COLDWELL BANKER CORPORATION AND SUBSIDIARIES ---------------- REPORT ON AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1994 AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994, THREE MONTHS ENDED DECEMBER 31, 1993, AND NINE MONTHS ENDED SEPTEMBER 30, 1993 COOPERS COOPERS & LYBRAND L.L.P. & LYBRAND a professional services firm REPORT OF INDEPENDENT ACCOUNTANTS ------------ The Board of Directors and Stockholders Coldwell Banker Corporation We have audited the accompanying consolidated balance sheets of Coldwell Banker Corporation and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 1995. The consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The financial statements of Coldwell Banker Corporation and Subsidiaries for the three months ended December 31, 1993 and the nine months ended September 30, 1993 were audited by other auditors, whose report dated March 11, 1994, expressed an unqualified opinion on these statements. We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Coldwell Banker Corporation and Subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Newport Beach, California February 27, 1996 Coopers & Lybrand L.L.P., a registered limited liability partnership is a member firm of Coopers & Lybrand (International). INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors Coldwell Banker Corporation We have audited the consolidated statements of operations, stockholders' equity and cash flows for the three months ended December 31, 1993 and the consolidated statements of operations and cash flows for the nine months ended September 30, 1993 of Coldwell Banker Corporation and subsidiaries (formerly Coldwell Banker Residential Holding Company and subsidiaries). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows for the three months ended December 31, 1993 and the nine months ended September 30, 1993 of Coldwell Banker Corporation and subsidiaries in conformity with generally accepted accounting principles. Deloitte & Touche LLP Costa Mesa, California March 11, 1994 COLDWELL BANKER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) --------------- December 31, ------------------- 1995 1994 ASSETS CURRENT ASSETS Cash and cash equivalents $21,449 $28,740 Accounts and commissions receivable (net of allowance of $1,093 in 1995 and $640 in 1994) 10,215 8,242 Subordinated receivable from sales of relocation receivables 47,313 75,082 Notes receivable, current portion (net of allowance of $1,442 in 1995 and $1,916 in 1994) 2,284 1,894 Deferred income taxes 4,818 5,856 Prepaid expenses and other current assets 4,686 4,397 -------- -------- Total current assets 90,765 124,211 NOTES RECEIVABLE, long-term portion (net of allowance of $507 in 1995 and $968 in 1994) 4,811 4,573 DEFERRED INCOME TAXES 9,551 13,609 PROPERTY & EQUIPMENT, net 63,230 66,445 GOODWILL AND OTHER INTANGIBLES , net 37,091 29,710 OTHER ASSETS 4,481 3,699 -------- -------- Total assets $209,929 $242,247 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 2 COLDWELL BANKER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data) --------------- December 31, ------------------- 1995 1994 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES Accounts payable and accrued expenses $102,381 $97,849 Accrued salaries and benefits 18,000 18,400 Income taxes payable 9,002 5,826 Other notes payable, current portion 37,425 19,363 Deferred revenue 2,236 1,367 -------- -------- Total current liabilities 169,044 142,805 LONG-TERM DEBT 83,500 75,350 OTHER NOTES PAYABLE, long term portion 1,405 1,329 POSTRETIREMENT BENEFITS 1,721 1,555 OTHER LIABILITIES 932 957 -------- -------- Total liabilities 256,602 221,996 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIENCY) Common stock, $.01 par value, 10,000,000 shares authorized; 5,749,155 and 5,512,375 shares issued and outstanding in 1995 and 1994, respectively. 58 55 Capital in excess of par value 59,124 54,369 Accumulated deficit (105,855) (34,173) ---------- --------- Total stockholders' equity (deficiency) (46,673) 20,251 ---------- --------- Total liabilities and stockholders' equity $209,929 $242,247 (deficiency) ========== ========= The accompanying notes are an integral part of these consolidated financial statements. 