TRAMMELL CROW CO - 10-Q Quarterly Report

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)

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

TRAMMELL CROW COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

TRAMMELL CROW COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2002 (Unaudited) and Year Ended December 31, 2001
(in thousands, except share data)

TRAMMELL CROW COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

TRAMMELL CROW COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

TRAMMELL CROW COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2002

(in thousands, except share and per share data)

(Unaudited)

The condensed consolidated interim financial statements of Trammell Crow Company (the "Company") included herein have been prepared in accordance with the requirements for interim financial statements and do not include all disclosures required under accounting principles generally accepted in the United States ("GAAP") for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2001. In the opinion of management, all adjustments and eliminations, consisting only of recurring adjustments, necessary for a fair presentation of the financial statements for the interim periods have been made. Interim results of operations are not necessarily indicative of the results to be expected for the full year.

The Company has experienced and expects to continue to experience quarterly variations in revenues and net income as a result of several factors. The Company's quarterly revenues tend to increase throughout the year, particularly in the last quarter of the year, because its clients have demonstrated a tendency to close transactions toward the end of the year. The timing and introduction of new contracts, the disposition of investments in real estate assets and other factors may also cause quarterly fluctuations in the Company's results of operations.

The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The Company accounts for income taxes using the liability method. Deferred income taxes result from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for federal and state income tax purposes, and are measured using the enacted tax rates and laws that will be in effect when the differences reverse.

The weighted-average common shares outstanding used to calculate diluted earnings per share for the three and six months ended June 30, 2002, include 1,386,701 and 1,284,151 shares, respectively, to reflect the dilutive effect of options to purchase shares of common stock. The weighted-average common shares outstanding used to calculate diluted earnings per share for the three and six months June 30, 2001, include 1,052,665 and 1,182,647 shares, respectively, to reflect the dilutive effect of options to purchase shares of common stock.

Effective January 1, 2002, the Company adopted Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangibles ("FAS 141/142"). In accordance with these statements, goodwill and intangible assets deemed to have indefinite lives are no

longer amortized but are subject to annual impairment tests. These impairment tests are based on the comparison of the fair value of each of the Company's reporting units to the carrying value of such unit. If the fair value of the reporting unit falls below its carrying value, goodwill is deemed to be impaired and a writedown of goodwill is to be recognized. The Company identified its reporting units to mirror its two segments, Global Services and Development and Investment, as each segment's underlying business units have similar long-term economic characteristics and service deliveries.

The Company has performed the required impairment test as of January 1, 2002, and has determined that no impairment of its goodwill exists. Income before income taxes and net income would have increased $1,216 and $710 ($0.02 per share), respectively, for the three months ended June 30, 2001, and $2,310 and $1,349 ($0.04 per share), respectively, for the six months ended June 30, 2001, had goodwill not been amortized in such period.

In addition, the Company also adopted Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. There was no significant impact on the Company's financial position and results of operations as a result of the adoption.

Effective January 1, 2002, the Company transferred operational responsibility for its e-commerce initiatives to management of the Global Services group, as it views these initiatives as integral parts of its service platform, not as separate businesses. Consequently, the E-Commerce segment reported in 2001 has been included with the Global Services segment in 2002. Amounts related to e-commerce activities for the three and six months ended June 30, 2002, have been presented under this segment format, and have been reclassified to conform to this presentation for the three and six months ended June 30, 2001. These reclassifications did not impact net income (see Note 9).

Certain revenues and expenses for the three and six months ended June 30, 2001, have been reclassified to conform to the presentation for the three and six months ended June 30, 2002. As a result, certain revenue and expense items differ from the amounts reported in previously filed documents. These reclassifications do not impact net income.

During the six months ended June 30, 2002, the Company sold nine real estate projects for an aggregate net sales price of $24,488 resulting in an aggregate gain on disposition of $4,471. In one other transaction, the Company recognized an aggregate of $294 of deferred gain resulting from a disposition in a prior period. During the six months ended June 30, 2001, the Company sold 16 real estate projects for an aggregate net sales price of $40,905, resulting in an aggregate gain on disposition of $3,826. In three other transactions, the Company recognized an aggregate of $741 of deferred gain resulting from dispositions in prior periods.

During the six months ended June 30, 2002, upon substantial completion of two real estate projects under development, the Company and outside partners contributed a total of $2,703 and $30,398, respectively, to the Company's consolidated real estate subsidiaries owning such projects. The funds were used to pay off debt totaling $33,101, and the Company was released from its guarantees of such debt. As it no longer exercised control over the entities, during the six months ended June 30, 2002, the Company began using the equity method of accounting for these two real estate subsidiaries, resulting in a non-cash reduction of real estate held for sale totaling $33,776 and a non-cash increase in investments in unconsolidated subsidiaries totaling $675. Also during the six months ended June 30, 2002, the Company contributed its interest in a real estate project to a new partnership owned 80% by a non-wholly-owned partnership controlled and consolidated by the Company and 20% by partners unrelated to the Company. Because the outside partners control the new partnership, the Company accounts for its interest in this partnership as an equity method investment. The transaction resulted in a non-cash reduction in real estate held for sale totaling $23,711, a non-cash reduction in notes payable on real estate held for sale totaling $9,400, a non-cash reduction in accrued interest totaling $795, a non-cash increase in investment in unconsolidated subsidiaries totaling $18,310, and a non-cash increase in minority interest totaling $4,000. No gains or losses were recognized on these transactions.

During the six months ended June 30, 2001, the Company sold 75% of its interest in a 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 the purchase in the amount of $186. No gain or loss was recognized on this transaction.

The Company owns approximately 10.0% of the outstanding stock of Savills plc ("Savills"), a property services firm headquartered in the United Kingdom and a leading provider of real estate services in Europe, Asia-Pacific and Australia. The investment is accounted for on the equity method and is classified as an "other" investment in the table above.

Summarized operating results for unconsolidated subsidiaries accounted for on the equity method are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2002		2001		2002		2001
Real Estate Development:
Total revenues	$	21,166	$	17,582	$	35,841	$	29,465
Total expenses		12,476		12,760		24,119		20,431

Net income	$	8,690	$	4,822	$	11,722	$	9,034

Other:
Total revenues	$	112,723	$	86,958	$	190,079	$	167,496
Total expenses		107,256		81,874		184,264		157,566

Net income	$	5,467	$	5,084	$	5,815	$	9,930

Total:
Total revenues	$	133,889	$	104,540	$	225,920	$	196,961
Total expenses		119,732		94,634		208,383		177,997

Net income	$	14,157	$	9,906	$	17,537	$	18,964

	June 30, 2002		December 31, 2001
Payroll and bonuses	$	29,090	$	37,175
Commissions		26,822		34,260
Deferred income		11,996		10,706
Development costs		2,069		4,570
Interest		844		1,998
Restructuring charges (See Note 10)		4,168		6,826
Insurance		4,373		1,943
Other		6,301		11,138

	$	85,663	$	108,616

	June 30, 2002		December 31, 2001
Borrowings under the existing $150,000 line of credit with a bank (the "New $150,000 Line")	$	38,000	$	—
Borrowings under the former $150,000 line of credit with a bank (the "Old $150,000 Line")		—		43,000
Borrowings under a $25,000 discretionary line of credit with a bank		—		6,500
Borrowings under a £3,900 short-term borrowing facility with a bank (the "European Facility")		5,917		2,317
Other		3,610		2,350

Total long-term debt		47,527		54,167
Less current portion of long-term debt		9,527		11,167

	$	38,000	$	43,000

During June 2002, the Company entered into the New $150,000 Line, and the Old $150,000 Line was terminated. Borrowings under the New $150,000 Line are due in June 2005, and bear interest at 1) the greater of prime or the Federal Funds Effective Rate plus 0.5%, plus a margin ranging from 0.0% to 0.75%, or 2) the Eurocurrency rate, plus a margin ranging from 1.75% to 2.5%, payable monthly. The interest rate for borrowings under the New $150,000 Line was 3.84% at June 30, 2002.

