TRAMMELL CROW CO - 10-K Annual Report

Trammell Crow Company (the “Company”) is one of the largest diversified commercial real estate service companies in the world. The Company delivers a comprehensive range of services to leading multinational corporations, institutional investors and other users of real estate services. In the United States, the Company is a leading provider of commercial property and facilities management services, commercial property brokerage and transaction management services, commercial property development and construction services and project management services. In addition to its full service offices located throughout the United States, the Company has offices in Canada, Europe, Asia and Latin/South America focused on the delivery of real estate services to users of commercial real estate. The Company delivers brokerage services outside the United States through strategic alliances with leading providers—in Europe and Asia, through Savills plc (“Savills”), a leading property services company based in the United Kingdom; and in Canada, through JJ Barnicke, a leading Canadian real estate services provider. The Company, which is headquartered in Dallas, Texas, was founded in 1948 by Mr. Trammell Crow. From its founding through the 1980’s, the Company’s primary business was the development, ownership and management of industrial, office and retail projects. In 1991, the Company was reconstituted as a real estate services company. This reconstitution entailed the separation of the Company’s commercial real estate asset base and related operations from its real estate services business. The Company continued to operate the real estate services business while ownership of the commercial real estate asset base that existed in 1991 was segregated into a large number of separate entities distinct from the Company, with independent management and operations.

The Company delivers four core services—building management services, brokerage services, project management services and development services—to both user and investor clients. The Company’s business is organized under two separate national leadership structures. The Global Services Group includes substantially all of the building management services, brokerage services, and project management services delivered to both user and investor clients. Substantially all of the Company’s real estate development and investment activities are conducted through the Company’s Development and Investment Group. The Company’s revenues are generated primarily in the United States, with approximately 97%, 97% and 96% of its revenues derived from domestic operations in each of 2002, 2003 and 2004, respectively. Revenues derived from various foreign operations comprised approximately 3%, 3% and 4% of the Company’s total revenues in each of 2002, 2003 and 2004, respectively. Approximately 92%, 91% and 91% of the Company’s long-lived assets at December 31, 2002, 2003 and 2004, respectively, relate to the Company’s domestic operations, with the remaining portion of its long-lived assets relating to various foreign operations.

workplace moves, adds, and changes. The building management services provided to investor clients include property management services relating to all aspects of building operations, tenant relations and oversight of building improvement processes. Brokerage services provided to investor clients include project leasing and investment sales services whereby the Company advises buyers, sellers and landlords in connection with the leasing and sale of office, industrial and retail space, and land. Project management services provided to investor clients include construction management services such as space planning and tenant finish coordination.

Within the Development and Investment segment, encompassing approximately 200 FTE employees, the Company provides development services to investor and user clients—both those pursuant to which the Company takes an ownership or co-investment position and those pursuant to which the Company provides development services for others on a fee basis. The Company provides comprehensive project development 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 financing services. The Company will continue to focus its efforts in this area on risk-mitigated opportunities for investor clients and fee development and build-to-suit projects for user clients, including those in healthcare. From time to time the Company pursues development and investment activities, including opportunistic property acquisitions and new development, for its own account or on a co-investment basis. With an organization comprised of professionals dedicated fully to development and investment activities, the Company is positioned to pursue and execute new development business, particularly programmatic business with the Company’s large investor clients, and exploit niche market opportunities.

Long-Term Growth Strategy

The Company’s long-term growth strategy is centered around taking advantage of its strong brand name, its scale and geographic scope, its large existing client base, its comprehensive service offerings and, in particular, its development capabilities, which differentiate it among commercial real estate companies, to grow with both user and investor clients, primarily in North America. The key components of this overall growth strategy are:

Focus on Large Markets and Large Clients. The Company is focused on operating in large markets and believes that this focus will allow the Company to achieve the critical mass that fuels growth with large clients. The Company believes that expanding its presence in these markets will create key hubs of growth, enabling the Company to more easily shift resources as needed, establish brand dominance and recruit top talent. The Company intends to maintain its focus on large clients, which have historically fueled much of the Company’s revenue growth. The Company believes this focus on large clients will also benefit the Company as the trend continues for both investors and users of space to consolidate their requirements with a smaller number of service providers. While the Company has and will continue to focus on large markets as noted, it does have and will continue to have a presence in a number of small and mid-sized markets. This presence allows the Company to serve large clients with needs in these markets and to be opportunistic relative to locally generated requirements.

Provide Consistent Quality Service. The Company is focused on providing uniform product quality and service delivery across all markets in which it is active. The Company is also focused on continually improving its back office infrastructure capabilities including information technology, accounting, and human resources in support of both internal and client activity. The Company has aimed substantial resources at these areas in recent years and has reorganized each to make it more effective. The Company believes that the sector in which it competes consistently has been weak in these areas and that clients are eager for service providers to demonstrate improved capabilities. While the sector in general is now

improving, the Company believes its efforts in this regard should create a competitive advantage, particularly with large clients, which in turn should create growth opportunities.

Expand Brokerage Network. The Company has committed significant resources to expand its brokerage network and to continue development of a highly competitive brokerage business. As part of its strategy to build stronger brokerage teams in major markets, with appropriate coverage in secondary markets, the Company has added brokers throughout its network in the U.S. The Company employed 570 FTE brokers at December 31, 2004, in addition to 54 transaction managers who provide services to national user clients, an increase from 526 FTE brokers and 46 transaction managers at December 31, 2003. Also contributing to this initiative, the Company maintains a cross-border, strategic brokerage alliance with JJ Barnicke in Canada. In addition, the Company continues its strategic alliance with Savills, which has brokerage capability throughout Europe, Asia-Pacific and Australia, to provide the Company with a delivery platform to meet the needs of its clients in these regions.

Capitalize on Outsourcing Opportunity. The commercial real estate-related outsourcing business remains a significant growth opportunity well suited to the Company’s full service capabilities. As an outsourcing industry leader, the Company will continue to focus its resources, primarily in the U.S. and, to a lesser degree, in Europe, on adding new clients and growing its substantial relationships with existing outsourcing clients.

Focus on Development Opportunities. With a national organization comprised of professionals dedicated fully to development and investment activities, the Company pursues and executes new development business, with initiatives focused on programmatic business with the Company’s large investor clients and, increasingly, build-to-suit projects for user clients, including those in healthcare. The healthcare industry in particular has been less cyclical than the overall economy through the latest downturn in 2001, 2002 and 2003, and the Company has increased its focus in this industry. In addition, from time to time the Company pursues opportunistic property acquisitions or new development with its capital partners or for its own account. The Company has also increased its focus on acquisitions (including those acquisitions where opportunities exist for redevelopment, re-leasing or other areas where the Company can use its expertise to add value) and expects that this activity will increase in the future. The Company has also expanded its activities to include development of mixed-use facilities with a residential component. The Company has assigned national functional experts to these initiatives. In 2004, starts and investments related to these initiatives and programs accounted for approximately 36% of total 2004 starts and investments, based on aggregate budgeted project costs (an increase in project costs of 48% from 2003).

Global Services Segment

The Company provides services to both user and investor clients through its Global Services segment. Global Services segment revenues were $710.8 million in 2004. Revenues generated from the Global Services segment were $685.6 million, $676.5 million, $656.9 million and $649.6 million in 2000, 2001, 2002 and 2003, respectively. At December 31, 2002, 2003 and 2004, total assets attributable to the Global Services segment were $253.0 million, $296.9 million and $319.5 million, respectively. Other financial information about the Global Services segment is contained in “Item 8. Financial Statements and Supplementary Data, Note 22.”

User Services

The Company provides outsourcing services, including facilities management services, corporate advisory services and project management services, to user clients. As of December 31, 2004, the Company utilized approximately 3,200 FTE employees to provide services to approximately 24,000 properties for its outsourcing clients. The goal of the Company’s user services business is to align the facilities and support

services of its clients with their operational and strategic business objectives. Occupancy-related costs frequently represent the second largest corporate expense item (after compensation and benefits), and the Company believes that organizations are increasingly outsourcing their facility or real estate-related functions to reduce costs, improve profitability and refocus management and other resources on core competencies. The Company has developed expertise in providing real estate outsourcing services to clients in the financial services, healthcare, automotive, oil and gas and technology/communications industries. The Company believes that its expertise in servicing clients within these industries creates additional growth opportunities.

The Company administers outsourcing services using a centralized administrative, marketing and leadership organization combined with client-based delivery systems. The Company offers the following outsourcing service delivery options: (i) dedicated Company employees located at a client site; (ii) a team of Company employees dedicated to a client but located at Company offices; and (iii) a flexible, nationwide network of Company personnel providing the full menu of the Company’s real estate services from the Company’s local offices. Most of the Company’s outsourcing engagements provide for on-site presence of Company employees, which the Company believes enhances client communication, provides focused personal service, enhances the protection of the client’s proprietary information and enables the Company to monitor client satisfaction on an ongoing basis.

The Company seeks to enter into multi-year, full-service outsourcing contracts with its clients. Most contracts are structured so the Company receives a monthly base fee and, in some cases, annual incentives if certain agreed-upon performance targets are satisfied. Most contracts also provide for the reimbursement of client-dedicated personnel costs and associated overhead expenses. In many cases, these revenue sources are augmented by variable revenues from transaction services and project management services. The Company believes that significant growth opportunities exist within its existing client base.

The five largest clients for the Company’s outsourcing services business, measured in 2004 revenues from such clients, collectively represented 23% of the Company’s total revenues in 2004.

In addition to the services described below, the Company also offers strategic services, such as consulting, development, properties portfolio management and real estate asset management.

Facilities Management Services

Facilities management services includes the day-to-day maintenance and repair of facilities, office services (such as security, reprographics, mail, cafeteria, shipping and receiving, and reception services) and call center services (including work-order, dispatch, vendor management and emergency response). As of December 31, 2004, the Company managed approximately 171.7 million square feet for its outsourcing clients. Revenues from facilities management services were $211.1 million in 2004 (27.1% of 2004 revenues), up from $151.5 million in 2000. The growth in revenues is due to the addition of new clients and the expansion of services provided to existing clients.

Corporate Advisory Services

Corporate advisory services include tenant representation and other transaction services such as acquisitions, dispositions, lease administration and lease audits. The Company seeks to manage a client’s entire firm-wide property acquisition and divestiture program, but provides services to many clients on a transaction-by-transaction basis. Revenues from corporate advisory services were $143.3 million in 2004 (18.4% of 2004 revenues), as compared to $143.5 million in 2000. In 2001 and 2002, the Company experienced decreases in corporate advisory revenues because the downturn in the economy had a negative impact on the timing and amount of tenant representation and other corporate advisory services revenues earned by the Company. However, the Company’s corporate advisory services business began to recover in 2003 and, by 2004, had returned to the peak levels achieved in 2000. In 2004, corporate advisory

services revenues increased 16.2% over 2003 revenues. A substantial portion of this growth was driven by an increase in the number of tenant representation brokers as part of the Company’s focus on expanding its brokerage network. In addition, growth stemmed from a focus on larger transactions and expansion of services provided to existing clients. See “Brokerage Services” for additional information regarding the Company’s brokerage network.

Project Management Services

Project management services include facility planning and management of projects involving construction, space planning, site consolidations, facilities design, workspace moves, adds and changes, and furniture, signage and cabling requirements. Revenues from project management services were $91.6 million in 2004 (11.8% of 2004 revenues), up from $53.4 million in 2000. Although the downturn in the economy in 2001, 2002 and 2003 had a negative impact on user clients’ project spending, and hence on the timing and amount of project management revenues earned by the Company, revenues have increased since 2001 because the Company has been successful in winning new business and expanding services with existing clients.

Investor Services

The Company provides property management, brokerage, and construction management services to investors in commercial properties.

Property Management Services

As of December 31, 2004, the Company managed approximately 221.2 million square feet of commercial properties (excluding facilities occupied by user clients) and served approximately 550 clients and 12,000 tenants nationwide through its locally-based property management teams. The Company managed 312.7 million, 291.7 million, 261.1 million and 247.7 million square feet of commercial property at the end of 2000, 2001, 2002 and 2003, respectively. Revenues in 2004 from property management services were $137.2 million (17.6% of 2004 revenues), down from $165.1 million in 2000. Property management revenues were adversely impacted by the downturn in the economy during 2001, 2002 and 2003, which has resulted in decreases in occupancy levels and rents (which are drivers of these revenues). Revenues also decreased due to decreases in square footage under management due to sales of buildings in the Company’s management portfolio to REITs or other investors that self-manage their properties or use other service providers. Other square footage decreases resulted from clients taking services back in-house or to other service providers. The decrease in revenues is also the result of the Company’s sale of portions of the businesses acquired in 1998 from Faison & Associates and Faison Enterprises, Inc. (“Faison”) back to Faison in 2002 (see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”). The Company has also exited from certain less profitable property management business and has increased its focus on adding office product to its management portfolio, which typically generates higher margins.

The objective of the Company’s property management business is to enhance its clients’ investment values by maintaining high levels of occupancy and lowering property operating costs by offering a wide range of property management services. The property management services offered by the Company consist of (i) building management services such as maintenance, landscaping, security, energy management, owner’s insurance, life safety and capital repairs (many of which may be subcontracted by the Company to third-party providers); (ii) tenant relations services such as promotional activities, processing tenant work orders and lease administration services; (iii) coordinating tenant finish; and (iv) related financial management services including accounting, financial reporting and analysis.

The Company expects that a significant portion of its new property management engagements will result from (i) contract wins resulting from clients’ consolidation of service providers; (ii) property transfers; and (iii) projects that the Company develops for investor clients. The Company focuses on expanding relationships with certain of its investor clients to obtain longer-term management contracts and to provide single-source solutions for their multi-market and multi-functional requirements.

