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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-13531
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TRAMMELL CROW COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 75-2721454
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
2001 ROSS AVENUE
SUITE 3400
DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip Code)
(214) 863-3000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------------------------------- -------------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
At March 15, 2001, there were 35,617,156 shares of Common Stock outstanding
with an aggregate market value on that date of $464,625,800, based upon the
average of the low bid and high asked price of Common Stock on the New York
Stock Exchange on such date. As of the same date 25,496,734 shares of Common
Stock were held by non-affiliates of the Company, having an aggregate market
value on that date of $332,604,895.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be furnished to stockholders
in connection with its 2001 Annual Meeting of Stockholders are incorporated by
reference in Part III of this Report.
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
Trammell Crow Company (the "Company") is one of the largest diversified
commercial real estate service companies in North America. Through 170 offices
in the United States and Canada, 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.
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 was segregated
into a large number of separate entities distinct from the Company, with
independent management and operations. Many of these entities are managed by
subsidiaries of Crow Realty Investors, L.P. d/b/a Crow Holdings ("Crow
Holdings"), which is wholly owned by certain affiliates and descendants of
Mr. Trammell Crow. See "--RISK FACTORS--DEALINGS WITH AND RELIANCE ON
AFFILIATES; POTENTIAL CONFLICTS OF INTEREST."
The Company delivers three core services--management services, transaction
services and development and project management services--to both corporate and
institutional customers. The Company realigned certain elements of its business
effective January 1, 2000. Consequently, the three reportable segments in 1999
and 1998, Outsourcing, Retail and Local Business Units, were realigned into two
segments, Corporate and Institutional, in 2000 to facilitate the delivery of
fully bundled integrated services to the Company's two core customer groups. In
the second quarter of 2000, as the Company increased its activities in and
assigned more dedicated resources to e-commerce, the Company began reporting
these activities, including related overhead, in its third segment.
The Company provides services to corporate customers--users of space who are
typically the primary occupants of commercial properties, including
multinational corporations, hospitals and universities. As part of the
realignment in 2000, the Company consolidated all pieces of its business focused
on corporate customers, including major retailers. Thus, tenant representation
and build-to-suit services for corporate (including retail) customers became
part of the Company's integrated corporate services offering. The management
services provided to corporate customers consist primarily of facilities
management, which entails providing comprehensive day-to-day occupancy related
services, principally to large corporations that occupy commercial facilities in
multiple locations. These services include administration and day-to-day
maintenance and repair of client-occupied facilities. Transaction services
provided to corporate customers include corporate advisory services such as
portfolio management and tenant representation. Project management services
provided to corporate customers include strategic functions such as space
planning and relocation coordination, build-to-suit development and financial
services.
The Company provides services to institutional customers that are investors
and landlords, but typically not the primary occupants of the commercial
properties with respect to which services are performed. Management services
provided to institutional customers include property management services
relating to all aspects of building operations, tenant relations and oversight
of building improvement processes. Transaction services provided to
institutional customers include brokerage services such as project leasing and
investment sales whereby the Company advises buyers, sellers and landlords in
connection with the sale and leasing of office, industrial and retail space and
land.
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Development services provided to institutional customers include comprehensive
project development and construction management services and the acquisition and
disposition of commercial real estate projects. The development services
provided also include financial planning, site acquisition, procurement of
approvals and permits, design and engineering coordination, construction bidding
and tenant finish coordination, project close-out and user move coordination,
general contracting and project finance advisory services.
The Company's activities related to e-commerce, including related overhead,
are captured in the E-Commerce segment. The E-Commerce segment also includes the
Company's investments in e-commerce-related companies. One of the entities in
which the Company has invested offers a standardized information distribution
network via an Internet listing site for properties for sale or lease. The
Company also invested in a company that offers on-line procurement of products
and services geared towards the management of real estate properties. The
Company has made these e-commerce investments primarily to gain efficiency, and
thereby reduce costs, in other parts of its business and to be more competitive
with other real estate service providers. The E-Commerce segment does not
include investments in ongoing technology advancements internal to the Company's
other two business segments. The Company does not expect to recognize any
revenues in its E-Commerce segment unless (i) dividends are received from the
e-commerce companies in which the Company has invested or (ii) the Company sells
all or a portion of its stock in such companies. There can be no assurance that
dividends will be received or that any sale of stock in e-commerce companies
will occur or be profitable.
RECENT DEVELOPMENTS
INTERNAL REORGANIZATION. On February 28, 2001, the Company announced an
internal reorganization of its business designed to consolidate all of the
property and facilities management, brokerage and corporate advisory, and
project management services delivered to both corporate and institutional
customers under a single leadership infrastructure referred to as the Global
Services Group. The reorganization also creates a national organization focused
solely on the Company's development and investment activities referred to as the
Development and Investment Group. Because the reorganization changes the way the
Company's business is managed and financial resources are allocated, the
Company's reportable segments will change correspondingly in 2001 although the
services provided by the Company remain the same.
The new Global Services segment, with approximately 7,000 employees,
includes the services previously included in the Corporate segment (other than
development services provided to corporate customers), as well as property
management and brokerage services previously reported under the Institutional
segment. The Company will continue to focus on opportunities for growth in the
service business and will also focus on opportunities to achieve operating
efficiencies associated with the delivery of similar services (for example,
property management services for institutional customers and facilities
management services for corporate customers) through a consolidated services
organization. The Global Services group will be organized into 14 different
geographic and customer-centric "mega markets," many of which will be
multi-city. The Company's focus on establishing itself as a dominant brand
facilitates the accumulation of strong resources within the "mega-markets."
The new Development and Investment segment, encompassing approximately 250
to 300 employees, will include the development activities historically included
in the Institutional segment--both those pursuant to which the Company takes an
ownership position and those pursuant to which the Company provides development
services for others on a fee basis--as well as development services for
corporate customers that were previously reported in the Corporate segment. The
Company will continue to focus its efforts in this area on risk-mitigated
opportunities for institutional customers and build-to-suit projects for
corporate customers, including those in higher education and healthcare. With an
organization comprised of professionals dedicated fully to development and
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investment activities, the Company expects to be better positioned to pursue and
execute new development business, particularly programmatic business with the
Company's large customers, and exploit niche market opportunities.
The Company's activities related to e-commerce, including related overhead,
will continue to be captured in the E-Commerce segment, along with the Company's
investments in e-commerce-related companies.
Except as the context otherwise suggests, discussion throughout the
remainder of this Annual Report on Form 10-K is on the basis of the segments as
reported for the year ended December 31, 2000.
INTERNATIONAL EXPANSION. In June 2000, the Company and Savills plc
("Savills"), a leading provider of real estate services in Europe, Asia-Pacific
and Australia, formed Trammell Crow Savills Limited, a real estate outsourcing
services company headquartered in London ("Trammell Crow Savills"). Trammell
Crow Savills is owned 51% by the Company and 49% by Savills. As part of this
transaction, Savills contributed to Trammell Crow Savills its European
facilities management subsidiary, its European corporate services business and
certain project management personnel, and the Company agreed to contribute the
European element of its outsourcing contracts developed in the United States.
The core service offerings of Trammell Crow Savills are facilities management,
transaction management and project management for corporate customers.
Simultaneously with the formation of Trammell Crow Savills, the Company
purchased approximately 10% of the outstanding ordinary shares of Savills for
L13.9 million (approximately $21.25 million) and obtained the right to nominate
two members to the Savills Board of Directors. Savills also granted the Company
an option to purchase a number of Savills shares that would increase the
Company's ownership in Savills to 20%, at a purchase price that would be
determined by the recent market price for Savills stock at the time of exercise.
In addition, the Company and Savills formed a strategic alliance, pursuant to
which they each agreed to refer their customers desiring to procure services in
the other's primary geographic areas of operation.
In September 2000, the Company and Savills expanded the geographic scope of
operations for Trammell Crow Savills to Asia-Pacific and Australia. As part of
this expansion, Savills contributed its Asian project management business and
certain Asian outsourcing contracts in exchange for an ownership interest in a
subsidiary of Trammell Crow Savills. Immediately thereafter, the Company paid
HK$21.5 million (approximately $2.8 million based on the exchange rate of
September 21, 2000) to Savills in exchange for 51% of such shares, and promised
to pay up to an additional HK$11.1 million (approximately $1.4 million, based on
the same exchange rate) if the acquired project management business met certain
agreed performance standards through December 31, 2002. The Company also agreed
to contribute the Asian element of its outsourcing contracts developed in the
United States.
The Company also seeks to enter new international markets by expanding the
geographic scope of its engagements with existing US-based multinational
customers. In these instances, the Company typically establishes service
delivery capabilities in the new market by hiring new local employees, including
the client employees who previously performed the outsourced function. The
Company is then positioned to continue delivering outsourced services to the
client, and also to seek new business by leveraging the delivery capabilities of
the existing platform. This new business could come from new customers in the
international market or the continued geographic expansion of service
engagements by the Company's US-based clients. Implementation of this strategy
has lead to the Company's recent establishment of service delivery capabilities
in Buenos Aires, Argentina, Sao Paulo, Brazil and Mexico City, Mexico. These
operations complement the Company's existing business activities in Santiago,
Chile.
E-COMMERCE. In April 2000, the Company entered into an alliance with other
leading real estate services companies to develop e-commerce initiatives that
leverage the collective experience and service delivery capabilities of the
alliance members to benefit their clients in North America. The Company's
4
e-commerce business currently includes its investments in two companies that
were made through this alliance. One investment was made in a web-based
procurement platform designed to help owners and managers of commercial and
multi-family properties streamline their operations through the online
procurement of goods and services. Use of this platform is intended to make real
estate professionals more effective by helping them save time and money and gain
better control over their purchasing procedures. In addition, the Company has
made an investment in an entity that offers a standardized information
distribution network via an Internet listing site for properties for sale or
lease. The Company and the other alliance members intend to pursue the
development and launch of a comprehensive online transaction services platform.
The alliance will seek to structure the transaction services platform to drive
value to owners, occupants and the commercial real estate professionals who
serve them.
COMPETITIVE ADVANTAGES
The Company believes that it has the following important competitive
advantages:
COMPREHENSIVE SERVICE OFFERINGS. The Company's comprehensive menu of
services provides clients with single-point solutions to all of their commercial
real estate services needs. The Company often commences client relationships by
providing a single service and later expands these relationships by anticipating
and satisfying the client's other specific service requirements. By offering a
full array of services, the Company is able to maximize the effect it has on its
clients' businesses while becoming highly integrated into its clients'
operations. Its comprehensive service offerings also decrease the Company's
exposure to a downturn in any one of its primary businesses.
DEVELOPMENT EXPERTISE. The Company has the capability to implement active
and sizeable development programs, primarily on behalf of its clients. The
Company's development activities generate business activities for its other
service lines, which support the Company's earnings when development and
construction revenues decrease as a result of market conditions. Because the
Company provides development and construction management services to corporate
customers with needs for build-to-suit projects, as well as to institutional
investors, the Company is positioned to mitigate the adverse effect on its
revenues when speculative development activities by or for institutional
investors are curtailed in a market downturn.
GEOGRAPHIC SCOPE. Through its 170 offices, the Company develops and
maintains extensive knowledge of local real estate markets across the United
States and Canada. Approximately 89% of the Company's employees are based in
markets other than Dallas, Texas, where its executive offices are located.
Through Trammell Crow Savills, the Company has an international delivery
platform to provide services to its U.S.-based multi-national customers and to
add new customers with international requirements. This broad geographic scope
allows the Company to serve as a single-source, full service provider to
multinational corporations and institutional investors with real estate
interests that span regional and national boundaries. It also tends to limit its
exposure to an economic downturn in any single market.
MANAGEMENT/PERSONNEL. The Company has a highly qualified management team.
Its twenty-four-member operating committee has an average of approximately
thirteen years of experience with the Company. Seven members of the operating
committee also comprise the executive committee and have an average of sixteen
years of experience with the Company. The Company believes the lengthy tenure of
its senior management group is linked to its collegial internal culture and its
history of promoting talented individuals from within. The Company's growth
strategy, incentive-based compensation and the level of ownership by Company
officers and employees provide further motivation to achieve a high level of
performance. At March 15, 2001, the members of the Company's operating committee
owned approximately 9% of the outstanding Common Stock.
5
COMPETITIVE ENVIRONMENT
OUTSOURCING. Outsourcing is a rapidly growing trend in the United States.
Through outsourcing, organizations seek to reduce costs, improve profitability
and refocus management and other resources on core competencies. This trend has
resulted in the development of well-established providers offering an expanding
range of outsourced services, including information processing, teleservicing
and flexible staffing. Increasingly, organizations are also seeking outside
providers for efficient and expert delivery of real estate services.
CONSOLIDATION. The traditionally fragmented real estate services industry
is witnessing consolidation in customers' selection of service providers. When
outsourcing real estate services, corporations and institutions have
increasingly sought to consolidate the number of providers used and engage firms
that can offer a full range of services across a wide geographic area. In the
Company's view, the competitive imperatives presented by this consolidation
trend include the need to maintain comprehensive service offerings, serve an
expansive geographic area and achieve significant cost efficiencies. As the
industry becomes more sophisticated, customers require the flexibility,
multi-market perspective and technological and physical resources that large
firms possess.
As the real estate services industry has grown, it has been accompanied by
downward pressure on fees and the increased use of fee structures that reflect
shared risk and emphasize the achievement of performance targets. These trends
benefit firms with significant scale and the ability to spread fixed costs over
a larger revenue base. The Company believes that few real estate services
providers can meet the demands of large corporate and institutional customers
and that many smaller companies are facing pressure to combine with others to
remain competitive.
GROWTH STRATEGY
The Company's growth strategy is centered around taking advantage of its
geographic scope, its large existing customer base, its strong brand name and
the significant opportunity that exists in the corporate outsourcing arena. The
key components of this overall growth strategy are:
CAPITALIZE ON OUTSOURCING OPPORTUNITY. The corporate outsourcing component
of the Company's business represents a large and relatively untapped
opportunity. As an industry leader in this area, the Company will continue to
focus its resources on adding new customers and growing its substantial
relationships with its approximately 97 existing corporate outsourcing
customers.
FOCUS ON DEVELOPMENT OPPORTUNITIES. With a national organization comprised
of professionals dedicated fully to development and investment activities, the
Company intends to pursue and execute new development business, particularly
programmatic business with the Company's large customers, and exploit niche
market opportunities. The Company will continue to focus its efforts in this
area on risk-mitigated opportunities for institutional customers and
build-to-suit projects for corporate customers, including those in higher
education and healthcare. During development down cycles, the Company intends to
use professionals in its development and investment organization to pursue
opportunistic property acquisitions with its established capital partners.
CONSOLIDATION OF VENDORS AMONG CUSTOMERS. A trend has developed in the
marketplace among both institutional owners of commercial investment properties
and corporate users of space toward consolidating the number of service
providers they engage. As one of the largest providers of these services, with
far-reaching geographic breadth, the Company has historically benefited
significantly from this trend. The Company seeks to position itself to continue
to benefit from this trend.
IMPLEMENT AN E-COMMERCE STRATEGY/TAKE ADVANTAGE OF SCALE. The Company is
actively working to apply technology to its existing operations for maximum
advantage, and is implementing an e-commerce strategy to seize upon
opportunities related to its core business. With approximately
6
7,300 employees, 170 offices, 97 corporate outsourcing customers,
660 investor/owner customers, relationships with 21,700 tenants and
510.8 million square feet of managed space, the Company is well positioned to
take advantage of its scale. First, the Company's scale positions it to apply
technology to its internal operations both to better serve its customers and to
achieve cost economies. Second, the breadth and depth of the Company's
operations and customer relationships provide opportunities to pursue various
e-commerce strategies, including the procurement of goods and brokerage
transaction processing with commercial real estate or facilities orientations.
CORPORATE SEGMENT
The Company provides outsourcing services, including facilities management
services, corporate advisory services and project management services, to
corporate clients. Corporate segment revenues grew from $70.7 million in 1996 to
$351.0 million in 2000 (43.2% of 2000 revenues). The goal of the Company's
corporate 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 largest corporate expense item
after compensation and benefits. The Company believes that organizations are
increasingly outsourcing their infrastructure management 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, higher
education, automotive, oil and gas and technology/communications industries. The
growth, consolidation and regulatory changes taking place in these industries
have increased the importance of outsourcing solutions to these corporations and
have caused them to seek to improve productivity by rationalizing facilities
organization and eliminating redundant assets. The Company believes that its
expertise in servicing clients within these industries creates additional growth
opportunities. In July 1999, the Company acquired the business of Phoenix
Corporate Services LLC, a Cambridge, Massachusetts-based commercial real estate
outsourcing services firm, and Leeds Construction Company, Inc., an affiliated
company (the "Phoenix Acquisition"), to expand its outsourcing services,
strengthen its presence in the higher education market and enhance the Company's
position as the leading provider of real estate services in New England.
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, protects the proprietary information of the
client and enables the Company to monitor client satisfaction on an ongoing
basis.
The five largest customers for the Company's outsourcing services business,
measured in 2000 revenues from such customers, collectively represented 9.5% of
the Company's total revenues in 2000. The Company believes that significant
growth opportunity exists within its existing customer base, as only 34 out of
97 customers purchase three or more types of services from the Company.
The Company seeks to enter into multi-year outsourcing contracts with its
clients. Most contracts are structured so the Company receives a monthly base
fee and 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.
7
In addition to the services described below, the Company also offers
strategic services, such as consulting, development, properties portfolio
management, real estate asset management, management of accounting and
information systems, and organizational and process strategies.
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), which are provided 24 hours a day through the Company's centralized
call center. As of December 31, 2000, the Company utilized approximately
2,500 employees to service 97 corporate outsourcing clients. For these clients,
the Company managed approximately 26,000 properties encompassing approximately
198.0 million square feet. Revenues from facilities management services were
$139.4 million in 2000 (17.2% of 2000 revenues), up from $35.1 million in 1996.
A substantial portion of the growth in revenues is due to: (i) the addition of
new customers; (ii) the expansion of services provided to existing customers;
and (iii) the Phoenix Acquisition.
CORPORATE ADVISORY SERVICES
Corporate advisory services include tenant representation and other
transaction services such as acquisitions, dispositions, lease administration
and lease audits where, rather than providing services on a
transaction-by-transaction basis according to the industry's traditional model,
the Company seeks to manage a client's entire firm-wide property acquisition and
divestiture program. As of December 31, 2000, 239 full-time equivalent (FTE)
brokers performed tenant representation services for corporate clients
(including retail clients), and they facilitated approximately 3,200 client
transactions in 2000. Revenues from corporate advisory services were
$142.9 million in 2000 (17.6% of 2000 revenues), up from $30.5 million in 1996.
A substantial portion of the growth in revenues is due to an increase in the
number of brokers, coupled with a focus on larger transactions and expansion of
services provided to existing customers. In late 2000 and early 2001, the
Company observed substantial evidence of uncertainty in the economic outlook and
deterioration of the economy as a whole. The Company believes that, due to this
uncertainty and deterioration, transaction volume and rental rates may be
adversely impacted, which in turn may have a negative impact on the timing and
amount of tenant representation and other corporate advisory revenues earned by
the Company.
PROJECT MANAGEMENT SERVICES
Project management services include facility planning and project management
(such as construction, space planning, site consolidations, facilities design,
workspace moves, adds and changes, and management of furniture, signage and
cabling requirements). Revenues from project management services were
$63.4 million in 2000 (8.4% of 2000 revenues), up from $4.3 million in 1996. A
substantial portion of the growth in revenues is due to (i) the addition of new
customers, (ii) the expansion of services provided to existing customers and
(iii) the Phoenix Acquisition. In late 2000 and early 2001, the Company observed
substantial evidence of uncertainty in the economic outlook and deterioration of
the economy as a whole. The Company believes that this uncertainty and
deterioration may have a negative impact on corporate customers' project
spending, and hence on the timing and amount of project management revenues
earned by the Company.
INSTITUTIONAL SEGMENT
Through its Institutional segment, the Company provides property management,
brokerage, and development and construction services to investors in commercial
properties.
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PROPERTY MANAGEMENT SERVICES
As of December 31, 2000, the Company managed approximately 312.7 million
square feet of commercial property (excluding facilities occupied by corporate
customers) and served approximately 660 clients and 21,700 tenants nationwide
through its locally based property management teams. The Company managed
210.1 million, 204.4 million, 273.0 million and 282.3 million square feet of
commercial property at the end of 1996, 1997, 1998 and 1999, respectively. 2000
revenues from property management services were $164.5 million (20.3% of 2000
revenues), up from $95.3 million in 1996. A substantial portion of the growth in
revenues is due to acquisitions. In 1998, the Company acquired: (i) The Norman
Company, a real estate services firm with operations concentrated in Seattle's
central business district office and retail markets; (ii) Tooley &
Company, Inc. ("Tooley"), a California real estate services company primarily
engaged in office management and leasing; and (iii) a portion of the businesses
of Faison & Associates ("Faison") and Faison Enterprises, Inc. ("Faison
Enterprises") that develop, lease and manage office and retail properties
located primarily in the Midatlantic and Southeast regions of the United States
(the "Faison Acquisition"). As a result of these acquisitions, the Company added
approximately 41.5 million square feet to its property management portfolio in
1998.