3 COLDWELL BANKER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) ------------- Predecessor ----------- Three Nine Year Year months months ended ended ended ended December 31, December 31, December 31, September 30, 1995 1994 1993 1993 REVENUES Real estate commissions $541,012 $523,268 $51,207 $433,716 Franchise and service fees 66,263 66,818 14,675 43,974 Fees for relocation services, net 61,447 58,967 12,616 42,020 Interest 4,447 9,128 653 12,851 Other 25,577 24,779 5,869 21,885 --------- --------- -------- -------- Total revenues 698,746 682,960 85,020 554,446 --------- --------- -------- -------- EXPENSES Commissions, fees and other direct expenses 333,239 320,075 32,493 259,253 Other operating expenses 289,756 283,721 77,680 237,037 Interest 4,674 12,645 3,325 6,451 Provision for closed offices 2,354 5,250 Management fees to parent 508 550 137 1,464 Amortization of goodwill and other intangibles 9,101 32,726 38,205 2,272 Other 3,649 6,676 4,110 1,887 --------- --------- -------- -------- Total expenses 643,281 656,393 155,950 513,614 --------- --------- -------- -------- INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES AND EXTRAORDINARY ITEM 55,465 26,567 (70,930) 40,832 PROVISION (BENEFIT) FOR INCOME TAXES 24,385 11,769 (27,922) 17,947 --------- --------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 31,080 14,798 (43,008) 22,885 EXTRAORDINARY ITEM, LOSS ON EARLY EXTINGUISHMENT OF DEBT, net of tax benefit of $1,593 in 1995 and $4,685 in 1994 2,027 5,963 --------- --------- -------- -------- NET INCOME (LOSS) $29,053 $8,835 ($43,008) $22,885 ========= ========= ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 4 COLDWELL BANKER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Dollars in thousands) ------------- Common Stock Capital in ------------------- excess of Accumulated Shares Amount par value deficit Total Common stock issued upon formation of Coldwell Banker Corporation, October 5, 1993 5,500,000 $55 $54,245 $ -- $54,300 Net loss for three months ended December 31, 1993 (43,008) (43,008) --------- -------- ------------ ----------- ----------- BALANCE, December 31, 1993 5,500,000 55 54,245 (43,008) 11,292 Common stock issued 12,375 124 124 Net income 8,835 8,835 --------- -------- ------------ ----------- ----------- BALANCE, December 31, 1994 5,512,375 55 54,369 (34,173) 20,251 Common stock issued as a result of the exercise of stock options 274,660 3 2,744 2,747 Tax benefits related to the exercise of stock options 2,389 2,389 Repurchase of common stock (37,880) (378) (378) Net income 29,053 29,053 Dividends paid (100,000) (100,000) Costs related to dividends paid (735) (735) --------- -------- ----------- ------------ ----------- BALANCE, December 31, 1995 5,749,155 $58 $59,124 ($105,855) ($46,673) ========= ======== =========== ============ =========== The accompanying notes are an integral part of these consolidated financial statements. 5 COLDWELL BANKER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) ------------- Predecessor ------------ Year Year Three months Nine months ended ended ended ended December 31, December 31, December 31, September 30, 1995 1994 1993 1993 CASH PROVIDED BY OPERATING ACTIVITIES Net income (loss) $29,053 $8,835 ($43,008) $22,885 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 22,423 44,680 41,141 12,384 Provision for uncollectible notes, accounts and commissions receivable 334 685 1,018 1,568 Provision for closed offices 2,354 5,250 Discounts and other costs on sales of relocation receivables 1,614 4,908 2,769 Proceeds from sales of relocation receivables, client advances and reduction in the subordinated receivable 1,359,810 1,296,642 356,182 Relocation receivables originated (1,333,655) (1,243,810) (259,509) Loss (gain) on sales of property and equipment 111 53 (105) 503 Extraordinary item, loss on early extinguishment of debt, net of income tax benefit 2,027 5,963 Changes in (net of effects from acquisitions): Accounts and commissions receivable 2,303 12,733 108,989 (10,084) Equity advances for residential properties, net 7,868 Notes receivable (435) (256) (257) (1,671) Deferred income taxes 5,096 1,182 (28,655) (2,046) Prepaid expenses and other assets (860) 6,455 (1,246) 1,016 Accounts payable and accrued expenses (10,299) (22,846) (43,651) (6,376) Accrued salaries and benefits (581) 5,486 2,007 (2,453) Income taxes payable 3,176 (10,893) (230) 16,949 Other liabilities (25) (485) (3,222) (2,199) Deferred revenue and advances from clients, net 869 (2,245) (410) 1,048 Postretirement benefits 166 212 (114) 706 ---------- ------------ --------------- ---------------- Total adjustments 54,428 98,464 174,707 22,463 ---------- ------------ -------------- ---------------- Net cash provided by operating activities 83,481 107,299 131,699 45,348 ========== ============ ============== ================ The accompanying notes are an integral part of these consolidated financial statements. 