The shares of certain subsidiaries of the Company, accounting for at least 80% of Adjusted Gross EBITDA, as defined in the New $150,000 Line agreement, are pledged as security for the New $150,000 Line.

The Company is subject to various covenants associated with the New $150,000 Line, such as maintenance of minimum equity and liquidity and certain key financial data. In addition, the Company may not pay dividends or make other distributions on account of its common stock exceeding 50% of the previous year's net income before depreciation and amortization, and there are certain restrictions on investments and acquisitions that can be made by the Company.

The covenants associated with the New $150,000 Line and the amount of the Company's other borrowings and contingent liabilities may have the effect of limiting the credit available to the Company under the New $150,000 Line to an amount less than the $150,000 commitment. At June 30, 2002, the Company has unused borrowing capacity of $78,724 (taking in account letters of credit outstanding and limitations from certain financial covenants) under its New $150,000 Line.

Under the New $150,000 Line, the Company pays a quarterly fee equal to 0.25% of the unused commitments under the line. In addition, the New $150,000 Line requires the Company to enter into one or more interest rate swap agreements for the Company's indebtedness in excess of $30,000 ensuring the net interest is fixed.

Borrowings under the Company's $25,000 discretionary line of credit limit the borrowings under the New $150,000 Line.

The European Facility is held by Trammell Crow Savills Limited, the European outsourcing company jointly owned with Savills. Borrowings under the European Facility are payable on demand and bear interest at the bank's base rate plus 2.75%, payable quarterly. The loan is guaranteed 50% by the Company and 50% by Savills. In addition, the Company and Savills have an agreement under which the Company and Savills would be responsible for 51% and 49%, respectively, of any payments made under such guarantees.

A summary of the Company's stock option activity for the six months ended June 30, 2002, is as follows:

As required under the Company's New $150,000 Line and Old $150,000 Line, the Company entered into an interest rate swap agreement to manage market risks related to changes in interest rates. The Company's participation in derivative transactions has been limited to hedging purposes. Derivative instruments are not held or issued for trading purposes. On March 24, 2000, the Company renewed an existing interest rate swap agreement for a 12-month period ending March 24, 2001, with a notional amount of $100,000. This swap agreement established a fixed interest pay rate of 6.65% on a portion of the Company's variable rate debt. On March 24, 2001, the interest rate swap agreement was renewed for a 24-month period ending March 24, 2003, with a notional amount of $150,000. This swap agreement established a fixed interest pay rate of 4.68% on a portion of the Company's variable rate debt. Under these swap agreements, if the actual LIBOR-based rate is less than the specified fixed interest rate, the Company is obligated to pay the differential interest amount, such amount being

recorded as incremental interest expense. Conversely, if the LIBOR-based rate is greater than the specified fixed interest rate, the differential interest amount is paid to the Company and recorded as a reduction of interest expense. The weighted average receive rates under these swap agreements for the three and six months ended June 30, 2002 were 1.86% and 1.85%, respectively, and 4.48% and 5.17% for the three and six months ended June 30, 2001, respectively. In connection with these agreements, the Company recorded incremental interest expense of $87 and $164 for the three and six months ended June 30, 2002, respectively, excluding the liability reduction described below, and incremental interest expense of $70 and $235 for the three and six months ended June 30, 2001.

As of November 1, 2001, the Company effectively elected hedge accounting treatment as defined by Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, for its interest rate swap agreement. Provided that a specified range of effectiveness is maintained, the effective portion of changes in fair value of the interest rate swap agreement is reported as a separate component of other comprehensive income. Any remaining changes in fair value of the interest rate swap agreement are recognized in current period earnings. Payments under the interest rate swap agreement are charged to the liability recorded prior to the hedge designation, therefore benefiting net income. During the three and six months ended June 30, 2002, the Company recorded $974 and $1,970, respectively, of payments against its liability that would have been recorded to interest expense, had the interest rate swap agreement not been designated as a hedge. The liability balance related to the interest rate swap agreement was $2,931 at June 30, 2002. Prior to November 1, 2001, the interest rate swap agreement was not effectively designated as a hedge (while it was entered into for hedging purposes), and the Company recognized changes in fair value in current period earnings. For the three and six months ended June 30, 2001, $402 was charged to expense related to the change in fair value of the interest rate swap agreement.

At June 30, 2002, the Company has guaranteed $78,152 of real estate notes payable of its unconsolidated subsidiaries. These notes are secured by the underlying real estate and have maturity dates through May 2005. With respect to two of the projects to which these guarantees relate, the Company either has agreements with institutional or investment grade investors to purchase the project and repay the related debt upon completion of the project or has long-term leases with or guaranteed by investment grade companies, which management believes mitigates its risk of incurring any future liability under such guarantees. The aggregate amount the Company has guaranteed with respect to these two projects totals $50,411 at June 30, 2002. In addition, with respect to another project to which these guarantees relate, the outside partner in the project has agreed to indemnify the Company for $6,250 of the $12,500 guarantee in place at June 30, 2002.

At June 30, 2002, the Company has outstanding letters of credit totaling $22,611, of which $5,044 is recorded in other current liabilities and $1,427 collateralizes the Company's guarantee of real estate notes payable of an unconsolidated subsidiary, included in guarantees described above. The letters of credit expire at varying dates through October 2003.

In addition, at June 30, 2002, the Company has numerous completion and budget guarantees relating to development projects. Each of these guarantees requires the Company to complete construction of the relevant project within a specified time frame and/or within a specified budget, with the Company being liable for costs to complete in excess of such budget. However, the Company generally has "guaranteed maximum price" contracts with reputable general contractors, which are intended to pass the budget risk to such contractors. Management does not expect the Company to incur any material losses under these guarantees, nor has the Company historically incurred material losses under similar guarantees.

The Company has a commitment to fund its share of additional capital requirements of Trammell Crow Investment Fund IV, L.P. (an unconsolidated discretionary development and investment fund in which the Company holds a 37% limited partnership interest) upon request of its general partner, Realty Holdings, Inc., up to a maximum of $14,800. Through June 30, 2002, the Company has funded $8,325 of this commitment, which represents all the additional capital contributions requested through such date. The Company also has a commitment to fund its share of additional capital requirements of an unconsolidated subsidiary upon request of the general partner up to a maximum of $2,400, none of which has been requested at June 30, 2002.

The Company and its subsidiaries are defendants in lawsuits that arise in the normal course of business. In management's judgment, the ultimate liability, if any, from such legal proceedings will not have a material effect on the Company's results of operations or financial position.