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, environmental risk
management and capital repairs; (ii) tenant relations services such as
promotional activities, processing tenant work orders and lease administration
services; (iii) interfacing with the Company's development and construction
services personnel in coordinating tenant finish; and (iv) financial management
services including financial reporting and analysis utilizing software systems
supported by the Company's in-house design and development capability for
customized requirements.
The Company expects that most of its new property management engagements
will result from (i) contract wins resulting from customers' consolidation of
service providers; (ii) property transfers; (iii) projects that the Company
develops for institutional investors; and (iv) property management assignments
added through strategic acquisitions. To the extent that institutional investors
continue to make direct investments in real estate, the Company believes that it
will be in an advantageous position to win new property management engagements
due to its existing relationships with large institutional investors and its
ability 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 and purchasing.
Large client accounts are typically managed at the Company's national office to
ensure consistency of quality and to promote greater cross-selling of the
Company's services.
The Company typically receives monthly management fees for the property
management services it provides, based upon a specified percentage of the
monthly gross income 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 gross
income as described above. The amount of the management fee varies depending
upon local market conditions, 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 directly
attributable to the properties under management.
9
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 upon thirty days prior written notice. The Company believes that these
are customary termination provisions in the industry. The Company historically
has been successful in retaining property management agreements, but has lost
agreements 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. The Company focuses on
establishing alliance relationships with certain of its institutional customers
in an effort to obtain longer-term management contracts across multiple cities
and to provide services through the Company's other lines of business.
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 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 within the Corporate segment), in many cases a broker may
facilitate some combination of project leasing, investment sales and tenant
representations transactions.
In 2000, the Company facilitated approximately 7,200 investment sales and
project leasing transactions. As of December 31, 2000, the Company employed
approximately 335 FTE project leasing and investment sales brokers. Revenues
from institutional brokerage services have increased from $55.4 million in 1996
to $153.4 million in 2000 (18.9% of 2000 revenues). A substantial portion of
this growth in revenues is due to the increase in the number of brokers coupled
with an increasing focus on larger transactions. The Company employed
approximately 238, 350, 500, 579 and 574 total brokers (including tenant
representation brokers facilitating transactions for corporate clients) at the
end of 1996, 1997, 1998, 1999 and 2000, 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, brokerage fee structures have remained relatively constant through
both economic upswings and downturns.
Project leasing revenues are derived from the steady turnover of tenants in
the Company's property management and leasing portfolio of approximately
400 million square feet at December 31, 2000. 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. Investment sales generally increase in economic upswings as
available capital drives the trading of income producing properties and
corporate demand for additional space drives the purchase of land for new
development. In late 2000 and early 2001, the Company observed substantial
evidence of uncertainty in the economic outlook and deterioration of the economy
as a whole. The Company believes that, due to this uncertainty and
deterioration, transaction volume, rental rates and sales prices may be
adversely impacted, which in turn may have a negative impact on the timing and
amount of project leasing and investment sales revenues earned by the Company.
The Company regards its brokerage force as an integral part of its delivery
system for the broad services the Company provides to its client base. The
Company's large network of experienced brokers is a valuable asset when seeking
new management and development and project management services business. The
presence of its brokers in on-site project leasing offices can provide the
Company with insights into its customers' non-brokerage real estate needs and
early opportunities to capture the client's real estate services business. The
sheer number of transactions in which its brokers are involved
10
can also be a source of information from which the Company can seek to identify
business opportunities in specific local or regional markets.
The Company actively engages its brokerage force in the execution of its
marketing strategy. Brokerage personnel often work in close concert with leaders
of the Company's local offices. Through this arrangement, key personnel are kept
abreast of national trends and of the full range of services provided to
customers in other areas in the United States. The ongoing dialogue among these
professionals serves to increase their level of expertise, and is supplemented
by other more formal education such as that provided at "Trammell Crow
University," which offers sales and motivational training as well as direct
exposure to personnel from the Company's other lines of business. Moreover, the
brokerage force is financially rewarded for cross-selling efforts that result in
new engagements for the Company, such as a development project, the acquisition
of a new outsourcing account, or assistance across geographic service lines,
which enables the Company to acquire additional brokerage business. Brokerage
personnel also earn commissions and are eligible to receive other forms of
incentive compensation. 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 customer 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 the most experienced and capable brokerage professionals.
DEVELOPMENT AND INVESTMENT ACTIVITIES
Revenues from the Company's development and investment activities consist of
development services revenue, income from investments in unconsolidated
subsidiaries and gain on dispositions of real estate. Historically, the Company
has focused its commercial real estate development business on investors in
office, industrial and retail projects. The Company has the capability to
implement active and sizeable development programs, primarily on behalf of its
clients. With its new development and investment organization, the Company will
maintain development efforts on behalf of its institutional customers and will
increase its focus on development for corporate customers, particularly in the
areas of higher education and healthcare. In 2000, revenues from development and
investment activities were $141.2 million (17.4% of 2000 revenues) as compared
to $29.3 million (11.5% of revenues) in 1996. From January 1, 1996 through
December 31, 2000, the Company commenced development of approximately
75.9 million square feet of projects with aggregate project costs of
approximately $5.8 billion.
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 user move coordination;
(vii) general contracting; and (viii) 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 has also
been aggressive in negotiating 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
(typically no more than 5% of a project's full construction and development
cost), 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
11
project and/or executing a variety of services in the development process. The
Company's investments or co-investments in real estate projects typically result
in an upside economic interest substantially greater than the co-investment
percentage. To facilitate this activity and to further mitigate risk, the
Company established three discretionary development and investment funds which,
as of December 31, 2000, had received funding commitments of $64.0 million, of
which $58.1 million had been invested in projects with an aggregate construction
cost of approximately $461.6 million.
The market for development and construction services is cyclical and is
driven by various economic conditions. The demand for commercial real estate
properties in the suburban office, downtown office and industrial markets has
increased over the last several years, driven primarily by the strong domestic
economy and the resulting job growth. In late 2000 and early 2001, the Company
observed substantial evidence of uncertainty in the economic outlook and
deterioration of the economy as a whole. The Company believes that, due to this
uncertainty and deterioration, transaction volume, rental rates and sales prices
may be adversely impacted and the availability of development capital may be
further restricted. These factors may have a negative impact on the timing and
amount of development and investment revenues (including incentive development
fees) and profits earned by the Company.
The Company's development activities generate business opportunities for the
Company's other service lines, which can support the Company's earnings when
development and construction revenues decrease as a result of market conditions.
Because the Company provides development and construction management services to
third parties, including corporate customers with needs for build-to-suit
projects and institutional investors, the Company believes that the adverse
effect on its revenues when speculative development activities are curtailed in
a market down cycle should be mitigated. When development activity enters a down
cycle, the Company will seek to redeploy professionals from its development and
construction services business to pursue opportunistic property acquisitions
with its established capital partners.
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 and in-house corporate real estate and infrastructure
management departments. 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 on
a local or regional basis. 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 Insignia Financial Group. 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 that self-manage 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 become increasingly 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.
12
EMPLOYEES
As of March 15, 2001, the Company had approximately 7,300 employees.
Employees of the Company at certain properties located in San Francisco,
California; Las Vegas, Nevada and Reno, Nevada are currently represented by a
labor union. The unions represented at the respective locations are:
International Union of Operating Engineers, Stationary Engineers, Local No. 39
(San Francisco, California); Southern California and Nevada Regional Council of
Carpenters (Las Vegas, Nevada); Carpenters Local Union #971; Nevada Chapter
Associated General Contractors of America, Inc. and Laborers' International
Union of North America-AFL-CIO Local No. 169 (Reno, Nevada) and International
Union of Operating Engineers Local Union #94-94A-94B AFL-CIO (New York, New
York).
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 will use 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 ("License Agreement") with CF98, L.P.,
("CF98"), an affiliate of Crow Holdings, with respect to such business and trade
names. See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
ENVIRONMENTAL LIABILITY
Various international, federal, state and local 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. In the Company's role as a property manager,
it could be held liable as an operator for such costs. Such 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
such hazardous or toxic substances, and such liability may be joint and several
with other parties. 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. Further, any failure by the Company to
disclose environmental issues could subject the Company to liability to a buyer
or lessee of the property. In addition, some environmental laws create a lien on
the contaminated site in favor of the applicable governmental entity for damages
and costs it 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 hazardous substances or environmental contamination at a site,
including liabilities relating to the presence of asbestos-containing materials.
There can be no assurance that any of such liabilities to which the Company or
any of its affiliates may become subject will not have a material adverse effect
on the Company's business and results of operations.
Some of the properties owned, operated or managed by the Company are on,
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
13
vicinity of properties which are currently, or have been, subject to 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 at
several properties owned, operated or managed by it, which may have resulted
from historical or ongoing soil or groundwater 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.
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 prohibitions. 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.
DEALINGS WITH AND RELIANCE ON AFFILIATES; POTENTIAL CONFLICTS OF
INTEREST. Crow Holdings and its affiliates are collectively the Company's
largest customer, accounting for approximately 3.6% of 2000 revenues. There can
be no assurance that Crow Holdings or its affiliates will continue to transact
business with the Company.
Because Crow Holdings and its owners hold significant amounts of common
stock and conduct real estate activities in direct competition with the Company,
the Company's relationship with these entities could give rise to conflicts of
interest. These competing activities may create a conflict with a major customer
or cause confusion in the real estate or capital markets. The Company has an
approval policy intended to help it manage potential conflicts involving related
parties, but the Company cannot be sure this policy will be effective.
In addition, entities affiliated with Mr. Henry Faison, a stockholder and
director of the Company, are collectively the Company's second largest customer,
accounting for approximately 3.2% of 2000
14
revenues. There can be no assurance that these entities will continue to
transact business with the Company.
TRADE NAME LICENSE. The Company has entered into a license agreement ("the
License Agreement") with an affiliate of Crow Holdings that allows it to use the
name "Trammell Crow" perpetually throughout the world in any business except the
residential real estate business. This license can be revoked if the Company
fails to maintain certain quality standards or infringes upon certain of such
affiliate'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 this name 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.
CONTROL BY EXISTING STOCKHOLDERS. As of March 15, 2001, the Company's
directors and officers owned at least 28% of the common stock outstanding. The
stock ownership of these individuals, were they to act as a group, would likely
enable them to control the Company's affairs and policies and to approve or
disapprove most matters submitted to a vote of its stockholders, including the
election of directors. This concentration of ownership could delay or prevent a
change in control.
REORGANIZATION. In February 2001, the Company announced an internal
reorganization that it intends to implement throughout the remainder of 2001. In
order to achieve the intended benefits of the reorganization, the Company must
effectively manage the challenges attendant to implementing such a process,
including:
- diversion of attention from the Company's core businesses;
- employee relations issues, including compensation and retention issues,
that arise as the Company changes the scope of responsibilities for
numerous senior employees; and
- identifying and eliminating inefficiencies and redundancies in order to
achieve cost savings.
If the Company is not able to manage these and other risks related to the
reorganization, its business could suffer significantly.
ECONOMIC UNCERTAINTY/DETERIORATION OF THE ECONOMY. In late 2000 and early
2001, the Company observed substantial evidence of uncertainty in the economic
outlook and deterioration of the economy as a whole. The Company believes that,
due to this uncertainty and deterioration:
- transaction volume, rental rates and sales prices may be adversely
impacted;
- corporate customers' project spending may be negatively impacted; and
- the availability of development capital may be further restricted.
These factors may have a negative impact on the timing and amount of the
Company's revenues and profits generated from several of its services, including
project leasing, investment sales, tenant representation, project management and
development and investment activities.
RAPID GROWTH. The Company has grown significantly in recent years and
intends to continue to pursue an aggressive growth strategy in the future. This
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 customers through periods of internal change. 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.
15
ACQUISITIONS. A portion of the Company's growth since 1997 has been achieved
through strategic acquisitions, and the Company intends to pursue other
acquisitions. In the future, 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 of any acquired intangible assets; and
- maintaining uniform standards, controls, procedures and policies.
In addition, the acquired businesses' customers could cease to do business
with the Company. Potential conflicts between the Company's customers and those
of an acquired business could threaten its business relationships. Furthermore,
if the performance of the acquired business is less than expected, which could
be impacted by the resignation of key employees, goodwill recorded in connection
with the acquisition could be written off, having a negative impact on the
Company's earnings. If the Company is not able to manage these risks, its
business could suffer significantly.
INTERNATIONAL OPERATIONS. The Company, directly and indirectly through
Trammell Crow Savills or other related parties, 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
- war and civil disturbances.
REAL ESTATE INVESTMENT AND CO-INVESTMENT ACTIVITIES. Selective investment
in real estate projects is an important part of the Company's strategy. These
activities involve the inherent risk of loss of the Company's investment. As of
December 31, 2000, the Company was involved as a principal in 100 "in process"
real estate development projects with an estimated aggregate cost of
approximately $889.1 million. As of December 31, 2000, the Company had invested
approximately $26.3 million and had assumed approximately $35.1 million in
recourse obligations with respect to those projects in which it was involved as
a principal. In addition, as of December 31, 2000, the Company had guaranteed
approximately $24.5 million of debt of others.
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 has 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.
16
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 corporate and institutional clients, its ability to
conduct these activities depends in part on the supply of investment capital for
commercial real estate and related assets.
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
in the fourth quarter. In addition, a growing portion of the Company's
outsourcing contracts provide for bonus payments if it achieves 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 and in-house corporate
real estate and outsourcing services departments. In recent years, there has
been a significant increase in real estate ownership by REITs that self-manage
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.
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,
particularly 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. The pace of change within the Company (i.e.
organizational and technological) 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 21.4% of its total
2000 revenues. The loss of one or more of its major clients could have a
material adverse effect on the Company's business.
In 2000, revenue from property management and outsourcing contracts
constituted approximately 20.3% and 29.7%, 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 initial terms of three to five years 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.
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 manager, the Company could be
17
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. Some provisions of the Company's certificate
of incorporation 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 2001, 2002 and
2003. 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.
- PREFERRED STOCK. The Company's certificate of incorporation authorizes the
Company's Board of Directors to issue up to 30,000,000 shares of preferred
stock having such rights as may be designated by the Company's Board of
Directors, without stockholder approval. The issuance of such preferred
stock could inhibit a change of control.
- DELAWARE ANTI-TAKEOVER STATUTE. Section 203 of the Delaware General
Corporation Law restricts certain business combinations with interested
stockholders upon their acquiring 15% or more of the Company's common
stock. This statute may have the effect of inhibiting a non-negotiated
merger or other business combination.
ITEM 2. PROPERTIES
The Company's executive offices are located at 2001 Ross Avenue,
3400 Trammell Crow Center, Dallas, Texas 75201 and consist of approximately
46,898 square feet of leased office space. The Company's telephone number at
such address is (214) 863-3000. The Company's lease at its executive offices
will expire on December 31, 2004.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to its
business. In the Company's opinion, no litigation to which the Company is
currently a party, if decided adversely to the Company, is likely to have a
material adverse effect on the Company's results of operations or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
2000.
18
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock was listed on the New York Stock Exchange ("NYSE") on
November 25, 1997 under the symbol "TCW." On June 3, 1998, the Common Stock
began trading under the symbol "TCC." At March 15, 2001, 35,617,156 shares were
held by approximately 496 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
-------- --------
1999
First Quarter........................................... $28.000 $14.250
Second Quarter.......................................... $19.125 $15.750
Third Quarter........................................... $18.500 $12.250
Fourth Quarter.......................................... $15.875 $10.500
2000
First Quarter........................................... $13.188 $10.563
Second Quarter.......................................... $13.438 $10.500
Third Quarter........................................... $15.313 $10.313
Fourth Quarter.......................................... $15.000 $11.188
The Company 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 November 1999, the Company announced that its Board of Directors had
approved a stock repurchase program. The repurchase program authorized the
repurchase of up to $10.0 million of the Company's common stock from time to
time in open market purchases or through privately negotiated transactions.
Through December 31, 1999, the Company had purchased 780,900 shares at an
average cost of $11.59 per share with funds generated from operations and
existing cash. Through March 15, 2000, the Company had repurchased a total of
830,700 shares at an average cost of $11.57 per share. The Company has not
repurchased any additional shares since March 15, 2000. The Company placed the
repurchased shares in treasury and has reissued shares (and expects to reissue
additional shares) 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, as well as for other corporate purposes.
19
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, 2000 and 1999 and for each of the
three years in the period ended December 31, 2000 have been audited by Ernst &
Young LLP, independent auditors, 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.
YEARS ENDED DECEMBER 31
--------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
CORPORATE:
Facilities management..................................... $ 35,104 $ 50,112 $ 71,635 $ 99,008 $ 139,435
Corporate advisory services............................... 30,482 35,681 69,878 104,058 142,850
Project management services............................... 4,335 7,633 16,093 32,731 63,363
Income (loss) from investments in unconsolidated
subsidiaries............................................ (27) -- -- -- (52)
Gain on disposition of real estate........................ 691 1,237 2,247 3,072 5,125
Other..................................................... 117 204 260 286 233
---------- ---------- ---------- ---------- ----------
70,702 94,867 160,113 239,155 350,954
INSTITUTIONAL:
Property management....................................... 95,293 91,936 127,952 155,425 164,521
Brokerage services........................................ 55,403 71,664 107,895 144,804 153,449
Development and investment services....................... 22,732 40,054 70,279 92,385 97,444
Income from investments in unconsolidated subsidiaries.... 621 512 18,438 23,338 7,117
Gain on disposition of real estate........................ 5,939 9,004 29,411 30,338 36,679
Other..................................................... 4,765 5,602 3,435 1,998 1,505
---------- ---------- ---------- ---------- ----------
184,753 218,772 357,410 448,288 460,715
---------- ---------- ---------- ---------- ----------
Total revenues............................................ 255,455 313,639 517,523 687,443 811,669
Salaries, wages and benefits.............................. 137,794 161,425 269,780 356,849 434,379
Non-recurring compensation costs.......................... -- 33,085 -- -- --
Commissions............................................... 27,119 39,121 67,508 97,838 119,702
General and administrative................................ 41,421 55,884 78,344 97,530 112,184
Profit sharing............................................ 20,094 23,514 -- -- --
Depreciation and amortization............................. 3,196 4,228 10,409 17,543 24,122
Interest.................................................. 1,726 5,515 10,277 9,507 16,947
Royalty and consulting fees............................... 3,959 6,212 -- -- --
Minority interest......................................... 206 2,042 5,080 18,579 4,853
Writedowns due to impairment of goodwill and
investments............................................. -- -- -- -- 40,347
---------- ---------- ---------- ---------- ----------
Cost and expenses......................................... 235,515 331,026 441,398 597,846 752,534
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes......................... 19,940 (17,387) 76,125 89,597 59,135
Income tax provision (benefit)............................ 7,826 (3,367) 29,674 35,154 23,681
---------- ---------- ---------- ---------- ----------
Net income (loss)......................................... $ 12,114 $ (14,020) $ 46,451 $ 54,443 $ 35,454
========== ========== ========== ========== ==========
STATEMENT OF OPERATIONS DATA:
Earnings (loss) per share (1):
Basic................................................... $ (.42) $ 1.36 $ 1.56 $ 1.02
Diluted................................................. $ (.42) $ 1.28 $ 1.50 $ 0.98
Weighted Average Common Shares Outstanding (1):
Basic..................................................... 33,583,467 34,059,155 34,991,707 34,851,738
Diluted................................................... 33,583,467 36,216,352 36,411,063 36,147,744
OTHER DATA:
EBITDA, as adjusted (2)................................... $ 48,915 $ 59,522 $ 96,811 $ 116,647 $ 140,551
Net cash provided by (used in) operating activities....... 25,148 (4,978) 7,677 (1,675) 41,001
Net cash used in investing activities..................... (5,019) (26,619) (94,289) (20,144) (46,096)
Net cash provided by (used in) financing activities....... (1,779) 69,839 77,811 (18,599) 13,204
20
DECEMBER 31
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 58,505 $ 96,747 $ 87,946 $ 47,528 $ 55,637
Total assets.............................................. 194,314 326,236 468,515 638,010 726,434
Long-term debt and capital lease obligations.............. 12,361 2,430 85,995 64,084 88,242
Notes payable on real estate held for sale................ 67,810 76,623 56,344 134,827 148,098
Total liabilities......................................... 160,018 169,305 262,536 352,205 394,474
Minority interest......................................... 3,294 19,859 13,967 34,153 41,001
Stockholders' equity...................................... 31,002 137,072 192,012 251,652 290,959
------------------------------
(1) Earnings (loss) per share and weighted average common shares outstanding for
1996 are not relevant due to the change in capital structure effected in
connection with a reincorporation transaction in the fourth quarter of 1997.
The weighted average shares outstanding used to calculate basic and diluted
earnings per share for 1997 include the shares issued in the initial public
offering and in a reincorporation transaction as if they were outstanding
for the entire period.
