UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

FORM 10-Q

(Mark One)

For the quarter ended June 30, 2004

or

For the transition period from ............ to ...........

Commission file number 0-3576

COUSINS PROPERTIES INCORPORATED

(770) 955-2200
(Registrant’s telephone number, including area 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 [X] No [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [  ]

     As of July 30, 2004, there were 49,157,679 shares of common stock outstanding.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES

See notes to consolidated financial statements.

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COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES

See notes to consolidated financial statements.

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COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES

See notes to consolidated financial statements.

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COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES

1. BASIS OF PRESENTATION

     The Consolidated Financial Statements include the accounts of Cousins Properties Incorporated (“Cousins”), its majority owned partnerships and wholly owned subsidiary, Cousins Real Estate Corporation and its subsidiaries (“CREC”). All of the entities included in the Consolidated Financial Statements are hereinafter referred to collectively as the “Company.”

     Cousins has elected to be taxed as a real estate investment trust (“REIT”) and intends to distribute 100% of its federal taxable income to stockholders, thereby eliminating any liability for future corporate federal income taxes. Therefore, the results included herein do not include a federal income tax provision for Cousins. However, CREC is taxed separately from Cousins as a regular corporation. Accordingly, the Consolidated Statements of Income include a provision for CREC’s income taxes.

     The Consolidated Financial Statements were prepared by the Company without audit, but in the opinion of management reflect all adjustments necessary (which adjustments are of a normal and recurring nature) for the fair presentation of the Company’s financial position as of June 30, 2004 and results of operations for the three and six month periods ended June 30, 2004 and 2003. Results of operations for the interim 2004 periods are not necessarily indicative of results expected for the full year. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, the Company believes that the disclosures herein are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The accounting policies employed are the same as those shown in Note 1 to the Consolidated Financial Statements included in such Form 10-K. Certain 2003 amounts have been reclassified to conform with the 2004 presentation.

2. SUPPLEMENTAL INFORMATION CONCERNING CASH FLOWS

     Interest paid (net of $6,773,000 and $3,425,000 capitalized in 2004 and 2003, respectively) and income taxes refunded, net of amounts paid, were as follows for the six months ended June 30, 2004 and 2003 ($ in thousands):

     In the first six months of 2004, approximately $334,000 was transferred from Land Held for Investment or Future Development to Projects Under Construction for development of the 51,000 square foot Inhibitex building at the Company’s North Point/West Side mixed use project. Additionally, approximately $40,001,000 was transferred from Projects Under Construction to Operating Properties for The Avenue West Cobb and The Shops of Lake

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Tuscaloosa. Additionally, approximately $2,000 of Common Stock and $58,000 of Additional Paid-in Capital was offset against Unearned Compensation due to 2004 forfeitures of Restricted Stock.

3. NOTES PAYABLE AND INTEREST EXPENSE

     The following table summarizes the terms of the notes payable outstanding at June 30, 2004 ($ in thousands):

     In July 2004, the Company also renewed and recast its unsecured revolving credit facility, increasing the size by $50 million to $325 million with a maturity of September 2007. The previous credit facility was set to expire in August 2004 as noted in the table above.

     For the three and six months ended June 30, 2004, interest expense was recorded as follows ($ in thousands):

     During the first six months of 2004, interest was capitalized to the Company’s projects under construction and predevelopment projects, which had an average outstanding balance of approximately $174.2 million.

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4. EARNINGS PER SHARE (“EPS”)

     Basic EPS is calculated as net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated as net income available to common stockholders divided by the diluted weighted average number of common shares outstanding during the period. Diluted weighted average number of common shares is calculated to reflect the potential dilution that would occur if stock options or other contracts to issue common stock were exercised and resulted in additional common shares outstanding. The income amounts used in the Company’s EPS calculations is the same for both basic and diluted EPS.

     Weighted average shares and diluted weighted average shares are as follows (in thousands):

5. STOCK-BASED EMPLOYEE COMPENSATION

     The Company has several stock-based employee compensation plans which are described fully in Note 6 of “Notes to Consolidated Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The Company has elected to account for its plans under Accounting Principles Board No. 25, “Accounting for Stock Issued to Employees,” which requires the recording of compensation expense for some, but not all, stock-based compensation, rather than the alternative accounting permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” No stock-based employee compensation cost was reflected in net income for options granted under the plans, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Stock-based employee compensation cost was reflected in net income for stock-based compensation of the Company other than stock options.

     For purposes of the pro forma disclosures required by SFAS No. 123 and SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure,” the Company has computed the value of all stock grants and stock options granted during the six months ended June 30, 2004 and 2003 (there were no grants during the three months ended June 30, 2004 and 2003) using the Black-Scholes option pricing model with the following weighted average assumptions and results:

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     The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions. In the Company’s opinion, because the Company’s stock-based compensation awards have characteristics significantly different from traded options and because changes in the subjective assumptions can materially affect the fair value estimate, the results obtained from the valuation model do not necessarily provide a reliable single measure of the value of its stock-based compensation awards.