The properties managed by the Company are typically served by locally-based teams of property managers and maintenance personnel supported by various corporate level service functions, including technology support, accounting and purchasing. Large client accounts are typically managed by National Account teams to ensure consistency of quality and to ensure that all client real estate service requirements are appropriately addressed.

The Company typically receives monthly management fees for the property management services it provides, based upon a specified percentage of the monthly rental income or rental receipts generated from the property under management. In certain cases, the Company’s property management agreements entitle it to receive the greater of a minimum agreed-upon base fee or a fee based upon monthly rental income or rental receipts as described above. The amount of the management fee varies depending upon local market conditions, product type and rents, the leasing engagement, arrangements for expense reimbursements and specific services required. Incentive fees are sometimes negotiated in turnaround or other unusual circumstances. The Company also may be reimbursed for a portion of its administrative and payroll costs, as well as certain out-of-pocket expenses, directly attributable to the properties under management.

A typical property management agreement of the Company provides for an indefinite term, but permits the property owner or the Company to terminate the agreement without cause upon 30 days prior written notice. The Company believes that these are customary termination provisions in the industry. From time to time the Company loses assignments, most frequently in circumstances where a property has been sold and the new property owner assumes direct responsibility for managing the property or retains one of the Company’s competitors to manage the property.

Brokerage Services

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

Revenues from investor brokerage services have decreased from $145.8 million in 2000 to $114.5 million in 2004 (14.7% of 2004 revenues), but increased 19.8% from 2003 to 2004. A substantial portion of the decrease in revenues from 2000 to 2004 is due to a reduction in the volume of leasing transactions due to reluctance on the part of clients and others to make new real estate commitments due to the downturn in the economy during 2001, 2002 and 2003, and a reduction in the inventory of projects developed by the Company and available for lease as a result of the decline in project starts in 2002 and 2003. In addition, the economic downturn caused a decrease in rental rates, which are another driver of these revenues. The Company employed 574, 515, 501, 526 and 570 total brokers (including tenant representation brokers facilitating transactions for user clients) at the end of 2000, 2001, 2002, 2003 and 2004, respectively.

The Company typically receives fees for brokerage services based on a percentage of the value of the lease or sale transaction. Some transactions may stipulate a fixed fee or include an incentive bonus component based on the performance of the brokerage professional or client satisfaction. Although

transaction volume, rental rates and sales prices are influenced by economic conditions (thus impacting total brokerage revenues, including tenant representation fees), percentage brokerage fee structures have remained relatively constant through both economic upswings and downturns.

Project leasing revenues are derived from the turnover of tenants and leasing of new space in the Company’s property management and leasing portfolios of approximately 329.2 million square feet at December 31, 2004. As space “rolls” each year, the Company has the opportunity to earn a commission paid by the owner of the property for renewing the existing tenant’s lease or releasing the space to a new tenant. In addition, the Company earns commissions for leasing of first generation space in certain projects developed by the Company. Investment sales revenues generally increase in economic upswings as available capital drives the trading of income-producing properties and demand for additional space drives the purchase of land for new development. Investment sales revenues generally decline in economic downturns as capital resources are more cautious in purchasing income-producing properties and demand for new space slackens. This decline was mitigated in the most recent downturn by historically low interest rates, which have allowed real estate investments to remain attractive opportunities as compared to other investment classes. In recent years, the Company’s brokerage services business was adversely impacted by the weakness of the economy as a whole. The downturn in the economy during 2001, 2002 and 2003 negatively impacted the timing and amount of project leasing revenues and to a lesser extent, investment sales revenues earned by the Company, with total brokerage revenue decreasing $31.3 million from its peak in 2000. The Company’s 19.8% increase in brokerage revenue in 2004 from the amount reported in 2003 reflects clients’ increased confidence in the economic recovery and favorable capital markets fundamentals.

The Company regards its brokerage force as an important tool in marketing the broad array of services the Company provides to its client base. The Company’s large network of experienced brokers is a valuable asset when seeking new facilities and property management, project management and development services business. The sheer number of transactions in which its brokers are involved can be a source of information from which the Company can seek to identify business opportunities in specific local or regional markets.

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

The Company believes that the quality brand identification of its name, its large client base, the full range of services it offers clients, the overall breadth and scope of the Company’s real estate activities and the Company’s incentive-based compensation system create an environment conducive to attracting experienced and capable brokerage professionals.

Construction Management

Construction management services primarily include space planning and tenant finish coordination for investor clients, typically in conjunction with property management and leasing assignments. These fees are typically based on a percentage of project construction costs. In 2004, construction management revenues were $11.2 million (1.4% of 2004 revenues) as compared to $22.7 million in 2000. This decrease in construction management revenues was driven by the Company’s disposition of several construction businesses in 2001 and 2002, in addition to general decreases in leasing activity.

Development and Investment

Revenues in the Company’s Development and Investment segment primarily consist of development and construction fees (including incentive fees) and gain on disposition of real estate. In addition, segment income is generated from investments in unconsolidated subsidiaries and from the operation and/or disposition of real estate classified as “discontinued operations.” The impact of Development and Investment project sales accounted for as income from unconsolidated subsidiaries or as income from discontinued operations is a regular part of, and can contribute significantly to, Development and Investment results in any given period.

The Company’s network of development talent, access to capital and local market knowledge (attained in part through brokers and other employees in the Global Services segment) give it the capability to generate and implement a significant volume of real estate development and investment activity. The Company undertakes this activity on behalf of its clients, in partnership with its clients (through co-investment) or, from time to time, for its own account.

Historically, the Company primarily focused its commercial real estate development business on office, industrial and retail projects for investor clients. Increasingly, however, the Company has focused on development for user clients, including corporations and those in the healthcare sector. By expanding its focus on development for user clients, particularly those in the healthcare sector, the Company seeks to mitigate the cyclicality traditionally inherent in the commercial development business. In addition, through High Street Residential, a wholly-owned subsidiary of the Company, the Company has expanded its focus to include development of mixed-use facilities with a residential component, including condominium development and transit-oriented development. The Company is also directing its efforts toward acquisitions, including those acquisitions where opportunities exist to add value through redevelopment or re-leasing.

In 2004, income before income taxes from development and investment activities was $24.8 million. Income before income taxes generated from the Development and Investment segment for 2000, 2001, 2002 and 2003 was $40.4 million, $8.3 million, $15.3 million and $8.2 million, respectively. At December 31, 2002, 2003 and 2004, total assets attributable to the Development and Investment segment were $369.1 million, $333.2 million and $429.5 million, respectively. Other financial information about the Development and Investment segment is contained in “Item 8. Financial Statements and Supplementary Data, Note 22.”

From January 1, 2000 through December 31, 2004, the Company acquired and/or commenced development of approximately 42.7 million square feet of projects with aggregate budgeted project costs of approximately $4.6 billion. Acquisitions (including projects acquired for redevelopment or re-leasing purposes) are included in these statistics.

The Company provides its clients with services that are vital in all stages of the development and construction process, including: (i) evaluating project feasibility, budgeting, scheduling and cash flow analysis; (ii) site identification, due diligence and acquisition; (iii) procurement of approvals and permits, including zoning and other entitlements; (iv) coordination of project design and engineering; (v) construction bidding and management and tenant finish coordination; (vi) project close-out and tenant move coordination; and (vii) project finance advisory services.

The Company typically receives a fee for its development services that is based on a negotiated percentage of a project’s budgeted construction and development cost. Incentive bonuses may be received for completing a project under budget and within certain critical time deadlines. The Company also seeks to negotiate other incentive compensation arrangements that allow the Company to participate in the investment returns on projects it develops for its clients. The Company may make a co-investment with its clients, receive its pro rata return on its investment in the project and also receive an incentive

participation in the project because of the Company’s role in sourcing the development project and/or creating value through executing a variety of services in the development process. The Company’s co-investments in real estate projects typically result in an upside economic interest substantially greater than the co-investment percentage.

To facilitate the Company’s pursuit of development and acquisitions/re-development opportunities that the Company believes have attractive risk/reward profiles yet may not be suitable for its investor clients, from 1996 through 2004, the Company established a series of five discretionary development and investment funds (Trammell Crow Investment Funds I through V), which through December 31, 2004, had received aggregate funding commitments of $154.2 million, consisting of $98.3 million from unrelated parties, $10.9 million from current or former employees of the Company and $45.0 million from the Company. Of the total funding commitments, $104.1 million had been invested through December 31, 2004, in projects with an aggregate project cost of approximately $855.8 million. Of those projects, projects with total costs of $435.5 million had been sold through December 31, 2004.

During 2004, the Company established an industrial development program with ING Clarion. The Company co-invests in the program, which is targeting up to $500 million of product with a focus on the development, aggregation and sale of new bulk warehouse distribution centers in major markets throughout the United States. The program is structured as a joint venture with the Company sourcing projects and providing development services for projects initiated by the program and ING Clarion providing the credit support to the underlying projects. None of the debt related to the projects is recourse to the Company. Since its inception, the program has secured land to develop projects with aggregate budgeted project costs of approximately $160.0 million.

The Company’s intent is to explore new programmatic opportunities instead of concentrating on stand-alone real estate transactions. Specifically, the Company is working towards establishing a medical office building fund with a major pension fund to develop, acquire and own medical office buildings. The Company will continue to consider other product types for future programs.

The commercial real estate development business is cyclical and is driven by a variety of economic conditions. New development activity and activity associated with harvesting in-process projects slowed considerably from 2001 through 2003 in response to the downturn in the general economy and its impact on real estate market fundamentals (primarily rental and occupancy rates). The reduced activity levels from 2001 through 2003 led directly to the reduced revenue and earnings from peak levels in 2000 for the Development and Investment segment in those years. During 2004, the pace of the Company’s development activity picked up significantly, as measured by the volume of development starts and acquisitions of properties with redevelopment potential.

Competition

The Company competes in several market segments within the commercial real estate industry, each of which is highly competitive on a national and a local level. The Company faces competition from other real estate services providers, consulting firms, in-house corporate real estate departments and developers. Some of the Company’s principal competitors in certain of these segments have capabilities and financial resources equal to or greater than those of the Company and a more substantial global presence. Many of the Company’s competitors are local or regional firms, which are smaller than the Company on an overall basis, but may be substantially larger than the Company in a particular local or regional market. While the Company does not believe that any of its competitors are dominant in the business lines in which the Company operates, the providers of real estate services that compete with the Company on a national level include Jones Lang LaSalle Incorporated, CB Richard Ellis, Cushman & Wakefield, Inc., Grubb & Ellis and national, regional and local developers. The Company has faced increased competition in recent years, which has, in some cases, resulted in lower service fees, or compensation arrangements more closely

aligned with the Company’s performance in rendering services to its clients. In recent years, there has been a significant increase in real estate ownership by REITs, many of which self-manage most of their real estate assets. Continuation of this trend could shrink the asset base available to be managed by third-party service providers, decrease the demand for the Company’s services and thereby significantly increase its competition. In general, the Company expects the industry to remain very competitive in the future. There can be no assurance that such competition will not have a material adverse effect on the Company’s business, financial condition or results of operations.

Employees

As of March 1, 2005, the Company had approximately 6,300 employees. Management believes its relations with employees are good. Employees of the Company at certain properties located in Reno, Nevada, New York, New York and Naperville, Illinois are currently represented by a labor union. The unions represented at the respective locations are: Southern California—Nevada Regional Council of Carpenters, Local #971; and Laborers’ International Union of North America-AFL-CIO Local No. 169 (Reno, Nevada); International Union of Operating Engineers Local Union #94-94A-94B AFL-CIO (New York, New York); and International Union of Operating Engineers Local No. 399 (Naperville, Illinois).

Insurance

The Company has the types of insurance coverage, including comprehensive general liability and excess umbrella liability insurance, that it believes are appropriate for a company in the lines of business in which it operates. The Company’s management uses its discretion in determining the amounts, coverage limits and deductibility provisions of appropriate insurance coverage on the Company’s properties and operations at a reasonable cost and on suitable terms. This might result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full value of the damages suffered by the Company.

Trademarks

The trade name “Trammell Crow” is material to the Company’s business. The Company is party to a license agreement with respect to such trade name (the “License Agreement”) with CF98, L.P., (“CF98”), an affiliate of Crow Realty Investors, L.P. d/b/a Crow Holdings (“Crow Holdings”), which is wholly-owned by certain descendants and affiliates of Mr. Trammell Crow. See “Risk Factors—Trade Name License” for additional information.

Environmental Liability

Various federal, state, local and foreign laws and regulations impose liability on current or previous real property owners or operators for the cost of investigating, cleaning up or removing contamination caused by hazardous or toxic substances at the property. If contamination occurs or is present during the Company’s role as a property or facility manager or developer, it could be held liable for such costs as a current “operator” of the property. Such liability may be imposed without regard to the legality of the acts or omissions that caused the contamination and without regard to whether the Company knew of, or was responsible for, the presence of such hazardous or toxic substances, and such liability may be joint and several with any other parties that are deemed legally liable for the contamination. If the liability is joint and several, the Company could be responsible for payment of the full amount of the liability, whether or not any other responsible party is also liable. Under certain laws and common law principles, any failure by the Company to disclose environmental contamination at a property could subject the Company to liability to a buyer or lessee of the property. In addition, some environmental laws create a lien on a contaminated site for costs that a governmental entity incurs in connection with the contamination. The operator of a site also may be liable under common law to third parties for damages and injuries resulting from exposure to hazardous substances or environmental contamination at a site, including liabilities arising from exposure

to asbestos-containing materials. There can be no assurance that any of these types of environmental liabilities to which the Company or any of its affiliates become subject will not have a material adverse effect on the Company’s business and results of operations.