The Global Services segment includes property and facilities management, brokerage and corporate advisory, and project and construction management services delivered to both corporate and institutional customers. During the first quarter of 2002, the Company transferred operational responsibility for its e-commerce initiatives to management of the Global Services group, as it views these initiatives as integral parts of its services platform, not as separate businesses. Accordingly, the Company's reportable segments have changed in 2002 to report e-commerce initiatives, including related overhead, within its Global Services segment.

The Development and Investment segment includes development activities performed on behalf of institutional and corporate customers on a fee basis, as well as development activity pursuant to which the Company takes an ownership position.

The Company evaluates performance and allocates resources among its two reportable segments based on income before income taxes and EBITDA (as defined in footnote 3 to the table below). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

The Company's reportable segments are defined by the nature of the service provided and activities conducted. Because development services require specialized knowledge, the Company's organizational structure allows the group of individuals with specialized knowledge and experience in development activities to perform these services with greater focus through the Company's Development and Investment segment. The organizational structure of the Global Services segment allows the Company to leverage resources in specific geographic areas, as non-development services provided to corporate and institutional customers often require similar expertise.

Substantially all of the Company's revenues are from customers located in the United States. No individual customer accounts for more than 10% of the Company's revenues.

Summarized financial information for the Company's two reportable segments follows:

	June 30, 2002		December 31, 2001(1)
Total Assets:
Global Services	$	296,422	$	331,322
Development and Investment		327,661		367,823

Total consolidated assets	$	624,083	$	699,145

During 2001, the Company announced an internal reorganization of its business designed to consolidate all of the property and facilities management, brokerage and corporate advisory, and construction and project management services delivered to both corporate and institutional customers under a single leadership structure. As part of the reorganization, the Company advised approximately 300 employees across all functions and levels that their jobs were being eliminated as part of a cost-cutting effort focusing on inefficiencies and redundancies. As of June 30, 2002, substantially all of such employees had been terminated under the restructuring plan. In addition, also in 2001, the Company formalized and communicated its previously announced internal reorganization designed to centralize and improve the efficiency of its accounting operations. The accounting restructuring plan contemplated the termination of approximately 200 accounting personnel, 80 of which became ineligible for severance subsequent to the original communication of the plan because the employees resigned or

were placed into open positions or onto new customer accounts. As of June 30, 2002, substantially all of such employees had been terminated pursuant to the accounting restructuring plan.

As part of its restructuring plans, primarily during the fourth quarter of 2001, the Company closed several offices and identified offices with excess space that it intends to sublease to third parties. The Company recorded restructuring charges primarily comprised of lease obligations, costs to sublease excess space (offset by estimated future sublease income) and miscellaneous furniture and equipment writeoffs. These accruals will be relieved over the remaining lease terms of the underlying leases over the next ten years.

No restructuring charges were incurred or recorded in the three and six months ended June 30, 2002. Activity related to the Company's restructuring accruals for the six months ended June 30, 2002 was as follows:

	Severance and related costs		Lease obligations and related costs		Total
Balance at December 31, 2001	$	1,849	$	4,977	$	6,826
Cash payments		1,622		1,036		2,658

Balance at June 30, 2002	$	227	$	3,941	$	4,168

Effective March 1, 2002, the Company sold two retail-related businesses to an affiliate of Faison Enterprises, Inc. (the "Faison Sale"). These businesses were engaged primarily in the development of retail centers and the management and leasing of regional malls and were acquired in 1998 as part of the Company's acquisition of Faison & Associates and Faison Enterprises, Inc. (the "Faison Acquisition"). The Company continues to provide leasing and management services of non-retail assets and certain retail projects under contracts acquired in connection with the Faison Acquisition. The Company retained most of the net working capital in the disposed businesses and carried interests in certain development projects and received approximately $1,825 in exchange for such businesses and related assets upon completion of the transaction. The Faison Sale was motivated by changes in the Company's overall retail strategy, operating losses incurred in portions of these businesses, and declining forecasts for future operations of these businesses (primarily due to the downturn in the real estate investment market and continuing consolidation of regional mall ownership into REIT's, which tend to self-manage their properties). Henry J. Faison, Chairman of the Board of Faison Enterprises, served on the Company's Board of Directors from the time of the Faison Acquisition until May 24, 2002, the day of the Company's 2002 annual meeting of stockholders.

		Six Months Ended June 30,
		2002		2001
Non-cash activities:
	Issuance of restricted stock, net of forfeitures	$	366	$	7
	Capital lease obligations		829		1,516
	Distribution receivable from sale of investment in unconsolidated subsidiary		—		4,425
	Writeoff of fixed assets against prior year reserve		468		—

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company's unaudited Consolidated Financial Statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.

Trammell Crow Company (the "Company") is one of the largest diversified commercial real estate service firms in North America. The Company's business is organized under two separate national leadership structures. The Global Services Group includes substantially all of the property and facilities management, brokerage and corporate advisory, and project and construction management services delivered to both corporate and institutional customers. The Development and Investment Group is a national organization through which substantially all of the Company's real estate, capital markets and investment activities are conducted.

Within the Global Services segment, with approximately 6,200 full-time equivalent ("FTE") employees, the Company provides services to institutional customers (investors that are not typically the primary occupants of the commercial properties with respect to which services are performed) and corporate customers (users of space who are typically the primary occupants of commercial properties, including multinational corporations, hospitals and universities). Management services provided to institutional customers include property management services relating to all aspects of building operations, tenant relations and oversight of building improvement processes. Transaction services provided to institutional customers include brokerage services such as project leasing and investment sales whereby the Company advises buyers, sellers and landlords in connection with the leasing and sale of office, industrial and retail space and land. The management services provided to corporate customers consist primarily of facilities management, which entails providing comprehensive day-to-day occupancy related services, principally to large corporations that occupy commercial facilities in multiple locations. These services include administration and day-to-day maintenance and repair of client-occupied facilities. Transaction services provided to corporate customers include corporate advisory services such as portfolio management and tenant representation. Project management services provided to corporate customers include facility planning and project management, such as construction, space planning, site consolidations, facilities design and workspace moves, adds and changes. Through the Global Services segment, the Company is continuing to focus on opportunities for long-term growth in the service business and is focusing on opportunities to improve customer service and to achieve operating efficiencies associated with the delivery of similar services (for example, property management for institutional customers and facilities management for corporate customers) through a consolidated services organization. From a domestic perspective, the Global Services Group is organized into 14 different geographic "mega-markets," many of which are multi-city. The Company's focus on establishing itself as a dominant brand facilitates the accumulation of strong resources within the "mega-markets."

The Company also conducts activities related to e-commerce including the Company's investments in e-commerce related companies. In 2000, the Company entered into an alliance with other leading real estate service companies to develop e-commerce initiatives that leverage the collective experience and delivery capabilities of the alliance members to benefit their customers and the real estate industry generally. Investments in a web-based procurement platform and a web-based transaction platform, including an Internet listing site for properties available for sale or lease, are intended to make real estate professionals more effective by helping them save time in completing their job responsibilities. Effective January 1, 2002, the Company transferred operational responsibility for its e-commerce related activities to management of the Global Services Group, and, accordingly, the Company now reports these activities in the Global Services segment. E-Commerce activities for 2001 have been reclassified to conform to this presentation and, as a result, differ from amounts previously reported.