(2) EBITDA, as adjusted, represents earnings before interest, income taxes,
depreciation and amortization, royalty and consulting fees, profit sharing,
the 1997 non-cash, non-recurring charge to income related to the stock
options granted under the Company's 1997 Stock Option Plan assumed by the
Company in connection with the reincorporation transaction (the "Assumed
Option Plan"), the 1997 non-recurring charge to income resulting from the
settlement of claims by certain former employees arising out of a terminated
stock appreciation rights plan, and the 2000 writedowns due to impairment of
goodwill and the value of certain of the Company's e-commerce investments.
Management believes that EBITDA, as adjusted, can be a meaningful measure of
the Company's operating performance, cash generation and ability to service
debt. However, EBITDA, as adjusted, should not be considered as an
alternative to: (i) net earnings (determined in accordance with accounting
principles generally accepted in the United States ("GAAP"));
(ii) operating cash flow (determined in accordance with GAAP); or
(iii) liquidity. The Company's calculation of EBITDA, as adjusted, may
differ from similarly titled items reported by other companies.
21
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 14(a)(1) and (2) of this Annual Report on
Form 10-K. As discussed in Item 1. Business, "INTERNAL REORGANIZATION," the
Company's reportable segments will change in 2001 as a result of the internal
reorganization. However, the following discussion focuses on the Company's
historical segments as reported for the year ended December 31, 2000.
OVERVIEW
The Company's revenue streams consist primarily of recurring 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, and the
majority of such fees are recurring in nature. The fees received by the Company
for the provision of transaction services (brokerage and corporate advisory
services) 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 typically earns fees from its development and
construction business that are based upon a negotiated percentage of a project's
cost. The Company may receive incentive development fees for completing a
development project under budget and within certain critical time deadlines, and
for achieving specified leasing targets. The Company also earns fees from
construction project management that are typically determined by the size and
cost of the project. The arrangement may be part of a management service
contract or on an individual project basis. Revenues from the Company's
investment activities primarily consist of gain on disposition of real estate
and income from unconsolidated subsidiaries that hold real estate assets. The
Company has limited control over the timing of the disposition of these
investments and the recognition of any related gain or loss. Because the
disposition 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 typically entails making relatively modest investments alongside its
corporate and institutional clients, its ability to conduct these activities
depends in part on the supply of investment capital for commercial real estate
and related assets. In late and early 2001, the Company observed substantial
evidence of uncertainty in the economic outlook and deterioration of the economy
as a whole. The Company believes that, due to this uncertainty and
deterioration, transaction volume, rental rates, sales prices and project
spending may be adversely impacted and the availability of development capital
may be further restricted. These effects may in turn have a negative impact on
the timing and amount of revenues and profits generated from several of the
Company's services, including project leasing, investment sales, tenant
representation, project management and development and investment activities.
The Company's expenses consist of salaries, wages and benefits, commissions,
general and administrative expenses, depreciation and amortization expense,
interest and minority 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 41.0% of the Company's income
before income taxes (adjusted in 2000 to add back non-cash charges related to
the writedown due to impairment of goodwill and related intangibles recorded in
connection with the August 1997 acquisition of the assets of Doppelt & Company
(the "Doppelt Acquisition") and the writedown due to impairment in the value of
e-commerce investments) has been generated in the fourth quarter, due primarily
to a calendar year-end focus by the commercial real estate industry on the
completion of transactions. In addition, certain of the Company's property
management and outsourcing contracts provide for bonus payments if the Company
achieves certain performance targets. Such incentive payments are generally
earned in the fourth quarter. In contrast, the Company's non-variable operating
expenses, which are treated as
22
expenses when incurred during the year, are relatively constant on a quarterly
basis. See "--QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY."
The Company intends to continue to pursue its growth strategy by seeking new
clients, expanding existing client relationships, expanding the breadth of its
service offerings, making selective co-investments with its clients and pursuing
selective strategic acquisitions. The Company has primarily used proceeds from
its 1997 initial public offering, borrowings under its $150 million revolving
line of credit and internally generated funds to finance its growth. See
"--LIQUIDITY AND CAPITAL RESOURCES."
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles represent 17.4% and 43.4% of the Company's
total assets and total stockholders' equity, respectively, at December 31, 2000.
The 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 1997, 1998 and 1999. See ITEM 8.--FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA, NOTE 13. The other intangibles represent property management
contracts and employment/non-compete agreements for certain employees entered
into in connection with these acquisitions and in connection with other
employment/non-compete arrangements.
Because the Company's acquisitions have been of real estate service
companies, no significant tangible assets have been acquired. Management has
considered several factors to determine the expected benefit period for the
goodwill recorded in connection with such acquisitions: (i) the longevity of the
Company's business; (ii) the length of time the acquired companies had been in
operation; (iii) the cash flows expected to be directly generated from the
acquired companies; and (iv) the additional cash flows expected to be generated
by the Company's existing businesses as a result of the enhanced service
offerings and expertise in different business or geographic areas obtained
through these acquisitions. The Company has considered the average life of its
property management contracts to determine the period over which to amortize the
intangibles related to acquired property management contracts. The Company
amortizes intangibles resulting from employment/non-compete agreements over the
terms in which each contract is in effect.
While all of the acquired companies have been integrated into the Company's
operations to some degree, a few of the acquired companies still maintain
separate financial information. Where financial information of the acquired
company can be segregated, management has compared the results of operations of
the acquired company to the expected results at the time of acquisition to
assess the recoverability of goodwill and the related intangibles. Where the
acquired companies have been fully integrated into existing operations,
management has evaluated the growth in operations, and expected future growth in
operations, of the Company as a whole (or the lowest operating unit of the
Company into which the acquired company has been integrated), as well as the
impact of the acquisition on the Company's ability to win new business.
In December 2000, the Company recorded a $25.3 million writedown due to
impairment of goodwill and related intangibles recorded in connection with the
Doppelt Acquisition, representing the remaining unamortized balance of goodwill
and intangibles recorded in connection with the acquisition. The impairment was
triggered by: (i) the loss in the fourth quarter of 2000 of key management and
revenue producing personnel hired from the acquired company; (ii) the loss of
key national customers related to the acquired company and resignation from
unprofitable accounts; and (iii) the identification in the fourth quarter of
2000 of increasing losses, as well as a net loss for the fourth quarter of 2000,
for the acquired business instead of a net profit for the fourth quarter of 2000
as was expected at the end of the third quarter of 2000. In evaluating the
extent of the impairment related to the Doppelt Acquisition, the Company
considered the following factors: (i) a reduction of revenue from the largest
individual customer of the acquired company and an announcement by the customer
that they will be further reducing the services required by the Company,
(ii) the 2001 business plan related to the
23
acquired company did not include any additional revenues from the acquired
company clients and (iii) the Company's determination that there is no positive
cash flow or earnings associated with the acquired company and the Company's
reluctance to commit additional resources to the acquired business. Revenues and
net income (loss) before tax and writedowns, respectively, related to the
acquired business were $7.2 million and $(5.8) million in 2000, $10.9 million
and $0.2 million in 1999, and $9.8 million and $0.2 million in 1998.
IMPAIRMENT OF E-COMMERCE INVESTMENTS
In 1999 and 2000, the Company made various investments in e-commerce related
companies. In December 2000, the Company recorded a $15.0 million writedown to
reflect impairment in the value of certain of these e-commerce investments. The
impairment was triggered by: (i) the current status of the e-commerce segment
(many technology companies have ceased operations, the availability of capital
for e-commerce and internet companies has been dramatically reduced, and the Dow
Jones Internet Index is down approximately 67% from mid-year 2000) and (ii) the
financial status of the companies in which the Company has invested. In
evaluating the extent of the impairment related to its e-commerce investments,
the Company considered the following factors: (i) 2000 financial results of the
investees versus their original business plans, (ii) the value of the investee
companies based on current solicitations for additional financing, (iii) the
investees' revised business plans and (iv) the investees' need for and limited
availability of future funding. Based upon the above factors, the Company
determined that, in the aggregate, there was a $15.0 million impairment in the
value of its e-commerce investments.
24
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, 2000, as a percent of total revenue for the periods indicated.
YEAR ENDED DECEMBER 31
------------------------------
1998 1999 2000
-------- -------- --------
REVENUES:
Corporate:
Facilities management....................................... 13.8% 14.4% 17.2%
Corporate advisory services................................. 13.5% 15.1% 17.6%
Project management activities............................... 3.5% 5.3% 8.4%
Other....................................................... 0.1% 0.0% 0.0%
----- ----- -----
30.9% 34.8% 43.2%
Institutional:
Property management......................................... 24.7% 22.6% 20.3%
Brokerage services.......................................... 20.9% 21.1% 18.9%
Development and investment activities....................... 22.8% 21.2% 17.4%
Other....................................................... 0.7% 0.3% 0.2%
----- ----- -----
69.1% 65.2% 56.8%
----- ----- -----
Total revenues.............................................. 100.0% 100.0% 100.0%
Salaries, wages and benefits................................ 52.1% 51.9% 53.5%
Commissions................................................. 13.0% 14.2% 14.7%
General and administrative.................................. 15.1% 14.2% 13.8%
Depreciation and amortization............................... 2.0% 2.5% 3.0%
Interest.................................................... 2.0% 1.4% 2.1%
Minority interest........................................... 1.0% 2.7% 0.6%
Writedowns due to impairment of goodwill and investments.... 0.0% 0.0% 5.0%
----- ----- -----
Total operating costs and expenses.......................... 85.2% 86.9% 92.7%
----- ----- -----
Income before income taxes.................................. 14.8% 13.1% 7.3%
Income tax expense.......................................... 5.7% 5.1% 2.9%
----- ----- -----
Net income.................................................. 9.1% 8.0% 4.4%
===== ===== =====
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUES. The Company's total revenues increased $124.3 million, or 18.1%,
to $811.7 million in 2000 from $687.4 million in 1999.
CORPORATE REVENUES
Facilities management revenue, which represented 17.2% of the Company's
total revenue in 2000, increased $40.4 million, or 40.8%, to $139.4 million in
2000 from $99.0 million in 1999. The revenue growth primarily resulted from:
(i) the Phoenix Acquisition in July 1999; (ii) the operations of Trammell Crow
Savills; (iii) the addition of several new customers; and (iv) the expansion of
services provided to existing customers. The Company added approximately 12
(net) new customers during 2000.
Corporate advisory services revenue, which represented 17.6% of the
Company's total revenue in 2000, increased $38.8 million, or 37.3%, to
$142.9 million in 2000 from $104.1 million in 1999. The
25
revenue growth resulted from an increase in the number of brokerage
transactions, fueled by an increase in the average number of brokers employed in
2000 as compared to those employed in 1999, coupled with an increased focus on
larger transactions.
Revenues from project management activities (consisting of project
management service fees, income from investments in unconsolidated subsidiaries
and gain on disposition of real estate) totaled $68.4 million in 2000 and
represented 8.4% of the Company's total revenue in 2000. These revenues
increased $32.6 million, or 91.1%, from $35.8 million in 1999. The revenue
growth was due to the Phoenix Acquisition in July 1999, the addition of several
new projects on which the Company received development and construction
management fees and the expansion of services provided to existing customers.
INSTITUTIONAL REVENUES
Property management revenue, which represented 20.3% of the Company's total
revenue in 2000, increased $9.1 million, or 5.9%, to $164.5 million in 2000 from
$155.4 million in 1999. The increase was primarily due to increases from the
prior year in the total square feet under management and in the percentage of
managed space represented by office product, which generates higher property
management revenues per square foot than other product types.
Brokerage services revenue, which represented 18.9% of the Company's total
revenue in 2000, increased $8.6 million, or 5.9%, to $153.4 million in 2000 from
$144.8 million in 1999. While some of the Company's brokers may specialize in
specific types of brokerage transactions, in many cases, a broker may facilitate
transactions for all three types of brokerage activities (project leasing,
investment sales and tenant representation). The revenue growth resulted from an
increase in the number of brokerage transactions, fueled by an increase in the
average number of brokers employed in 2000 as compared to those employed in
1999, coupled with an increased focus on larger transactions.
Revenues from development and investment activities (consisting of
development services fees, income from investments in real estate-related
unconsolidated subsidiaries and gain on disposition of real estate) totaled
$140.0 million in 2000 (excluding $1.2 million representing the Company's share
of the earnings of Savills) and represented 17.2% of the Company's total revenue
in 2000. These revenues decreased $6.1 million, or 4.2%, from $146.1 million in
1999. The decrease in revenue is primarily attributable to a $17.4 million
decrease in income from investments in real estate-related unconsolidated
subsidiaries. Of the decrease in income from real estate-related unconsolidated
subsidiaries, $17.8 million of 1999 revenue resulted from the consolidation of
an entity which accounts for its investment in an underlying entity using the
equity method (i.e., as an unconsolidated subsidiary). The real estate owned by
the unconsolidated subsidiary was sold in the third quarter of 1999, which
resulted in the gain on sale being reflected in the consolidated financial
statements as income from unconsolidated subsidiaries. The minority interest
related to the consolidated entity was $15.4 million, resulting in a
$2.4 million net impact on the Company's net income. There were no comparably
sized transactions in 2000. The decrease in income from investments in real
estate-related unconsolidated subsidiaries was partially offset by a
$5.0 million increase in development service fees. Such fees increased as a
result of (i) an increase in rental revenues from real estate properties held
for sale as the number of such properties that were operational increased in
2000 and (ii) a decrease in construction management revenues. Also, gain on
disposition of real estate increased $6.4 million in 2000 from 1999.
The Company provides development services to both corporate and
institutional customers. The Company's corporate development activity continues
to grow in the form of corporate build-to-suits and fee development services.
Some of the Company's development resources focus on providing development
services to institutional clients that invest in speculative commercial real
estate projects. Since the latter part of 1999, the Company has become more
cautious in developing speculative real
26
estate. The caution reflects the Company's observation that demand for new
product in many of the markets in which the Company operates is leveling off
with the overall slowing in the economy.
COSTS AND EXPENSES. The Company's costs and expenses increased
$154.7 million, or 25.9%, to $752.5 million in 2000 from $597.8 million in 1999.
In December 2000, the Company recorded a $25.3 million writedown due to
impairment of goodwill and related intangibles recorded in connection with the
Doppelt Acquisition. Also, in December 2000, the Company recorded a
$15.0 million writedown to reflect impairment in the value of e-commerce
investments made in late 1999 and earlier in 2000, consistent with the decrease
in value of companies in this sector generally in the latter part of 2000. See
"Goodwill and Other Intangibles" and "Impairment of E-Commerce Investments"
above for further discussion. Excluding the effects of these writedowns, the
Company's costs and expenses increased $114.4 million, or 19.1%, to
$712.2 million in 2000 compared to 1999.
The increase in costs and expenses (excluding writedowns) was largely due to
a $77.6 million, or 21.7%, increase in salaries, wages and benefits to
$434.4 million in 2000 from $356.8 million in 1999. The increase in salaries,
wages and benefits resulted primarily from increases in staffing to support
internal growth in the Company's business, including new assignments for the
Company's corporate outsourcing business and rising pressure on labor costs, the
Phoenix Acquisition in July 1999 and the formation of Trammell Crow Savills.
Commissions increased $21.9 million, or 22.4%, to $119.7 million in 2000
from $97.8 million in 1999. The change is primarily a result of the increased
brokerage activities that resulted in the significant growth in the Company's
tenant representation and investment sales transactions, which command higher
commission payouts to brokers than project leasing.
General and administrative expenses increased $14.7 million, or 15.1%, to
$112.2 million in 2000 from $97.5 million in 1999. The increase is due to a
company-wide increase in administrative costs resulting from the overall
increase in number of employees (approximately 6,500 at December 31, 1999 and
approximately 7,300 at December 31, 2000), as well as an increase in legal and
professional fees related to e-commerce activity. However, general and
administrative expenses as a percentage of revenues have decreased slightly from
14.2% in 1999 to 13.8% in 2000.
Depreciation, amortization and interest collectively increased
$14.0 million, or 51.7%, to $41.1 million in 2000 from $27.1 million in 1999.
Depreciation and amortization increased $6.6 million and interest expense
increased $7.4 million. The increase in depreciation and amortization is
primarily related to depreciation expense on information systems-related assets
accounted for as capital leases, amortization related to the Phoenix Acquisition
and amortization of transition costs incurred in connection with certain
outsourcing contracts. The increase in interest expense is attributable to an
increase in the number of real estate properties held for sale that have become
operational (under GAAP, once a property is operational, interest is expensed
rather than capitalized as it is during the construction period) and increased
interest expense related to the Company's revolving line of credit resulting
from higher interest rates and higher average outstanding balances.
Minority interest decreased $13.7 million, or 73.7%, to $4.9 million in 2000
from $18.6 million in 1999. The decrease is primarily due to minority interest
of approximately $15.4 million in the third quarter of 1999 related to the
transaction described above in the discussion of revenues from development and
investment activities.
INCOME BEFORE INCOME TAXES. The Company's income before income taxes
decreased $30.5 million, or 34.0%, to $59.1 million in 2000 from $89.6 million
in 1999, due to the fluctuations in revenue and expenses described above.
Excluding the writedowns, income before income taxes increased $9.9 million, or
11.0%, to $99.5 million in 2000 compared to 1999.
27
NET INCOME. Net income decreased $18.9 million, or 34.7%, to $35.5 million
in 2000 from $54.4 million in 1999, due to the fluctuations in revenues and
expenses described above. Excluding the writedowns, net income increased
$5.2 million, or 9.6%, to $59.6 million in 2000 compared to 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. The Company's total revenues increased $169.9 million, or 32.8%,
to $687.4 million in 1999 from $517.5 million in 1998.
CORPORATE REVENUES
Facilities management revenue, which represented 14.4% of the Company's
total revenue in 1999, increased $27.4 million, or 38.3%, to $99.0 million in
1999 from $71.6 million in 1998. The revenue growth resulted primarily from
(i) the Phoenix Acquisition in July 1999, (ii) the expansion of services
provided to existing customers, and (iii) the addition of several new customers.
Contributing significantly to profitability of the corporate segment was a
budgeted $2.4 million annual minimum fee guarantee received from a customer in
1999.
Corporate advisory services revenue, which represented 15.1% of the
Company's total revenue in 1999, increased $34.2 million, or 48.9%, to
$104.1 million in 1999 from $69.9 million in 1998. The revenue growth resulted
from an increase in the number of brokerage transactions, fueled by an increase
of 26.4% in the average number of brokers employed in 1999 compared to 1998,
coupled with an increased focus on larger transactions.
Revenues from project management activities (consisting of project
management service fees and gain on disposition of real estate) totaled
$35.8 million in 1999 and represented 5.2% of the Company's total revenue. These
revenues increased $17.5 million, or 95.6%, to $35.8 million in 1999 from
$18.3 million in 1998. The revenue growth resulted primarily from (i) the
Phoenix Acquisition in July 1999, (ii) the expansion of services provided to
existing customers, and (iii) the addition of several new customers.
INSTITUTIONAL REVENUES
Property management revenue, which represented 22.6% of the Company's total
revenue in 1999, increased $27.4 million, or 21.4%, to $155.4 million in 1999
from $128.0 million in 1998. This increase was primarily due to an overall
increase in square feet under management in 1999, which was attributable to a
focus on larger institutional customers, the acquisition of Tooley in March of
1998 and the Faison Acquisition in July 1998.
Brokerage services revenue, which represented 21.1% of the Company's total
revenue in 1999, increased $36.9 million, or 34.2%, to $144.8 million in 1999
from $107.9 million in 1998. The revenue growth resulted from an increase in the
number of brokerage transactions, fueled by an increase of 26.4% in the average
number of brokers employed in 1999 compared to 1998, coupled with an increased
focus on larger transactions.
Revenues from development and investment activities (consisting of
development services fees, income from investments in unconsolidated
subsidiaries and gain on disposition of real estate) totaled $146.1 million and
represented 21.3% of the Company's total revenue in 1999. These revenues
increased $28.0 million, or 23.7%, in 1999 from $118.1 million in 1998. The
revenue growth was primarily due to a significant increase in development and
construction management-related fees of $22.1 million, or 31.4%, to
$92.4 million in 1999 from $70.3 million in 1998, and an increase in income from
unconsolidated subsidiaries of $4.9 million, or 26.6%, to $23.3 million in 1999
from $18.4 million in 1998. Income from unconsolidated subsidiaries is primarily
generated by sales of properties in the underlying entities in which the Company
has an investment. As a result, income from unconsolidated
28
subsidiaries fluctuates with the number of sales and profitability of each of
these transactions. The income from unconsolidated subsidiaries in 1999 includes
$17.8 million resulting from the consolidation of an entity, which accounts for
its investment in an underlying entity using the equity method (i.e., as an
unconsolidated subsidiary). The real estate owned by the unconsolidated
subsidiary was sold in the third quarter of 1999, which resulted in the gain on
sale being reflected in the consolidated financial statements as income from
unconsolidated subsidiaries. The minority interest related to the consolidated
entity was $15.4 million, resulting in a $2.4 million net impact on the
Company's net income. The $17.8 million income from unconsolidated subsidiaries
resulting from the consolidation of this entity in 1999 is partially offset by
income from unconsolidated subsidiaries of $10.1 million in 1998 resulting from
a sale of the underlying real estate from one atypically large and profitable
transaction.