Some of the properties owned, operated, managed or under development by the Company contain or are adjacent to or near properties that have contained in the past, or currently contain, underground and/or above-ground storage tanks used to store regulated substances such as petroleum products or other hazardous or toxic substances. Some of the properties owned, operated or managed by the Company are in the vicinity of properties which are currently, or have been, the site of releases of regulated substances and remediation activity, and the Company is currently aware of several properties owned, operated or managed by the Company which may be impacted by regulated substances which may have migrated from adjacent or nearby properties or which may be within the borders of areas suspected to be impacted by regional groundwater contamination. In addition, the Company is aware of the presence or the potential presence of regulated substances in the soil or groundwater at several properties owned, operated or managed by it, which may have resulted from historical or ongoing activities on those properties. Based on the information available to date, the Company believes that the environmental issues described above are being or have been appropriately managed and will not have a material adverse effect on the Company, but there can be no assurance that environmental liabilities or claims will not adversely affect the Company in the future.

Government Regulation

The Company and its brokers, salespersons and, in some instances, property managers are regulated by the states in which they do business. These regulations include licensing procedures, prescribed fiduciary responsibilities and anti-fraud provisions. The Company’s activities are also subject to various local, state, national and international jurisdictions’ fair advertising, trade, housing and real estate settlement laws and regulations and are affected by laws and regulations relating to real estate and real estate finance and development. In particular, a number of jurisdictions have imposed environmental controls, permitting requirements and zoning restrictions on the development of real estate.

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

Under the Americans with Disabilities Act of 1990 (“ADA”), all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. While the Company believes that its properties in which it holds an equity interest are substantially in compliance with these requirements, a determination that such properties are not in compliance with the ADA could result in the imposition of fines or an award of damages to private litigants.

Risk Factors

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

Trade Name License. The Company has entered into a License Agreement with an affiliate of Crow Holdings that allows the Company to use the name “Trammell Crow” perpetually throughout the world in any business except the residential real estate business, although the Company can use this name in serving certain mixed-use properties or in providing investment sales brokerage services to buyers and sellers of multi-family residential facilities. This license can be revoked if the Company fails to maintain certain quality standards or infringes upon certain of the licensor’s intellectual property rights. If the Company loses the right to use the Trammell Crow name, the Company’s business could suffer significantly.

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

Real Estate Investment and Co-investment Activities. Selective investment in real estate projects is an important part of the Company’s strategy and there is an inherent risk of loss of the Company’s investment. As of December 31, 2004, the Company had 46 consolidated real estate projects with invested equity of $26.9 million and $27.5 million of notes payable on real estate that are recourse to the Company (beyond being recourse to the single-purpose entity that holds the real estate asset and is the obligor on the note payable). The estimated aggregate project cost of these consolidated real estate projects is $516.9 million. In addition, at December 31, 2004, the Company was involved as a principal (in most cases, co-investing with one of its clients) in 33 unconsolidated real estate subsidiaries in which the Company had invested $39.8 million and had guaranteed notes payable of these unconsolidated subsidiaries of $15.4 million.

Because the disposition of a single significant investment can impact the Company’s financial performance in any period, its real estate investment activities could increase (and have historically increased) fluctuations in the Company’s net earnings and cash flow. The Company has limited control over the timing of the disposition of these investments and the recognition of any related gain or loss.

The commercial real estate market is cyclical and depends on the perceptions of real estate investors as to general economic conditions. Because the Company’s investment strategy typically entails making relatively modest investments alongside its investor clients, its ability to conduct these activities depends in part on the supply of investment capital for commercial real estate and related assets. While the Company believes ample supply of investment capital for real estate currently exists, changes in market perceptions or other economic factors may lead to decreased availability of such capital, which could adversely impact the Company’s development and investment strategy. Furthermore, in real estate down-cycles, economic conditions may make certain development project pursuits less viable, and the Company may decide not to continue pursuing such projects. Consequently, the Company’s financial results in down cycles may be (and have been) adversely impacted by increased write-offs of pursuit costs that have been capitalized in connection with potential development projects that the Company has determined not to pursue.

Building occupancies and rental rates typically decline in an economic downturn. Therefore, it may take longer for the Company to dispose of real estate investments or the selling prices may be lower than originally anticipated. As a result, the carrying value of the Company’s real estate investments may become impaired and the Company could record losses as a result of such impairment.

Recruiting and Retention of Qualified Personnel. The Company’s continued success is highly dependent upon the efforts of its executive officers and key employees. If any of the Company’s key employees leave, its business may suffer. The growth of the Company’s business is also largely dependent upon its ability to attract and retain qualified personnel in all areas of its business, including management. If the Company is unable to attract and retain such qualified personnel, it may be forced to limit its growth, and its business and operating results could suffer. Organizational changes within the Company could impact its ability to retain personnel.

Reliance on Major Clients and Contract Retention. A relatively small number of the Company’s clients generate a significant portion of its revenues. The Company’s ten largest clients accounted for approximately 31% of its total revenues in 2004, including one client (Bank of America Technology and Operations, Inc., which receives services primarily from the Company’s Global Services segment) that accounted for 12% of the Company’s total revenues. The loss of one or more of its major clients could have a material adverse effect on the Company’s business.

In 2004, revenue from property management and from user clients with whom the Company has outsourcing contracts constituted approximately 18% and 45%, respectively, of the Company’s total

revenues. The Company’s property management contracts can generally be cancelled upon 30 days notice by either party, and its outsourcing services contracts are typically for multi-year terms with options to renew. Accordingly, contracts representing a significant percentage of the Company’s revenues are terminable on short notice or may be scheduled to expire in any one year. The Company has been successful in retaining and renewing a significant portion of its contracts but may not be able to do so in the future. Moreover, increased competition may force the Company to renew such contracts on less favorable terms.

Long-Term Growth. The Company will continue to focus on additions to its base business that should be less impacted by economic down cycles over time and are expected to create long-term growth. The Company’s historical growth and any significant future growth will continue to place demands on the Company’s resources. The Company’s future success and profitability will depend, in part, on its ability to enhance its management and operating systems, manage and adapt to rapid changes in technology, obtain financing for capital expenditures or strategic acquisitions and retain employees and clients through periods of internal changes. The Company may not be able to successfully manage any significant expansion or obtain adequate financing for such expansion on favorable terms, if at all. In addition, the Company is impacted by cycles in the general economy and the commercial real estate industry and, as a result, its growth strategy is directly impacted by those economic cycles.

Business Acquisitions. The Company may pursue strategic acquisitions in the future. However, the Company may not be able to acquire businesses on favorable terms, and may have to use a substantial portion of its capital resources for any such acquisitions. Challenges and issues commonly encountered in strategic acquisitions include:

· diversion of management’s attention to assimilating the acquired business;

· maintaining employment relationships with the Company’s employees and employees of an acquired business;

· adverse short-term effects on operating results;

· integrating financial and other administrative systems;

· amortization or impairment of any acquired intangible assets; and

· maintaining uniform standards, controls, procedures and policies.

In addition, the acquired businesses’ clients could cease to do business with the Company. Potential conflicts between the Company’s clients and those of an acquired business could threaten its business relationships. If the Company is not able to manage these risks, its business could suffer significantly.

International Operations. The Company operates in several markets outside the United States and is subject to the risks common for international operations and investments in foreign countries. These risks include:

· difficulties in staffing and managing geographically and culturally diverse, multinational operations;

· lack of familiarity with local business customs and operating environments;

· changes in foreign tax laws;

· changes in currency exchange rates;

· limitations on repatriation of earnings;

· restrictive actions by local governments;

· nationalization and expropriation; and

· acts of terror, war and civil disturbances.

Fluctuations in Quarterly Operating Results. In recent years, the Company’s revenues have been lower in each of the first three quarters than in the fourth quarter because its clients tend to close transactions toward the end of their fiscal years (typically the calendar year). This causes the Company to earn a significant portion of its revenues under transaction-oriented service contracts or real estate transactions in the fourth quarter.

In addition, a growing portion of the Company’s outsourcing contracts provide for bonus payments upon achieving certain performance targets. These incentive payments are generally earned in the fourth quarter. Furthermore, revenues can be influenced by the timing of significant individual transactions. The Company plans its capital and operating expenditures based on its expectations of future revenues. If revenues are below expectations in any given quarter, the Company may be unable to adjust expenditures to compensate for any unexpected revenue shortfall. The Company’s business could suffer as a consequence.

Competition. The Company competes in several market segments within the commercial real estate industry, each of which is highly competitive on an international, national and local level. The Company faces competition from other real estate services providers, consulting firms, in-house corporate real estate departments and developers. The adverse consequences of intense competition may include loss of clients and downward pressure on pricing. In recent years, there has been a significant increase in real estate ownership by REITs, many of which self-manage most of their real estate assets. Continuation of this trend could shrink the asset base available to be managed by third party service providers, decrease the demand for the Company’s services and thereby significantly increase its competition.

Environmental Liability. Various laws and regulations impose liability on real property owners or operators for the cost of investigating, cleaning up or removing contamination caused by hazardous or toxic substances at the property. In the Company’s role as a property or facility manager or developer, the Company could be held liable as an operator for such costs. This liability may be imposed without regard to the legality of the original actions and without regard to whether the Company knew of, or was responsible for, the presence of the hazardous or toxic substances. If the Company fails to disclose environmental issues, the Company could also be liable to a buyer or lessee of the property. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs incurred in connection with the contamination. If the Company incurs any such liability, its business could suffer significantly.

Anti-takeover Considerations. Certain provisions of the Company’s certificate of incorporation, bylaws and certain provisions of Delaware law may deter or prevent a takeover attempt, including an attempt that might result in a premium over the market price for its common stock. These provisions include:

· Staggered Board of Directors. The Company’s Board of Directors is divided into three classes serving terms currently expiring in 2005, 2006 and 2007. Because the Company’s Board of Directors is divided into classes, members of its Board of Directors may only be removed from office prior to the expiration of their terms if such removal is for “cause.” Therefore, the staggered terms of directors may limit the ability of holders of common stock to complete a change of control.

· Stockholder Proposals. The Company’s stockholders must follow an advance notification procedure for certain stockholder nominations of candidates for the Company’s Board of Directors and for certain other business to be conducted at any stockholders’ meeting. This limitation on stockholder proposals could inhibit a change of control.

· Special Meetings of the Stockholders. Subject to limited exceptions, special meetings of stockholders may be called only by the Chairman of the Board of Directors or a majority of the members of the Board of Directors. This limitation on special meetings of the stockholders could inhibit a change of control.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Common Stock is listed on the New York Stock Exchange (“NYSE”) and trades under the symbol “TCC.” At March 1, 2005, 35,729,345 shares were held by approximately 2,151 stockholders of record. The following table sets forth the high and low sales prices per share of Common Stock as reported on the NYSE Composite Transaction Tape on a quarterly basis for the last two fiscal years.

	High		Low
2003:
First Quarter	$	9.67	$	7.75
Second Quarter	$	10.68	$	7.75
Third Quarter	$	13.05	$	10.50
Fourth Quarter	$	14.15	$	11.30
2004:
First Quarter	$	14.52	$	13.25
Second Quarter	$	14.30	$	12.25
Third Quarter	$	16.20	$	12.51
Fourth Quarter	$	18.51	$	14.86

The Company has not historically paid dividends and does not anticipate paying dividends in the foreseeable future. Any future payment of dividends will be at the discretion of the Board of Directors and will depend upon the Company’s results of operations, financial condition, cash requirements and other factors deemed relevant by the Board of Directors, including the terms of the Company’s indebtedness. Provisions in agreements governing the Company’s long-term indebtedness limit the amount of dividends that the Company may pay to its stockholders. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

In March 2005, the Company announced that its Board of Directors has authorized the purchase of up to $20 million of its common stock from time to time in open market purchases or in privately negotiated transactions. The repurchase of shares is intended to offset dilution resulting from equity incentive awards made under the Company’s stock plans. The Company’s intent with respect to its stock repurchase programs is to reserve the repurchased shares for issuance in connection with the Company’s employee stock purchase plan and option exercises or restricted stock grants under the Company’s long-term incentive plan and other equity-based incentive plans, as well as for other corporate purposes.

Purchases under the Company’s stock repurchase programs in the fourth quarter of 2004 were as follows:

Period	Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
October 1, 2004—October 31, 2004	2,354,437	(1)		$	15.75		2,354,437		—
November 1, 2004—November 30, 2004	—			—			—		—
December 1, 2004—December 31, 2004	—			—			—		—
Total	2,354,437			$	15.75		2,354,437		—

(1) On September 1, 2004, the Company commenced a Modified Dutch Auction tender offer to purchase up to 4,444,444 shares of its common stock at a purchase price not greater than $15.75 nor less than $13.50 per share. The offer expired on October 1, 2004, and these shares were purchased pursuant to that offer.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by Item 201(d) of Regulation S-K is set forth under the heading “Item 12. Security Ownership of Certain Beneficial Owners and Management.”

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data set forth below have been derived from the consolidated financial statements of the Company. The consolidated financial statements of the Company as of December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, have been audited by Ernst & Young LLP, independent registered public accounting firm, whose report thereon appears elsewhere herein.

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

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”), certain revenues and expenses for the three quarterly periods ended March 31, June 30 and September 30, 2004 and the years ended December 31, 2003 and 2002, have been reclassified to conform to the presentation for the quarter ended December 31, 2004. As a result, certain balances differ from the amounts reported in previously filed documents. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Income from Discontinued Operations, Net of Income Taxes,” for additional information.