Within the Development and Investment segment, encompassing approximately 200 FTE employees, the Company provides development activities and services to both institutional and corporate customers—both those pursuant to which the Company takes an ownership position and those pursuant to which the Company provides development services for others on a fee basis. The Company provides comprehensive project development and construction services and acquires and disposes of commercial real estate projects. The development services provided include financial planning, site acquisition, procurement of approvals and permits, design and engineering coordination, construction bidding and management, tenant finish coordination, project closeout and project finance coordination. The Company will continue to focus its efforts in this area on risk-mitigated opportunities for institutional customers and fee development and build-to-suit projects for corporate customers, including those in higher education and healthcare. With an organization comprised of professionals dedicated fully to development and investment activities, the Company is better positioned to pursue and execute new development business, particularly programmatic business with the Company's large customers, and exploit niche market opportunities.

Results of Operations—Three and Six Months Ended June 30, 2002 Compared to Three and Six Months Ended June 30, 2001

Revenues. The Company's total revenues decreased $11.2 million, or 5.9%, to $179.0 million for the three months ended June 30, 2002, and decreased $15.7 million, or 4.3%, to $347.4 million for the six months ended June 30, 2002, from the comparable periods in the prior year.

Facilities management revenue, which represented 30.1% and 30.8% of the Company's total revenue for the three and six months ended June 30, 2002, respectively, increased $10.9 million, or 25.4%, to $53.8 million for the three months ended June 30, 2002, and increased $22.3 million, or 26.3%, to $107.0 million for the six months ended June 30, 2002, from comparable periods in the prior year. This revenue growth primarily resulted from the addition of several new customers and the expansion of services provided to existing customers. Reimbursement of salaries, wages and benefits comprised $10.9 million and $21.6 million of the overall increase in facilities management revenue in the three and six months ended June 30, 2002, compared to the same periods in 2001. The composition of facilities management revenue, including management fees and reimbursements, can vary significantly from period to period based on the structure of the underlying management agreements in effect in each period.

Corporate advisory services revenue, which represented 13.2% and 13.4% of the Company's total revenue for the three and six months ended June 30, 2002, respectively, decreased $3.2 million, or 11.9%, to $23.7 million for the three months ended June 30, 2002, and decreased $6.2 million, or 11.8%, to $46.5 million for the six months ended June 30, 2002, from the comparable periods in the prior year. The decrease is due to a reduction in transaction volume and value as a result of increasing reluctance on the part of customers and others to make new real estate commitments due to the downturn in the economy and uncertain economic outlook, which have resulted in decreased demand for commercial space.

Revenues from project management services totaled $14.1 million and $26.9 million and represented 7.9% and 7.7%, respectively, of the Company's total revenue for the three and six months ended June 30, 2002, respectively. These revenues increased $2.0 million, or 16.5%, for the three months ended June 30, 2002, and increased $2.8 million, or 11.6%, for the six months ended June 30, 2002, from comparable periods in the prior year. The revenue growth was primarily due to the addition of several new customers and the expansion of services provided to existing customers. This growth was

partially offset by a reduction in project spending by certain corporate customers as a result of the deterioration in the economy.

Property management revenue, which represented 20.2% and 22.0% of the Company's total revenue for the three and six months ended June 30, 2002, respectively, decreased $7.9 million, or 17.9%, to $36.2 million for the three months ended June 30, 2002, and decreased $9.9 million, or 11.5%, to $76.3 million for the six months ended June 30, 2002, from the comparable periods in the prior year. The decrease was primarily the result of the Company's sale of its mall management business to an affiliate of Faison Enterprises, Inc. (the "Faison Sale") in the first quarter of 2002. Revenue also decreased due to an overall reduction in average square footage under management in the first half of 2002, as compared to the prior year, primarily as a result of the Company's exit from certain unprofitable markets subsequent to the first half of 2001. A reduction in reimbursement for salaries, wages and benefits comprised $4.2 million and $5.3 million of the decrease for the three and six months ended June 30, 2002, respectively, of the overall reduction in property management revenue.

Brokerage revenue, which represented 14.9% and 13.5% of the Company's total revenue for the three and six months ended June 30, 2002, respectively, decreased $8.0 million, or 23.1%, to $26.7 million for the three months ended June 30, 2002, and decreased $14.8 million, or 24.0%, to $46.9 million for the six months ended June 30, 2002, from the comparable periods in the prior year. The decrease is primarily due to a reduction in transaction volume and value as a result of increasing reluctance on the part of customers and others to make new real estate commitments due to the downturn in the economy and uncertain economic outlook. The economic downturn has resulted in decreased demand for commercial space which, in turn, has driven a decrease in the average number of brokers employed by the Company during the first and second quarters of 2002, as compared to the first and second quarters of 2001.

Construction management revenues totaled $2.3 million and $4.8 million and represented 1.3% and 1.4% of the Company's total revenue for the three and six months ended June 30, 2002, respectively. These revenues decreased $1.2 million, or 34.3%, for the three months ended June 30, 2002, and decreased $3.2 million, or 40.0%, for the six months ended June 30, 2002, from comparable periods in the prior year. Construction management revenues are generated from services including space planning and tenant finish coordination for institutional customers in conjunction with property management and leasing assignments, and are directly related to the customer's real estate demands. The decrease is primarily attributable to a reduction in transaction volume due to an increasing reluctance on the part of customers and others to make new real estate commitments due to the downturn in the economy, in addition to a decrease in the average square footage managed by the Company. Also, a portion of the decrease in construction management revenues was driven by the company's disposition of several construction businesses in 2002.

Revenues from development and construction fees totaled $13.6 million and $28.1 million and represented 7.6% and 8.1% of the Company's total revenue for the three and six months ended June 30, 2002, respectively. These revenues decreased $4.5 million, or 24.9%, for the three months ended June 30, 2002, and decreased $6.3 million, or 18.3%, for the six months ended June 30, 2002, from comparable periods in the prior year. The decrease is primarily the result of a reduction in transaction volume due to an increasing reluctance on the part of customers and others to make new real estate commitments due to the downturn in the economy and uncertain economic outlook, which impacted development fees and incentive development fees, as well as revenues generated from services including construction bidding and management, project closeout, and general contracting.

Income from investments in unconsolidated subsidiaries, which represented 2.2% and 1.2% of the Company's total revenue for the three and six months ended June 30, 2002, respectively, decreased $0.5 million, or 11.4%, to $3.9 million for the three months ended June 30, 2002, and decreased $0.4 million, or 8.5%, to $4.3 million for the six months ended June 30, 2002, from the comparable periods in the prior year. Income from unconsolidated subsidiaries fluctuates from period to period, based on the volume and profitability of transactions in the underlying unconsolidated subsidiaries. The Company's share of income from such transactions is typically driven by its ownership percentages in the unconsolidated subsidiaries.

Gain on disposition of real estate totaled $3.9 million and $4.8 million and represented 2.2% and 1.4% of the Company's total revenue for the three and six months ended June 30, 2002, respectively. These gains increased $1.6 million, or 69.6%, for the three months ended June 30, 2002, and increased $0.2 million, or 4.3%, for the six months ended June 30, 2002, from comparable periods in the prior year. During the three months ended June 30, 2002, the Company sold five real estate projects for an aggregate net sales price of $18.9 million, resulting in an aggregate gain on disposition of $3.9 million. For the three months ended June 30, 2001, the Company sold eight real estate projects for an aggregate net sales price of $21.5 million, resulting in an aggregate gain on disposition of $2.3 million. For the six months ended June 30, 2002, the Company sold nine real estate projects for an aggregate net sales price of $24.5 million, resulting in an aggregate gain on disposition of $4.5 million, and recognized deferred gain of $0.3 million relating to a disposition in a previous period. For the six months ended June 30, 2001, the Company sold 16 real estate projects for an aggregate net sales price of $40.9 million, resulting in an aggregate gain on disposition of $3.8 million, and recognized deferred gain of $0.7 million relating to dispositions in previous periods.