6 COLDWELL BANKER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) ------------- Predecessor ----------- Year Year Three months Nine months ended ended ended ended December 31, December 31, December 31, September 30, 1995 1994 1993 1993 CASH FLOWS FROM INVESTING ACTIVITIES Net changes in parent advances 69 (82) 1,973 (1,836) Expenditures for property and equipment (9,055) (10,291) (1,892) (8,498) Proceeds from sales of property and equiment 76 1,804 1,133 5,323 Increase in notes receivable from shareholders (1,224) Increase in notes receivable (107) (336) (278) (3,033) Collections of notes receivable 1,350 1,845 1,485 1,117 Payments for acquisitions (9,171) (35) (154) ------------ --------------- -------------- ---------------- Net cash (used in) provided by investing activites (18,062) (7,095) 2,421 (7,081) ------------ --------------- -------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in other notes 17,144 (13,884) 4,639 2,943 Net (decrease) increase in notes payable to bank (165,000) (60,000) (Repayments) borrowings under senior line of credit (71,000) 71,000 (Repayments) borrowings under senior subordinated notes (29,350) (85,650) 115,000 Extraordinary item, loss on early extinguishment of debt, net (2,027) (5,963) Borrowings under senior revolver, net 37,500 46,000 Common stock issued 124 55,000 Exercise of stock options 2,747 Tax benefits related to the exercise of stock options 2,389 Purchase of common stock from former stockholder (378) (159,020) Payment to former stockholder for covenant not-to-compete (24,000) Costs and fees paid at closing (8,915) Dividends paid (100,000) (2,207) Costs related to dividends paid (735) --------- ------------- ---------- -------------- Net cash used in financing activities (72,710) (130,373) (111,296) (59,264) --------- ------------- ---------- -------------- Effect of exchange rate change on cash (23) --------- ------------- ---------- -------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,291) (30,169) 22,824 (21,020) CASH AND CASH EQUIVALENTS, beginning of period 28,740 58,909 36,085 57,105 --------- ------------- ---------- -------------- CASH AND CASH EQUIVALENTS, end of period $21,449 $28,740 $58,909 $36,085 ========= ============= ========== ============== The accompanying notes are an integral part of these consolidated financial statements. 7 COLDWELL BANKER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) ------------- Predecessor ----------- Year Year Three month Nine months ended ended ended ended December 31, December 31, December 31, September 30, 1995 1994 1993 1993 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during period for: Interest $5,566 $13,182 $3,468 $7,824 ======== ======== ======= ========= Income Taxes $11,205 $17,722 $1,636 $3,222 ======== ======== ======= ========= SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES Fair value of assets purchased $23,469 $35 $628,682 $154 Cash payments for acquisitions (9,171) (35) (183,020) (154) -------- --------- -------- -------- Liabilities assumed $14,298 $ -- $445,662 $ -- ======== ========= ======== ========= Advances from clients sold as part of the related relocation assets $ -- $24,738 $ -- $ -- ======== ========== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 8 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------- 1. BASIS OF PRESENTATION The accompanying consolidated financial statements for the year ended December 31, 1995 and 1994, and the three months ended December 31, 1993, reflect the operations of Coldwell Banker Corporation and Subsidiaries (the "Company") (formerly Coldwell Banker Residential Holding Company and Subsidiaries). The stock of the Company was acquired by Fremont Group, Inc. ("Fremont") and senior management of the Company on October 5, 1993, (the "Acquisition") and accounted for as being effective as of October 1, 1993. Because of acquisition adjustments made, the accompanying consolidated financial statements of the Company are not directly comparable to those of the Predecessor. The accompanying consolidated statement of operations for the nine months ended September 30, 1993, reflects the operations of the Company prior to the Acquisition when the Company was wholly owned through a subsidiary of Sears, Roebuck and Co. ("Sears"). These operations are referred to as the "Predecessor." The purchase price was approximately $159.0 million, including interest in the amount of $2.7 million paid to Sears at closing. In addition, the Company paid to Sears $24.0 million for an agreement not-to-compete. The Acquisition was accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16, Business Combinations. Accordingly, the total purchase price has been allocated to the tangible and intangible assets and liabilities acquired based on the Company's estimates of their respective fair values at the date of acquisition. The Acquisition had a significant impact on the carrying basis of assets and liabilities. Accordingly, historical results of operations for the three months ended December 31, 1993 and the year ended December 31, 1994, have been significantly impacted from the effects of acquisition accounting. 