COSTS AND EXPENSES. The Company's operating costs and expenses increased
$156.4 million, or 35.4%, to $597.8 million in 1999 from $441.4 million in 1998.
The increase in operating costs and expenses was largely due to a 32.3%
increase in salaries, wages and benefits in 1999, resulting primarily from
increases in staffing and, to a lesser extent, rising pressure on labor costs.
The Company added approximately 1,400 employees in 1999, a 27.5% increase from
1998, due to the acquisitions of real estate service companies, new outsourcing
wins and support for internal growth in the Company's business.
Commissions increased 44.9%, to $97.8 million, in 1999 from $67.5 million in
1998, primarily a result of the increased brokerage activities giving rise to
the significant growth in the Company's brokerage services revenues.
General and administrative expenses increased $19.2 million, or 24.5%, to
$97.5 million in 1999 from $78.3 million in 1998. The increase is primarily due
to a company-wide increase in administrative costs resulting from the overall
increase in number of employees and, to a lesser extent, an increase in
management information systems costs. Additionally, general and administrative
expenses increased in part due to expenses incurred in connection with the
integration into the Company's business of the operations acquired in the Faison
Acquisition and with several initiatives begun in the third and fourth quarters
of 1998, which are intended to increase revenues and income in future periods.
These initiatives include upgrading the Company's management information systems
and making targeted investments to add capacity in the Company's development and
investment, outsourcing, retail and brokerage businesses. Additionally, in the
third quarter of 1999, the Company outsourced much of its management information
systems support functions, resulting in a shift of costs from salaries, wages
and benefits to general and administrative expenses. General and administrative
expenses decreased slightly from 1998 to 1999 as a percentage of revenues, due
to economies of scale recognized.
Depreciation, amortization and interest collectively increased
$6.4 million, or 30.9%, in 1999 from $20.7 million in 1998. The increase in
other expenses is primarily a result of amortization of goodwill related to
acquisitions and increased depreciation as a result of increased fixed asset
expenditures.
Minority interest increased $13.5 million, or 264.7%, in 1999 from
$5.1 million in 1998. The increase is primarily due to minority interest of
approximately $15.4 million related to the transaction described above in the
discussion of revenues from development and investment activities.
INCOME BEFORE INCOME TAXES. The Company's income before income taxes
increased $13.5 million to $89.6 million in 1999 from $76.1 million in 1998, due
to the fluctuations in revenues and expenses described above.
NET INCOME. Net income increased $7.9 million to $54.4 million in 1999 from
$46.5 million in 1998, due to the fluctuations in revenues and expenses
described above.
29
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 2000 and 1999. 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 somewhat 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)
2000:
Revenues..................................... $163,244 $186,090(1) $202,757 $259,578
Income before income taxes................... 6,169 13,990 27,595 11,381(2)
Net income................................... 3,700 8,393 16,635 6,726(2)
1999:
Revenues..................................... $134,789 $149,736 $195,682 $207,236
Income before income taxes................... 11,912 13,823 27,709 36,153
Net income................................... 7,103 8,264 16,699 22,377
------------------------
(1) Certain revenues for the period ended June 30, 2000 have been reclassified
to conform to the presentation for the quarter and year ended December 31,
2000. As a result, revenues differ from the amounts reported in the
Company's Quarterly Report on Form 10-Q for June 30, 2000. These
reclassifications do not impact net income.
(2) Income before income taxes and net income for the fourth quarter of 2000
reflect the impact of non-recurring charges to income totaling
$40.3 million related to the impairment of goodwill and the value of certain
of the Company's e-commerce investments. Without the effects of these non-
recurring charges, income before income taxes and net income would have been
$51.7 million and $30.9 million, respectively, for the quarter ended
December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources requirements include the
funding of working capital needs, primarily accounts receivable from its
clients; the funding of capital investments, including the acquisition of or
investments in other real estate service companies; the repurchase of its shares
if authorized by the Board of Directors; expenditures for real estate held for
sale and payments on notes payable associated with 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 $41.0 million for the year
ended December 31, 2000, compared to net cash used by operating activities of
$1.7 million in 1999. This change is primarily due to an increase in cash
provided by development activity (real estate held for sale, net of related
borrowings) to $0.3 million in 2000 compared to net cash used by development
activity of $52.2 million
30
in 1999, partially offset by an increase of $8.1 million in cash used for
development-related pursuits and deposits. This change is further offset by an
increase in income taxes paid from $21.4 million in 1999 to $33.6 million in
2000. In addition, cash generated from operations increased from $42.9 million
in 1999 to $52.2 million in 2000. Net cash used by operating activities totaled
$1.7 million for the year ended December 31, 1999, compared to net cash provided
by operating activities of $7.7 million in 1998. This change is primarily due to
$52.2 million used for development activity (real estate held for sale, net of
related borrowings) in 1999 compared to $7.7 million used in 1998. The increased
uses of cash were partially offset by increased cash generated from the
Company's services business--$56.4 million in 1999 compared to $30.4 million in
1998. In addition, the Company used only $5.9 million in 1999 for profit sharing
compared to $15.0 million in 1998.
Net cash used by investing activities totaled $46.1 million for the year
ended December 31, 2000, compared to $20.1 million for 1999. This change is
primarily due to an increase in cash used for investments in unconsolidated
subsidiaries, net of distributions, of $26.3 million in 2000 compared to cash
provided by investments in unconsolidated subsidiaries, net of contributions, of
$8.8 million in 1999. This was offset by a decrease in expenditures related to
acquisitions of other real estate service companies to $8.0 million in 2000 from
$14.7 million in 1999. The majority of the net increase in cash used for
investments in unconsolidated subsidiaries relates to the Company's investment
in Savills of $21.3 million in the third quarter of 2000, offset by decreased
distributions in 2000 compared to 1999, primarily because 1999 included a
$12.9 million distribution relating to a single investment. Expenditures related
to acquisitions of other real estate service companies decreased because 1999
includes the Phoenix Acquisition while 2000 only includes payments for the
shares of Trammell Crow Savills and earnouts paid relating to acquisitions made
in 1998 and 1999. Net cash used by investing activities totaled $20.1 million
for the year ended December 31, 1999, compared to $94.3 million for 1998. This
change was primarily due to reduced acquisition activity in 1999.
Net cash provided by financing activities totaled $13.2 million for the year
ended December 31, 2000, compared to net cash used in financing activities of
$18.6 million in 1999. This change is primarily due to borrowings, net of
payments, in 2000 of $11.2 million under the Credit Facility (described below),
compared to net payments of $21.9 million in 1999. The additional borrowings in
2000 were primarily used, along with available cash, for the Company's
investments in Savills, Trammell Crow Savills and e-commerce-related companies.
The Company made distributions to minority interest holders, net of
contributions, of $0.7 million in 2000 as compared to contributions, net of
distributions, of $5.5 million in 1999. The Company also received $3.1 million
in 2000 from the exercise of stock options and issuance of common stock,
compared to net cash used in 1999 for repurchase of common stock of
$9.0 million, offset by proceeds from the exercise of stock options and issuance
of common stock of $6.1 million. Net cash used by financing activities totaled
$18.6 million for the year ended December 31, 1999, compared to net cash
provided by financing activities of $77.8 million for 1998. This change is
primarily attributable to repayment, net of borrowings, in 1999 of
$20.0 million on the Company's revolving line of credit using available cash,
compared to net borrowings of $82.1 million in 1998 primarily to finance
acquisitions of real estate service companies. In addition, the Company received
contributions from minority interest holders, net of distributions, of
$5.4 million in 1999 as compared to distributions, net of contributions, of
$11.4 million in 1998. The Company also repurchased common stock of
$9.0 million in 1999.
In December 2000, the Company obtained a $150 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
prior revolving line of credit. Under the terms of the Credit Facility, the
Company can obtain loans, which are Base Rate Loans, or Eurodollar Rate Loans.
Base Rate Loans bear interest at a base rate plus a margin which ranges from 0%
to 0.50% 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
31
Loans bear interest at the Eurocurrency rate plus a margin, which ranges from
1.625% to 2.25%, depending upon the Company's leverage ratio. The Credit
Facility contains various covenants such as the maintenance of minimum equity,
liquidity, revenues, interest coverage ratios and fixed charge ratios. The
Credit Facility also includes limitations on payment of cash dividends or other
distributions of assets, restrictions on recourse indebtedness, restrictions on
liens and certain restrictions on investments and acquisitions that can be made
by the Company. 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 million commitment. The Credit Facility is guaranteed
by certain significant subsidiaries of the Company and is secured by a pledge of
a stock of such significant subsidiaries and a pledge of certain intercompany
indebtedness. At December 31, 2000, the Company had outstanding borrowings of
$75.1 million and unused borrowing capacity (taking into account letters of
credit outstanding of $12.3 million) under the Credit Facility of approximately
$62.6 million. At March 15, 2001, the Company had net additional borrowings of
$13.0 million and had a remaining unpaid balance of $88.1 million. The Credit
Facility requires the Company to enter into one or more interest rate swap
agreements for the Company's indebtedness in excess of $50 million ensuring the
net interest is fixed, capped or hedged. In March 2000, the Company renewed an
existing interest rate swap agreement for a twelve-month period ending
March 24, 2001 with a fixed interest pay rate of 6.65% and a notional amount of
$150,000 through June 26, 2000, a notional amount of $125,000 through
September 25, 2000 and a notional amount of $100,000 through March 24, 2001. The
weighted average receive rate for the swap agreement was 6.40% for the period
ended December 31, 2000. The Company's participation in derivative transactions
has been limited to hedging purposes, and derivative instruments are not held
for trading purposes. 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 August 1997, Trammell Crow BTS, Inc., a wholly-owned subsidiary of the
Company ("TC BTS"), obtained a $20.0 million credit facility (the "Retail BTS
Facility") from KeyBank National Association ("KeyBank"). In September 1999, the
Retail BTS Facility was modified to increase the credit facility to
$30.0 million. Under the modified terms of the Retail BTS Facility, until
July 31, 2001, subsidiaries of TC BTS can obtain loans at one of a LIBOR-based
interest rate, KeyBank's prime rate or a combination of the two interest rates.
The proceeds of any such loans must be used for the construction of retail
facilities. On December 31, 2000, the outstanding balance owed under the Retail
BTS Facility was $3.2 million. The Retail BTS facility is secured by a first
mortgage on and assignment of all rents from the constructed facilities. In
addition, TC BTS must guarantee all obligations of its subsidiaries for loans
made pursuant to the Retail BTS Facility. The Company must also guarantee the
repayment obligations under the Retail BTS Facility with respect to such loans
and must guarantee the timely lien-free completion of each retail facility to
which such loans relate. As guarantor, the Company is subject to various
covenants such as maintenance of net worth and liquidity and key financial data.
The Retail BTS Facility also contains various covenants, such as the maintenance
of a minimum net worth and liquidity of TC BTS and prohibition on other TC BTS
guarantees of build-to-suit retail projects.
In December 1998, TCC NNN Trading, Inc. ("TCC Triple Net") obtained a
two-year $20.0 million revolving line of credit ("Triple Net Facility") from
KeyBank. Under the terms of the Triple Net Facility, TCC Triple Net could obtain
loans at a LIBOR-based interest rate or prime rate, the proceeds of which must
have been used for the acquisition of retail properties subject to "triple net"
leases. The Triple Net Facility expired in December 2000; therefore, no new
loans could be made under the Triple Net Facility. On December 31, 2000, the
outstanding balance under the Triple Net Facility was $4.4 million, and the
loans mature in September 2001. The Triple Net Facility is nonrecourse to TCC
Triple Net and is secured by a first mortgage and assignment of all rents from
the acquired properties. The Company guaranteed from 10% to 40% of each such
loan depending on the credit rating of the
32
tenant occupying the acquired property. The Company's guarantee percentage will
be reduced to 10% for any loan upon the receipt of a qualifying purchase
agreement relating to the property underlying such loan. The maximum amount of
any advance related to a single property was either (i) 90% of the property's
acquisition costs and certain related costs (if the property's tenant has a debt
rating of BBB or higher), or (ii) 80% of the property's acquisition costs and
certain related costs (if the property's tenant has a debt rating of BB+ or
lower). The Triple Net Facility also contains various covenants, such as the
maintenance of minimum equity and liquidity of the Company and covenants
relating to certain key financial data of the Company.
The Company does not anticipate paying any dividends in the foreseeable
future. The Company believes that funds generated from operations, together with
existing cash and available credit under the Credit Facility and loans secured
by underlying real estate will be sufficient to finance its current operations,
planned capital expenditure requirements, payment obligations for development
purchases, acquisitions of service companies and internal growth for the
foreseeable future. The Company's need, if any, to raise additional funds to
meet its working capital and capital requirements will depend upon numerous
factors, including the success and pace of the 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.
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 "believes" "anticipates," "expects", "projects", "targets", "forecasts"
and words of similar import, are forward-looking statements within the meaning
of the federal securities laws. The Company has based these forward-looking
statements on its current expectations about future events and financial trends
that the Company believes may affect its financial condition, results of
operations, business strategy and financial needs. These forward-looking
statements are subject to risks, uncertainties, and assumptions, including,
among other things:
- Timing of individual transactions,
- The Company's ability to efficiently implement its internal
reorganization,
- The Company's ability to identify and implement cost containment measures
(including those undertaken in connection with the announced internal
reorganization) and achieve economies of scale,
- The Company's ability to implement and manage effectively its e-commerce
initiatives,
- The Company's ability to compete effectively in the international arena,
- The Company's ability to attract new corporate and institutional
customers,
- The Company's ability to manage fluctuations in net earnings and cash flow
which could result from its participation as a principal in real estate
investments,
- The Company's ability to continue to pursue an aggressive growth strategy,
- The Company's ability to compete in highly competitive international,
national and local business lines, and
33
- The Company's ability to attract and retain qualified personnel in all
areas of its business (particularly management).
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this report might not occur. 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
availability of capital for investment in real estate) and the effect of
government regulation on the conduct of the Company's business. Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such statements or publicly announce any updates or revisions to any of the
forward-looking statements contained herein to reflect any change in the
Company's expectation with regard thereto or any change in events, conditions,
circumstances or assumptions underlying such statements.
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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." The Credit Facility and the majority of the loans secured by real
estate bear interest at variable rates and are subject to fluctuations in the
market. However, due to its purchase of an interest rate swap agreement, which
the Company uses to hedge a portion, but not all, of its exposure to
fluctuations in interest rate, the effects of interest rate changes are limited.
If an increase or decrease in market interest rates of 100 basis points were
to have occurred at December 31, 2000, the Company's total interest costs for
2001 would increase or decrease, and net income before tax would decrease or
increase accordingly, by approximately $1.2 million, after considering the
effect of its interest rate swap agreement. The Company's sensitivity analysis
assumes that the interest rate swap agreement, which expires March 24, 2001, is
renewed for the same notional amount of $100 million and is based on borrowings
outstanding as of December 31, 2000. If the market interest rates for variable
rate debt had been 100 basis points higher or lower in 2000, the Company's total
interest costs would have increased or decreased accordingly, and net income
before tax would have decreased or increased accordingly, by approximately
$1.0 million, after considering the effects of the interest rate swap agreements
in effect during 2000. Interest costs include both interest that is expensed and
interest that is capitalized as part of the cost of real estate held for sale. A
portion of the interest relating to the Company's real estate debt
($148.1 million at December 31, 2000) 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 Europe, Asia and Australia. At December 31, 2000, a uniform 5% 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 a decrease or
increase accordingly in net income before tax of $64,000 for the year ending
December 31, 2001. If, during the year ended December 31, 2000, a uniform 5%
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 net income before tax of
$32,000. This calculation assumes that each exchange rate would change in the
same direction relative to the U.S. dollar and that the Company's net income
before tax from foreign operations in 2001 is twice the amount that it was in
2000. The Company's sensitivity analysis of the effects of changes in foreign
currency exchange rates does not factor in a potential change in the level of
foreign operations or local currency prices.
34
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.
35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the headings "PROPOSAL ONE--ELECTION OF
CLASS I DIRECTORS," "DIRECTORS," "EXECUTIVE OFFICERS" and "SECTION 16 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 2001 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 2001 Annual
Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 2001 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 2001 Annual Meeting of
Stockholders is incorporated herein by reference.
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(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.
(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:
2.1(1) Agreement and Plan of Merger dated August 22, 1997, among
the Company, the Predecessor Company, TCC Merger Sub, Inc.
and certain other parties thereto
2.2(1) First Amendment to Agreement and Plan of Merger dated as of
November 20, 1997
3.1(1) Certificate of Incorporation of the Company
3.2(1) Bylaws of the Company
3.2.1(10) First Amendment to Bylaws of the Company
4.1(1) Form of certificate for shares of Common Stock of the
Company
10.1 Amended and Restated Credit Agreement dated December 18,
2000 among the Company and Bank of America, N.A.,
10.2(1) Form of License Agreement among the Company and CFH
10.3 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(1) Amendment No. 1 to Long Term Incentive Plan
10.6(1) Company's 1995 Profit Sharing Plan
10.7(1) Company's Employee Stock Purchase Plan
10.7.1(1) First Amendment to the Company's Employee Stock Purchase
Plan
10.7.2 Second 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(6) Employment Agreement for Henry J. Faison dated July 2, 1998
10.10(7) Master Construction Loan Agreement dated August 4, 1997
between Trammell Crow BTS, Inc. and KeyBank National
Association.
10.10.1(7) First Modification to Master Construction Loan Agreement
dated August 4, 1997 between Trammell Crow BTS, Inc. and
KeyBank National Association--September 15, 1997
10.10.2(7) Second Modification to Master Construction Loan Agreement
dated August 4, 1997 between Trammell Crow BTS, Inc. and
KeyBank National Association--May 12, 1998
10.10.3(7) Third Modification to Master Construction Loan Agreement
dated August 4, 1997 between Trammell Crow BTS, Inc. and
KeyBank National Association--June 9, 1998
37
10.10.4(7) Fourth Modification to Master Construction Loan Agreement
dated August 4, 1997 between Trammell Crow BTS, Inc. and
KeyBank National Association--December 30, 1998
10.10.5(8) Fifth Modification to Master Construction Loan Agreement
dated August 4, 1997 between Trammell Crow BTS, Inc. and
KeyBank National Association--April 23, 1999.
10.10.6(8) Sixth Modification to Master Construction Loan Agreement
dated August 4, 1997 between Trammell Crow BTS, Inc. and
KeyBank National Association--May 1, 1999.
10.10.7(9) Seventh Modification to Master Construction Loan Agreement
dated August 4, 1997 between Trammell Crow BTS, Inc. and
KeyBank National Association--September 30, 1999.
10.10.8(10) Eighth Modification to Master Construction Loan Agreement
dated August 4, 1997 between Trammell Crow BTS, Inc. and
KeyBank National Association--May 10, 2000.
10.10.9(10) Ninth Modification to Master Construction Loan Agreement
dated August 4, 1997 between Trammell Crow BTS, Inc. and
KeyBank National Association--June 27, 2000.
10.11(7) Master Loan Agreement dated December 22, 1998 between TCC
NNN Trading, Inc. and KeyBank National Association
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney for J. McDonald Williams
24.2 Power of Attorney for William F. Concannon
24.3 Power of Attorney for James R. Erwin
24.4 Power of Attorney for Jeffrey M. Heller
24.5 Power of Attorney for Rowland T. Moriarity
24.6 Power of Attorney for Robert E. Sulentic
24.7 Power of Attorney for George L. Lippe
24.8 Power of Attorney for Henry J. Faison
24.9 Power of Attorney for William P. Leiser
24.10 Power of Attorney for Harlan R. Crow
24.11 Power of Attorney for Derek R. McClain
24.12 Power of Attorney for H. Pryor Blackwell
------------------------
(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 10-Q filed with
the Securities and Exchange Commission on May 15, 1998 and
incorporated herein by reference.
38
(3) 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.
(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
April 21, 1998 and incorporated herein by reference.
(5) 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.
(6) Previously filed as an exhibit to the Company's Form 10-Q filed with
the Securities and Exchange Commission on November 16, 1998 and
incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Registration
Statement on Form S-3 (File Number 333-72925) filed with the
Securities and Exchange Commission on March 9, 1999 and incorporated
herein by reference.
(8) Previously filed as an exhibit to the Company's Form 10-Q filed with
the Securities and Exchange Commission on August 16, 1999 and
incorporated herein by reference.
(9) Previously filed as an exhibit to the Company's Form 10-K filed with
the Securities and Exchange Commission on March 29, 2000 and
incorporated herein by reference.
(10) 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.
(b) Reports on Form 8-K
During the last quarter of the Company's fiscal year ended December 31, 2000,
no reports on Form 8-K were filed with the Securities and Exchange
Commission by the Company.