The Company's thematic development activity has remained stable with an increase since 2001 in development and construction activity related to higher education and healthcare customers, offset by declines in development and construction activity, including corporate build-to-suits, for other customers. Some of the Company's development resources focus on providing development services to institutional clients that invest in speculative commercial real estate projects. Since the latter part of 1999, speculative real estate development has declined significantly. The decline reflects the fact that demand for new product in most of the markets in which the Company operates has declined with the overall downturn in the economy.

Costs and Expenses. The Company's costs and expenses decreased $10.7 million, or 5.8%, to $172.3 million for the three months ended June 30, 2002, and decreased $15.5 million, or 4.4%, to $340.4 million for the six months ended June 30, 2002, from the comparable periods in the prior year.

Salaries, wages and benefits expense includes all compensation paid to Company employees other than brokerage commissions. As such, it includes salaries, benefits and annual incentive bonuses for employees whose compensation is reimbursed by customers ("reimbursed employees"); salaries, benefits and annual incentive bonuses for employees whose compensation is not so reimbursed ("unreimbursed employees"); and transaction-related incentive compensation other than brokerage commissions, primarily paid in connection with development and investment transactions. Salaries, wages and benefits increased $2.5 million, or 2.2% to $116.0 million for the three months ended June 30, 2002, and increased $5.3 million, or 2.3%, to $234.7 million for the six months ended June 30, 2002. The increase was driven by a $7.2 million increase in salaries and benefits for reimbursed employees associated with growth in reimbursed employee headcount (resulting primarily from growth in the Company's outsourcing business), offset by a $4.7 million decrease in salaries and benefits for unreimbursed employees for the three months ended June 30, 2002, as a result of the Company's cost- reduction efforts undertaken beginning in the second quarter of 2001. For the six months ended June 30, 2002, salaries and benefits for reimbursed employees increased $19.4 million offset by an $14.1 million decrease in salaries, wages and benefits for unreimbursed employees. In addition, both

reimbursed and unreimbursed salaries, wages and benefits decreased due to a reduction in headcount resulting from the Faison Sale.

Commissions decreased $5.6 million, or 21.4%, to $20.6 million, for the three months ended June 30, 2002, and decreased $8.3 million, or 17.8%, to $38.2 million for the six months ended June 30, 2002, from the comparable periods in the prior year. The decrease in commission expense was primarily driven by a decrease in the Company's corporate advisory services and brokerage revenue, due to a reduction in transaction volume and value as a result of increasing reluctance on the part of customers and others to make new real estate commitments due to the downturn in the economy and uncertain economic outlook, which have resulted in decreased demand for commercial space. The percentage decrease in commission expense does not correspond directly to the percentage decrease in corporate advisory services and brokerage revenue due to changes made to compensation structures for various project leasing and investment sales brokers subsequent to the first half of 2001; the compensation structures in the first half of 2002 include less fixed compensation and more variable compensation at higher commission rates.

General and administrative expenses decreased $3.7 million, or 11.8%, to $27.7 million for the three months ended June 30, 2002, and decreased $5.0 million, or 8.7%, to $52.2 million for the six months ended June 30, 2002, from comparable periods in the prior year. This expense decrease is primarily the result of company-wide cost reduction efforts undertaken beginning in the second quarter of 2001. These cost reductions were offset by an increase in pursuit cost expense of $1.3 million for both the three and six months ended June 30, 2002, primarily driven by capitalized pursuit costs that were written off in the second quarter of 2002, when negotiations on an international venture concluded unsuccessfully upon the other party's withdrawal from the transaction. In addition, cost reductions were also offset by costs associated with the Company's efforts to restructure or exit several outsourcing contracts that were unprofitable or otherwise judged likely to be unsuccessful in the long run.

Depreciation and amortization decreased $1.5 million, or 21.4%, to $5.5 million, for the three months ended June 30, 2002, and decreased $3.2 million, or 23.0%, to $10.7 million for the six months ended June 30, 2002, from comparable periods in the prior year. This decrease is primarily comprised of a decrease in amortization expense of $1.3 million and $3.2 million for the three and six months ended June 30, 2002, respectively, of which $1.2 million and $2.3 million of the decrease for such periods was due to the Company's adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which provides that goodwill and intangible assets deemed to have indefinite lives are no longer amortized, effective January 1, 2002. In addition, the Company also incurred less amortization expense as a result of intangible asset writedowns recorded in the fourth quarter of 2001.

Interest expense decreased $1.2 million, or 30.8%, to $2.7 million for the three months ended June 30, 2002, and decreased $2.9 million, or 35.4%, to $5.3 million for the six months ended June 30, 2002, from the comparable periods in the prior year. The decrease in interest expense is a result of lower interest rates related to the Company's revolving line of credit and lower average outstanding balances in the first half of 2002. In addition, during the three and six months ended June 20, 2002, the Company recorded $1.0 million and $2.0 million, respectively, of payments against its interest rate swap agreement liability. These payments would have been recorded to interest expense had the interest rate swap agreement not been designated as a hedge effective November 1, 2001.

Minority interest decreased $1.5 million, or 1,500.0%, to $(1.4) million for the three months ended June 30, 2002, and decreased $1.7 million, or 850.0%, to $(1.9) million for the six months ended June 30, 2002, from comparable periods in the prior year. The decrease is primarily a result of larger first half 2002 losses in consolidated entities in which outside parties have an interest, compared with smaller losses in these same entities in the first half of 2001. The larger first half 2002 losses were in

turn primarily due to pursuit costs related to an international venture that were written off during the second quarter of 2002 when negotiations on the underlying transaction ended unsuccessfully.

The Company recorded a writedown of $1.1 million for the three and six months ended June 30, 2002, due to impairment in the value of an intangible asset. The intangible asset written down relates to an outsourcing contract that, subsequent to June 30, 2002, the Company and the customer agreed to terminate by September 2002. The estimated future cash flows related to the underlying outsourcing contract do not support the value of the intangible asset, and accordingly, the value was written down to zero. No such writedown was recorded in the comparable prior periods.

Income Before Income Taxes. The Company's income before income taxes decreased $0.5 million, or 6.9%, to $6.7 million for the three months ended June 30, 2002, and decreased $0.2 million, or 2.8%, to $7.0 million for the six months ended June 30, 2002, from the comparable prior year periods due to the fluctuations in revenues and expenses described above.

Net Income. Net income decreased $0.6 million, or 14.0%, to $3.7 million for the three months ended June 30, 2002, as compared to the same period in the prior year, and decreased $0.4 million, or 9.3%, to $3.9 million for the six months ended June 30, 2002, for the same period in the prior year, due to the fluctuations in revenues and expenses described above, in addition to an increase in the Company's effective tax rate. The increased effective tax rate is the result of a valuation allowance taken in the second quarter of 2002 against international loss carryforwards for which the Company believes recoverability is uncertain in the current economic climate.