9 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- The significant effects of acquisition accounting on the Company's historical results of operations before income taxes and extraordinary item are as follows: Three Year ended months ended December 31, 1994 December 31, 1993 Reduction in commission revenues related to recording of pending contracts receivable $9,768 $89,596 Reduction in commission expense associated with pending contracts receivable (5,861) (52,745) Amortization of the intangible value of brokerage, franchise and relocation listings acquired 25,274 36,246 On January 6, 1995, the Company acquired certain assets and assumed certain liabilities of Fox & Carskadon, a real estate brokerage company, for a purchase price of approximately $14.7 million. The acquisition was accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16, Business Combinations. Accordingly, the total purchase price has been allocated to the tangible and intangible assets and liabilities acquired based on the Company's estimates of their respective fair values at the date of acquisition. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company - Through its subsidiaries, all of which are wholly-owned, the Company operates a network of company-owned brokerage offices, which conduct real estate brokerage, leasing and management activities in the residential real estate market in the United States. As the franchiser of the Coldwell Banker name and systems, the Company through a subsidiary, Coldwell Banker Residential Affiliates, Inc. ("CBRA"), also provides services, products and certain rights to the Coldwell Banker name to independently owned franchisees throughout the United States, Canada and Puerto Rico. Another subsidiary, Coldwell Banker Relocation Services, Inc. ("CBRS"), provides various relocation services to client corporations that transfer their employees to other geographic locations. Other subsidiaries provide various other real estate-related services. Principles of consolidation - The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. 10 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- Management Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents - The Company considers short-term investments which have maturities of three months or less at date of acquisition to be cash equivalents. Property and Equipment - Property and equipment, including significant improvements thereto, are stated at cost. Upon retirement or other disposal, the asset cost and related accumulated depreciation are removed from the accounts, and the net amount less any proceeds, is charged or credited to income. Maintenance and repairs are charged to expense as incurred. Facilities which have been closed, and that management intends to sell, are carried at the lower of cost less accumulated depreciation or estimated realizable value. Depreciation and Amortization - The Company provides for depreciation on the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized on the straight-line method over the estimated useful life of the asset or the term of the lease, whichever is shorter. Property and equipment are depreciated or amortized over the following estimated useful lives: Years Land Improvements 20 Building and improvements 35 Leasehold improvements Lesser of estimated useful life or remaining term of lease Furniture and equipment 3 to 5 Leases - Aside from the Company's corporate headquarters, the Company operates primarily in leased facilities. Lease terms are generally five years with options to renew at varying terms. Certain facility leases include scheduled base rent increases over the term of the lease. The total amount of the base rent payments is being charged to expense on the straight-line method over the term of the leases. The Company has recorded a liability to reflect the excess of rent expense over cash payments since the inception of the leases. In addition to the base rent payment, the Company may also be required to pay a monthly allocation of the buildings' operating expenses. 11 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- Goodwill and Other Intangibles - Goodwill represents the excess of cost over the fair value of net assets acquired. Goodwill is being amortized on a straight line basis over terms ranging between 1 year and 25 years. Other intangibles are stated at cost and include a covenant not-to-compete with Sears. The covenant not-to-compete is being amortized on a straight-line basis over the term of the covenant which is four years. The Company assesses whether there has been a permanent impairment in the value of intangible assets by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Management believes no permanent impairment has occurred. Income Taxes - The Company's operations are consolidated for federal income tax purposes with those of Sears through October 4, 1993, and for federal and California purposes, with those of