	Years Ended December 31,
	2000			2001			2002			2003			2004
	(in thousands, except share and per share data)
Statement of Operations Data:
REVENUES:
*User Services:*
Facilities management	$	151,515		$	201,573		$	233,756		$	208,936		$	211,062
Corporate advisory services	143,536			115,599			108,414			123,335			143,266
Project management services	53,430			52,973			58,134			65,500			91,599
	348,481			370,145			400,304			397,771			445,927
*Investor Services:*
Property management	165,081			174,279			147,613			143,727			137,193
Brokerage	145,761			115,463			95,657			95,593			114,478
Construction management	22,672			13,082			10,006			10,736			11,187
	333,514			302,824			253,276			250,056			262,858
Development and construction	90,528			76,630			55,112			44,299			40,846
	772,523			749,599			708,692			692,126			749,631
Gain on disposition of real estate	47,119			28,456			24,218			13,420			28,795
	819,642			778,055			732,910			705,546			778,426
COSTS AND EXPENSES:
Salaries, wages and benefits	437,891			477,628			472,810			452,195			493,438
Commissions	119,702			94,655			87,396			98,957			120,357
General and administrative	128,448			138,308			133,741			117,163			128,968
Depreciation	12,544			15,811			15,236			14,787			10,119
Amortization	9,335			8,164			2,579			1,991			1,395
Interest	16,947			15,057			10,219			6,088			4,573
Writedowns due to impairment of goodwill, intangibles and investments	40,347			31,968			—			—			—
Change in fair value of interest rate swap agreement	—			4,809			—			—			—
Restructuring charges	—			10,952			—			—			—
	765,214			797,352			721,981			691,181			758,850
Operating income (loss)	54,428			(19,297		)	10,929			14,365			19,576
Interest and other income	1,738			1,596			1,186			2,283			2,808
Income (loss) from continuing operations before income taxes, minority interest and income from investments in unconsolidated subsidiaries	56,166			(17,701		)	12,115			16,648			22,384
Income tax (expense) benefit	(22,492		)	5,893			(5,400		)	(6,751		)	(8,501		)
Minority interest, net of income taxes	(2,567		)	880			1,619			1,231			(3,006		)
Income from investments in unconsolidated subsidiaries, net of income taxes	4,347			5,717			4,961			9,839			10,971
Income (loss) from continuing operations	35,454			(5,211		)	13,295			20,967			21,848
Income from discontinued operations, net of income taxes(1)	—			—			3,358			73			17,271
Net income (loss)	$	35,454		$	(5,211	)	$	16,653		$	21,040		$	39,119
Income (loss) per share from continuing operations:
Basic	$	1.02		$	(0.15	)	$	0.38		$	0.59		$	0.62
Diluted(2)	$	0.98		$	(0.15	)	$	0.36		$	0.57		$	0.59
Income per share from discontinued operations, net of income taxes:
Basic	$	—		$	—		$	0.09		$	—		$	0.50
Diluted	$	—		$	—		$	0.09		$	—		$	0.46

Statement of Operations Data: (Continued)
Earnings (loss) per share:
Basic	$	1.02		$	(0.15	)	$	0.47		$	0.59		$	1.12
Diluted(2)	$	0.98		$	(0.15	)	$	0.45		$	0.57		$	1.05
Weighted average common shares outstanding:
Basic	34,851,738			35,356,710			35,741,754			35,572,493			35,064,453
Diluted(2)	36,147,744			35,356,710			36,797,012			36,780,515			37,239,801
Other Data:
Calculation of EBITDA(3) and EBITDA, as adjusted(4):
Net income (loss)	$	35,454		$	(5,211	)	$	16,653		$	21,040		$	39,119
Income tax expense (benefit)(5)	23,681			(926		)	13,391			14,350			23,954
Depreciation(6)	12,544			15,811			15,236			15,001			10,209
Amortization(7)	9,335			8,164			2,593			1,995			1,395
Interest expense(8)	16,947			15,057			10,346			7,369			4,830
EBITDA(3)	97,961			32,895			58,219			59,755			79,507
Writedowns due to impairment of goodwill, intangibles, and investments	40,347			31,968			—			—			—
Minority interest related to goodwill writedown, before income taxes	—			(2,346		)	—			—			—
Change in fair value of interest rate swap agreement	—			4,809			—			—			—
Restructuring charges	—			10,952			—			—			—
EBITDA, as adjusted(4)	$	138,308		$	78,278		$	58,219		$	59,755		$	79,507
Net cash provided by operating activities	$	40,631		$	28,826		$	71,863		$	48,810		$	91,746
Net cash provided by (used in) investing activities	(45,489		)	(7,862		)	4,697			3,861			(34,410		)
Net cash provided by (used in) financing activities	12,967			(38,542		)	(36,614		)	(25,060		)	685
Balance Sheet Data:
Cash and cash equivalents	$	55,637		$	38,059		$	78,005		$	105,616		$	163,637
Total assets	722,015			692,262			622,066			630,126			748,950
Long-term debt (excluding notes payable on real estate) and capital lease obligations	88,242			62,013			22,717			13,106			377
Notes payable on real estate(9)	148,098			158,226			113,807			103,266			149,704
Total liabilities	391,274			377,565			273,841			273,601			363,244
Minority interest	39,782			28,574			39,871			28,896			44,756
Stockholders’ equity	290,959			286,123			308,354			327,629			340,950

(1) Income from discontinued operations includes the operations of real estate properties and gain on disposition of real estate properties held for sale or sold subsequent to January 1, 2002, in which the Company retained or expects to retain no continuing involvement, determined in accordance with FAS 144. Dispositions of real estate assets have been and will continue to be a significant part of the Company’s activities and, as a result of applying the provisions of FAS 144, the Company expects a greater amount of these activities to be classified as discontinued operations in future periods as fewer asset dispositions will qualify for grandfathered treatment under FAS 144.

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

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

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

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

(6) Depreciation includes $214 and $90 related to discontinued operations for the years ended December 31, 2003 and 2004, respectively.

(7) Amortization includes $14 and $4 related to discontinued operations for the years ended December 31, 2002 and 2003, respectively.

(8) Interest expense includes $127, $1,281 and $257 related to discontinued operations for the years ended December 31, 2002, 2003 and 2004, respectively.

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

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

The following discussion should be read in conjunction with the Company’s consolidated financial statements and the notes thereto and the other information included in Item 15(a)(1) and (2) of this Annual Report on Form 10-K.

Overview

The Company’s Global Services revenue streams consist primarily of payments made pursuant to service contracts and variable transaction-oriented payments. The Company typically receives base monthly fees from clients for services provided under its facilities management and property management contracts. The fees received by the Company for the provision of transaction services (corporate advisory services and brokerage) are typically paid in connection with the consummation of a transaction such as the purchase or sale of commercial property or the execution of a lease. The Company also earns fees from project and construction management services that are typically determined by the size and cost of the project. The arrangement may be part of a management services contract or an individual project engagement. In addition, the Company earns incentive fees under various management contracts that are based on quantitative and/or qualitative criteria, such as achieving cost savings levels or certain client service ratings.

The Company’s Development and Investment revenue streams consist primarily of payments related to individual real estate development projects. Revenues from the Company’s development activities consist of development and construction fees, which are typically based upon a negotiated percentage of a project’s cost, and incentive development fees for completing a development project under budget, within certain critical time deadlines and/or for achieving specified leasing targets. Income from the Company’s investment activities primarily consists of gains on disposition of real estate and income from unconsolidated subsidiaries that hold real estate assets. Dispositions of real estate in which the Company has no significant continuing involvement in the operations of the asset after its disposition are reported as discontinued operations in accordance with FAS 144. The Company’s Development and Investment revenue streams also include rental revenue earned by the Company’s consolidated operating real estate properties. The Company has limited control over the timing of the disposition of certain of these investments and the recognition of any related gain or loss. Because the disposition or impairment of a single significant investment can impact the Company’s financial performance in any period, these investment activities create fluctuations in the Company’s revenues. Because the Company’s investment strategy often entails making relatively modest investments alongside its investor clients, its ability to conduct these activities depends in part on the supply of investment capital for commercial real estate and related assets.

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

Over the last three years, an average of 66% of the Company’s net income has been generated in the fourth quarter, due primarily to a demonstrated tendency of participants in the commercial real estate industry to complete transactions toward year-end. In addition, certain of the Company’s outsourcing contracts provide for incentive payments if the Company achieves certain performance targets, which are generally recognized in the fourth quarter. In contrast, the Company’s non-variable operating expenses, which are treated as expenses when incurred during the year, are relatively constant on a quarterly basis. See “—Quarterly Results of Operations and Seasonality.”

Critical Accounting Policies

Management of the Company is required to make certain estimates and assumptions in connection with the preparation of its consolidated financial statements in accordance with GAAP. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates. Certain of the Company’s accounting policies and estimates have a more significant impact on its financial statements than others, due to the magnitude of the underlying financial statement elements.

Consolidation

The Company’s consolidated financial statements include the accounts of the Company, variable interest entities (“VIEs”) in which the Company is the primary beneficiary and other subsidiaries over which the Company has control.

The Company’s determination of the appropriate accounting method with respect to its variable interests, including co-investments with its clients, is based on Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN 46R”). The Company consolidates any VIE of which the Company is the primary beneficiary and discloses significant variable interests in VIEs of which the Company is not the primary beneficiary.

The Company determines if an entity is a VIE under FIN 46R based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support provided by any parties, including equity holders. The Company makes judgments regarding the sufficiency of the equity at risk based first on qualitative analysis, then quantitative analysis if necessary. In a quantitative analysis, the Company incorporates various estimates, including estimated future cash flows, asset hold periods and discount rates, as well as estimates of the probabilities of various scenarios occurring. If the entity is a VIE, the Company then determines whether it will absorb the majority of expected losses and/or receive the majority of expected returns, and if so, consolidates the entity as the primary beneficiary. This determination of whether the Company will absorb the majority of expected losses and/or receive the majority of expected returns includes any impact of an “upside economic interest” in the form of a “promote” that the Company may have. A promote is a disproportionate interest built into the distribution structure of the entity based on the entity’s achievement of certain return hurdles. The Company determines whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. If the Company made different judgments or utilized different estimates in these evaluations, it could result in differing conclusions as to whether or not an entity is a VIE and whether or not to consolidate such entity. The Company is not required to reconsider the entity’s VIE status if the entity incurs losses that exceed expectations, but is required to reconsider the status if the structure of the entity changes.

Accounting for an investment as either consolidated or by the equity method generally would have no impact on the Company’s net income or stockholders’ equity in any accounting period, but a change in

treatment would impact individual income statement and balance sheet items, as consolidation would effectively “gross up” the Company’s income statement and balance sheet. However, if control aspects of an investment accounted for by the cost method were different, it could result in the Company being required to account for an investment by consolidation or by the equity method. Under the cost method, the investor only records its share of the underlying entity’s earnings to the extent that it receives dividends from the investee; when the dividends received by the investor exceed the investor’s share of the investee’s earnings subsequent to the date of the investor’s investment, the investor records a reduction in the basis of its investment. Under the cost method, the investor does not record its share of losses of the investee. Conversely, under either consolidation or equity method accounting, the investor effectively records its share of the underlying entity’s net income or loss, to the extent of its investment or its guarantees of the underlying entity’s debt. At December 31, 2004, $2.4 million of the Company’s $74.1 million total investment in unconsolidated subsidiaries relates to investments that are accounted for using the cost method. Accounting for an investment under either the equity or cost method has no impact on the evaluation of impairment of the underlying investment; under either method, impairment losses are recognized upon evidence of other-than-temporary losses of value.

Revenue Recognition

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

· existence of persuasive evidence that an arrangement exists;

· delivery has occurred or services have been rendered;

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

· collectibility is reasonably assured.

The Company’s various revenue recognition policies are consistent with these criteria. The revenues of the Company’s business that are subject to the most judgment are its brokerage commission revenues and incentive-based management and development fees. The judgments involved in revenue recognition are understanding the complex terms of the agreements and determining the appropriate time to recognize revenue for each transaction based on such terms. Each transaction is evaluated to determine: (1) at what point in time revenues are earned, (2) whether there are contingencies involved that would impact the timing of recognition of revenue, and (3) how and when such contingencies will be resolved. The actual timing of revenue recognition could vary if different judgments were made.

The Company’s brokerage commission revenues are comprised of commissions earned for investment sales, project leasing and tenant representation transactions. Revenues from investment sales transactions are recognized upon the closing of a sale and are generally paid to the Company by the seller out of the sale proceeds; therefore, there is generally no estimation or judgment involved in the recognition of these revenues. Project leasing and tenant representation commissions are generally recorded half upon execution of a lease contract, and the remainder upon tenant occupancy. The Company performs thousands of project leasing and tenant representation transactions annually, each of which is typically governed by a separate commission agreement. While the majority of these agreements generally provide that half of the commission is earned upon execution of a lease contract and half upon tenant occupancy, agreements do vary as to their terms and complexity, usually due to negotiation of the commission agreement language with the client. If there are any contingencies with respect to any portion of the commission, that portion of the commission is not recognized as revenue until the contingency is resolved. The unique nature and complexity of each brokerage transaction require the Company to use varying levels of judgment in determining timing of revenue recognition.

The Company earns incentive development and management fees from its development services and certain services provided to user clients in the Company’s Global Services segment, including facilities management services, project management services and corporate advisory services. These fees are recognized when quantitative criteria have been met (such as specified leasing or budget targets, client service levels, or achieved levels of operating expense savings) or, for those incentive fees based on qualitative criteria, upon approval of the fee by the clients. Certain incentive development fees allow the Company to share in any increase in the fair value of the developed real estate asset. This sharing creates additional revenue potential to the Company with no exposure to loss other than opportunity cost. The Company’s incentive development and management fee revenues are not recognized to the extent that such revenues are subject to future performance contingencies, but rather once the contingency has been resolved. The unique nature and complexity of each incentive fee require the Company to use varying levels of judgment in determining timing of revenue recognition.