The results of operations for any quarter are not necessarily indicative of results for any future period. The Company's revenues and net income during the fourth fiscal quarter historically have been greater than in each of the first three fiscal quarters, primarily because its clients have demonstrated a tendency to close transactions toward the end of the fiscal year. The timing and introduction of new contracts, the disposition of investments in real estate assets, the recognition of incentive fees towards the latter part of the fiscal year as contractual targets are met and other factors may also cause quarterly fluctuations in the Company's results of operations.

The Company's liquidity and capital resources requirements include the funding of working capital needs, primarily accounts receivable from its clients; the funding of capital investments, including the acquisition of or investments in other real estate service companies; the repurchase of its shares if authorized by the Board of Directors; expenditures for real estate held for sale and payments on notes payable associated with the Company's development and investment activities; and expenditures related to upgrading the Company's management information systems and other elements of its technology platform. The Company finances its operations with internally generated funds and borrowings under the Credit Facility (described below). The portion of the Company's development and investment business that includes the acquisition and development of real estate is financed with loans (both recourse and non-recourse) secured by underlying real estate, external equity, internal sources of funds, or a combination thereof.

Net cash provided by operating activities totaled $11.6 million for the six months ended June 30, 2002, compared to net cash used in operating activities of $0.2 million for the same period in 2001. Cash provided by operating activities, excluding the change in real estate held for sale and related borrowings, increased to $19.7 million in 2002, as compared to $8.7 million in 2001. The majority of this increase in cash was due to improved collections of accounts receivable. This increase in cash provided was offset by $8.1 million of cash used, net of related borrowings, to acquire real estate held

for sale, net of dispositions, in the first half of 2002, compared to $8.9 million for the same period in 2001.

Net cash used in investing activities totaled $0.1 million for the six months ended June 30, 2002, compared to net cash used in investing activities of $18.4 million for the same period in 2001. This change is due to a decrease in cash used for furniture and equipment expenditures, primarily computer equipment under capital leases, to $1.9 million in 2002, compared to $6.9 million in 2001. In addition, the Company had no expenditures in 2002 related to acquisitions of real estate service companies, compared to $1.1 million of cash used in 2001 for earn out payments relating to acquisitions made in prior years. In addition, distributions from investments in unconsolidated subsidiaries, net of contributions, were $1.8 million in 2002, compared to contributions, net of distributions, of $10.5 million in 2001.

Net cash used in financing activities totaled $10.2 million for the six months ended June 30, 2002, compared to $17.1 million for the same period in 2001. This change is attributable to payments, net of additional borrowings, in 2002, of $9.4 million, primarily under the Credit Facility (described below), compared to $11.5 million in 2001. In addition, the Company made distributions, net of contributions, to minority interest holders of $3.3 million in 2002, compared to $6.1 million in 2001. The Company also received $2.5 million in 2002 from the exercise of stock options and issuance of common stock, net of purchases of common stock, compared to $0.6 million in 2001.

In June 2002, the Company obtained a $150.0 million revolving line of credit (the "Credit Facility") arranged by Bank of America, N.A., as the administrative agent (the "Administrative Agent"), which replaced the Company's previous $150.0 million revolving line of credit. Under the terms of the Credit Facility, the Company can obtain loans, which are Base Rate Loans or Eurodollar Rate Loans. Base Rate Loans bear interest at a base rate plus a margin, which ranges from 0% to 0.75% depending on the Company's leverage ratio. The base rate is the higher of the prime lending rate announced from time to time by the Administrative Agent or an average federal funds rate plus 0.5%. Eurodollar Rate Loans bear interest at the Eurocurrency rate plus a margin, which ranges from 1.75% to 2.5%, depending upon the Company's leverage ratio. The Credit Facility contains various covenants such as the maintenance of minimum equity, liquidity, revenues, interest coverage ratios and fixed charge ratios. The Credit Facility also includes limitations on payment of cash dividends or other distributions of assets, restrictions on recourse indebtedness and total indebtedness, restrictions on liens and certain restrictions on investments and acquisitions that can be made by the Company. The Credit Facility is guaranteed by certain significant subsidiaries of the Company and is secured by a pledge of a stock of such significant subsidiaries and a pledge of certain intercompany indebtedness.

The Credit Facility requires the Company to enter into one or more interest rate swap agreements for the Company's indebtedness in excess of $30.0 million ensuring the net interest on such excess is fixed, capped or hedged. In March 2001, the Company renewed an existing interest rate swap agreement for a two-year period ending March 24, 2003, with a fixed interest pay rate of 4.68% and a notional amount of $150.0 million. The weighted average receive rate for the interest rate swap agreement was 1.86% and 1.85% for the three and six months ended June 30, 2002. The Company's participation in derivative transactions has been limited to hedging purposes, and derivative instruments are not held for trading purposes.

The Company also has a $25.0 million discretionary line of credit (the "Discretionary Line") with Bank of America, N.A. Each loan obtained by the Company under the Discretionary Line matures in five business days, but no later than December 15, 2002, and bears interest at a rate agreed upon between the Company and the bank. Borrowings under the Discretionary Line are unsecured and limit borrowings under the Credit Facility.

At June 30, 2002, the Company had outstanding borrowings of $38.0 million under the Credit Facility and no outstanding borrowings under the Discretionary Line. The covenants contained in the

Credit Facility and the amount of the Company's other borrowings and contingent liabilities may have the effect of limiting the credit available to the Company under the Credit Facility to an amount less than the $150.0 million commitment. As it takes longer for the Company to dispose of real estate investments in a weaker economy, the current economic slow down could adversely impact the Company's ability to comply with certain of the real estate-related financial covenants in the Company's Credit Facility, which could negatively impact the Company's borrowing capacity. Also, since many of the financial covenants in the Credit Facility are dependent on the Company's EBITDA, as defined in the Credit Agreement and calculated on a trailing four quarter basis, a decline in the Company's overall operations could adversely impact the Company's ability to comply with these financial covenants and, in turn, the Company's borrowing capacity. The Company's unused borrowing capacity (taking into account letters of credit outstanding and limitations from certain financial covenants) under the Credit Facility was $78.7 million at June 30, 2002. The Company expects to continue to borrow under the Credit Facility to finance future strategic acquisitions, fund its co-investment activities and provide the Company with an additional source of working capital.

The Company has various commitments that could impact its liquidity as summarized below (in millions):

The Company does not anticipate paying any dividends in the foreseeable future. The Company believes that funds generated from operations, together with existing cash and available credit under the Credit Facility and loans secured by underlying real estate will be sufficient to finance its current operations, planned capital expenditure requirements, payment obligations for development purchases, acquisitions of service companies and internal growth for the foreseeable future. The Company's need, if any, to raise additional funds to meet its working capital and capital requirements will depend upon numerous factors, including the success and pace of its implementation of its growth strategy. The Company regularly considers capital raising alternatives to be able to take advantage of available avenues to supplement its working capital, including strategic corporate partnerships or other alliances, bank borrowings and the sale of equity and/or debt securities.

In May 2001, the Company announced that its Board of Directors had approved a stock repurchase program. The repurchase program authorized the repurchase of up to $15.0 million of the Company's common stock from time to time in open market purchases or through privately negotiated transactions. Through June 30, 2002, the Company has repurchased 459,500 shares at an average cost of $10.11 per share with funds generated from operations and existing cash.