     If the Company had accounted for its stock-based compensation awards in 2004 and 2003 in accordance with SFAS No. 123, pro forma results would have been as follows ($ in thousands, except per share amounts):

6. DISCONTINUED OPERATIONS AND HELD FOR SALE PROPERTIES

     SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires that the gains and losses from the disposition of certain real estate assets and the related historical operating results be included in a separate line item, Discontinued Operations, in the Consolidated Statements of Income for all periods presented. SFAS No. 144 also requires that assets and liabilities of held for sale properties be separately categorized on the Consolidated Balance Sheet in the period that they are deemed to be held for sale.

     In the second quarter of 2003, the Company sold AT&T Wireless Services Headquarters, Cerritos Corporate Center – Phase II and Mira Mesa MarketCenter. In the third quarter of 2003, the Company sold Presidential MarketCenter and Perimeter Expo. The results of operations and any respective gains on sale for these properties are included in Income from Discontinued Operations in the accompanying 2003 Consolidated Statement of Income.

     In the first quarter of 2004, the Company determined that Northside/Alpharetta I and II, two 103,000 square foot and 198,000 square foot, respectively, medical office buildings in suburban Atlanta, Georgia, met the qualifications of discontinued operations in accordance with SFAS No. 144. The results of operations for these properties were reclassified to Income from Discontinued Operations for all periods presented in the accompanying Consolidated Statements

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of Income. The corresponding real estate assets of both properties and the note payable related to Northside/Alpharetta I were categorized as held for sale in the accompanying 2004 Consolidated Balance Sheet. Also in the first quarter of 2004, the Company disposed of its 75% investment in Rocky Creek Properties, which was previously consolidated with the Company’s operations. The results of operations for this entity were reclassified as Income from Discontinued Operations for all periods presented, and the gain on sale was reflected in Discontinued Operations.

     The following table details the adjustments made to the Consolidated Statements of Income ($ in thousands):

     In the first quarter of 2004, the Company determined that 333 John Carlyle and 1900 Duke Street, two 153,000 square foot and 97,000 square foot, respectively, office buildings in Alexandria, Virginia, met the qualifications of held for sale properties. These properties were sold in the second quarter of 2004. The Company retained management of these properties and therefore results of operations and gain on sale for these properties were not included in Discontinued Operations. In the second quarter of 2004, the Company determined that 101 Independence Center, a 526,000 square foot office building in Charlotte, North Carolina, met the qualifications of a held for sale property. The real estate asset and note payable were reclassified as held for sale on the accompanying 2004 Consolidated Balance Sheet, but the results of operations were not reclassified to Discontinued Operations, as the Company is retaining management of this property. 101 Independence Center was sold on July 29, 2004.

     In June 2004, the Company also determined that The Pinnacle, a 423,000 square foot office building, and Two Live Oak Center, a 279,000 square foot office building, both in Atlanta, Georgia, met the qualifications of held for sale properties. At June 30, 2004, these properties were owned by Cousins LORET, LLC, a venture in which the Company has a 50% interest. Accordingly, no entries were made on the June 30, 2004 Balance Sheet to reflect the held for sale designation. The Pinnacle and Two Live Oak Center were sold on August 2, 2004. The Company is retaining management of these properties.

7. STOCK REPURCHASE PLAN

     On April 15, 2004, the Board of Directors of the Company authorized a stock repurchase plan, which expires April 15, 2006, of up to five million shares of the Company’s common stock. No purchases under the new plan have been made to date.

8. REPORTABLE SEGMENTS

     The Company has four reportable segments: the Office Division, Retail Division, Land Division and Industrial Division. The Company initiated the fourth line of business in 2004, the Industrial Division, which has had an immaterial level of operations through June 30, 2004. The Office, Retail and Industrial Divisions develop, lease and manage office buildings, retail centers

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and industrial properties, respectively. The Land Division owns various tracts of strategically located land which is being held for investment or future development. The Land Division also develops single-family residential communities which are parceled into lots or tracts and sold to various home builders or other commercial developers. The Company’s reportable segments are based on the type of product the division provides. The divisions are managed separately because each product they provide has separate and distinct development issues, leasing and/or sales strategies and management issues. The segment Unallocated and Other consists of general corporate overhead costs not specific to any segment and is mainly comprised of interest expense, as financing decisions are not generally made at the reportable segment level.

     The management of the Company evaluates the performance of its reportable segments based on funds from operations available to common stockholders (“FFO”). The Company calculates FFO using the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO, which is net income available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of change in accounting principle and gains or losses from sales of depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis. In October 2003, NAREIT revised its prior FFO implementation guidance to indicate that impairment losses are not an adjustment when calculating FFO.

     FFO is used by industry analysts, investors and the Company as a supplemental measure of an equity REIT’s operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of a REIT’s operating performance that excludes historical cost depreciation, among other items, from GAAP net income. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Company management uses FFO and FFO per share, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and employees.

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     The notations (100%) and (JV) used in the following tables indicate consolidated entities and unconsolidated joint ventures, respectively, and all amounts are in thousands.

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Reconciliation to Consolidated Revenues

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