Carrying Value of Real Estate, Goodwill and Intangible Assets

As of December 31, 2004, the Company’s total real estate, goodwill and intangible assets were $221.0 million, $74.4 million and $3.5 million, respectively (30%, 10% and 0.5% of total assets, respectively). Goodwill reflects the excess of the purchase price over the fair value of the net assets of real estate service companies acquired by the Company primarily in 1998 and 1999. Intangible assets primarily include management contracts and employment/non-compete agreements for certain employees entered into in connection with their hiring. Intangible assets also include upfront cash payments made to clients and certain contract acquisition costs incurred upon initiation of new long-term outsourcing contracts. The Company accounts for its real estate, goodwill and other intangibles in accordance with Statements of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“FAS 142”) and FAS 144. These statements require the Company to evaluate the carrying value of its real estate, goodwill and intangible assets based on assumptions and estimates of fair value and future cash flow information. These assumptions and estimates developed by the Company may differ from actual results. If different assumptions and estimates were used, carrying values could be adversely impacted, resulting in writedowns that would adversely affect the Company’s earnings.

Real Estate

With respect to the Company’s real estate assets, FAS 144 establishes restrictive criteria to classify an asset as “held for sale.” At December 31, 2004, assets included in real estate held for sale include only completed assets or land for sale in its present condition that meet all of the FAS 144 “held for sale” criteria. All other real estate assets are classified in one of the following line items in the Company’s balance sheet: (i) real estate under development (current), which includes real estate that the Company is in the process of developing that is expected to be completed and disposed of within one year of the balance sheet date; (ii) real estate under development (non-current), which includes real estate that the Company is in the process of developing that is expected to be completed and disposed of more than one year from the balance sheet date; or (iii) real estate held for investment, which consists of completed assets not expected to be disposed of within one year of the balance sheet date and land on which development activities have not yet commenced. Any asset reclassified from real estate held for sale to real estate under development (current or non-current) or real estate held for investment is measured individually at the lower of its fair value at the date of the reclassification or its carrying amount before it was classified as “held for sale,” adjusted (in the case of real estate held for investment) for any depreciation that would have been recognized had the asset been continuously classified as real estate held for investment.

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

Real estate under development and real estate held for investment are carried at cost less depreciation, as applicable. When indicators of impairment are present, real estate under development and real estate held for investment are evaluated for impairment and losses are recorded when undiscounted cash flows estimated to be generated by an asset are less than the asset’s carrying amount. The amount of the impairment loss is calculated as the excess of the asset’s carrying value over its fair value, which is determined using a discounted cash flow analysis or market comparisons. Buildings and improvements included in real estate held for investment are depreciated using the straight-line method over estimated useful lives, generally 39 years. Tenant improvements included in real estate held for investment are amortized using the straight-line method over the shorter of their estimated useful life or the terms of the respective leases.

The Company evaluates each of its real estate assets on a quarterly basis in order to determine the classification of each asset in the Company’s balance sheet. This evaluation requires judgment by the Company in considering certain criteria that must be evaluated under FAS 144, such as the estimated time to complete assets that are under development and the timeframe in which the Company expects to sell its real estate assets. The classification of real estate assets determines which real estate assets are to be depreciated as well as what method is used to evaluate and measure impairment. Had the Company evaluated its assets differently, the balance sheet classification of such assets, depreciation expense and impairment losses could have been different.

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

FAS 144 extends the reporting of a discontinued operation to a “component of an entity,” and further requires that a component be classified as a discontinued operation if the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the entity in the disposal transaction and the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. As defined in FAS 144, a “component of an entity” comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. Because each of the Company’s real estate assets is generally accounted for in a discrete subsidiary, almost every real estate asset constitutes a component of an entity under FAS 144, increasing the likelihood that the disposition of assets the Company holds for sale in the ordinary course of business must be reported as a discontinued operation unless the Company has significant continuing involvement in the operations of the asset after its disposition. Furthermore, operating profits and losses on such assets are required to be recognized and reported as operating profits and losses on discontinued operations in the periods in which they occur. The Company has certain real estate assets that are land parcels and constitute a component of an entity. From time to time, the Company disposes of these land parcels in smaller lots. An individual lot that is part of a larger land parcel does not constitute a component of an entity within the meaning of paragraph 41 of FAS 144 until it is either classified as held for sale in accordance with FAS 144 or sold.

Goodwill

Under FAS 142, the Company’s reporting units are the basis of its annual goodwill impairment tests. The required impairment tests are based on a comparison of the fair value of each of the Company’s reporting units to the carrying value of such unit. A writedown of goodwill must be recorded if the fair value of a reporting unit falls below its carrying value. The Company has identified its reporting units to mirror its two segments, Global Services and Development and Investment, as each segment’s underlying business units have similar long-term economic characteristics and service deliveries. If the Company defined its reporting units differently, the results of its annual impairment tests could be impacted. The Company performed its required annual impairment tests of goodwill in 2004, and has determined that no impairment of goodwill exists at December 31, 2004.

Intangible Assets

The Company’s intangible assets are evaluated for impairment when indicators of impairment are present. Impairment losses are recorded when estimates of undiscounted future cash flows are less than the value of the underlying asset. The amount of any impairment loss is calculated as the excess of the intangible asset’s carrying value over its fair value, which is determined using a discounted cash flow analysis. The determination of future cash flows is based on assumptions and estimates of forecasted financial information that may differ from actual results.

In 2002, the Company recognized a writedown of $1.1 million (recorded as a reduction of facilities management revenues) due to the impairment of an intangible related to an upfront cash payment made to a client upon inception of a management contract in a previous period. The Company and the client mutually agreed to terminate the contract in 2002.

The Company has considered the average life of its acquired management contracts to determine the period over which to amortize intangible assets related to these contracts, which is the Company’s estimate of the useful life of the underlying management contracts. This estimate requires judgment by the Company, and had the Company chosen a shorter time period over which to amortize such intangible assets, amortization expense would have increased in the earlier periods, adversely impacting the Company’s results of operations in such periods. The Company amortizes intangible assets resulting from employment/non-compete agreements to compensation expense over the period of time that future services to the Company are required, as stipulated in the applicable agreement. Intangible assets related to upfront cash payments made to clients and certain contract acquisition costs are amortized as a reduction of the related revenue over the non-cancelable term of the underlying contract.

Self-Insurance

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

The Company self-insures (through a health and welfare benefit trust) its health insurance benefits provided to substantially all of its employees and has purchased stop-loss insurance to cover individual claims in excess of $250,000. On a quarterly basis, the Company utilizes an independent actuary to evaluate the estimate of incurred but not reported claims under the Company’s health insurance programs. Each quarter, the Company adjusts its accrual to this estimate plus its share of unpaid reported claims. The actuarial estimate of the Company’s exposure to health insurance claims is subjective, and the amount of claims actually incurred could differ, which could result in increased or decreased expense in future periods. As of December 31, 2004, the Company’s liability to the trust, primarily for unpaid claims (both reported and not reported) related to these health insurance benefits, is $2.1 million, included in accrued expenses on the Company’s consolidated balance sheet.

The Company’s wholly-owned captive insurance company, which is subject to applicable insurance rules and regulations, insures the Company’s exposure related to workers’ compensation benefits provided to employees and purchases excess coverage from an unrelated insurance carrier. The Company purchases general liability and automotive insurance through an unrelated insurance carrier. The captive insurance company reinsures the deductibles. The captive insurance company also insures deductibles relating to other coverages. Given the nature of these types of claims, it may take several years for resolution and determination of the cost of these claims. The Company is required to estimate the cost of these claims in its financial statements. Exposure to workers’ compensation, general liability and automotive claims is evaluated on an annual basis during the Company’s fourth quarter by an independent actuary.

The Company adjusts its annual expense based on this actuarial estimate, and utilizes this estimate as the basis for the next year’s expense, until the actuary calculates the next annual estimate. The estimates that the Company utilizes to record its potential losses on claims are inherently subjective, and actual claims could differ from amounts recorded, which could result in increased or decreased expense in future periods. As of December 31, 2004, the Company’s reserve for claims under these insurance programs is $13.7 million, of which $3.7 million is included in other current liabilities and the remainder is included in other liabilities on the Company’s consolidated balance sheet.

Results of Operations

The following table sets forth items from the Company’s consolidated statements of income for each of the three years in the period ended December 31, 2004, as a percent of total revenue for the periods indicated.

	Years Ended December 31,
	2002			2003			2004
REVENUES:
*User Services:*
Facilities management		31.9	%		29.6	%		27.1	%
Corporate advisory services		14.8	%		17.5	%		18.4	%
Project management services		7.9	%		9.3	%		11.8	%
		54.6	%		56.4	%		57.3	%
*Investor Services:*
Property management		20.1	%		20.4	%		17.6	%
Brokerage		13.1	%		13.5	%		14.7	%
Construction management		1.4	%		1.5	%		1.4	%
		34.6	%		35.4	%		33.7	%
Development and construction		7.5	%		6.3	%		5.3	%
		96.7	%		98.1	%		96.3	%
Gain on disposition of real estate		3.3	%		1.9	%		3.7	%
		100.0	%		100.0	%		100.0	%
COSTS AND EXPENSES:
Salaries, wages and benefits		64.5	%		64.1	%		63.4	%
Commissions		11.9	%		14.0	%		15.5	%
General and administrative		18.2	%		16.6	%		16.5	%
Depreciation		2.1	%		2.1	%		1.3	%
Amortization		0.4	%		0.3	%		0.2	%
Interest		1.4	%		0.9	%		0.6	%
		98.5	%		98.0	%		97.5	%
Operating income		1.5	%		2.0	%		2.5	%
Interest and other income		0.2	%		0.4	%		0.4	%
Income from continuing operations before income taxes, minority interest and income from investments in unconsolidated subsidiaries		1.7	%		2.4	%		2.9	%
Income tax expense		(0.7	)%		(1.0	)%		(1.1	)%
Minority interest, net of income taxes		0.2	%		0.2	%		(0.4	)%
Income from investment in unconsolidated subsidiaries, net of income taxes		0.6	%		1.4	%		1.4	%
Income from continuing operations		1.8	%		3.0	%		2.8	%
Income from discontinued operations, net of income taxes		0.5	%		0.0	%		2.2	%
Net income		2.3	%		3.0	%		5.0	%

Results of Operations—Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

In accordance with FAS 144, certain revenues and expenses for the three quarterly periods ended March 31, June 30 and September 30, 2004 and the year ended December 31, 2003, have been reclassified to conform to the presentation for the quarter ended December 31, 2004. As a result, certain balances differ from the amounts reported in previously filed documents. See Income from Discontinued Operations, Net of Income Taxes, below, for additional information.

	For the Years Ended December 31,
	2004			2003			$ Change			% Change
	(dollars in thousands)
REVENUES:
*User Services:*
Facilities management	$	211,062		$	208,936		$	2,126		1.0	%
Corporate advisory services	143,266			123,335			19,931			16.2	%
Project management services	91,599			65,500			26,099			39.8	%
	445,927			397,771			48,156			12.1	%
*Investor Services:*
Property management	137,193			143,727			(6,534		)	(4.5	)%
Brokerage	114,478			95,593			18,885			19.8	%
Construction management	11,187			10,736			451			4.2	%
	262,858			250,056			12,802			5.1	%
Development and construction	40,846			44,299			(3,453		)	(7.8	)%
	749,631			692,126			57,505			8.3	%
Gain on disposition of real estate	28,795			13,420			15,375			114.6	%
	778,426			705,546			72,880			10.3	%
COST AND EXPENSES:
Salaries, wages and benefits	493,438			452,195			41,243			9.1	%
Commissions	120,357			98,957			21,400			21.6	%
General and administrative	128,968			117,163			11,805			10.1	%
Depreciation	10,119			14,787			(4,668		)	(31.6	)%
Amortization	1,395			1,991			(596		)	(29.9	)%
Interest	4,573			6,088			(1,515		)	(24.9	)%
	758,850			691,181			67,669			9.8	%
Operating income	19,576			14,365			5,211			36.3	%
Interest and other income	2,808			2,283			525			23.0	%
Income from continuing operations before income taxes, minority interest and income from investments in unconsolidated subsidiaries	22,384			16,648			5,736			34.5	%
Income tax expense	(8,501		)	(6,751		)	(1,750		)	(25.9	)%
Minority interest, net of income taxes	(3,006		)	1,231			(4,237		)	(344.2	)%
Income from investments in unconsolidated subsidiaries, net of income taxes	10,971			9,839			1,132			11.5	%
Income from continuing operations	21,848			20,967			881			4.2	%
Income from discontinued operations, net of income taxes	17,271			73			17,198			23,558.9	%
Net income	$	39,119		$	21,040		$	18,079		85.9	%

Revenues. Facilities management revenue increased slightly from 2003. This increase primarily resulted from an expansion of a client relationship in the second quarter of 2004. The overall increase was offset by the termination of certain client relationships as part of the Company’s wind-down of its centralized call center operations. Reimbursement of salaries, wages, benefits, and out-of-pocket general and administrative costs, a component of facilities management revenue, increased $7.3 million in 2004, compared to 2003. The composition of facilities management revenue, including management fees and reimbursements, can vary significantly from period to period based on the terms of the underlying management agreements in effect each period.

Corporate advisory services revenue increased from 2003, primarily driven by increased commission revenues in 2004. The increase was the result of growth in the number of tenant representation brokers as part of the Company’s focus on expanding its brokerage network. In addition, transaction volumes have increased, reflecting clients’ increased confidence in the economic recovery.

The revenue growth in project management services was mainly the result of the expansion of services provided to existing clients (due to increases in clients’ portfolios, the scope of the Company’s services required under certain outsourcing contracts and transaction volume). Also, the Company has added new clients.

The decrease in property management revenue was partially the result of decreased square footage under management in 2004 as compared to 2003. The reduction in square footage primarily resulted from sales of buildings in the Company’s management portfolio to REITs or other investors that self-manage their properties or use other service providers. In addition, some square footage decreases resulted from clients taking services back in-house or to other service providers. These decreases were partially offset by additions to square footage from new business.