Certain statements contained or incorporated by reference in this Quarterly Report on Form 10-Q, including without limitation statements containing the words "believe," "anticipate," "expect," "envision," "project," "budget," "target," "estimate," "should," "foresee," and words of similar import, are forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other matters which may cause the actual results, performance or achievements of the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other matters include, but are not limited to (i) the timing of individual transactions, (ii) the ability of the Company to identify and implement cost reduction measures (including those undertaken in connection with the previously announced internal reorganization) and achieve economies of scale, (iii) the ability of the Company to implement and manage effectively its e-commerce initiatives, (iv) the ability of the Company to compete effectively in the international arena, (v) the ability of the Company to attract new corporate and institutional customers, (vi) the ability of the Company to manage fluctuations in net earnings and cash flow which could result from the Company's participation as a principal in real estate investments, (vii) the Company's ability to continue to pursue its growth strategy, (viii) the Company's ability to compete in highly competitive national and local business lines, and (ix) the Company's ability to attract and retain qualified personnel in all areas of its business (particularly management). In addition, the Company's ability to achieve certain anticipated results will be subject to other factors affecting the Company's business that are beyond the Company's control, including but not limited to general economic conditions (including the cost and availability of capital for investment in real estate and customers' willingness to make real estate commitments) and the effect of government regulation on the conduct of the Company's business. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such statements or publicly announce any updates or revisions to any of the forward-looking statements contained herein to reflect any change in the Company's expectation with regard thereto or any change in events, conditions, circumstances or assumptions underlying such statements. Reference is hereby made to the disclosures contained under the heading "Risk Factors" in "Item 1. Business" of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2002.

The Company's primary market risk exposure is to changes in interest rates. The Company is exposed to market risk related to its Credit Facility and loans secured by real estate properties as discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources." The Credit Facility and the majority of the loans secured by real estate bear interest at variable rates and are subject to fluctuations in the market. However, due to its purchase of an interest rate swap agreement, which the Company uses to hedge a portion, but not all, of its exposure to fluctuations in interest rate, the effects of interest rate changes are limited. The Company's earnings are also somewhat affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies as a result of its operations in Europe, Asia and Australia. Changes in interest rate and foreign currency market risks since December 31, 2001, have not had a significant impact to the Company.

From time to time, the Company is involved in litigation incidental to its business. In the Company's opinion, no litigation to which the Company is currently a party is likely to have a material adverse effect on the Company's results of operations, cash flows or financial condition.

At the Annual Meeting of Stockholders held on May 24, 2002, the following proposals were submitted to stockholders with the following results:

	Number of Shares
	For	Withheld
James R. Erwin	32,428,231	626,922
Jeffrey M. Heller	32,538,246	516,907
Rebecca A. McDonald	32,525,268	529,885

		Number of Shares
For		32,898,946
Against		136,916
Abstain		19,291

3.1⁽¹⁾		Certificate of Incorporation of the Company
3.2⁽¹⁾		Bylaws of the Company
3.2.1⁽²⁾		First Amendment to the Bylaws of the Company
4.1⁽¹⁾		Form of Certificate for Shares of Common Stock of the Company
10.1		Credit Agreement dated June 28, 2002, among the Company, Bank of America, N.A. as Administrative Agent and the lender parties thereto
10.2		Consulting Agreement dated as of June 1, 2002, between the Company and J. McDonald Williams
10.3		Employment Agreement dated as of July 1, 2002, between the Company and Robert E. Sulentic
10.4		First Amendment to License Agreement dated as of July 31, 2002, between the Company and CF 98, L.P.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002,
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 number 1-13531

			Page Number
PART I.		Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001	3
		Condensed Consolidated Statements of Income for the three and six months ended June 30, 2002 and 2001 (unaudited)	4
		Condensed Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2002 (unaudited) and the year ended December 31, 2001	5
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 (unaudited)	6
		Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2002 and 2001 (unaudited)	7
		Notes to Condensed Consolidated Financial Statements (unaudited)	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
PART II.		Other Information
	Item 1.	Legal Proceedings	29
	Item 4.	Submission of Matters to a Vote of Security Holders	29
	Item 6.	Exhibits and Reports on Form 8-K	30

			June 30, 2002			December 31, 2001
			(Unaudited)
ASSETS
Current assets
	Cash and cash equivalents		$	39,392		$	38,059
	Accounts receivable, net of allowance for doubtful accounts of $4,627 in 2002 and $5,123 in 2001			113,567			160,639
	Receivables from affiliates			1,019			4,999
	Notes and other receivables			16,391			19,752
	Income taxes recoverable			2,022			—
	Deferred income taxes			3,170			3,182
	Real estate held for sale			196,936			234,853
	Other current assets			20,651			20,235

		Total current assets		393,148			481,719
Furniture and equipment, net				28,105			33,790
Deferred income taxes				26,266			26,239
Investments in unconsolidated subsidiaries				78,416			55,084
Goodwill, net				74,212			74,230
Other assets				23,936			28,083

			$	624,083		$	699,145

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
	Accounts payable		$	24,893		$	37,875
	Accrued expenses			85,663			108,616
	Payables to affiliates			9			1,609
	Income taxes payable			—			2,973
	Current portion of long-term debt			9,527			11,167
	Current portion of capital lease obligations			4,171			4,689
	Notes payable on real estate held for sale			128,256			158,226
	Other current liabilities			10,466			11,214

		Total current liabilities		262,985			336,369
Long-term debt, less current portion				38,000			43,000
Capital lease obligations, less current portion				1,746			3,157
Other liabilities				85			537

		Total liabilities		302,816			383,063
Minority interest				28,783			29,959
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; 35,984,648 shares issued and 35,973,245 shares outstanding in 2002, and 35,879,515 shares issued and 35,584,423 shares outstanding in 2001			360			359
	Paid-in capital			177,277			176,354
	Retained earnings			118,161			115,084
	Accumulated other comprehensive loss			(1,833	)		(1,331	)
	Less: Treasury stock			(116	)		(2,951	)
		Unearned stock compensation, net		(1,365	)		(1,392	)

Total stockholders' equity				292,484			286,123

			$	624,083		$	699,145

		Three Months Ended June 30					Six Months Ended June 30
		2002			2001		2002			2001
		(in thousands, except share and per share data)
REVENUES
	Global Services:
	Corporate:
	Facilities management	$	53,767		$	42,908	$	107,011		$	84,722
	Corporate advisory services		23,660			26,866		46,547			52,736
	Project management services		14,141			12,052		26,894			24,071

			91,568			81,826		180,452			161,529
	Institutional:
	Property management		36,220			44,131		76,267			86,246
	Brokerage		26,707			34,742		46,950			61,666
	Construction management		2,257			3,544		4,753			7,965

			65,184			82,417		127,970			155,877
	Income from investments in unconsolidated subsidiaries		613			651		1,168			810
	Other		84			205		222			387

			157,449			165,099		309,812			318,603
	Development and Investment:
	Development and construction fees		13,589			18,119		28,057			34,439
	Income from investments in unconsolidated subsidiaries		3,929			4,366		4,352			4,719
	Gain on disposition of real estate		3,853			2,294		4,765			4,567
	Other		146			334		419			779