(c) The exhibits required by Item 601 of Regulation S-K are filed as part of
this Report.
(d) The required financial statements and financial schedule are filed as part
of this Report.
39
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRAMMELL CROW COMPANY
By: /s/ ROBERT E. SULENTIC
-----------------------------------------
Robert E. Sulentic
Date: March 29, 2001 PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
President, Chief Executive
/s/ ROBERT E. SULENTIC Officer and Director
------------------------------------------- (Principal Executive March 29, 2001
Robert E. Sulentic Officer)
*
------------------------------------------- Chief Financial Officer March 29, 2001
Derek R. McClain
* Executive Vice President
------------------------------------------- (Principal Accounting March 29, 2001
William P. Leiser Officer)
*
------------------------------------------- President, Development and March 29, 2001
H. Pryor Blackwell Investment, and Director
*
------------------------------------------- Director March 29, 2001
George L. Lippe
*
------------------------------------------- Director March 29, 2001
Harlan R. Crow
*
------------------------------------------- Chairman of the Board and March 29, 2001
J. McDonald Williams Director
*
------------------------------------------- President, Global Services, March 29, 2001
William F. Concannon and Director
*
------------------------------------------- Director March 29, 2001
James R. Erwin
*
------------------------------------------- Director March 29, 2001
Jeffrey M. Heller
*
------------------------------------------- Director March 29, 2001
Rowland T. Moriarty
*
------------------------------------------- Executive Vice President and March 29, 2001
Henry J. Faison Director
Robert Sulentic, by signing his name hereto, does hereby sign this Annual
Report on Form 10-K on behalf of each of the above-named directors and officers
of the Company on the date indicated below, pursuant to powers of attorney
executed by each of such directors and officers and contemporaneously filed
herewith with the Commission.
*By: /s/ ROBERT E. SULENTIC
--------------------------------------
Robert E. Sulentic March 29, 2001
ATTORNEY-IN-FACT
40
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(A)(1) AND (2), (C) AND (D)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 2000
TRAMMELL CROW COMPANY AND SUBSIDIARIES
DALLAS, TEXAS
F-1
FORM 10-K-ITEM 14(A)(1) AND (2)
TRAMMELL CROW COMPANY AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of Trammell Crow Company and
Subsidiaries for the year ended December 31, 2000, are included in Item 8:
Report of Independent Auditors.............................. F-3
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... F-4
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998.......................... F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2000,
1999 and 1998............................................. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and
1998...................................................... F-7
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 2000, 1999 and 1998.............. F-8
Notes to Consolidated Financial Statements.................. F-9
The following consolidated financial statement schedule of
Trammell Crow Company and Subsidiaries is included in
Item 14(d):
Schedule III--Real Estate Investments and Accumulated
Depreciation.............................................. F-35
Note to Schedule III--Real Estate Investments and
Accumulated Depreciation.................................. F-36
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-2
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Trammell Crow Company
We have audited the accompanying consolidated balance sheets of Trammell
Crow Company and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, cash flows and
comprehensive income for each of the three years in the period ended
December 31, 2000. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Trammell Crow Company and Subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
February 16, 2001
F-3
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
--------------------------
2000 1999
----------- ------------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
ASSETS
Current assets
Cash and cash equivalents................................. $ 55,637 $ 47,528
Accounts receivable, net of allowance for doubtful
accounts of $4,778 in 2000 and $3,053 in 1999........... 151,069 122,626
Receivables from affiliates............................... 4,306 3,333
Notes and other receivables............................... 22,072 8,510
Deferred income taxes..................................... 2,219 1,585
Real estate held for sale................................. 220,021 219,390
Other current assets...................................... 28,345 16,047
--------- ----------
Total current assets.................................... 483,669 419,019
Furniture and equipment, net.............................. 35,200 23,116
Deferred income taxes..................................... 13,088 7,086
Investments in unconsolidated subsidiaries................ 55,603 37,291
Goodwill, net............................................. 100,440 119,107
Other assets.............................................. 38,434 32,391
--------- ----------
$ 726,434 $ 638,010
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 44,114 $ 47,819
Accrued expenses.......................................... 101,157 93,273
Payables to affiliates.................................... 1,891 730
Income taxes payable...................................... 3,592 6,935
Current portion of long-term debt......................... 1,377 569
Current portion of capital lease obligations.............. 5,219 874
Notes payable on real estate held for sale................ 148,098 134,827
Other current liabilities................................. 6,808 2,757
--------- ----------
Total current liabilities............................... 312,256 287,784
Long-term debt, less current portion........................ 75,105 62,256
Capital lease obligations, less current portion............. 6,541 385
Other liabilities........................................... 572 1,780
--------- ----------
Total liabilities....................................... 394,474 352,205
Minority interest........................................... 41,001 34,153
Stockholders' equity
Preferred stock; $0.01 par value; 30,000,000 shares
authorized; none issued or outstanding.................. -- --
Common stock; $0.01 par value; 100,000,000 shares
authorized; 35,850,308 shares issued and 35,349,572
shares outstanding in 2000, and 35,581,620 shares issued
and 34,779,895 shares outstanding in 1999............... 358 356
Paid-in capital........................................... 176,374 174,645
Retained earnings......................................... 123,207 88,160
Accumulated other comprehensive loss...................... (366) --
Less: Treasury stock...................................... (5,841) (9,363)
Stockholder loans.................................... -- (98)
Unearned stock compensation, net..................... (2,773) (2,048)
--------- ----------
Total stockholders' equity.................................. 290,959 251,652
--------- ----------
$ 726,434 $ 638,010
========= ==========
See accompanying notes.
F-4
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31
------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
REVENUES
CORPORATE:
Facilities management..................................... $ 139,435 $ 99,008 $ 71,635
Corporate advisory services............................... 142,850 104,058 69,878
Project management services............................... 63,363 32,731 16,093
Income (loss) from investments in unconsolidated
subsidiaries............................................ (52) -- --
Gain on disposition of real estate........................ 5,125 3,072 2,247
Other..................................................... 233 286 260
---------- ---------- ----------
350,954 239,155 160,113
INSTITUTIONAL:
Property management....................................... 164,521 155,425 127,952
Brokerage services........................................ 153,449 144,804 107,895
Development services...................................... 97,444 92,385 70,279
Income from investments in unconsolidated subsidiaries.... 7,117 23,338 18,438
Gain on disposition of real estate........................ 36,679 30,338 29,411
Other..................................................... 1,505 1,998 3,435
---------- ---------- ----------
460,715 448,288 357,410
---------- ---------- ----------
811,669 687,443 517,523
COSTS AND EXPENSES
Salaries, wages and benefits.............................. 434,379 356,849 269,780
Commissions............................................... 119,702 97,838 67,508
General and administrative................................ 112,184 97,530 78,344
Depreciation.............................................. 12,544 8,431 5,211
Amortization.............................................. 11,578 9,112 5,198
Interest.................................................. 16,947 9,507 10,277
Minority interest......................................... 4,853 18,579 5,080
Writedowns due to impairment of goodwill and
investments............................................. 40,347 -- --
---------- ---------- ----------
752,534 597,846 441,398
---------- ---------- ----------
Income before income taxes.................................. 59,135 89,597 76,125
Income tax expense.......................................... 23,681 35,154 29,674
---------- ---------- ----------
Net income.................................................. $ 35,454 $ 54,443 $ 46,451
========== ========== ==========
Earnings per share:
Basic..................................................... $ 1.02 $ 1.56 $ 1.36
Diluted................................................... $ 0.98 $ 1.50 $ 1.28
Weighted average common shares outstanding:
Basic..................................................... 34,851,738 34,991,707 34,059,155
Diluted................................................... 36,147,744 36,411,063 36,216,352
See accompanying notes.
F-5
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED
COMMON SHARES COMMON RETAINED OTHER
---------------------- STOCK PAR PAID-IN EARNINGS COMPREHENSIVE TREASURY STOCKHOLDER
ISSUED TREASURY VALUE CAPITAL (DEFICIT) LOSS STOCK(1) LOANS
---------- --------- --------- -------- --------- -------------- -------- -----------
Balance at January 1, 1998.... 33,892,038 -- $339 $150,647 $(12,734) $ -- $ -- $(1,180)
Net income.................. -- -- -- -- 46,451 -- -- --
Issuance of restricted
stock..................... 76,950 -- 1 2,368 -- -- -- --
Forfeiture of restricted
stock..................... -- 1,587 -- (46) -- -- -- --
Amortization of unearned
stock compensation........ -- -- -- -- -- -- -- --
Issuance of common stock.... 508,837 -- 5 7,764 -- -- -- --
Collection of stockholder
loans..................... -- -- -- -- -- -- -- 276
---------- --------- ---- -------- -------- ----- ------- -------
Balance at December 31,
1998........................ 34,477,825 1,587 345 160,733 33,717 -- -- (904)
Net income.................. -- -- -- -- 54,443 -- -- --
Issuance of restricted
stock..................... 128,347 (3,174) 1 2,226 -- -- -- --
Forfeiture of restricted
stock..................... -- 22,412 -- (162) -- -- (315) --
Amortization of unearned
stock compensation........ -- -- -- -- -- -- -- --
Issuance of common stock.... 975,448 -- 10 11,848 -- -- -- --
Stock repurchase............ -- 780,900 -- -- -- -- (9,048) --
Collection of stockholder
loans..................... -- -- -- -- -- -- -- 806
---------- --------- ---- -------- -------- ----- ------- -------
Balance at December 31,
1999........................ 35,581,620 801,725 356 174,645 88,160 -- (9,363) (98)
Net income.................. -- -- -- -- 35,454 -- -- --
Issuance of restricted
stock..................... -- (219,053) -- 11 (49) -- 2,555 --
Forfeiture of restricted
stock..................... -- 10,261 -- (110) -- -- (123) --
Amortization of unearned
stock compensation........ -- -- -- -- -- -- -- --
Issuance of common stock.... 268,688 (141,997) 2 1,828 (358) -- 1,656 --
Stock repurchase............ -- 49,800 -- -- -- -- (566) --
Foreign currency translation
adjustment, net of tax.... -- -- -- -- -- (366) -- --
Collection of stockholder
loans..................... -- -- -- -- -- -- -- 98
---------- --------- ---- -------- -------- ----- ------- -------
Balance at December 31,
2000........................ 35,850,308 500,736 $358 $176,374 $123,207 $(366) $(5,841) $ --
========== ========= ==== ======== ======== ===== ======= =======
UNEARNED
STOCK
COMPENSATION TOTAL
------------- --------
Balance at January 1, 1998.... $ -- $137,072
Net income.................. -- 46,451
Issuance of restricted
stock..................... (2,369) --
Forfeiture of restricted
stock..................... 46 --
Amortization of unearned
stock compensation........ 444 444
Issuance of common stock.... -- 7,769
Collection of stockholder
loans..................... -- 276
------- --------
Balance at December 31,
1998........................ (1,879) 192,012
Net income.................. -- 54,443
Issuance of restricted
stock..................... (2,227) --
Forfeiture of restricted
stock..................... 272 (205)
Amortization of unearned
stock compensation........ 1,786 1,786
Issuance of common stock.... -- 11,858
Stock repurchase............ -- (9,048)
Collection of stockholder
loans..................... -- 806
------- --------
Balance at December 31,
1999........................ (2,048) 251,652
Net income.................. -- 35,454
Issuance of restricted
stock..................... (2,517) --
Forfeiture of restricted
stock..................... 84 (149)
Amortization of unearned
stock compensation........ 1,708 1,708
Issuance of common stock.... -- 3,128
Stock repurchase............ -- (566)
Foreign currency translation
adjustment, net of tax.... -- (366)
Collection of stockholder
loans..................... -- 98
------- --------
Balance at December 31,
2000........................ $(2,773) $290,959
======= ========
----------------------------------
(1) Treasury stock at December 31, 1998 rounds to less than $1.
See accompanying notes.
F-6
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
--------------------------------
2000 1999 1998
--------- --------- --------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income.................................................. $ 35,454 $ 54,443 $ 46,451
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation.............................................. 12,544 8,431 5,211
Amortization.............................................. 11,578 9,112 5,198
Amortization of employment contracts and unearned
compensation............................................ 4,279 3,297 1,209
Expense for stock issued to vendors....................... -- 172 --
Bad debt expense.......................................... 3,700 2,708 1,685
Writedowns on impairment of goodwill and investments...... 40,347 -- --
Minority interest......................................... 4,853 18,579 5,080
Deferred income tax provision (benefit)................... (6,412) 4,643 5,127
Income from investments in unconsolidated subsidiaries.... (7,065) (23,338) (18,438)
Changes in operating assets and liabilities, net of
acquisitions
Accounts receivable..................................... (32,143) (37,474) (41,656)
Receivables from affiliates............................. (973) (458) (1,949)
Notes receivable and other assets....................... (35,207) (19,183) (20,249)
Real estate held for sale............................... (57,142) (145,159) 12,550
Notes payable on real estate held for sale.............. 57,418 92,915 (20,279)
Accounts payable and accrued expenses................... 9,109 20,136 35,632
Payables to affiliates.................................. 1,161 (396) (2,907)
Income taxes payable.................................... (3,343) 7,711 4,163
Deferred compensation................................... -- -- (8,391)
Other liabilities....................................... 2,843 2,186 (760)
--------- --------- --------
Net cash provided by (used in) operating activities......... 41,001 (1,675) 7,677
INVESTING ACTIVITIES
Expenditures for furniture and equipment.................... (11,700) (14,257) (13,483)
Acquisitions of real estate service companies............... (8,027) (14,708) (93,717)
Investments in unconsolidated subsidiaries.................. (38,032) (12,299) (8,508)
Distributions from unconsolidated subsidiaries.............. 11,663 21,120 21,419
--------- --------- --------
Net cash used in investing activities....................... (46,096) (20,144) (94,289)
FINANCING ACTIVITIES
Principal payments on long-term debt and capital lease
obligations............................................... (201,576) (57,290) (22,985)
Proceeds from long-term debt................................ 212,806 35,379 104,156
Contributions from minority interest........................ 8,319 19,134 201
Distributions to minority interest.......................... (9,005) (13,676) (11,606)
Purchase of common stock.................................... (566) (9,048) --
Proceeds from exercise of stock options..................... 462 1,477 1,762
Proceeds from issuance of common stock...................... 2,666 4,619 6,007
Collections of stockholder loans............................ 98 806 276
--------- --------- --------
Net cash provided by (used in) financing activities......... 13,204 (18,599) 77,811
--------- --------- --------
Net increase (decrease) in cash and cash equivalents........ 8,109 (40,418) (8,801)
Cash and cash equivalents, beginning of year................ 47,528 87,946 96,747
--------- --------- --------
Cash and cash equivalents, end of year...................... $ 55,637 $ 47,528 $ 87,946
========= ========= ========
See accompanying notes.
F-7
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Net income.................................................. $35,454 $54,443 $46,451
Other comprehensive loss:
Foreign currency translation adjustments, net of tax of
$224.................................................... (366) -- --
------- ------- -------
Comprehensive income........................................ $35,088 $54,443 $46,451
======= ======= =======
See accompanying notes.
F-8
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Trammell Crow Company, a Delaware corporation (the "Company"), provides
commercial real estate services primarily in the United States. The Company
realigned certain elements of its business effective January 1, 2000.
Consequently, the three reportable segments in 1999 and 1998, Outsourcing,
Retail and Local Business Units, were realigned into two segments, Corporate and
Institutional, in 2000 to respond to the ever-growing demands of the Company's
customers for fully bundled integrated services. The Company delivers three core
services--management services, transaction services and development and project
management services--to both corporate and institutional customers. In the
second quarter of 2000, as the Company increased its activities in and assigned
more dedicated resources to e-commerce, the Company began reporting these
activities, including related overhead, in a third segment.
Through its Corporate segment, the Company provides services to users of
space who are typically the primary occupants of commercial properties and
include multinational corporations, hospitals and universities. As part of the
realignment, the Company consolidated all pieces of its business focused on
corporate customers, including major retailers. Thus, tenant representation and
build-to-suit services for corporate and retail customers are part of the
Company's integrated corporate services offering. The management services
provided to corporate customers consist primarily of facilities management,
which entails providing comprehensive day-to-day occupancy-related services,
principally to large corporations that occupy commercial facilities in multiple
locations. These services include administration and day-to-day maintenance and
repair of client-occupied facilities. Transaction services provided to corporate
customers include corporate advisory services such as portfolio management and
tenant representation. Project management services provided to corporate
customers include strategic functions such as space planning and relocation
coordination, build-to-suit development and financial services.
Within its Institutional segment, the Company provides services to investors
and landlords who typically are not the primary occupants of the commercial
properties with respect to which services are performed. Management services
provided to institutional customers include property management services
relating to all aspects of building operations, tenant relations and oversight
of building improvement processes. Transaction services provided to
institutional customers include brokerage services such as project leasing and
investment sales whereby the Company advises buyers, sellers and landlords in
connection with the sale and leasing of office, industrial and retail space and
land. Development services provided to institutional customers include
comprehensive project development and construction services and the acquisition
and disposition 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 and tenant finish coordination, project close-out and user move
coordination, general contracting and project finance advisory services.
The Company's activities related to e-commerce, including related overhead,
are captured in the E-Commerce segment. The E-Commerce segment also includes the
Company's investments in e-commerce related companies. One of these companies
offers a standardized information distribution
F-9
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
network via an Internet listing site for properties for sale or lease. The
Company also invested in a company that offers on-line procurement of products
and services geared towards the management of real estate properties. The
E-Commerce segment does not include investments in ongoing technology
advancements internal to the Company's other two business segments.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes result from temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
federal income tax purposes, and are measured using the enacted tax rates and
laws that will be in effect when the differences reverse.
USE OF ESTIMATES
The preparation of the financial statements in accordance with accounting
principles generally accepted in the United States ("GAAP") requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries, and other subsidiaries over which
the Company has control. Intercompany accounts and transactions have been
eliminated. The Company's investments in subsidiaries (including subsidiaries
where the Company has less than 20% ownership) in which it has the ability to
exercise significant influence over operating and financial policies, but does
not control, are accounted for on the equity method. Accordingly, the Company's
share of the earnings or losses of these equity basis subsidiaries is included
in consolidated net income. Investments in other subsidiaries are carried at
cost. These unconsolidated subsidiaries primarily own real estate development
projects.
REVENUE RECOGNITION
The Company recognizes fees from property management and facilities
management over the terms of the respective management contracts. Most of the
property management contracts are cancelable at will or with 30 days' notice.
The terms of the facilities management contracts generally range from three to
five years. Also, the Company earns incentive fees for property management and
facilities management services based on various quantitative and/or qualitative
criteria specified in the management agreement. These fees are recognized when
quantitative criteria have been met or, for those incentive fees based on
qualitative criteria, upon approval of the fee by the customer. Brokerage
service revenue and the related expense relating to leasing services and tenant
representation are generally recognized half upon the execution of a lease
contract and the remainder upon tenant occupancy. Sales brokerage revenue is
recognized upon closing. Development services and project management services
include fees from development and construction management projects and net
construction revenues, which are gross construction revenues net of subcontract
costs. For projects
F-10
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
exceeding three months, fees are recognized using the percentage-of completion
method based on costs incurred as a percentage of total expected costs. For
contracts under three months, fees are recognized upon completion of the
contract. Gross construction services revenues totaled $154,209, $131,953 and
$86,430 and subcontract costs totaled $130,024, $108,343 and $72,045 in 2000,
1999 and 1998, respectively. The Company also earns incentive development fees
by reaching specified leasing or budget targets, as defined in the development
services agreement. The Company recognizes such fees when the specified target
is attained.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term, highly liquid
investments with original maturities of 90 days or less when purchased.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and include assets under capital
leases. Depreciation is computed using the straight-line method over estimated
useful lives, which range from three to ten years, and includes amortization of
assets recorded under capital leases.
EARNINGS PER SHARE
The weighted-average common shares outstanding used to calculate diluted
earnings per share for 2000, 1999 and 1998 include the dilutive effect of
options to purchase 1,296,006, 1,419,356 and 2,157,197 shares of common stock,
respectively.
CONCENTRATION OF CREDIT RISK
The Company provides services to owners and users of real estate assets
primarily in the United States. The Company performs credit evaluations of its
customers and generally does not require collateral. The risk associated with
this concentration is limited because of the large number of customers and their
geographic dispersion.
LONG-LIVED ASSETS
Long-lived assets are evaluated when indicators of impairment are present
and provisions for possible losses are recorded when undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount.
GOODWILL
Goodwill reflects the excess of purchase price over the fair value of net
assets purchased. Goodwill is amortized on a straight-line basis over 20 to
30 years. Accumulated amortization of goodwill was $8,565 and $6,918 at
December 31, 2000 and 1999, respectively. The carrying amount of goodwill is
reviewed if indicators of impairment are present and suggest that goodwill may
be impaired. This review is based on the estimated undiscounted cash flows of
the Company's operations at the lowest
F-11
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
level for which there are identifiable cash flows. If this review indicates
impairment, the goodwill is adjusted to its fair value through a charge to
operations. See Note 13 for discussion of impairment losses recognized in 2000.