The increase in brokerage revenue was driven by a large increase in investment sales commissions, while project leasing commissions increased slightly. Favorable capital markets fundamentals, including low interest rates, led to increased investment sales transaction volumes, which contributed to the improvement in investment sales commissions. The addition of investment sales brokers, resulting from the Company’s focus on expansion of its brokerage network, also contributed to the increase in such commissions.

Construction management revenue remained relatively flat in 2004 as compared to 2003, although the Company did experience an increase in new projects in the second half of 2004. Construction management revenue is generated from services including space planning and tenant finish coordination for investor clients in conjunction with property management and leasing assignments, and are directly related to clients’ real estate demands.

Development and construction revenue decreased in 2004 primarily due to a decrease in incentive development fees, largely due to the timing of significant transactions in 2004 as compared to 2003. In addition, the decrease in 2004 is due to a reduction in the Company’s development starts and investments (including property acquisitions) in recent years. Typically, the impact of increases and decreases in the Company’s development starts and investments is not reflected in financial results until later periods, and the Company has experienced reduction in its 2004 development and construction revenue as a consequence of reduced 2002 and 2003 development starts and investments. However, development starts and investments began trending up in 2004 with 2004 starts more than doubling those for 2003.

High Street Residential, a wholly-owned subsidiary of the Company, the Company has expanded its focus to include development of mixed-use facilities with a residential component, including condominium development and transit-oriented development. The Company is also directing its efforts toward acquisitions, including those acquisitions where opportunities exist to add value through redevelopment or re-leasing.

The Company’s gain on disposition of real estate increased significantly in 2004 from 2003. During 2004, the Company sold 18 real estate projects for an aggregate net sales price of $127.3 million, resulting in an aggregate gain on disposition of $28.8 million, including recognition of deferred gain of $0.4 million relating to dispositions in previous periods and interest forgiveness of $0.1 million. In 2003, the Company sold 19 real estate projects for an aggregate net sales price of $67.1 million, resulting in an aggregate gain on disposition of $13.4 million, including recognition of deferred gain of $0.3 million relating to dispositions in a previous period.

In addition, Development and Investment income is generated from investments in unconsolidated subsidiaries and from the operation and/or disposition of real estate classified as “discontinued operations.” The impact of Development and Investment project sales accounted for as income from unconsolidated subsidiaries or as income from discontinued operations is a regular part of, and can contribute significantly to, Development and Investment results in any given period.

Costs and Expenses. 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 clients (“reimbursed employees”); salaries, benefits and annual incentive bonuses for employees whose compensation is not so reimbursed (“unreimbursed employees”); long-term incentive compensation associated with restricted stock grants to certain employees; and transaction-related incentive compensation other than brokerage commissions, primarily paid in connection with development and investment transactions. The increase in 2004 was primarily driven by growth in salaries, wages and benefits for reimbursed employees as the Company increased its project management headcount to service client expansions and the addition of new clients. In addition, the Company’s annual incentive bonus expense and transaction-related incentive compensation expense increased due to the Company’s increased profitability in 2004.

The 2004 increase in commission expense was directly attributable to the increase in the Company’s corporate advisory services and brokerage revenue discussed above.

General and administrative expenses increased in 2004 primarily due to increased client-reimbursed out-of-pocket general and administrative expenses, largely driven by the growth in the Company’s project management service line.

Depreciation and amortization expenses decreased in 2004 from the prior year. The Company has replaced many of its computer assets at a lower cost than the assets that were retired, which has reduced the Company’s depreciation expense. In addition, several intangible asset balances related to acquired management contracts became fully amortized during 2004, which created a decrease in amortization expense as compared to 2003.

The decrease in interest expense is due in part to the expiration of the Company’s interest rate swap agreement at the end of the first quarter of 2003 for which the Company recorded $0.6 million of interest expense in 2003. The Company also had lower average outstanding balances on its revolving line of credit and capital leases during 2004 as compared to 2003.

Minority Interest, Net of Income Taxes. Minority interest fluctuated from income in 2003 to expense in 2004. This change is primarily a result of 2004 gains on dispositions of consolidated real estate projects in which outside parties have an interest. In addition, the results of operations of certain consolidated real

estate entities with outside owners improved due to lower charges for impairment of real estate held by these entities in 2004, as compared to 2003.

Income from Investments in Unconsolidated Subsidiaries, Net of Income Taxes. In the ordinary course of business, a significant portion of the Company’s development and investment activities are conducted, and are expected to be conducted in future periods, through unconsolidated subsidiaries. The Company also has certain investments in unconsolidated subsidiaries which are not related to its development and investment activities. Income from investments in unconsolidated subsidiaries fluctuates from period to period based on the volume and profitability of transactions carried out by the underlying unconsolidated subsidiaries. The overall increase in 2004 was primarily the result of significant income from an unconsolidated subsidiary that sold its building portfolio in the first quarter of 2004 and increased income from the Company’s investment in Savills due to Savills’ improved operating results.

Income from Discontinued Operations, Net of Income Taxes. Income from discontinued operations includes the operations of real estate properties and gain on disposition of real estate properties held for sale or sold subsequent to the adoption of FAS 144 effective January 1, 2002, that were considered components of an entity under FAS 144 and in which the Company has not retained or does not expect to retain significant continuing involvement. Dispositions of real estate assets have been and will continue to be a significant part of the Company’s activities and, as a result of applying the provisions of FAS 144, the Company expects a greater amount of these activities to be classified as discontinued operations in future periods as fewer asset dispositions will qualify for grandfathered treatment under FAS 144. During 2004, the Company sold four real estate projects that were considered discontinued operations for an aggregate net sales price of $78.0 million. The sales resulted in an aggregate gain on disposition of real estate (before income taxes) of $40.5 million (including interest forgiveness of $0.3 million) and minority interest expense of $10.8 million. In 2003, the Company sold four real estate projects that were considered discontinued operations for an aggregate sales price of $25.1 million, resulting in an aggregate gain on disposition of $5.3 million. Income from discontinued operations for 2003 includes a provision for loss of $1.4 million to reflect a real estate held for sale asset at fair value less cost to sell. Income from discontinued operations for 2003 also includes $1.4 million of impairment on real estate. Both of these real estate assets were sold in 2004.

Net Income. Net income increased due to the fluctuations in revenues and expenses described above, in addition to a decrease in the Company’s effective tax rate driven by favorable results from state tax planning as well as the increase in the Company’s income from its investment in Savills.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

In accordance with FAS 144, certain revenues and expenses for the years ended December 31, 2003 and 2002 have been reclassified to conform to the presentation for the year ended December 31, 2004. As a result, certain balances differ from the amounts reported in previously filed documents. See Income from Discontinued Operations, Net of Income Taxes, below, for additional information.

	For the Years Ended December 31,
	2003			2002			$ Change			% Change
	(dollars in thousands)
REVENUES:
*User Services:*
Facilities management	$	208,936		$	233,756		$	(24,820	)		(10.6	)%
Corporate advisory services	123,335			108,414			14,921				13.8	%
Project management services	65,500			58,134			7,366				12.7	%
	397,771			400,304			(2,533		)		(0.6	)%
*Investor Services:*
Property management	143,727			147,613			(3,886		)		(2.6	)%
Brokerage	95,593			95,657			(64		)		(0.1	)%
Construction management	10,736			10,006			730				7.3	%
	250,056			253,276			(3,220		)		(1.3	)%
Development and construction	44,299			55,112			(10,813		)		(19.6	)%
	692,126			708,692			(16,566		)		(2.3	)%
Gain on disposition of real estate	13,420			24,218			(10,798		)		(44.6	)%
	705,546			732,910			(27,364		)		(3.7	)%
COST AND EXPENSES:
Salaries, wages and benefits	452,195			472,810			(20,615		)		(4.4	)%
Commissions	98,957			87,396			11,561				13.2	%
General and administrative	117,163			133,741			(16,578		)		(12.4	)%
Depreciation	14,787			15,236			(449		)		(2.9	)%
Amortization	1,991			2,579			(588		)		(22.8	)%
Interest	6,088			10,219			(4,131		)		(40.4	)%
	691,181			721,981			(30,800		)		(4.3	)%
Operating income	14,365			10,929			3,436				31.4	%
Interest and other income	2,283			1,186			1,097				92.5	%
Income from continuing operations before income taxes, minority interest and income from investments in unconsolidated subsidiaries	16,648			12,115			4,533				37.4	%
Income tax expense	(6,751		)	(5,400		)	(1,351		)		(25.0	)%
Minority interest, net of income taxes	1,231			1,619			(388		)		(24.0	)%
Income from investments in unconsolidated subsidiaries, net of income taxes	9,839			4,961			4,878				98.3	%
Income from continuing operations	20,967			13,295			7,672				57.7	%
Income from discontinued operations, net of income taxes	73			3,358			(3,285		)		(97.8	)%
Net income	$	21,040		$	16,653		$	4,387			26.3	%

Revenues. Facilities management revenue decreased primarily due to the Company’s exit from certain unprofitable contracts and the loss of other clients during 2002 and the first half of 2003, including certain client relationships terminated as part of the Company’s wind-down of its centralized call center operations. Reimbursement of salaries, wages, benefits, and out-of-pocket general and administrative costs, a component of facilities management revenue, decreased $10.4 million in 2003, compared to 2002. The composition of facilities management revenue, including management fees and reimbursements, can

vary significantly from period to period based on the terms of the underlying management agreements in effect each period.

Corporate advisory services revenues began to increase from the prior year in the second quarter 2003 as clients began showing less reluctance to make new real estate commitments. In addition, during 2003 the Company increased the number of tenant representation brokers as part of its focus on expanding its brokerage network. The Company was successful in closing several significant tenant representation transactions and other transactions on behalf of its user clients.

Project management revenue growth was primarily due to the addition of new clients and the expansion of services provided to existing clients. The growth was partially offset by the sale of a majority of the operations of the Company’s joint venture with Savills into the Asia-Pacific region and the termination of a contract in the fourth quarter of 2002.

The decrease in property management revenue was primarily the result of a reduction in square footage under management in 2003, in addition to the Company’s sale of its mall management business to an affiliate of Faison Enterprises, Inc. (the “Faison Sale”) in the first quarter of 2002.

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

Construction management revenue is generated from services including space planning and tenant finish coordination for investor clients in conjunction with property management and leasing assignments, and is directly related to tenants’ real estate demands. Revenues remained relatively flat from 2002 to 2003.

The decrease in development and construction revenue was primarily due to a $5.8 million decrease in rental revenue from operating real estate properties, resulting from the sale of various operating properties that generated rental revenue in 2002. In addition, development and construction fees decreased due to the downturn in the economy, which had resulted in a decrease in the Company’s development starts and investments in recent years. Typically, the impact of decreases and increases in the Company’s development starts and investments is not reflected in results immediately and the Company experienced the consequences of reduced previous periods’ starts and investments in its development and construction revenues for 2003. These decreases in revenue were offset in 2003 by $1.6 million of revenue relating to the Company’s receipt of a distribution from a cost method investment. This distribution was the result of the disposition of the underlying real estate project.

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

Costs and Expenses. The decrease in salaries, wages and benefits expense in 2003 was driven by a $23.9 million decrease in salaries, wages and benefits for unreimbursed employees offset by a $3.3 million increase in salaries, wages and benefits for reimbursed employees. The decrease in unreimbursed salaries, wages and benefits is a result of the Company’s continued efforts to control costs as part of the Company’s cost reduction efforts begun in the second quarter of 2001, in addition to a reduction in headcount resulting from the Faison Sale and wind-down of the Company’s call center operations. These decreases in

unreimbursed salaries, wages and benefits were partially offset by increases due to new hiring in 2003. The increase in reimbursed salaries, wages and benefits was driven by an increase in project management services provided to clients, offset by a reduction in headcount due to the wind-down of call center operations.

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

The overall decrease in general and administrative expenses was comprised of a $20.4 million decrease in costs that are not reimbursed by clients, offset by a $3.8 million increase in out-of-pocket general and administrative expenses that are reimbursed by clients. The decrease in unreimbursed general and administrative expenses for 2003 is the result of a $5.4 million decrease in pursuit cost expense, mainly due to a writeoff of capitalized pursuit costs in the second quarter of 2002 when negotiations on an international venture concluded unsuccessfully, as well as continuing efforts by the Company to control costs company-wide. In addition, costs were incurred in 2002 to restructure or exit outsourcing contracts that were unprofitable or otherwise judged likely to be unsuccessful in the long run. The overall decrease in general and administrative expenses in 2003 was partially offset by $3.1 million of writedowns on real estate due to impairment and provisions to reflect real estate held for sale assets at fair value less cost to sell recorded in 2003 as compared to $2.4 million of such writedowns and provisions in 2002.

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

The decrease in interest expense is primarily the result of the dispositions in late 2002 of several operational real estate projects that incurred interest expense in 2002. Also, during 2003, the Company had lower average outstanding balances on its revolving line of credit.

Minority Interest, Net of Income Taxes. The decrease in minority interest income, net of income taxes, is primarily a result of decreased losses in 2003 in the Company’s consolidated international entities in which outside parties have an interest. This decrease was partially offset by an increase in minority interest income, net of income taxes, due to larger 2003 losses in certain consolidated real estate entities driven by 2003 charges for impairment of real estate.

Income from Investments in Unconsolidated Subsidiaries, Net of Income Taxes. Income from investments in unconsolidated subsidiaries fluctuates from period to period based on the volume and profitability of transactions carried out by the underlying unconsolidated subsidiaries. The Company’s share of income from such transactions is typically driven by its ownership percentage in the unconsolidated subsidiaries. The 2003 increase in income from unconsolidated subsidiaries was primarily driven by significant real estate sales by certain unconsolidated subsidiaries and increased income from the 10% investment that the Company owns in Savills, which it acquired upon initial formation of its strategic alliance with Savills.