Fremont since October 5, 1993. In all other taxing jurisdictions, the Company files its own tax returns. The income tax arrangement between the Predecessor and Sears provided that the Predecessor's provision for income taxes generally would be determined as if the Predecessor were filing its own tax returns. Further, Sears agreed to reimburse the Predecessor for the benefit it received from its utilization of any federal tax losses or tax credits generated by the Predecessor. The income tax arrangement between the Company and Fremont provides that the Company's provision for federal and California income taxes generally will be determined as if the Company were filing its own tax returns and began operations on October 5, 1993. The Company uses the liability method of accounting for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Deferred income taxes are recorded based on the difference between financial statement and income tax bases of assets and liabilities and available tax credit carryforwards using enacted rates in effect for the year in which the differences are expected to reverse. A valuation allowance would be established for deferred income tax assets if it were more likely than not that some portion or all of the deferred income tax assets will not be realized. Income tax expense is the tax payable for the period and the change during the period in deferred income tax assets and liabilities. Closed Offices - In the course of business, the Company opens and closes real estate brokerage offices and facilities based on industry and local market conditions. Leases related to facilities which have been closed are evaluated taking into consideration current and prospective real estate market conditions, sublease and lease termination opportunities, and other factors, and a charge to operations is recorded to reflect the expected future lease and other expenses associated with such closed facilities. 12 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- Revenue Recognition - Real estate commissions are recorded as revenue upon close of escrow or upon transfer of title. Other commissions and fees are recorded as revenue at the time the related services have been performed by the Company unless significant future contingencies exist. Fees for relocation services are earned under contracts with client corporations and consist of real estate related fees associated with the acquisition, management and resale of employee-transferees' homes and fees derived from providing additional non-real estate relocation administration services which include the administration of client corporations' relocation policies, the management of household goods moves, and accounting for employee-transferees' relocation reimbursable expenses. Real estate related relocation revenues are recognized partially upon acquisition of the home from the employee-transferee and the remainder upon close of escrow or transfer of title. Fees associated with non-real estate services are recognized over the periods in which the services are provided and the associated expenses are incurred. All fees for relocation services are shown net of expenses reimbursed by client corporations. Franchise fee revenues are recognized upon substantial completion of the Company's obligation to the franchisee. Franchise service fee revenues are recognized when the franchisee settles or closes escrow on real estate transactions brokered by the franchisee. Relocation Services - Real estate related services provided by CBRS include responsibility for the acquisition, management and sale of the employee-transferee's home, providing equity advances on the employee-transferee's home for purchase of a new home and certain other relocation related services. While CBRS possesses legal or equitable title to the properties, any difference between the purchase price and the ultimate sales proceeds is the responsibility of the client corporation. Additionally, direct expenses of managing the homes under contract (continuing mortgage payments, property taxes, repairs and maintenance, etc.) are borne by the client corporation. Funds are generally advanced by the client corporation to CBRS for payment of these home management costs. After the home selling transaction is completed, a settlement of actual costs, fees and the funds advanced is made with the client corporation. Under certain contracts with client corporations, CBRS may provide an advance of equity prior to the acquisition of the home and may fund other relocation related expenses on behalf of the client corporation. In addition, CBRS may advance funds to pay off all mortgage debt upon purchase of the home by CBRS. These advances are repaid to CBRS upon the close of escrow or transfer of title when the related home is resold. All 13 