			21,517			25,113		37,593			44,504

			178,966			190,212		347,405			363,107
COSTS AND EXPENSES
	Salaries, wages and benefits		116,037			113,523		234,737			229,360
	Commissions		20,612			26,228		38,239			46,451
	General and administrative		27,673			31,413		52,151			57,231
	Depreciation		3,876			4,085		7,907			7,870
	Amortization		1,588			2,908		2,801			6,021
	Interest		2,711			3,873		5,285			8,221
	Minority interest		(1,385	)		63		(1,896	)		(199	)
	Writedowns due to impairment of intangibles		1,149			—		1,149			—
	Restructuring charges		—			947		—			947

			172,261			183,040		340,373			355,902

Income before income taxes			6,705			7,172		7,032			7,205
Income tax expense			2,961			2,907		3,092			2,920

Net income		$	3,744		$	4,265	$	3,940		$	4,285

Earnings per share:
	Basic	$	0.10		$	0.12	$	0.11		$	0.12

	Diluted	$	0.10		$	0.12	$	0.11		$	0.12

Weighted average common shares outstanding:
	Basic		35,676,311			35,355,638		35,575,672			35,287,438
	Diluted		37,063,012			36,408,303		36,859,823			36,470,085

			Six Months Ended June 30
			2002			2001
			(in thousands)
Operating activities
Cash flows from earnings:
	Net income		$	3,940		$	4,285
	Reconciliation of net income to net cash provided by earnings:
		Depreciation		7,907			7,870
		Amortization		2,801			6,021
		Amortization of employment contracts and unearned compensation		1,416			1,595
		Bad debt expense		952			2,315
		Writedowns due to impairment of intangibles		1,149			—
		Minority interest		(1,896	)		(199	)
		Deferred income tax provision		326			—
		Income from investments in unconsolidated subsidiaries		(5,520	)		(5,529	)

		Net cash provided by earnings		11,075			16,358
Changes in operating assets and liabilities:
		Accounts receivable		46,120			13,700
		Receivables from affiliates		3,980			(3,222	)
		Notes receivable and other assets		1,714			1,166
		Real estate held for sale		(20,658	)		(17,710	)
		Notes payable on real estate held for sale		12,531			8,817
		Accounts payable and accrued expenses		(34,378	)		(15,033	)
		Payables to affiliates		(1,600	)		(287	)
		Income taxes payable/recoverable		(4,995	)		(4,686	)
		Other liabilities		(2,185	)		711

		Net cash flows from changes in working capital		529			(16,544	)

Net cash provided by (used in) operating activities				11,604			(186	)

Investing activities
Expenditures for furniture and equipment				(1,861	)		(6,870	)
Acquisitions of real estate service companies				—			(1,078	)
Investments in unconsolidated subsidiaries				(6,857	)		(12,810	)
Distributions from unconsolidated subsidiaries				8,595			2,325

Net cash used in investing activities				(123	)		(18,433	)

Financing activities
Principal payments on long-term debt and capital lease obligations				(175,513	)		(200,400	)
Proceeds from long-term debt				166,115			188,882
Contributions from minority interest				374			1,400
Distributions to minority interest				(3,654	)		(7,523	)
Purchase of common stock				—			(2,241	)
Proceeds from exercise of stock options				1,367			889
Proceeds from issuance of common stock				1,163			1,907

Net cash used in financing activities				(10,148	)		(17,086	)

Net increase (decrease) in cash and cash equivalents				1,333			(35,705	)
Cash and cash equivalents, beginning of period				38,059			55,637

Cash and cash equivalents, end of period			$	39,392		$	19,932

		Common Shares											Accumulated Other Comprehensive Loss
		Common Shares			Common Stock Par Value		Paid-In Capital			Retained Earnings						Treasury Stock			Unearned Stock Compensation
		Issued	Treasury		Common Stock Par Value		Paid-In Capital			Retained Earnings						Treasury Stock			Unearned 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 adjustment, 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	—	—			—		—			3,940			—			—			—			3,940
	Issuance of restricted stock	30,000	—			—		416			—			—			—			(416	)		—
	Forfeiture of restricted stock	—	4,370			—		—			—			—			(50	)		17			(33	)
	Amortization of unearned stock compensation	—	—			—		—			—			—			—			426			426
	Issuance of common stock	75,133	(288,059	)		1		507			(863	)		—			2,885			—			2,530
	Foreign currency translation adjustment, net of tax	—	—			—		—			—			84			—			—			84
	Change in fair value of interest rate swap agreement, net of tax	—	—			—		—			—			(586	)		—			—			(586	)

Balance at June 30, 2002		35,984,648	11,403		$	360	$	177,277		$	118,161		$	(1,833	)	$	(116	)	$	(1,365	)	$	292,484

	June 30, 2002		December 31, 2001
Real estate development	$	54,711	$	32,918
Other		23,705		22,166

	$	78,416	$	55,084

	Exercise Price of $3.85 (below market price at grant date)		Exercise Price of $10.00 to $14.50 (at market price at grant date)		Exercise Price of $14.51 to $22.75 (at market price at grant date)		Exercise Price of $22.76 to $36.00 (at market price at grant date)		Total
Options outstanding:
December 31, 2001	1,288,179		2,863,453		2,979,552		217,298		7,348,482
Granted	—		1,191,333		—		—		1,191,333
Exercised	(174,638	)	(62,500	)	—		—		(237,138	)
Forfeited	—		(66,500	)	(321,917	)	(5,556	)	(393,973	)

June 30, 2002	1,113,541		3,925,786		2,657,635		211,742		7,908,704

Options exercisable at June 30, 2002	1,113,541		1,039,703		2,425,269		191,427		4,769,940

	Three Months Ended June 30,				Six Months Ended June 30,
	2002		2001(1)		2002		2001(1)
Global Services:
Total revenues	$	157,449	$	165,099	$	309,812	$	318,603
Costs and expenses(2)		153,425		159,490		306,283		310,233

Income before income tax expense		4,024		5,609		3,529		8,370
Depreciation and amortization		5,243		5,880		10,211		12,081
Interest expense		662		1,262		1,225		2,963

EBITDA(3)	$	9,929	$	12,751	$	14,965	$	23,414

Development and Investment:
Total revenues	$	21,517	$	25,113	$	37,593	$	44,504
Costs and expenses(2)		18,836		23,550		34,090		45,669

Income (loss) before income tax expense (benefit)		2,681		1,563		3,503		(1,165	)
Depreciation and amortization		221		1,113		497		1,810
Interest expense		2,049		2,611		4,060		5,258

EBITDA(3)	$	4,951	$	5,287	$	8,060	$	5,903

Total:
Total revenues	$	178,966	$	190,212	$	347,405	$	363,107
Costs and expenses(2)		172,261		183,040		340,373		355,902

Income before income tax expense		6,705		7,172		7,032		7,205
Depreciation and amortization		5,464		6,993		10,708		13,891
Interest expense		2,711		3,873		5,285		8,221

EBITDA(3)	$	14,880	$	18,038	$	23,025	$	29,317

	Amount of Commitments Expiration
	Total Amounts Committed		Less than 1 year		1-3 years		4-5 years		After 5 years
Standby letters of credit	$	16.1	$	16.1	$	—	$	—	$	—
Guarantees(1)		78.2		76.3		—		1.9		—
Capital commitments		8.9		8.9		—		—		—

Total Commitments	$	103.2	$	101.3	$	—	$	1.9	$	—

	TRAMMELL CROW COMPANY
	By:	/s/ DEREK R. MCCLAIN Derek R. McClain Chief Financial Officer (Principal Financial Officer and duly authorized to sign this report on behalf of the Registrant)
Date: August 14, 2002