,014  |   |   | — |   |   |    | — |   |   |   | 2,014  |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 1999   |   |   |
| South River Office, Cranbury Township,  NJ      |   |   | — |    |   | 1,061  |   |   | — |   |   |   | — |   |   |   | — |   |   | 1,061  |   |   | — |   |   |    | — |   |   |   | 1,061  |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 1998   |   |   |
| Springtown Mall, Austin, TX                     |   |   | — |    |   | 227    |   |   | — |   |   |   | — |   |   |   | — |   |   | 227    |   |   | — |   |   |    | — |   |   |   | 227    |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 1999   |   |   |
| Square 516S, Washington, D.C.                   |   |   | — |    |   | 926    |   |   | — |   |   |   | — |   |   |   | 4      |   |   | 930    |   |   | — |   |   |    | — |   |   |   | 930    |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2003   |   |   |
| TCDFW LCT, Irving, TX                           |   |   | — |    |   | 3,603  |   |   | — |   |   |   | — |   |   |   | 602    |   |   | 4,205  |   |   | — |   |   |    | — |   |   |   | 4,205  |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2000   |   |   |
| Telco, Englewood, CO                            |   |   | — |    |   | 1,405  |   |   | — |   |   |   | — |   |   |   | (537   | )      |   | 868    |   |   | — |   |   |    | — |   |   |   | 868    |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2000   |   |   |
| Wetmore, San Antonio, TX                        |   |   | — |    |   | 484    |   |   | — |   |   |   | — |   |   |   | 64     |   |   | 548    |   |   | — |   |   |    | — |   |   |   | 548    |   |   |   | — |   |   |   | — |    |   |   | N/A    |   |   |   | 2002   |   |   |
| Total                                           |   |   | $      | 103,267 |   |   | $      | 79,767 |   |   | $      | 46,390 |   |   |   | $      | 500    |   |   |   | $      | 41,364 |   |   | $      | 100,383 |   |   | $      | 67,514 |   |   |   | $      | 124    |   |   |   | $      | 168,021 |   |   |   | $      | (1,066 | )      |   |   |   |   |   |   |   |   |   |   |   |   |   |

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(A)       The aggregate cost for Federal Income tax purposes isapproximately $175 million. 

(B)        Land, real estate under development andreal estate held for sale are not depreciated. 

(C)       Includes an allowance to reflect asset atfair value less cost to sell (Broadway Trade Center—$841 and Wood Village—$207). 

(D)       Includes an adjustment to reflectdepreciation (on assets previously classified as “held for sale”) that wouldhave been recorded had the assets been continuously classified as real estateheld for investment since acquisition (Westview Plaza—$160, 411 W. Seventh—$189, 82 Inverness—$123, Freeport #2—$418, Meridian Tower—$57, and Kearney Villa—$285). 

(E)       Reflects a writedown for impairment (411W. 7th—$222, Inverness—$2,122, Telco—$553, Cleveland—$70, Lakeline—$70,Kearney—$1,395 and Walnut Creek—$258).

 

F-51

 

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**TRAMMELLCROW COMPANY AND SUBSIDIARIESNOTE TO SCHEDULE III—REAL ESTATE INVESTMENTSAND ACCUMULATED DEPRECIATION**

**December 31,2003(In thousands)**

Changesin real estate investments and accumulated depreciation for the three yearsended December 31, 2003, are as follows:
| ** **                       | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Real  estate investments:**    |       |     |       |     |       |     |       |
| Balance at  beginning of year    |       | $        | 174,173    |     | $          | 232,440  |       | $ | 218,179 |   |
| Additions and improvements       |       | 74,609   |       | 103,637  |       | 160,840  |       |
| Dispositions                     |       | (75,858  | )          | (159,270 | )          | (146,159 | )          |
| Other adjustments(1)             |       | (4,903   | )          | (2,634   | )          | (420     | )          |
| Balance at end of  year          |       | $        | 168,021    |     | $          | 174,173  |       | $ | 232,440 |   |
| **Accumulated depreciation(2):** |       |     |       |     |       |     |       |
| Balance at beginning  of year    |       | $        | —     |     |       |     |       |   |
| Depreciation expense             |       | (1,148   | )          |     |       |     |       |
| Dispositions                     |       | 82       |       |     |       |     |       |
| Balance at end of year           |       | $        | (1,066     | )        |       |     |       |   |

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(1)          Includes allowance toreflect certain assets at fair value less cost to sell, writedowns forimpairment, and adjustments to reflect cumulative depreciation on assets thatwere reclassified from “held for sale.”

(2)          Prior to the Company’sadoption of FAS 144 in 2002, all real estate was classified as “held for sale”and therefore not depreciated.

F-52

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