No impairment losses were identified in 1999 or 1998.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as
amended, which is required to be adopted in years beginning after June 15, 2000.
The Company has adopted the new Statement effective January 1, 2001. The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of the derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of the
derivative's change in fair value will be immediately recognized in earnings. At
December 31, 2000, based on the Company's derivative position with respect to
its interest rate swap and based on market interest rates at December 31, 2000,
the adoption of the statement did not have a significant impact on earnings or
the financial position of the Company. However, during 2001, the impact on
earnings or the financial position of the Company will depend upon the notional
amounts of the interest rate swap, the Company's debt outstanding at the
applicable reporting date and the relative level of interest rates. In addition,
the Company has options and warrants to acquire stock of other companies. These
options and warrants are considered derivatives, however, based on the financial
position of the companies and the terms of the option and warrant agreements,
the derivatives were determined to have no value at December 31, 2000.
RECLASSIFICATIONS
As described above under "Organization", the Company's three reportable
segments, Outsourcing, Retail and Local Business Units, were realigned into two
segments, Corporate and Institutional, in 2000. Therefore, revenues for the
years ended December 31, 1999 and 1998 have been reclassified to conform to the
presentation for 2000. As a result, revenue items for 1999 and 1998 differ from
the amounts reported in previously filed documents. The reclassifications did
not impact net income.
In addition, in the second quarter of 2000, the Company began reporting a
third reportable segment--E-Commerce. Assets at December 31, 1999 have been
reclassified to conform to the presentation in 2000. As a result, 1999 asset
items differ from amounts reported in previously filed documents. These
reclassifications did not impact total assets.
2. REAL ESTATE HELD FOR SALE
The Company provides build-to-suit services for its customers and also
develops or purchases projects for investment purposes. Therefore, the Company
has ownership of real estate until such projects are sold. Real estate held for
sale is carried at the lower of cost or fair value less selling
F-12
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. REAL ESTATE HELD FOR SALE (CONTINUED)
expenses and is included in both the Corporate and Institutional segments. (see
Note 18). At December 31, real estate held for sale consists of the following:
2000 1999
-------- --------
Land........................................................ $110,986 $101,896
Buildings and improvements.................................. 109,035 117,494
-------- --------
$220,021 $219,390
======== ========
The estimated costs to complete the 54 projects under construction at
December 31, 2000, total $101,001. Projects are generally expected to be sold
within one year of completion. At December 31, 2000, the Company had commitments
for the sale of eleven of the projects. Gains are recognized upon sale of the
project in accordance with Financial Accounting Standards Board Statement
No. 66, ACCOUNTING FOR SALES OF REAL ESTATE.
Rental revenues (which are included in project management services and
development and construction services revenue) and net income relating to real
estate held for sale were $16,825 and $1,024, respectively, in 2000, $7,796 and
$47, respectively, in 1999 and $7,928 and $1,175, respectively, in 1998.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at December 31:
2000 1999
-------- --------
Owned assets, at cost....................................... $ 52,027 $ 43,071
Less: Accumulated depreciation on owned assets.............. (28,799) (21,114)
-------- --------
23,228 21,957
Assets under capital leases................................. 20,706 6,498
Less: Accumulated amortization on assets under capital
leases.................................................... (8,734) (5,339)
-------- --------
11,972 1,159
-------- --------
Furniture and equipment, net................................ $ 35,200 $ 23,116
======== ========
4. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
Investments in unconsolidated subsidiaries consist of the following at
December 31:
2000 1999
-------- --------
Real estate development..................................... $29,443 $28,759
E-Commerce and Other........................................ 26,160 8,532
------- -------
$55,603 $37,291
======= =======
F-13
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES (CONTINUED)
On June 30, 2000, the Company purchased approximately 10.0% of the
outstanding stock of Savills plc ("Savills"), a property services firm
headquartered in the United Kingdom and a leading provider of real estate
services in Europe, Asia-Pacific and Australia, for approximately $21,000. The
investment is classified as an "other" investment in the table above. The
Company accounts for its interest in Savills on the equity method because it has
significant influence over Savills due to the following factors: (i) the Company
has the right to designate two members of Savills' board of directors (which has
significant influence over the management of the company), which is comparable
to the rights of another investor then owning approximately 20%; and (ii) the
Company has strategically significant commercial relationships with Savills,
including through the jointly-owned Trammell Crow Savills. The Company also has
an option giving it the right to purchase from Savills the number of shares
sufficient to increase its share ownership to 20% of the shares then
outstanding. This option is exercisable at any time during the period from
June 30, 2003 through June 30, 2005 at 120% of the market price prevailing at
the time of exercise. The difference between the carrying value of the
investment and the amount of underlying equity in net assets at June 30, 2000,
of $10,443 is being amortized over 20 years. Undistributed earnings from Savills
total $1,050 at December 31, 2000 and are included in retained earnings. The
aggregate market value of the investment at December 31, 2000 is $20,420.
In 2000 and 1999, the Company made various investments in e-commerce related
companies. In December 2000, the Company recorded a $15,000 writedown due to
impairment in the value of certain of these e-commerce investments. The
impairment was triggered by: (i) the current status of the e-commerce segment
(many technology companies have ceased operations, the availability of capital
for e-commerce and internet companies has been dramatically reduced, and the Dow
Jones Internet Index is down approximately 67% from mid-year 2000) and (ii) the
financial status of the companies in which the Company has invested. In
evaluating the extent of the impairment related to its e-commerce investments,
the Company considered the following factors: (i) the 2000 financial results of
the investees versus their original business plans, (ii) the value of the
investees based on current solicitations for additional financing, (iii) the
investees' revised business plans and (iv) the investees' need for and limited
availability of future funding. Based upon the above factors, the Company
determined that, in the aggregate, there was a $15,000 impairment in the value
of its e-commerce investments.
F-14
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES (CONTINUED)
Summarized financial information for unconsolidated subsidiaries accounted
for on the equity method is as follows (excludes information related to
e-commerce investments since they are accounted for on the cost method):
DECEMBER 31
-------------------
2000 1999
-------- --------
REAL ESTATE DEVELOPMENT:
Real estate held for sale................................. $504,629 $215,130
Other assets.............................................. 36,799 33,781
-------- --------
Total assets............................................ $541,428 $248,911
======== ========
Notes payable on real estate held for sale................ $344,868 $130,856
Other liabilities......................................... 33,567 12,698
Equity.................................................... 162,993 105,357
-------- --------
Total liabilities and equity............................ $541,428 $248,911
======== ========
OTHER:
Current assets............................................ $210,623 $ 36,095
Non-current assets........................................ 110,379 2,723
-------- --------
Total assets............................................ $321,002 $ 38,818
======== ========
Current liabilities....................................... $119,187 $ 7,163
Non-current liabilities................................... 63,609 15,845
Minority interest......................................... 2,300 --
Equity.................................................... 135,906 15,810
-------- --------
Total liabilities and equity............................ $321,002 $ 38,818
======== ========
TOTAL:
Assets.................................................... $862,430 $287,729
======== ========
Liabilities............................................... $561,231 $166,562
Minority interest......................................... 2,300 --
Equity.................................................... 298,899 121,167
-------- --------
Total liabilities and equity............................ $862,430 $287,729
======== ========
F-15
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES (CONTINUED)
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
REAL ESTATE DEVELOPMENT:
Total revenues....................................... $ 58,075 $67,248 $108,829
Total expenses....................................... 43,582 19,152 52,295
-------- ------- --------
Net income......................................... $ 14,493 $48,096 $ 56,534
======== ======= ========
OTHER:
Total revenues....................................... $395,127 $24,300 $ 34,112
Total expenses....................................... 369,670 23,368 23,977
-------- ------- --------
Net income......................................... $ 25,457 $ 932 $ 10,135
======== ======= ========
TOTAL:
Total revenues....................................... $453,202 $91,548 $142,941
Total expenses....................................... 413,252 42,520 76,272
-------- ------- --------
Net income......................................... $ 39,950 $49,028 $ 66,669
======== ======= ========
5. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
2000 1999
-------- --------
Payroll and bonuses......................................... $ 38,422 $38,387
Commissions................................................. 41,475 36,939
Deferred income............................................. 6,381 4,394
Insurance accrual........................................... 936 979
Additional consideration for acquisitions................... -- 2,000
Other....................................................... 13,943 10,574
-------- -------
$101,157 $93,273
======== =======
F-16
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt consists of the following at December 31:
2000 1999
-------- --------
Borrowings under a $150,000 line of credit with a bank; due
December 2003, bearing interest at 1) the greater of prime
or the Federal Funds Effective Rate plus 0.5% or 2) the
Eurocurrency rate plus a margin ranging from 1.625% to
2.25% (weighted average borrowing rate of 7.83% at
December 31, 2000); interest payable monthly.............. $75,105 $62,105
Note payable to entity owned by stockholder; bearing
interest at 6.0%; principal and interest payable
quarterly; paid off in April 2000......................... -- 500
Other....................................................... 1,377 220
------- -------
Total long-term debt........................................ 76,482 62,825
Less current portion of long-term debt...................... 1,377 569
------- -------
$75,105 $62,256
======= =======
In December 2000, the Company amended and restated the $150,000 line of
credit. The shares of certain subsidiaries of the Company, accounting for 80% of
Adjusted Gross EBITDA, as defined in the $150,000 line of credit agreement, are
pledged as security for the $150,000 line of credit.
The Company is subject to various covenants associated with the $150,000
line of credit such as maintenance of minimum equity and liquidity and certain
key financial data. In addition, the Company may not pay dividends exceeding 50%
of the previous year's net income before depreciation and amortization, and
there are certain restrictions on investments and acquisitions that can be made
by the Company. If certain financial ratios fall below a specified level, the
Company will be required to make payments equal to cash flow until such time as
the ratios reach the pre-established levels. At December 31, 2000, the Company
is in compliance with all debt covenants.
The covenants associated with the $150,000 line of credit 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 line of credit to an
amount less than the $150,000 commitment. At December 31, 2000, the Company has
$62,618 available (taking into account letters of credit outstanding of $12,277)
under its $150,000 line of credit.
Under both the original and amended and restated $150,000 line of credit,
the Company pays a quarterly fee equal to 0.25% of the unused commitments under
the line. In addition, the $150,000 line of credit requires the Company to enter
into one or more interest rate agreements for the Company's indebtedness in
excess of $50,000 ensuring the net interest is fixed (see Note 15).
Principal maturities of long-term debt at December 31, 2000 are as follows:
2001....................................................... $ 1,377
2002....................................................... --
2003....................................................... 75,105
-------
$76,482
=======
F-17
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
The Company has obligations under capital leases, primarily for furniture
and equipment, with maturity dates through 2005 and bearing interest at various
rates ranging from 4.53% to 12.00% per annum at December 31, 2000. Capital lease
obligations are secured by the underlying assets.
Capital lease obligations consist of the following at December 31:
2000 1999
-------- --------
Capital lease obligations................................... $11,760 $1,259
Less: Current portion of capital lease obligations.......... 5,219 874
------- ------
$ 6,541 $ 385
======= ======
Future minimum payments under capital lease obligations at December 31, 2000
are as follows:
2001........................................................ $ 6,218
2002........................................................ 4,761
2003........................................................ 2,176
2004........................................................ 52
2005........................................................ 3
-------
Total minimum lease payments................................ 13,210
Amount representing interest................................ (1,450)
-------
Present value of net minimum lease payments................. $11,760
=======
7. NOTES PAYABLE ON REAL ESTATE HELD FOR SALE
The Company has loans secured by real estate held for sale (the majority of
which are construction loans) totaling $148,098 and $134,827 as of December 31,
2000 and 1999, respectively. Interest rates on loans outstanding at
December 31, 2000 range from 7.0% to 13.00%. Generally, interest only is payable
on the real estate loans, with all unpaid principal and interest due at
maturity. The unused commitments on real estate loans total $43,146 at
December 31, 2000. All real estate loans have been classified as current
liabilities on the balance sheet since the loans are expected to be repaid as
the related projects are sold and projects are generally expected to be sold
within one year of completion (see Note 2).
Five of the loans (totaling $3,236 and $7,035 at December 31, 2000 and 1999,
respectively) are drawn under a $30,000 master construction loan agreement with
a bank. The loans are secured by real estate held for sale with an aggregate
carrying value of $4,951 at December 31, 2000. The loans bear interest at LIBOR
plus 2.25%, prime rate, or a combination of the two interest rates. Interest
rates on loans outstanding at December 31, 2000 range from 8.85% to 9.08%. The
Company is subject to various covenants associated with the $30,000 master
construction loan agreement such as maintenance of minimum net worth and
liquidity and certain key financial data. At December 31, 2000, the Company has
$24,474 available under the master construction loan.
F-18
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. NOTES PAYABLE ON REAL ESTATE HELD FOR SALE (CONTINUED)
Four of the loans (totaling $4,388 and $0 at December 31, 2000 and 1999,
respectively) are drawn under a two-year $20,000 revolving line of credit with a
bank. The loans are secured by real estate held for sale with an aggregate
carrying value of $5,909 at December 31, 2000. The loans bear interest at LIBOR
plus 1.75%, or prime rate, and the proceeds of the loans must be used for the
acquisition of retail properties subject to "triple net" leases. The interest
rate on loans outstanding at December 31, 2000 is 8.38%. The Company is subject
to various covenants associated with the $20,000 revolving line of credit such
as maintenance of minimum equity and liquidity and certain key financial data.
The Company pays a quarterly fee equal to 0.20% of the unused commitments under
the line. In December 2000, the revolving line of credit expired and was not
renewed; therefore, no additional loans could be made under the revolving line
of credit. The outstanding loans mature September 27, 2001.
Capitalized interest in 2000 and 1999 totaled $3,872 and $3,118,
respectively. At December 31, 2000, $35,084 of the $148,098 real estate loans
are recourse to the Company.
8. STOCKHOLDERS' EQUITY
The holders of shares of the Company's common stock are entitled to one vote
for each share held on all matters submitted to a vote of common stockholders.
Each share of common stock is entitled to participate equally in dividends, when
and if declared, and in the distribution of assets in the event of liquidation,
dissolution or winding up of the Company, subject in all cases to any rights of
outstanding shares of preferred stock.
In August 1996, in connection with a private offering to Company employees
and directors of 9,634 shares of Class E common stock, the Company provided
financing of $9,394 to stockholders, which was reflected as a reduction of
stockholders' equity. These stockholder loans bore interest at prime plus 0.5%
interest. Principal and interest were payable annually and the notes were to
mature in March 2001. Principal and interest payments of $98 and $2,
respectively, were received in 2000 and $806 and $95, respectively, were
received in 1999. At December 31, 2000, all amounts under the notes were repaid.
The Company elected to use the intrinsic method in accounting for its
employee stock options because, as discussed below, the alternative fair value
accounting requires the use of option valuation models that were not developed
for use in valuing employee stock options. Compensation expense is recognized to
the extent the market price of the underlying stock on the date of grant exceeds
the exercise price of the option.
Under the Trammell Crow Company 1997 Option Plan (the "Assumed Option
Plan"), the Company issued options to purchase 2,423,769 shares of the Company's
common stock at an exercise price of $3.85 per share. All options available
under the Assumed Option Plan were granted on August 1, 1997. The options vested
at the closing of the Company's initial public offering on December 1, 1997, and
became exercisable 30 days after that date. The options expire 10 years from the
date of grant.
F-19
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. STOCKHOLDERS' EQUITY (CONTINUED)
The Trammell Crow Company Long-Term Incentive Plan (the "Long-Term Plan")
originally provided for the issuance of up to 5,334,878 shares of common stock.
In May 1999, the Long-Term Plan was amended to increase the number of shares
available for future awards to 8,634,878 shares of common stock. Options to
acquire shares of common stock granted by the Company under the Long-Term Plan
have exercise prices equal to the fair market value of the common stock on the
date of grant and expire 10 years from the date of grant. Except for options
granted to members of the Board of Directors and options granted in connection
with acquisitions of real estate service companies, options vest over periods
ranging from three to five years, and generally have partial vesting on
anniversaries of the grant date.
The Long-Term Plan also provides for the awards of Stock Appreciation
Rights, Restricted Stock and Performance Units. In 2000 and 1999, the Company
granted 108,025 shares and 130,727 shares, respectively, of restricted stock
under the Long-Term Plan. The restricted stock vesting periods range from three
to five years, with partial vesting on each of the anniversaries of the grant
date. The Company recognizes compensation expense related to restricted stock
grants over the vesting period of the restricted stock in an amount equal to the
fair market value of the Company's stock on the date of grant.
At December 31, 2000, common shares reserved for future issuance under the
Assumed Option Plan and the Long-Term Plan total 9,978,672 shares.
In addition to restricted shares issued under the Long-Term Plan, in
October 1998, in connection with one of its acquisitions (see Note 13), the
Company issued an aggregate of 60,315 shares of restricted stock to certain
employees of the acquired business who were employed by the Company at that
date. The 47,618 shares issued to grantees who had been continuously employed by
the Company from the date of closing vested on July 2, 2000. The remaining
shares were forfeited.
The weighted-average grant date fair value of the Company's restricted stock
is $11.44 for stock granted in 2000, $16.84 for stock granted in 1999 and $30.79
for stock granted in 1998. The Company recognized compensation expense of
$1,592, $1,587 and $444 in 2000, 1999 and 1998, respectively, related to the
grants of restricted shares, net of forfeitures.