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- advances generally carry an interest charge and are guaranteed by the client corporation. Several client corporations have arranged to fund all or a portion of their relocation related expenses, including equity payments to their employee-transferees. Such funding reduces the requirement for CBRS to fund such expenses and is repaid to the client corporation upon the close of escrow or transfer of title when the related home is sold. As described in Note 4, certain eligible Receivables arising from the above transactions have been sold to an unrelated trust. Franchise Agreements - Upon execution of the franchise agreement, a franchisee is required to pay an initial franchise fee based on the number of locations franchised. The franchisee is also required to pay a service fee equal to a percentage of its gross revenues, as defined in the franchise agreement. Stock Options - In October 1995, the Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation ("SFAS 123") which is effective for transactions entered into in fiscal years that begin after December 15, 1995. The Company is currently studying the effects of adopting SFAS 123 or continuing to account under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Reclassification - Certain prior period amounts have been reclassified to conform with the current period presentation. 3. CASH AND CASH EQUIVALENTS Included within cash and cash equivalents is $9,674,000 and $17,082,000 at December 31, 1995 and 1994, respectively, of funds invested in certificates of deposit and other similar cash equivalents that cannot be used other than to repay the loans that provided the cash for these cash equivalents. The loans to which these cash equivalents relate are included in other notes payable, current portion (See Note 8). 4. SUBORDINATED RECEIVABLE FROM SALES OF RELOCATION RECEIVABLES Effective October 5, 1993, CBRS entered into a three-year $250 million agreement to sell, on a revolving basis, its ownership interest in the principal portion of certain of its eligible accounts receivable and equity advances for residential properties, net ("Receivables"). On October 5, 1994, CBRS entered into a similar new five-year agreement (the "Agreement") that replaced the agreement of October 5, 1993. The 14 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- Agreement allows for up to $250 million of outstanding cash proceeds to be available for the sales of such eligible Receivables net of client advances. The level of cash proceeds is subject to change based on the level of eligible Receivables and restrictions on concentrations of Receivables. Under terms of the Agreement, CBRS generally receives a portion of the sale proceeds in cash from the buyer with the remainder payable in the form of a non-interest bearing receivable from the purchaser. Additionally, CBRS services the Receivables portfolio for the purchaser for a fee. During the course of the Agreement, proceeds from collection of the Receivables are available first to repay the purchaser; at the expiration of the Agreement, CBRS and the purchaser will share a proportionate risk of loss as the eligible pool of Receivables is liquidated subject to the recourse provisions of the Agreement. Included in other expenses for the years ended December 31, 1995 and 1994, and the three months ended December 31, 1993, are $1,614,000, $4,908,000 and $2,769,000, respectively, of discounts and other costs recognized on sales of such Receivables. At December 31, 1995 and 1994, all qualifying Receivables have been sold as required by the terms of the Agreement. The outstanding amount due under the subordinated receivable at December 31, 1995 and 1994, was $47,313,000 and $75,082,000, respectively, which is net of deferred interest income of $1,940,000 and $2,282,000, respectively, based on interest rates ranging FROM 6.67% to 9.05%. At December 31, 1995 and 1994, $16,023,000 and $51,288,000, respectively, of this receivable was available on demand and the remainder is subject to recourse provisions and is, therefore, effectively subordinated to repayments to investors. 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 1995 1994 (in thousands) Land and land improvements $9,228 $9,412 Buildings and improvements 23,143 22,880 Leasehold improvements 10,507 9,041 Furniture and equipment 40,656 33,838 ------- ------- 83,534 75,171 Less accumulated depreciation and amortization (20,304) (8,726) ------- -------- Property and equipment, net $63,230 $66,445 ======= ======= 15 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- Depreciation expense was $13,322,000 and $11,954,000 for the years ended December 31, 1995 and 1994, respectively, $2,936,000 for the three months ended December 31, 1993, and $10,112,000 for the nine months ended September 30, 1993. 