Income from Discontinued Operations, Net of Income Taxes. In 2003, the Company sold four real estate projects that were considered discontinued operations for an aggregate net sales price of $25.1 million. These sales resulted in an aggregate gain on disposition of real estate (before income taxes) of $5.3 million. Income from discontinued operations for 2003 includes a provision for loss of $1.4 million to reflect a real estate held for sale asset at fair value less cost to sell and $1.4 million of impairment on real estate. In 2002,

the Company sold four real estate projects with a gain on disposition of real estate (before income taxes) of $6.6 million for an aggregate net sales price of $31.2 million.

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

Quarterly Results of Operations and Seasonality

The following table presents unaudited quarterly results of operations data for the Company for each of the eight quarters in 2004 and 2003. This quarterly information is unaudited but, in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The results of operations for any quarter are not necessarily indicative of results for any future period. Revenues and net income during the fourth fiscal quarter historically have been greater than in each of the first three fiscal quarters, primarily because the Company’s 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 and other factors may also cause quarterly fluctuations in the Company’s results of operations.

	Quarter Ended
	March 31			June 30			September 30				December 31
	(in thousands)
2004:
Total revenues	$	158,478		$	182,480			$	188,966			$	248,502
Income (loss) from discontinued operations, net of income taxes(1)	340			(152		)		(86		)		17,169
Net income	2,099			3,214				5,854				27,952
2003:
Total revenues	$	160,132		$	169,146			$	167,043			$	209,225
Income (loss) from discontinued operations, net of income taxes(1)	(149		)	(175		)		(385		)		782
Net income	1,144			3,072				1,783				15,041

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

Liquidity and Capital Resources

The Company’s liquidity and capital resources requirements include the funding of working capital needs, primarily costs incurred in providing services to its clients before collection of related billings; 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 and payments on notes payable associated with its development and investment activities; and expenditures related to upgrading the Company’s management information systems. 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 secured by underlying real estate, external equity, internal sources of funds, or a combination thereof.

Net cash provided by operating activities totaled $91.8 million for 2004, compared to $48.8 million for 2003. Cash provided by operating activities, excluding the change in real estate, net of related borrowings, increased to $93.1 million in 2004 as compared to $52.4 million in 2003. This increase is partially due to the

collection in 2004 of a large receivable from an affiliate that was outstanding at year-end 2003. In addition, cash used in real estate activities (exclusive of real estate held for investment), net of related borrowings, was $1.3 million in 2004, compared to $3.6 million in 2003. This change in cash used in real estate activities is a result of greater real estate dispositions in 2004, offset by increased borrowings on real estate notes payable in 2004.

Net cash used in investing activities totaled $34.4 million in 2004, compared to $3.9 million of net cash provided by investing activities in 2003. This change is primarily due to $105.8 million of expenditures made in 2004 related to real estate classified as “held for investment,” as compared to similar expenditures of $26.3 million in 2003. These 2004 expenditures were offset by $67.3 million of proceeds from the dispositions of real estate projects classified as “held for investment” at the time of disposition in accordance with FAS 144, as compared to $16.5 million of such proceeds in 2003. In addition, distributions from investments in unconsolidated subsidiaries, net of contributions, decreased to $9.8 million in 2004, compared to $24.1 million in 2003.

Net cash provided by financing activities totaled $0.7 million in 2004, compared to $25.1 million of net cash used in financing activities in 2003. In 2004, the Company received proceeds from borrowings, net of payments, of $47.2 million under notes payable related to real estate held for investment as compared to net proceeds of $1.9 million in 2003. In addition, the Company received contributions, net of distributions, from minority interest holders of $0.2 million in 2004, as compared to $8.0 million of distributions, net of contributions in 2003. The increase in cash provided in 2004 was offset by $37.9 million in cash used to facilitate the Company’s 2004 Modified Dutch Auction tender offer (including related costs), as compared to $10.4 million in cash used in the Company’s repurchase program completed in 2003.

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 up 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 restrictions on recourse indebtedness and total indebtedness, restrictions on liens and certain restrictions on investments and acquisitions that can be made by the Company. In addition, the Company may not pay dividends, repurchase common shares, or make other distributions on account of its common stock exceeding 50% of the previous year’s net income before depreciation and amortization. In September 2004, the Credit Facility was amended, primarily to permit certain stock transactions including the Company’s Modified Dutch Auction tender offer. The Credit Facility is guaranteed by certain significant subsidiaries of the Company and is secured by a pledge of stock of such significant subsidiaries and a pledge of certain intercompany indebtedness.

The Company’s participation in derivative transactions has been limited to hedging purposes, and derivative instruments are not held for trading purposes. The Credit Facility requires the Company to enter into one or more interest rate agreements for the Company’s floating rate indebtedness in excess of $30.0 million (other than construction loans under which interest is capitalized in accordance with GAAP) 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 interest rate swap agreement expired on March 24, 2003, and the related weighted average receive rate was 1.37% for the three months ended March 31, 2003. Subsequent to the expiration of the interest rate swap agreement, the Company has

entered into various short-term interest rate agreements to comply with the requirements of the Credit Facility. In December 2004, the Company entered into an interest rate cap agreement with a notional amount of $10.0 million expiring March 24, 2005, under which the Company will receive payments if the 30-day LIBOR based interest rate exceeds 3.0%. The interest rate cap agreement has not been designated as an effective hedge (although it was entered into for hedging purposes), and the Company will recognize changes in fair value of the interest rate cap agreement in current period earnings. Through December 31, 2004, amounts recorded by the Company related to this interest rate cap agreement were not material. The Company was not in compliance with the Credit Facility’s interest rate agreement requirement at December 31, 2004. The Company held $1.5 million of floating rate indebtedness (in excess of the $30.0 million allowed under the Credit Facility), which was not subject to the interest rate cap agreement. The Company obtained a waiver effective February 28, 2005, from the lenders under the Credit Facility waiving compliance with this covenant for the period commencing on December 31, 2004, until, but not including, June 30, 2005.

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 June 28, 2005, and bears interest at a rate agreed upon between the Company and the bank. Borrowings under the Discretionary Line are unsecured and reduce borrowing capacity under the Credit Facility.

At December 31, 2004, the Company had no outstanding borrowings under the Credit Facility or 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, an economic slowdown 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. 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 or the amount of its investments in real estate. The Company’s unused borrowing capacity (taking into account letters of credit outstanding) under the Credit Facility was $126.5 million at December 31, 2004. 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.

In December 2004, the Company entered into an interest rate cap agreement in order to limit its interest expense on a construction loan with a 30-day LIBOR-based floating interest rate related to a consolidated real estate project. The interest rate cap agreement has an initial notional amount of $1.1 million and the Company will receive payments if the LIBOR-based interest rate exceeds 3.5%. The interest rate cap agreement has not been designated as an effective hedge, and therefore the interest rate cap agreement will be marked to market each period with the change in fair market value recognized in current period earnings. The interest rate cap agreement expires on January 1, 2006. Through December 31, 2004, amounts recorded by the Company related to this interest rate cap agreement were not material.

In March 2003, the Company entered into an interest rate cap agreement in order to limit its interest expense on a construction loan with a 30-day LIBOR-based floating interest rate related to a consolidated real estate project. The interest rate cap agreement has a notional amount of $11.4 million and the Company will receive payments if the LIBOR-based interest rate exceeds 3.5%. The interest rate cap agreement has not been designated as an effective hedge, and therefore the interest rate cap agreement will be marked to market each period with the change in fair market value recognized in current period

earnings. The interest rate cap agreement expires on March 1, 2005. Through December 31, 2004, amounts recorded by the Company related to this interest rate cap agreement were not material.

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, share repurchases, 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 March 2005, the Company announced that its Board of Directors has authorized the purchase of up to $20.0 million of its common stock from time to time in open market purchases or in privately negotiated transactions. The repurchase of shares is intended to offset dilution resulting from equity incentive awards made under the Company’s stock plans. The Company’s intent with respect to stock repurchase programs is to reserve the repurchased shares for issuance in connection with the Company’s employee stock purchase plan and option exercises or restricted stock grants under the Company’s long-term incentive plan and other equity-based incentive plans, as well as for other corporate purposes.

In September 2004, the Company commenced a Modified Dutch Auction tender offer whereby it offered to purchase up to 4,444,444 shares of its common stock. Under the terms of the tender offer, the Company invited shareholders to tender their shares at a purchase price not in excess of $15.75 nor less than $13.50 per share. The tender offer was completed in October 2004, and as a result, the Company purchased 2,354,437 shares of common stock priced at $15.75 per share for a total of $37.9 million, including the costs of the tender offer. The transaction was financed from the Company’s available cash, and the Company placed the repurchased shares in treasury.

In May 2001, the Company’s Board of Directors 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. The repurchase program was completed during the second quarter of 2003 and resulted in the repurchase of 1,593,900 shares at an average cost of $9.41 per share. The purchases were made with funds generated from operations and existing cash, and the Company placed the repurchased shares in treasury.

Off-balance Sheet Arrangements and Contractual Obligations

The Company has off-balance sheet arrangements consisting of certain debt repayment guarantees that have been provided by the Company as security for the obligations of others (primarily unconsolidated subsidiaries of the Company) in the normal course of the Company’s real estate development business. The Company has not made any material payments under such arrangements in the years ended December 31, 2002, 2003 or 2004. As of December 31, 2004, the Company has guaranteed a maximum of $16.2 million of such notes payable, of which $15.4 million is outstanding as of December 31, 2004. Payments required under these arrangements, if any, would generally result in an increase in the Company’s investment in the underlying unconsolidated subsidiaries.

The Company has various contractual obligations at December 31, 2004, as summarized below (in millions), that could impact its liquidity:

	Payments due by Period
	Total		Less than 1 year			1-3 years			3-5 Years			After 5 years
Long-term debt	$	—		$	—		$	—		$	—		$	—
Capital lease obligations	0.4			0.4			—			—			—
Operating leases	65.9			19.7			28.6			13.7			3.9
Notes payable on real estate (recourse)(1)(2)	27.5			4.4			23.1			—			—
Notes payable on real estate (nonrecourse)(1)	122.2			9.0			107.8			5.4			—
Purchase obligations	120.5			119.2			1.3			—			—
Other obligations(3)	10.0			—			10.0			—			—
Total Contractual Obligations	$	346.5		$	152.7		$	170.8		$	19.1		$	3.9

(1) Includes notes related to the Company’s various real estate projects and excludes future interest. The notes have either fixed or variable interest rates, ranging from 4.06% to 12% at December 31, 2004. In general, interest is drawn on the underlying construction loan and subsequently paid with principal with proceeds upon sale of the real estate project.

(2) With respect to a project to which $3.3 million of these obligations relate, the Company has an agreement with an investor client to purchase the project upon completion, the proceeds of which will be used to repay the related note payable.

(3) These obligations, as well as $3.6 million recorded in other current liabilities, are collateralized by outstanding letters of credit totaling $10.1 million.

Effects of Inflation

The Company does not believe that inflation has had a significant impact on its results of operations in recent years. However, there can be no assurance that the Company’s business will not be affected by inflation in the future.

Forward-Looking Statements

Certain statements contained or incorporated by reference in this Annual Report on Form 10-K, including without limitation statements containing the words “believe,” “anticipate,” “forecast,” “will,” “may,” “expect,” “envision,” “project,” “budget,” “target,” “estimate,” “could,” “should,” “conceivable,” “intend,” “possible,” “foresee,” “look for,” “look to” 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:

· the timing of individual transactions,

· the ability of the Company to identify, implement and maintain the benefit of cost reduction measures and achieve economies of scale,

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

· the ability of the Company to retain its major clients and renew its contracts,

· the ability of the Company to attract new user and investor clients,

· 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,

· the ability of the Company to continue to pursue its growth strategy,

· the ability of the Company to pursue strategic acquisitions on favorable terms and manage challenges and issues commonly encountered as a result of those acquisitions,

· the ability of the Company to compete in highly competitive national and local business lines, and

· the ability of the Company to attract and retain qualified personnel in all areas of its business (particularly senior 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 clients’ willingness to make real estate commitments) and the effect of government regulation on the conduct of the Company’s business and the threat of terrorism and acts of war. 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 “Item 7. 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. From time to time, the Company purchases interest rate agreements to hedge a portion, but not all, of its exposure to fluctuations in interest rates.

If an increase or decrease in market interest rates of 100 basis points were to have occurred at December 31, 2004, the Company’s total estimated interest costs for 2005 would increase or decrease by approximately $1.5 million. The Company’s sensitivity analysis is based on borrowings outstanding as of December 31, 2004 and includes the effects of the Company’s various interest rate cap agreements, as applicable. If the market interest rates for variable rate debt had been 100 basis points higher or lower in 2004, the Company’s total interest costs would have increased or decreased accordingly by approximately $1.3 million, after considering the effect of the interest rate agreements in effect during 2004. Interest costs include both interest that is expensed and interest that is capitalized as part of the cost of real estate. A portion of the interest relating to the Company’s real estate debt ($149.7 million at December 31, 2004) is capitalized. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in a higher interest rate environment.

The Company’s earnings are somewhat affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies as a result of its operations in Canada, Europe, Asia and Australia. At December 31, 2004, a uniform 10% strengthening or weakening in the value of the dollar relative to the currencies in which the Company’s foreign operations are denominated would result in an estimated decrease or increase accordingly in income before income taxes of approximately $0.5 million for the year ending December 31, 2005. If, during the year ended December 31, 2004, a uniform 10% strengthening or weakening in the value of the dollar relative to the currencies in which the Company’s foreign operations are denominated had occurred, it would have resulted in a decrease or increase accordingly in income

before income taxes of approximately $0.5 million (primarily in income from investments in unconsolidated subsidiaries). These calculations assume that each exchange rate would change in the same direction relative to the U.S. dollar and are based on either the Company’s actual 2004 or an estimate of 2005 income before income taxes from foreign operations. The Company’s sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in potential changes to its 2005 anticipated level of foreign operations or local currency prices.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in 13a-15(e) of the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in this report.

Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2004.

The Company’s independent auditors have issued an attestation report on management’s assessment of the company’s internal control over financial reporting. That report appears in “Item 8. Financial Statements and Supplementary Data.”

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company’s last fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth under the headings “Proposal One—Election of Class II Directors,” “Directors,” “Executive Officers,” “Meetings and Committees of Directors,” “Code of Business Conduct and Ethics” and “Section 16(a) Beneficial Ownership Reporting Compliance” contained in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act in connection with the Company’s 2005 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the heading “Executive Compensation” contained in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act in connection with the Company’s 2005 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

At December 31, 2004, securities authorized for issuance under the Company’s equity compensation plans are as follows:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders		5,942,316		$	12.90		1,033,722
Equity compensation plans not approved by security holders		24,500		$	11.46		—
Total		5,966,816		$	12.90		1,033,722

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

The information set forth under the heading “Security Ownership of Certain Beneficial Owners, Directors and Management” contained in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act in connection with the Company’s 2005 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the headings “Executive Compensation” and “Certain Relationships and Related Transactions” contained in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act in connection with the Company’s 2005 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information set forth under the heading “Fees Paid to Independent Registered Public Accounting Firm” and “Audit Committee Policies and Procedures for Pre-Approval of Audit and Non-Audit Services” contained in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act in connection with the Company’s 2005 Annual Meeting of Stockholders is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

Financial statements of TFK Retail, Ltd. are filed as part of this Report at Item 8 pursuant to Rule 3-09 of Regulation S-X.

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

(a)(3) The following documents are filed or incorporated by reference as exhibits to this Report:

	3.1⁽¹⁾	Certificate of Incorporation of the Company
	3.2⁽¹⁾	Bylaws of the Company
	3.2.1⁽⁵⁾	First Amendment to Bylaws of the Company
	3.2.2⁽¹⁰⁾	Second Amendment to Bylaws of the Company
	3.2.3⁽¹²⁾	Third Amendment to Bylaws of the Company
	4.1⁽¹⁾	Form of certificate for shares of Common Stock of the Company
	10.1⁽⁹⁾	Credit Agreement dated June 28, 2002, among the Company, Bank of America, N.A. as Administrative Agent and the lender parties thereto
	10.1.1⁽¹⁴⁾	First Amendment of Credit Agreement dated September 1, 2004, between the Company and Bank of America, N.A.
	10.2⁽¹⁾	Form of License Agreement among the Company and CFH
	10.2.1⁽⁹⁾	First Amendment to License Agreement dated July 31, 2002, between the Company and CFH
	10.3⁽¹⁶⁾	Form of Indemnification Agreement, with schedule of signatures
	10.4⁽¹⁾	Predecessor Company’s 1997 Stock Option Plan
	10.5⁽¹⁾	Company’s Long-Term Incentive Plan
	10.5.1⁽²⁾	Amendment No. 1 to Long-Term Incentive Plan
	10.5.2⁽¹⁰⁾	Second Amendment to Long-Term Incentive Plan
	10.6⁽¹⁾	Company’s 1995 Profit Sharing Plan
	10.7⁽³⁾	Company’s Employee Stock Purchase Plan
	10.7.1⁽⁴⁾	First Amendment to the Company’s Employee Stock Purchase Plan
	10.7.2⁽⁶⁾	Second Amendment to the Company’s Employee Stock Purchase Plan
	10.7.3⁽⁸⁾	Third Amendment to the Company’s Employee Stock Purchase Plan
	10.7.4⁽¹¹⁾	Fourth Amendment to the Company’s Employee Stock Purchase Plan
	10.7.5⁽¹¹⁾	Fifth Amendment to the Company’s Employee Stock Purchase Plan
	10.7.6⁽¹⁷⁾	Sixth Amendment to the Company’s Employee Stock Purchase Plan
	10.8⁽¹⁾	Form of Stockholders’ Agreement among the Company, Crow Family Partnership L.P., CFH Trade-Names, L.P., J. McDonald Williams and certain other signatories thereto
	10.9⁽⁹⁾	Consulting Agreement dated as of June 1, 2002, between the Company and J. McDonald Williams
	10.10⁽¹¹⁾	Employment Agreement dated as of October 17, 2003, between the Company and Robert E. Sulentic
	10.10.1⁽¹³⁾	Amendment to Employment Agreement dated as of April 6, 2004, between the Company and Robert E. Sulentic
	10.11⁽¹¹⁾	Employment Agreement dated as of October 17, 2003, between the Company and Derek R. McClain

	10.11.1⁽¹³⁾	Amendment to Employment Agreement dated as of April 6, 2004, between the Company and Derek R. McClain
	10.12⁽¹¹⁾	Employment Agreement dated as of October 17, 2003, between the Company and James R. Groch
	10.12.1⁽¹³⁾	Amendment to Employment Agreement dated as of April 6, 2004, between the Company and James R. Groch
	10.13⁽¹²⁾	Employment Agreement dated as of January 9, 2004, between the Company and Michael J. Lafitte
	10.13.1⁽¹³⁾	Amendment to Employment Agreement dated as of April 6, 2004, between the Company and Michael J. Lafitte
	10.14⁽¹²⁾	Employment Agreement dated as of March 2, 2004, between the Company and John A. Stirek
	10.14.1⁽¹³⁾	Amendment to Employment Agreement dated as of April 6, 2004, between the Company and John A. Stirek
	10.15⁽¹³⁾	Employment Agreement dated as of November 24, 2003, between the Company and William F. Concannon
	10.15.1⁽¹³⁾	Amendment to Employment Agreement dated as of April 6, 2004, between the Company and William F. Concannon
	10.16⁽¹³⁾	Employment Agreement dated as of April 6, 2004, between the Company and T. Christopher Roth
	10.17⁽¹³⁾	Employment Agreement dated as of April 27, 2004, between the Company and Diane Paddison
	10.18⁽¹⁵⁾	Employment Agreement dated as of September 28, 2004, between the Company and Matthew S. Khourie
	14.1⁽¹²⁾	Code of Business Conduct and Ethics
	21.1	Subsidiaries of the Company
	23.1	Consent of Ernst & Young LLP
	23.2	Consent of Ernst & Young LLP
	24.1	Power of Attorney for Derek R. McClain
	24.2	Power of Attorney for Arlin E. Gaffner
	24.3	Power of Attorney for Curtis F. Feeny
	24.4	Power of Attorney for Michael A. Moses
	24.5	Power of Attorney for J. McDonald Williams
	24.6	Power of Attorney for William F. Concannon
	24.7	Power of Attorney for James R. Erwin
	24.8	Power of Attorney for Jeffrey M. Heller
	24.9	Power of Attorney for Rowland T. Moriarty
	24.10	Power of Attorney for Robert E. Sulentic
	31.1	Certification by the Chief Executive Officer of the Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification by the Chief Financial Officer of the Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification by the Chief Executive Officer of the Company Pursuant to 18 U.S.C. §1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification by the Chief Financial Officer of the Company Pursuant to 18 U.S.C. §1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

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

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

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

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

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

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

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

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

⁽¹⁰⁾ Previously filed as an exhibit to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2003 and incorporated herein by reference.

⁽¹¹⁾ Previously filed as an exhibit to the Company’s Form 10-Q filed with the Securities and Exchange Commission on November 14, 2003 and incorporated herein by reference.

⁽¹²⁾ Previously filed as an exhibit to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 15, 2004 and incorporated herein by reference.

⁽¹³⁾ Previously filed as an exhibit to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 10, 2004 and incorporated herein by reference.

⁽¹⁴⁾ Previously filed as Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on September 2, 2004 and incorporated herein by reference.

⁽¹⁵⁾ Previously filed as Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on September 29, 2004 and incorporated herein by reference.

⁽¹⁶⁾ Previously filed as an exhibit to the Company’s Form 10-Q filed with the Securities and Exchange Commission on November 9, 2004 and incorporated herein by reference.

⁽¹⁷⁾ Previously filed as an exhibit to the Company’s Form S-8 (File Number 333-121053) filed with the Securities and Exchange Commission on December 7, 2004 and incorporated herein by reference.

(b) The exhibits required by Item 601 of Regulation S-K are filed as part of this Report.

Exhibit Index

Exhibit Number		Description
3.1⁽¹⁾		Certificate of Incorporation of the Company
3.2⁽¹⁾		Bylaws of the Company
3.2.1⁽⁵⁾		First Amendment to Bylaws of the Company
3.2.2⁽¹⁰⁾		Second Amendment to Bylaws of the Company
3.2.3⁽¹²⁾		Third Amendment to Bylaws of the Company
4.1⁽¹⁾		Form of certificate for shares of Common Stock of the Company
10.1⁽⁹⁾		Credit Agreement dated June 28, 2002, among the Company, Bank of America, N.A. as Administrative Agent and the lender parties thereto
10.1.1⁽¹⁴⁾		First Amendment of Credit Agreement dated September 1, 2004, between the Company and Bank of America, N.A.
10.2⁽¹⁾		Form of License Agreement among the Company and CFH
10.2.1⁽⁹⁾		First Amendment to License Agreement dated July 31, 2002, between the Company and CFH
10.3⁽¹⁶⁾		Form of Indemnification Agreement, with schedule of signatures
10.4⁽¹⁾		Predecessor Company’s 1997 Stock Option Plan
10.5⁽¹⁾		Company’s Long-Term Incentive Plan
10.5.1⁽²⁾		Amendment No. 1 to Long-Term Incentive Plan
10.5.2⁽¹⁰⁾		Second Amendment to Long-Term Incentive Plan
10.6⁽¹⁾		Company’s 1995 Profit Sharing Plan
10.7⁽³⁾		Company’s Employee Stock Purchase Plan
10.7.1⁽⁴⁾		First Amendment to the Company’s Employee Stock Purchase Plan
10.7.2⁽⁶⁾		Second Amendment to the Company’s Employee Stock Purchase Plan
10.7.3⁽⁸⁾		Third Amendment to the Company’s Employee Stock Purchase Plan
10.7.4⁽¹¹⁾		Fourth Amendment to the Company’s Employee Stock Purchase Plan
10.7.5⁽¹¹⁾		Fifth Amendment to the Company’s Employee Stock Purchase Plan
10.7.6⁽¹⁷⁾		Sixth Amendment to the Company’s Employee Stock Purchase Plan
10.8⁽¹⁾		Form of Stockholders’ Agreement among the Company, Crow Family Partnership L.P., CFH Trade-Names, L.P., J. McDonald Williams and certain other signatories thereto
10.9⁽⁹⁾		Consulting Agreement dated as of June 1, 2002, between the Company and J. McDonald Williams
10.10⁽¹¹⁾		Employment Agreement dated as of October 17, 2003, between the Company and Robert E. Sulentic
10.10.1⁽¹³⁾		Amendment to Employment Agreement dated as of April 6, 2004, between the Company and Robert E. Sulentic
10.11⁽¹¹⁾		Employment Agreement dated as of October 17, 2003, between the Company and Derek R. McClain
10.11.1⁽¹³⁾		Amendment to Employment Agreement dated as of April 6, 2004, between the Company and Derek R. McClain
10.12⁽¹¹⁾		Employment Agreement dated as of October 17, 2003, between the Company and James R. Groch
10.12.1⁽¹³⁾		Amendment to Employment Agreement dated as of April 6, 2004, between the Company and James R. Groch
10.13⁽¹²⁾		Employment Agreement dated as of January 9, 2004, between the Company and Michael J. Lafitte
10.13.1⁽¹³⁾		Amendment to Employment Agreement dated as of April 6, 2004, between the Company and Michael J. Lafitte

10.14⁽¹²⁾		Employment Agreement dated as of March 2, 2004, between the Company and John A. Stirek
10.14.1⁽¹³⁾		Amendment to Employment Agreement dated as of April 6, 2004, between the Company and John A. Stirek
10.15⁽¹³⁾		Employment Agreement dated as of November 24, 2003, between the Company and William F. Concannon
10.15.1⁽¹³⁾		Amendment to Employment Agreement dated as of April 6, 2004, between the Company and William F. Concannon
10.16⁽¹³⁾		Employment Agreement dated as of April 6, 2004, between the Company and T. Christopher Roth
10.17⁽¹³⁾		Employment Agreement dated as of April 27, 2004, between the Company and Diane Paddison
10.18⁽¹⁵⁾		Employment Agreement dated as of September 28, 2004, between the Company and Matthew S. Khourie
14.1⁽¹²⁾		Code of Business Conduct and Ethics
21.1		Subsidiaries of the Company
23.1		Consent of Ernst & Young LLP
23.2		Consent of Ernst & Young LLP
24.1		Power of Attorney for Derek R. McClain
24.2		Power of Attorney for Arlin E. Gaffner
24.3		Power of Attorney for Curtis F. Feeny
24.4		Power of Attorney for Michael A. Moses
24.5		Power of Attorney for J. McDonald Williams
24.6		Power of Attorney for William F. Concannon
24.7		Power of Attorney for James R. Erwin
24.8		Power of Attorney for Jeffrey M. Heller
24.9		Power of Attorney for Rowland T. Moriarty
24.10		Power of Attorney for Robert E. Sulentic
31.1		Certification by the Chief Executive Officer of the Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification by the Chief Financial Officer of the Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification by the Chief Executive Officer of the Company Pursuant to 18 U.S.C. §1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification by the Chief Financial Officer of the Company Pursuant to 18 U.S.C. §1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002