Pro forma information regarding net income and earnings per share, shown in
the table below, has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 2000, 1999 and 1998,
respectively: risk-free interest rates of 6.23%, 5.59% and 5.61%; a dividend
yield of 0%; volatility factors of the expected market price of the Company's
common stock of 0.526, 0.456 and 0.320; and a weighted-average expected life of
the options of seven years for 2000 grants, seven years for 1999 grants and
eight years for 1998 grants.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
differently
F-20
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. STOCKHOLDERS' EQUITY (CONTINUED)
than those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For the purpose of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Pro forma
information is as follows:
2000 1999 1998
-------- -------- --------
Pro forma net income..................................... $28,656 $47,836 $41,787
Pro forma earnings per common share
Basic.................................................. $ 0.82 $ 1.37 $ 1.23
Diluted................................................ $ 0.79 $ 1.31 $ 1.15
A summary of the Company's stock option activity and related information,
for the years ended December 31, 2000, 1999 and 1998 is as follows:
2000
------------------------------------------------------------------------------
EXERCISE EXERCISE
EXERCISE PRICE PRICE PRICE
EXERCISE PRICE OF $10.75 TO OF $17.45 TO OF $26.64 TO
OF $3.85 (BELOW $17.44 (AT $26.63 (AT $36.00 (AT
MARKET PRICE MARKET PRICE MARKET PRICE MARKET PRICE
AT GRANT DATE) AT GRANT DATE) AT GRANT DATE) AT GRANT DATE) TOTAL
--------------- -------------- -------------- -------------- ---------
OPTIONS OUTSTANDING:
Beginning of year............. 1,739,571 867,622 3,192,638 236,629 6,036,460
Granted....................... -- 1,624,343 -- -- 1,624,343
Exercised..................... (126,448) -- -- -- (126,448)
Forfeited..................... -- (151,297) (326,371) (18,356) (496,024)
Expired....................... -- -- -- -- --
--------- --------- --------- --------- ---------
End of year................. 1,613,123 2,340,668 2,866,267 218,273 7,038,331
========= ========= ========= ========= =========
WEIGHTED-AVERAGE EXERCISE PRICE
OF OPTIONS:
Granted....................... -- $ 7.03 -- --
Exercised..................... $ 3.85 -- -- --
Forfeited..................... -- $ 14.58 $ 17.62 $ 31.72
Outstanding at end of year.... $ 3.85 $ 13.45 $ 17.79 $ 29.80
Weighted-average remaining
contractual life............ 6.6 years 8.9 years 7.4 years 7.4 years
OPTIONS EXERCISABLE:
Number of options............. 1,613,123 212,636 2,072,205 135,743 4,033,707
Weighted-average exercise
price....................... $ 3.85 $ 16.92 $ 17.68 $ 30.07
F-21
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. STOCKHOLDERS' EQUITY (CONTINUED)
1999
------------------------------------------------------------------------------
EXERCISE EXERCISE
EXERCISE PRICE PRICE PRICE
EXERCISE PRICE OF $10.75 TO OF $17.45 TO OF $26.64 TO
OF $3.85 (BELOW $17.44 (AT $26.63 (AT $36.00 (AT
MARKET PRICE MARKET PRICE MARKET PRICE MARKET PRICE
AT GRANT DATE) AT GRANT DATE) AT GRANT DATE) AT GRANT DATE) TOTAL
--------------- -------------- -------------- -------------- ---------
OPTIONS OUTSTANDING:
Beginning of year............. 2,123,474 -- 2,242,094 231,616 4,597,184
Granted....................... -- 910,979 1,333,580 8,714 2,253,273
Exercised..................... (383,903) -- (22,456) -- (406,359)
Forfeited..................... -- (43,357) (360,580) (3,701) (407,638)
Expired....................... -- -- -- -- --
--------- --------- --------- --------- ---------
End of year................. 1,739,571 867,622 3,192,638 236,629 6,036,460
========= ========= ========= ========= =========
WEIGHTED-AVERAGE EXERCISE PRICE
OF OPTIONS:
Granted....................... -- $ 9.74 $ 9.99 $ 15.14
Exercised..................... $ 3.85 -- $ 17.50 --
Forfeited..................... -- $ 17.44 $ 17.60 $ 30.85
Outstanding at end of year.... $ 3.85 $ 17.37 $ 17.77 $ 29.95
Weighted-average remaining
contractual life............ 7.6 years 9.4 years 8.4 years 8.4 years
OPTIONS EXERCISABLE:
Number of options............. 1,739,571 -- 1,355,111 93,684 3,188,366
Weighted-average exercise
price....................... $ 3.85 -- $ 17.61 $ 30.19
F-22
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. STOCKHOLDERS' EQUITY (CONTINUED)
1998
------------------------------------------------------------------------------
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE
EXERCISE PRICE OF $10.75 TO OF $17.45 TO OF $26.64 TO
OF $3.85 (BELOW $17.44 (AT $26.63 (AT $36.00 (AT
MARKET PRICE MARKET PRICE MARKET PRICE MARKET PRICE
AT GRANT DATE) AT GRANT DATE) AT GRANT DATE) AT GRANT DATE) TOTAL
--------------- -------------- -------------- -------------- ---------
OPTIONS OUTSTANDING:
Beginning of year............ 2,423,769 -- 2,364,277 -- 4,788,046
Granted...................... -- -- 13,143 240,742 253,885
Exercised.................... (300,295) -- (6,636) -- (306,931)
Forfeited.................... -- -- (128,690) (9,126) (137,816)
Expired...................... -- -- -- -- --
--------- --- --------- ---------- ---------
End of year................ 2,123,474 -- 2,242,094 231,616 4,597,184
========= === ========= ========== =========
WEIGHTED-AVERAGE EXERCISE PRICE
OF OPTIONS:
Granted...................... -- -- $ 13.13 $ 14.90
Exercised.................... $ 3.85 -- $ 17.50 --
Forfeited.................... -- -- $ 17.50 $ 32.88
Outstanding at end of year... $ 3.85 -- $ 17.59 $ 30.11
Weighted-average remaining
contractual life........... 8.6 years -- 8.9 years 9.4 years
OPTIONS EXERCISABLE:
Number of options............ 2,123,474 -- 746,069 45,468 2,915,011
Weighted-average exercise
price...................... $ 3.85 -- $ 17.61 $ 30.80
F-23
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended December 31:
2000 1999 1998
-------- -------- --------
Current
Federal................................................ $25,038 $25,387 $20,466
State.................................................. 5,055 5,124 4,081
------- ------- -------
30,093 30,511 24,547
Deferred
Federal................................................ (5,335) 3,862 4,396
State.................................................. (1,077) 781 731
------- ------- -------
(6,412) 4,643 5,127
------- ------- -------
$23,681 $35,154 $29,674
======= ======= =======
The components of the net deferred tax asset are summarized below as of
December 31:
2000 1999
-------- --------
Deferred tax assets
Bad debts................................................. $ 1,519 $ 1,013
Depreciation.............................................. 1,156 891
Basis difference on real estate held for sale............. 964 963
Compensation expense relating to stock options............ 8,643 9,330
Tax loss carry-forward.................................... -- 124
Impairment of e-commerce investments...................... 5,893 --
Other..................................................... 2,791 1,739
------- -------
20,966 14,060
Less: valuation allowance................................. (1,730) (1,866)
------- -------
Total deferred tax assets................................. 19,236 12,194
Deferred tax liabilities
State taxes............................................... (775) (775)
Goodwill amortization..................................... (909) (1,193)
Other..................................................... (2,245) (1,555)
------- -------
Total deferred tax liabilities............................ (3,929) (3,523)
------- -------
Net deferred tax asset...................................... $15,307 $ 8,671
======= =======
F-24
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. INCOME TAXES (CONTINUED)
Components of deferred income taxes are as follows at December 31:
2000 1999
-------- --------
Current..................................................... $ 2,219 $1,585
Noncurrent.................................................. 13,088 7,086
------- ------
Net deferred tax asset.................................... $15,307 $8,671
======= ======
The differences between the provisions for income taxes and the amounts
computed by applying the statutory federal income tax rates to income before
income taxes for the years ended December 31 are:
2000 1999 1998
-------- -------- --------
Tax at statutory rate applied to income before income
taxes.................................................. $20,698 $31,360 $26,644
State income taxes, net of federal tax benefit........... 2,537 3,842 3,070
Non-deductible meals..................................... 887 876 787
Other.................................................... (305) (512) (593)
Change in valuation allowance............................ (136) (412) (234)
------- ------- -------
$23,681 $35,154 $29,674
======= ======= =======
10. OPERATING LEASES
The Company has commitments under operating leases for office space and
office equipment. During the years ended December 31, 2000, 1999 and 1998, rent
expense was $22,247, $17,604 and $11,663, including $1,096, $4,310 and $1,913,
respectively, paid to affiliates of the Company.
Minimum future rentals under noncancelable operating lease commitments in
effect at December 31, 2000, are as follows:
AFFILIATE NONAFFILIATE TOTAL
--------- ------------ --------
2001.................................................... $ 526 $18,471 $18,997
2002.................................................... 430 15,721 16,151
2003.................................................... 354 11,927 12,281
2004.................................................... 129 9,625 9,754
2005.................................................... 11 5,229 5,240
Thereafter.............................................. -- 8,305 8,305
------ ------- -------
$1,450 $69,278 $70,728
====== ======= =======
11. EMPLOYEE BENEFIT PLANS
The Company's employees participate in a defined contribution savings plan,
which provides the opportunity for pretax contributions by employees. The
Company matches 50% of the employee's contributions up to 6% of the employee's
annual earnings or a maximum of $5 per employee per
F-25
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
annum. The Company's contribution expense for 2000, 1999 and 1998 was $4,980,
$4,095 and $2,909, respectively.
Prior to 1998, the Company administered a profit sharing plan for key
employees (the "Profit Sharing Plan"). Each participant had a profit sharing
account that was adjusted annually for the participant's percentage of the
earnings for a profit sharing unit, cash distributions, tax rate changes, and
other adjustments. Distributions to participants were limited to Available Cash,
as defined. Any difference between the amount expensed and the amount paid to
the participants was recorded as deferred compensation. The Company's management
board approved the percentage of earnings available to profit sharing
participants. Such percentages were approximately 58% of earnings before profit
sharing, as defined, in 1997. In connection with the Company's initial public
offering, the Company terminated any future awards under the Profit Sharing
Plan. All remaining deferred compensation accrued through 1997 was paid by
December 31, 1999.
Effective March 1, 1998, the Company established the Trammell Crow Company
Employee Stock Purchase Plan (the "ESPP"). Employees may elect to have bi-weekly
payroll deductions of 1% to 10% of gross earnings, which is used to purchase, on
a semi-annual basis, stock of the Company at a 15% discount from market value.
The ESPP is available to all employees. The Company has reserved 1,000,000
shares of common stock for issuance under the ESPP, of which 606,283 have been
issued as of December 31, 2000. Shares issued under the ESPP may be issued from
treasury, if available.
12. GAIN ON DISPOSITION OF REAL ESTATE
Real estate dispositions during the years ended December 31 were as follows:
2000 1999 1998
-------- -------- --------
Projects sold......................................... 48 35 41
Net sale price........................................ $211,600 $159,280 $213,234
Gain on sale.......................................... $ 41,804 $ 33,410 $ 31,658
In 2000, the Company received $15,160 from a real estate partnership in
which it has a 10% interest, representing reimbursement of costs expended in
excess of the Company's required capital contribution of $354. In two other
transactions, the Company sold its interest, at net book value, in partnerships
that owned real estate with an aggregate cost of $16,827 and debt and
outstanding payables totaling the same amount. In conjunction with the sales of
two other real estate projects, the Company provided financing to the purchasers
for a portion of the purchase price in the aggregate amount of $7,022.
The Company entered into two agreements with land sellers whereby the
Company acquired property subject to nonrecourse purchase money mortgages with
the contractual right to deed back to these sellers any property not sold by a
certain date. In 2000, in accordance with its rights under these agreements, the
Company deeded land back to the lenders with an aggregate fair market value of
$6,108.
F-26
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
12. GAIN ON DISPOSITION OF REAL ESTATE (CONTINUED)
In the fourth quarter of 2000, the Company sold all of its partnership
interests in a 100%-owned subsidiary for a net sales price of $26,949. In
exchange for the net assets of the partnership, which included $26,782 of real
estate held for sale, other assets of $1,419, and the assumption of a mortgage
loan and liabilities of $26,915, the Company received net cash proceeds of
$4,120 and has a receivable from the buyer of $1,581, resulting in a gain on
disposition of $3,864.
13. ACQUISITIONS OF REAL ESTATE SERVICE COMPANIES
In December 2000, the Company recorded a $25,347 writedown due to impairment
of goodwill and related intangibles representing the remaining unamortized
balance of goodwill and intangibles recorded in connection with an acquisition
of the business of Doppelt & Company in August 1997. The impairment was
triggered by: (i) the loss in the fourth quarter of 2000 of key management and
revenue-producing personnel hired from the acquired company; (ii) the loss of
key national customers related to the acquired company and resignation from
unprofitable accounts; and (iii) the identification in the fourth quarter of
2000 of increasing losses, as well as a net loss for the fourth quarter of 2000
for the acquired business, instead of a net profit for the fourth quarter of
2000 as was expected at the end of the third quarter of 2000. In evaluating the
extent of the impairment related to its 1997 acquisition, the Company considered
the following factors: (i) a reduction of revenue from the largest individual
customer of the acquired company and an announcement by the customer that they
would be further reducing the services required by the Company, (ii) the 2001
business plan related to the acquired company did not include any additional
revenues from the acquired company clients and (iii) the Company's determination
that there is no positive cash flow or earnings associated with the acquired
company and the Company's reluctance to commit additional resources to the
acquired business. Revenues and net income (loss) before tax and writedowns,
respectively, related to the acquired business were $7,188 and $(5,788) in 2000,
$10,888 and $190 in 1999, and $9,808 and $179 in 1998.
1999 ACQUISITION
In July 1999, the Company acquired the business of Phoenix Corporate
Services LLC, a Cambridge, Massachusetts-based commercial real estate
outsourcing services firm, and Leeds Construction Company, Inc., an affiliated
company ("Phoenix"). The Company acquired substantially all of the assets of
Phoenix for a base purchase price of approximately $10,260 ($8,760 of which was
paid in cash at closing and the remainder of which was satisfied by issuing a
$1,500 letter of credit into escrow at closing) and 268,306 shares of common
stock. The $1,500 letter of credit expired in July 2000 at which time the
Company paid cash in the amount of $1,500 to settle the liability. In addition,
the Company agreed to pay up to $2,400 in cash if the acquired business meets
certain performance thresholds. As of December 31, 2000, $1,650 of this amount
was earned and paid. At the date of acquisition, the Company also issued 5,619
restricted shares of common stock under the Company's Long-Term Incentive Plan
to an employee of Phoenix who became employed by the Company in connection with
the acquisition, and paid an aggregate of $600 to the two principals and an
employee of Phoenix in exchange for certain covenants not to compete. In
connection with the acquisition, which was accounted for using the purchase
method of accounting, the Company recorded goodwill of
F-27
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. ACQUISITIONS OF REAL ESTATE SERVICE COMPANIES (CONTINUED)
$14,607. The operations of Phoenix are included in the Company's operations from
the date of acquisition. The Company borrowed approximately $10,000 under its
credit facility to fund the acquisition.
1998 ACQUISITIONS
In March 1998, the Company purchased all of the issued and outstanding
capital stock of Tooley & Company, Inc. ("Tooley"), a California real estate
services company primarily engaged in office management and leasing. The Company
paid cash of $23,566 for the capital stock, and paid an additional $1,000 to two
of the principals of Tooley as consideration for non-compete agreements. The
Company also agreed to pay the seller an additional $3,000 of purchase price if
Tooley achieves certain performance standards in the future, as well as certain
payments based upon the future performance of certain of Tooley's projects. In
connection with the acquisition, which was accounted for using the purchase
method of accounting, the Company recorded goodwill of $17,387. The operations
of Tooley are included in the Company's operations from the date of acquisition.
The Company borrowed $23,000 under its credit facility to fund the purchase.
In May 1998, the Company acquired the business of Fallon Hines &
O'Connor, Inc., a Boston, Massachusetts-based commercial real estate brokerage,
consulting and advisory firm ("Fallon"). In exchange for substantially all of
the assets of Fallon, the Company paid approximately $30,595 in cash and agreed
to pay up to an additional $7,000 in cash and/or stock options if certain
conditions are satisfied. The Company paid $2,500 and issued certain stock
options during the first quarter of 1999. In addition, the Company paid $2,000
in the first quarter of 2000 (included in accrued expenses at December 31,
1999). The Company also paid an aggregate of $2,000 to the principals of Fallon
at the time of acquisition in exchange for certain covenants not to compete. In
connection with the acquisition, which was accounted for using the purchase
method of accounting, the Company recorded goodwill of $34,160. The operations
of Fallon are included in the Company's operations from the date of acquisition.
The Company borrowed $32,000 under its credit facility to meet its initial
funding obligations relating to the acquisition.
In July 1998, the Company acquired a portion of the businesses of Faison &
Associates ("Faison") and Faison Enterprises, Inc. ("Faison Enterprises"), which
are engaged in the development, leasing and management of office and retail
properties primarily in the Midatlantic and Southeast regions of the United
States. In exchange for the portion of the businesses acquired, the Company paid
$36,107 in cash and delivered a $2,000 promissory note that bore interest at an
annual rate of 6.0%. The note was payable in eight equal quarterly installments
and matured on April 30, 2000. In connection with the closing, Mr. Henry Faison
and Faison Enterprises purchased an aggregate of 127,828 shares of common stock
for $4,000. In addition, the Company entered into a development program with
Faison Enterprises to develop certain retail projects identified through the
operations purchased. Faison Enterprises also entered into a long-term services
contract with the Company with respect to the properties developed under this
program and certain other properties controlled by Mr. Faison.
In connection with the acquisition, the Company entered into employment
agreements with four key employees, including Mr. Faison, and in connection with
such employment agreements, the
F-28
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. ACQUISITIONS OF REAL ESTATE SERVICE COMPANIES (CONTINUED)
Company paid an aggregate of $1,000 in exchange for certain covenants not to
compete. The Company issued options to purchase an aggregate of 71,424 shares of
common stock at an exercise price equal to the fair market value of the common
stock on the date of grant to certain employees of the acquired business who
were retained after the closing.
In addition, the Company granted restricted shares of its common stock to
certain employees of the acquired business who were retained after the closing
(see Note 8). At the closing, Mr. Faison was elected to serve as a Class III
Director of the Company's Board of Directors with a term expiring at the
Company's annual meeting of stockholders in 2000. At that time, Mr. Faison was
re-elected to serve as a Class III Director with a term expiring at the
Company's annual meeting of stockholders in 2003. In connection with the
acquisition, which was accounted for using the purchase method of accounting,
the Company recorded goodwill of $32,086. The operations of Faison are included
in the Company's operations from the date of acquisition. The Company borrowed
$37,105 under its credit facility to fund the acquisition.
14. RELATED PARTY TRANSACTIONS
In 2000, 1999 and 1998, the Company derived 7%, 8% and 7%, respectively, of
its total revenues from services provided principally to certain stockholders of
the Company. In addition, in 2000, 1999, and 1998, the Company derived 2%, 2%
and 3%, respectively, of its total revenues from services provided to a customer
of which one of the Company's directors was an officer during 2000.
In January 1997, the Company formed a joint venture with an affiliate of one
of the stockholders to provide management information services. Both parties
shared equally in any distributions from the joint venture. The Company received
distributions of $949 through December 31, 2000. The Company entered into a
5-year management information system agreement with the joint venture for
related services and paid fees totaling $360, $4,978 and $4,468 in 2000, 1999
and 1998, respectively, for such services. In early 2000, the Company reduced
the services received from the joint venture.
15. FINANCIAL INSTRUMENTS
In September 1998, as required under the Company's $150,000 line of credit,
the Company entered into an interest rate swap to manage market risks related to
changes in interest rates. The Company's participation in derivative
transactions has been limited to hedging purposes. Derivative instruments are
not held or issued for trading purposes. Through June 24, 1999, the Company had
an interest rate swap outstanding with a notional amount of $135,000. This swap
agreement established a fixed interest pay rate of 5.29% on a portion of the
Company's variable rate debt. On June 24, 1999, the interest rate swap agreement
was renewed for a nine-month period ending March 24, 2000, with a notional
amount of $125,000. This swap agreement established a fixed interest pay rate of
5.52% on a portion of the Company's variable rate debt. On March 24, 2000, the
interest rate swap agreement was renewed for a twelve-month period ending
March 24, 2001, with a notional amount of $150,000 through June 26, 2000, a
notional amount of $125,000 through September 25, 2000 and a notional amount of
$100,000 through March 24, 2001. This swap agreement established a fixed
interest pay rate of 6.65% on a portion of the Company's variable rate debt.
Under these swap agreements, if the actual LIBOR-based
F-29
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
15. FINANCIAL INSTRUMENTS (CONTINUED)
rate is less than the specified fixed interest rate, the Company is obligated to
pay the differential interest amount, such amount being recorded as incremental
interest expense. Conversely, if the LIBOR-based rate is greater than the
specified fixed interest rate, the differential interest amount is refunded to
the Company and recorded as a reduction of interest expense. The weighted
average receive rates for these swap agreements for 2000, 1999 and 1998 were
6.40%, 5.20% and 5.32%, respectively. In connection with these agreements, the
Company recorded a reduction of interest expense of $3 in 2000, recorded an
incremental interest expense of $260 in 1999, and a reduction of interest
expense of $3 in 1998.
Accounts receivable, accounts payable and accrued expenses and other
liabilities are carried at amounts that reasonably approximate their fair
values. The fair values of the Company's long-term debt and notes payable on
real estate held for sale reasonably approximate their fair values based on the
Company's incremental borrowing rates for similar types of borrowing
arrangements.
16. COMMITMENTS AND CONTINGENCIES
At December 31, 2000, the Company has guaranteed $24,508 of real estate
notes payable of others. These notes are secured by the underlying real estate
and have maturity dates through May 2005. The Company has outstanding letters of
credit totaling $13,162 at December 31, 2000, which expire at varying dates
through January 2003.
In addition, at December 31, 2000, the Company has several completion and
budget guarantees relating to development projects. Management does not expect
to incur any material losses under these guarantees.
The Company and its subsidiaries are defendants in lawsuits that arise in
the normal course of business. In management's judgment, the ultimate liability,
if any, from such legal proceedings will not have a material effect on the
Company's results of operations or financial position.
17. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is summarized below for the years ended
December 31:
2000 1999 1998
-------- -------- --------
Interest paid............................................ $18,677 $11,029 $13,162
Income taxes paid........................................ 33,648 21,382 19,662
Profit sharing distributions paid........................ -- 5,860 15,004
Non cash activities:
Issuance of restricted stock, net of forfeitures....... 2,433 1,955 2,323
Capital lease obligations.............................. 12,928 -- --
Contributions of contracts by minority interest
holder............................................... 2,681 -- --
F-30
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
18. SEGMENT INFORMATION
DESCRIPTION OF SERVICES BY SEGMENT
To respond to the ever-growing demands of its customers for fully bundled
integrated services, in January 2000, the Company realigned certain elements of
its business resulting in a change from three segments in 1999 to two reportable
segments, Corporate and Institutional. Real estate services are provided within
both segments, but focus on two different types of customers.
Through the Corporate segment, the Company provides facilities management,
corporate advisory services and project management services to corporate
customers who are typically the primary occupants of commercial properties.
Corporate customers include users of facilities such as multinational
corporations, major retailers, hospitals and universities, as well as other
business concerns.
Within the Institutional segment, the Company provides property management,
brokerage services and development services to institutional investors in
commercial property, who typically are not the primary occupants of the
facilities.
In the second quarter of 2000, as the Company increased its activities in
and assigned more dedicated resources to e-commerce, the Company began reporting
these activities, including related overhead, in a third segment. The E-Commerce
segment also includes the Company's investments in e-commerce-related companies.
The E-Commerce segment does not include investments in ongoing technology
advancements internal to the Company's other two business segments.
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
The Company evaluates performance and allocates resources among its three
reportable segments based on income before income taxes and EBITDA (as defined
in footnote 2 in the following table). The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS
The Company's reportable segments are defined first by the nature of
business transacted, real estate services and e-commerce, and second, by the
type of customer to whom the services are provided. The Corporate and
Institutional segments are managed separately because the expertise required and
the needs of the customer vary between corporate users and institutional
investors. The E-Commerce segment captures distinct new e-commerce business and
investments and has separate management.
Virtually all of the Company's revenues are from customers located in the
United States. No individual customer accounts for more than 10% of the
Company's revenues.
F-31
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
18. SEGMENT INFORMATION (CONTINUED)
Summarized financial information for reportable segments as of and for the
years ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 (3) 1998 (3)
-------- -------- --------
CORPORATE:
Total revenues............................................ $350,954 $239,155 $160,113
Costs and expenses(1)..................................... 345,604 214,943 144,309
-------- -------- --------
Income before income taxes................................ 5,350 24,212 15,804
Depreciation and amortization............................. 11,034 6,379 3,348
Interest expense.......................................... 3,942 1,145 920
Writedowns due to impairment of goodwill.................. 25,347 -- --
-------- -------- --------
EBITDA, as adjusted(2).................................... $ 45,673 $ 31,736 $ 20,072
======== ======== ========
Segment assets............................................ $222,121 $178,746 $118,553
======== ======== ========
INSTITUTIONAL:
Total revenues............................................ $460,715 $448,288 $357,410
Costs and expenses(1)..................................... 389,211 382,903 297,089
-------- -------- --------
Income before income taxes................................ 71,504 65,385 60,321
Depreciation and amortization............................. 13,088 11,164 7,061
Interest expense.......................................... 13,005 8,362 9,357
-------- -------- --------
EBITDA, as adjusted(2).................................... $ 97,597 $ 84,911 $ 76,739
======== ======== ========
Segment assets............................................ $502,149 $453,264 $349,962
======== ======== ========
E-COMMERCE:
Total revenues............................................ $ -- $ -- $ --
Costs and expenses(1)..................................... 17,719 -- --
-------- -------- --------
Loss before income taxes.................................. (17,719) -- --
Depreciation and amortization............................. -- -- --
Interest expense.......................................... -- -- --
Writedowns due to impairment of investments............... 15,000 -- --
-------- -------- --------
EBITDA, as adjusted(2).................................... $ (2,719) $ -- $ --
======== ======== ========
Segment assets............................................ $ 2,164 $ 6,000 $ --
======== ======== ========
TOTAL:
Total revenues............................................ $811,669 $687,443 $517,523
Costs and expenses(1)..................................... 752,534 597,846 441,398
-------- -------- --------
Income before income taxes................................ 59,135 89,597 76,125
Depreciation and amortization............................. 24,122 17,543 10,409
Interest expense.......................................... 16,947 9,507 10,277
Writedowns due to impairment of goodwill and
investments............................................. 40,347 -- --
-------- -------- --------
EBITDA, as adjusted(2).................................... $140,551 $116,647 $ 96,811
======== ======== ========
Total assets.............................................. $726,434 $638,010 $468,515
======== ======== ========
------------------------
(1) Costs and expenses include non-cash compensation expense related to the
amortization of employment contracts and unearned stock compensation of
$2,266, $825 and $411 related to the
F-32
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
18. SEGMENT INFORMATION (CONTINUED)
Corporate segment and $2,013, $2,472 and $798 related to the Institutional
segment in 2000, 1999 and 1998, respectively. Through December 2000, there
had been no non-cash compensation expense related to the E-Commerce segment.
(2) EBITDA, as adjusted, represents earnings before interest, income taxes and
depreciation and amortization, and in 2000, writedowns due to impairment of
goodwill and related intangibles and impairment of the value of certain
e-commerce investments. Management believes that EBITDA, as adjusted, can be
a meaningful measure of the Company's operating performance, cash generation
and ability to service debt. However, EBITDA, as adjusted, should not be
considered as an alternative to: (i) net earnings (determined in accordance
with GAAP); (ii) operating cash flow (determined in accordance with GAAP);
or (iii) liquidity. There can be no assurance that the Company's calculation
of EBITDA, as adjusted, is comparable to similarly titled items reported by
other companies.
(3) The 1999 and 1998 segment information has been reclassified to conform to
the presentation of 2000 segment information to reflect the changes in the
Company's reportable segments effective January 1, 2000 and the addition of
the E-Commerce segment in the second quarter of 2000.
19. UNAUDITED INTERIM FINANCIAL INFORMATION
Unaudited summarized financial information by quarter is as follows:
QUARTER ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- -------- ------------- ------------
2000:
Total revenues......................... $163,244 $186,090(1) $202,757 $259,578
Net income............................. 3,700 8,393 16,635 6,726(2)
Earnings per share:
Basic................................ $ .11 $ .24 $ .48 $ .19(2)
Diluted.............................. $ .10 $ .23 $ .46 $ .18(2)
1999:
Total revenues......................... $134,789 $149,736 $195,682 $207,236
Net income............................. 7,103 8,264 16,699 22,377
Earnings per share:
Basic................................ $ .21 $ .24 $ .47 $ .64
Diluted.............................. $ .20 $ .23 $ .46 $ .61
1998:
Total revenues......................... $ 88,959 $113,536 $144,461 $170,567
Net income............................. 6,329 10,851 14,284 14,987
Earnings per share:
Basic................................ $ .19 $ .32 $ .42 $ .44
Diluted.............................. $ .18 $ .30 $ .39 $ .41
------------------------
(1) Certain revenues for the period ended June 30, 2000 have been reclassified
to conform to the presentation for the quarter and year ended December 31,
2000. As a result, total revenues for the quarter ended June 30, 2000 differ
from the amounts reported in the Company's Quarterly Report on Form 10-Q for
June 30, 2000. These reclassifications do not impact net income.
F-33
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
19. UNAUDITED INTERIM FINANCIAL INFORMATION (CONTINUED)
(2) In December 2000, the Company recorded a $25,347 writedown due to impairment
of goodwill and related intangibles recorded in connection with an
acquisition of a company in August 1997 (see Note 13). Also in
December 2000, the Company recorded a $15,000 writedown to reflect
impairment in the value of e-commerce investments made in late 1999 and
2000, consistent with the decrease in value of companies in this sector
generally in the latter part of 2000 (see Note 4).
Net income and earnings per share for the quarter ended December 31, 2000
reflect the impact of non-recurring charges to income totaling $40,347
related to the impairment of goodwill and the value of certain of the
Company's e-commerce investments. Without the effects of these non-
recurring charges, net income would have been $30,917 and basic and diluted
earnings per share would have been $.88 and $.85, respectively, for the
quarter ended December 31, 2000.
In the quarter ended December 31, 2000, the Company recorded approximately
$3,700 less bonus expense than the average of the bonus expense recorded for
each of the previous three quarters of 2000. Bonus expense for the full year
2000 reflects the actual expected bonus payments based on the level of
achievement of financial targets as set forth in the Company's compensation
plans for certain management level personnel.
In the fourth quarter of 1998, the Company recognized $10,081 of income from
unconsolidated subsidiaries relating to one atypically large and profitable
transaction.
F-34
TRAMMELL CROW COMPANY AND SUBSIDIARIES
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
(IN THOUSANDS)
INITIAL COST
--------------------------------------------------------------------
FURNITURE, COSTS
RELATED BUILDINGS AND FIXTURES & SUBSEQUENT TO
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS EQUIPMENT ACQUISITION
----------- ------------ -------- ------------- ---------- -------------
RETAIL
Alexander Pointe, Charlotte, NC............................. $ 602 $ 659 $ 34 $ -- $ 186
Diamond Bar, Diamond Bar, CA................................ 5,650 1,475 4,290 -- 121
Duncanville Toys, Duncanville, TX........................... 813 480 -- -- 585
Gateway Plaza, Aurora, CO................................... 6,415 1,018 5,793 -- 488
Haven Village, Cucamonga, CA................................ 2,700 3,504 -- -- 102
Jumbo Fitness, Dallas, TX................................... 2,522 2,124 1,404 -- 302
NNN Care One, LP, CA........................................ 766 984 -- -- --
NNN Care Eight, LP, CA...................................... 2,282 2,290 -- -- --
NNN CW LP, NJ, IL, MO, MA, MI............................... 4,388 -- 5,834 -- 75
Quioccasin, Richmond, VA.................................... 824 552 85 -- 582
Ridge Rock, Fort Worth, TX.................................. 7,106 2,636 3,131 -- 2,191
Rock Hill, Rock Hill, SC.................................... 630 405 111 -- 594
Springtown Mall, San Marcos, TX............................. 4,396 1,366 1,198 -- 3,385
USPS, Putnam Valley, PA..................................... -- 128 -- -- 1,357
Village Green, Yorba Linda, CA.............................. 2,750 1,890 2,316 -- 374
Westview Plaza, Lebanon, TN................................. 2,126 788 1,822 -- 164
Whitehall, Whitehall, NC.................................... 368 504 -- -- 174
OFFICE
411 W. Seventh, Fort Worth, TX.............................. 1,230 380 2,400 -- 26
Allen D-2, Allen, TX........................................ 5,255 865 -- -- 7,829
Boulder Office, Boulder, CO................................. 10,730 2,400 9,657 -- 814
Burbank-Lockheed, Burbank, CA............................... 12,277 7,105 132 -- 4,959
Forest Hill, Memphis, TN.................................... 4,547 1,396 -- -- 4,604
Freeport #2 & #3, Irving, TX................................ 13,971 3,135 -- -- 12,204
INDUSTRIAL
1102 Freeway, Grand Praire, TX.............................. 5,945 1,230 4,587 -- 1,267
Deerwood, Jacksonville, FL.................................. 5,800 1,542 5,981 -- --
Elk Grove, Elk Grove, IL.................................... 20,500 6,600 12,395 -- 202
Gamecock, Rock Hill, SC..................................... 684 1,247 -- -- 849
GC Services BTS, Lakeland, FL............................... -- 1,335 -- -- 541
TC WC Partners, Austin, TX.................................. -- 716 -- -- 51
Textron, Orlando, FL........................................ 4,063 1,900 2,891 -- --
LAND
AEW #10, Mt. Laurel Township, NJ............................ -- 107 -- -- 433
Arrowood, Charlotte, NC..................................... -- 321 -- -- --
Ballpark Way, Houston, TX................................... 6,596 6,601 -- -- 1,124
Beveland, Tigard, OR........................................ -- 1,489 -- -- --
Cameron, Alexandria, VA..................................... -- 3,359 -- -- --
Cedar Hollow, Chester County, PA............................ 5,400 12,118 -- -- 2,769
Cleveland, Cleveland, OH.................................... -- 260 -- -- 10
DC Land, Douglas County, CO................................. -- 1,888 -- -- 978
Glasgow, Cherry Hill, NJ.................................... -- 1,222 -- -- 18
Hampden Town Center, Denver, CO............................. -- 4,346 -- -- 774
Kileen, Kileen, TX.......................................... -- 990 -- -- --
Lake Park Plaza, Lewisville, TX............................. -- 926 -- -- 495
Lakeline Retail, Cedar Park, TX............................. 793 1,464 -- -- --
Loudon Tech, Loudon, VA..................................... -- 2,177 -- -- 585
Loveland Land, Loveland, CO................................. -- 348 -- -- 225
Montpelier II, LLC, Montpelier, MD.......................... 3,976 3,068 -- -- 935
Peachtree, Mesquite, TX..................................... -- 131 -- -- --
Sierra Corporate Center, Reno, NV........................... 1,993 2,534 -- -- 287
TC Riverside, Belcamp, MD................................... -- 919 -- -- 151
Telco LLC, Edgewood, CO..................................... -- 1,405 -- -- --
Temple Retail, Temple, TX................................... -- 747 -- -- --
USPS-Kerhonkson, Kerhonkson, NY............................. -- 129 -- -- 1
Westridge at Gateway, Dallas, TX............................ -- 1,535 -- -- 13
Wood Village, Portland, OR.................................. -- 3,981 -- -- 417
-------- -------- ------- ---------- -------
Total..................................................... $148,098 $102,719 $64,061 $ -- $53,241
======== ======== ======= ========== =======
BALANCE AT DECEMBER 31, 2000
------------------------------------------------
FURNITURE,
BUILDINGS AND FIXTURES & DATE OF
DESCRIPTION LAND IMPROVEMENTS EQUIPMENT TOTAL(A) CONSTRUCTION
----------- -------- ------------- ---------- -------- ------------
RETAIL
Alexander Pointe, Charlotte, NC............................. $ 535 $ 344 $ -- $ 879 2000
Diamond Bar, Diamond Bar, CA................................ 1,475 4,411 -- 5,886 1981
Duncanville Toys, Duncanville, TX........................... 480 585 -- 1,065 2000
Gateway Plaza, Aurora, CO................................... 1,018 6,281 -- 7,299 1984
Haven Village, Cucamonga, CA................................ 3,504 102 -- 3,606 2000
Jumbo Fitness, Dallas, TX................................... 2,124 1,706 -- 3,830 2000
NNN Care One, LP, CA........................................ 458 526 -- 984 Various
NNN Care Eight, LP, CA...................................... 818 1472 -- 2,290 Various
NNN CW LP, NJ, IL, MO, MA, MI............................... -- 5,909 -- 5,909 2000
Quioccasin, Richmond, VA.................................... 525 694 -- 1,219 1999
Ridge Rock, Fort Worth, TX.................................. 2,636 5,322 -- 7,958 1999
Rock Hill, Rock Hill, SC.................................... 389 721 -- 1,110 2000
Springtown Mall, San Marcos, TX............................. 1,366 4,583 -- 5,949 1975
USPS, Putnam Valley, PA..................................... 487 998 -- 1,485 2000
Village Green, Yorba Linda, CA.............................. 1,890 2,690 -- 4,580 1986
Westview Plaza, Lebanon, TN................................. 788 1,986 -- 2,774 1987
Whitehall, Whitehall, NC.................................... 504 174 -- 678 2000
OFFICE
411 W. Seventh, Fort Worth, TX.............................. 397 2,409 -- 2,806 2000
Allen D-2, Allen, TX........................................ 1,352 7,342 -- 8,694 1998
Boulder Office, Boulder, CO................................. 2,400 10,471 -- 12,871 1985
Burbank-Lockheed, Burbank, CA............................... 7,376 4,820 -- 12,196 2000
Forest Hill, Memphis, TN.................................... 1,396 4,604 -- 6,000 1999
Freeport #2 & #3, Irving, TX................................ 3,135 12,204 -- 15,339 1998
INDUSTRIAL
1102 Freeway, Grand Praire, TX.............................. 1,230 5,854 -- 7,084 1977
Deerwood, Jacksonville, FL.................................. 1,542 5,981 -- 7,523 1974
Elk Grove, Elk Grove, IL.................................... 6,683 12,514 -- 19,197 1975
Gamecock, Rock Hill, SC..................................... 1,247 849 -- 2,096 1999
GC Services BTS, Lakeland, FL............................... 1,335 541 -- 1,876 2000
TC WC Partners, Austin, TX.................................. 716 51 -- 767 2000
Textron, Orlando, FL........................................ 1,900 2,891 -- 4,791 1985
LAND
AEW #10, Mt. Laurel Township, NJ............................ 540 -- -- 540 N/A
Arrowood, Charlotte, NC..................................... 321 -- -- 321 N/A
Ballpark Way, Houston, TX................................... 7,725 -- -- 7,725 N/A
Beveland, Tigard, OR........................................ 1,489 -- -- 1,489 N/A
Cameron, Alexandria, VA..................................... 3,359 -- -- 3,359 N/A
Cedar Hollow, Chester County, PA............................ 14,887 -- -- 14,887 N/A
Cleveland, Cleveland, OH.................................... 270 -- -- 270 N/A
DC Land, Douglas County, CO................................. 2,866 -- -- 2,866 N/A
Glasgow, Cherry Hill, NJ.................................... 1,240 -- -- 1,240 N/A
Hampden Town Center, Denver, CO............................. 5,120 -- -- 5,120 N/A
Kileen, Kileen, TX.......................................... 990 -- -- 990 N/A
Lake Park Plaza, Lewisville, TX............................. 1,421 -- -- 1,421 N/A
Lakeline Retail, Cedar Park, TX............................. 1,464 -- -- 1,464 N/A
Loudon Tech, Loudon, VA..................................... 2,762 -- -- 2,762 N/A
Loveland Land, Loveland, CO................................. 573 -- -- 573 N/A
Montpelier II, LLC, Montpelier, MD.......................... 4,003 -- -- 4,003 N/A
Peachtree, Mesquite, TX..................................... 131 -- -- 131 N/A
Sierra Corporate Center, Reno, NV........................... 2,821 -- -- 2,821 N/A
TC Riverside, Belcamp, MD................................... 1,070 -- -- 1,070 N/A
Telco LLC, Edgewood, CO..................................... 1,405 -- -- 1,405 N/A
Temple Retail, Temple, TX................................... 747 -- -- 747 N/A
USPS-Kerhonkson, Kerhonkson, NY............................. 130 -- -- 130 N/A
Westridge at Gateway, Dallas, TX............................ 1,548 -- -- 1,548 N/A
Wood Village, Portland, OR.................................. 4,398 -- -- 4,398 N/A
-------- -------- ---------- --------
Total..................................................... $110,986 $109,035 $ -- $220,021
======== ======== ========== ========
DATE DEPRECIABLE
DESCRIPTION ACQUIRED LIVES(B)
----------- -------- -----------
RETAIL
Alexander Pointe, Charlotte, NC............................. 2000
Diamond Bar, Diamond Bar, CA................................ 1997
Duncanville Toys, Duncanville, TX........................... 2000
Gateway Plaza, Aurora, CO................................... 1996
Haven Village, Cucamonga, CA................................ 2000
Jumbo Fitness, Dallas, TX................................... 2000
NNN Care One, LP, CA........................................ 2000
NNN Care Eight, LP, CA...................................... 2000
NNN CW LP, NJ, IL, MO, MA, MI............................... 2000
Quioccasin, Richmond, VA.................................... 1999
Ridge Rock, Fort Worth, TX.................................. 1999
Rock Hill, Rock Hill, SC.................................... 2000
Springtown Mall, San Marcos, TX............................. 1999
USPS, Putnam Valley, PA..................................... 2000
Village Green, Yorba Linda, CA.............................. 1997
Westview Plaza, Lebanon, TN................................. 1999
Whitehall, Whitehall, NC.................................... 2000
OFFICE
411 W. Seventh, Fort Worth, TX.............................. 2000
Allen D-2, Allen, TX........................................ 1998
Boulder Office, Boulder, CO................................. 1999
Burbank-Lockheed, Burbank, CA............................... 1999
Forest Hill, Memphis, TN.................................... 1999
Freeport #2 & #3, Irving, TX................................ 1998
INDUSTRIAL
1102 Freeway, Grand Praire, TX.............................. 1999
Deerwood, Jacksonville, FL.................................. 1999
Elk Grove, Elk Grove, IL.................................... 1999
Gamecock, Rock Hill, SC..................................... 1999
GC Services BTS, Lakeland, FL............................... 2000
TC WC Partners, Austin, TX.................................. 2000
Textron, Orlando, FL........................................ 2000
LAND
AEW #10, Mt. Laurel Township, NJ............................ 1997
Arrowood, Charlotte, NC..................................... 1999
Ballpark Way, Houston, TX................................... 2000
Beveland, Tigard, OR........................................ 2000
Cameron, Alexandria, VA..................................... 2000
Cedar Hollow, Chester County, PA............................ 1999
Cleveland, Cleveland, OH.................................... 1996
DC Land, Douglas County, CO................................. 1999
Glasgow, Cherry Hill, NJ.................................... 1999
Hampden Town Center, Denver, CO............................. 1999
Kileen, Kileen, TX.......................................... 1999
Lake Park Plaza, Lewisville, TX............................. 1999
Lakeline Retail, Cedar Park, TX............................. 2000
Loudon Tech, Loudon, VA..................................... 2000
Loveland Land, Loveland, CO................................. 1999
Montpelier II, LLC, Montpelier, MD.......................... 2000
Peachtree, Mesquite, TX..................................... 2000
Sierra Corporate Center, Reno, NV........................... 1999
TC Riverside, Belcamp, MD................................... 1997
Telco LLC, Edgewood, CO..................................... 2000
Temple Retail, Temple, TX................................... 2000
USPS-Kerhonkson, Kerhonkson, NY............................. 1999
Westridge at Gateway, Dallas, TX............................ 1997
Wood Village, Portland, OR.................................. 1999
Total.....................................................
----------------------------------------
(A) The aggregate cost for Federal Income tax purposes is approximately
$221 million.
(B) All real estate investments have been held for sale since acquisition
and are therefore not depreciated.
F-35
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTE TO SCHEDULE III--REAL ESTATE INVESTMENTS
AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
(IN THOUSANDS)
Changes in real estate investments and accumulated depreciation for the
three years ended December 31, 2000 are as follows:
2000 1999 1998
-------- -------- --------
REAL ESTATE INVESTMENTS:
Balance at beginning of year...................... $219,390 $ 91,501 $ 98,567
Additions and improvements...................... 207,206 266,255 169,026
Sales and transfers............................. (206,575) (138,366) (176,092)
-------- -------- --------
Balance at end of year............................ $220,021 $219,390 $ 91,501
======== ======== ========
F-36