6. GOODWILL AND OTHER INTANGIBLES Goodwill and other intangibles consist of the following at December 31, 1995 1994 (in thousands) Goodwill $30,257 $15,209 Listing contracts 62,815 61,520 Covenant not-to-compete 24,050 24,000 -------- -------- 117,122 100,729 Accumulated amortization 80,031 71,019 -------- -------- Goodwill and other intangibles, net $37,091 $29,710 ======= ======= 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following at December 31, 1995 1994 (in thousands) Accounts payable $37,762 $40,359 Reserve for closed offices 9,999 9,379 Accrued expenses and other 54,620 48,111 --------- ------- $102,381 $97,849 ======== ======= 16 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- 8. OTHER NOTES PAYABLE Other notes payable consist of the following at December 31, 1995 1994 (in thousands) Arbitrage loans $36,220 $17,082 Obligations under capital leases 2,300 1,902 Other 310 1,708 --------- -------- 38,830 20,692 Less current portion 37,425 19,363 -------- ------- $1,405 $1,329 ======== ======= Proceeds from arbitrage loans in the amount of $9,674,000 and $17,682,000 at December 31, 1995 and 1994, respectively, are invested in certificates of deposits and other similar cash equivalents and cannot be used other than to repay the related loans. The loans bear interest at rates ranging from .8% to 2.0% and are due monthly. Additionally, proceeds from the remainder of the arbitrage loans are unrestricted, bear interest at rates ranging from .5% to 2.0% and are due monthly. Obligations under capital leases bear interest at rates ranging from 6.0% to 16.0%, have terms ranging from 24 months to 80 months and are generally collateralized by the related leased assets. 9. LONG TERM DEBT Long Term Debt consists of the following at December 31, 1995 1994 (in thousands) 10 1/4% senior subordinated notes $ -- $29,350 Senior revolving credit facility payable 83,500 46,000 ------- -------- $83,500 $75,350 ======= ======= 17 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- Senior Subordinated Notes - In connection with the Acquisition, the Company issued $115,000,000 of 10 1/4% Senior Subordinated Notes due June 30, 2003. The Senior Subordinated Notes were subordinated to all senior indebtedness of the Company and were subject to various covenants, all of which the Company was in compliance with at December 31, 1994. The Company repurchased, in the open market, the remaining $29,350,000 of the Senior Subordinated Notes during the year ended December 31, 1995 (See Note 20). Senior Indebtedness - On October 6, 1994, the Company entered into a credit agreement with Citicorp U.S.A., Inc. and a group of lenders to provide the Company with a five year $100,000,000 reducing revolving credit facility which includes a $10,000,000 subfacility for letters of credit (the "Credit Agreement"). On July 26, 1995, the Credit Agreement was amended to increase the revolving credit facility to $170,000,000. Borrowings under the Credit Agreement are collateralized by substantially all of the Company's assets, including a pledge of the Company's common stock and that of the Company's principal subsidiaries. Beginning June 30, 1996, the $170,000,000 facility will be reduced semi-annually to $77,500,000 as follows: June 30, 1996 $155,000,000 December 31, 1996 $140,000,000 June 30, 1997 $127,500,000 December 31, 1997 $115,000,000 June 30, 1998 $102,500,000 December31, 1998 $90,000,000 June 30, 1999 $77,500,000 Interest on borrowings under the Credit Agreement is based on the London Interbank Offered Rate ("LIBOR") or Citibank's Alternate Base Rate ("ABR") at the Company's option. Borrowings bear interest at LIBOR plus a margin of 0.5% to 1.25% (1.25% at December 31, 1995). The borrowing rate at December 31, 1995, was 7.00%. Interest is paid on the day of LIBOR maturities and in arrears on the first day of the month for ABR advances. The Credit Agreement contains certain covenants that, among other things, limit the type and amount of additional indebtedness that may be incurred by the Company and impose limitations on investments, loans and advances, sales or transfers of assets, liens, dividends and other payments, certain transactions with affiliates and certain mergers. At December 31, 1995 and 1994, the Company was in compliance with all covenants. 18 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- 10. STOCK OPTIONS In connection with the Acquisition, six members of management were granted stock options to purchase, at the then fair value of $10.00 per share, 645,400 shares of the Company's common stock. Additionally in March 1994, certain directors of the Company were granted options to purchase, at $10.00 per share, 37,125 shares of the Company's common stock. In July 1995, certain employees of the Company were granted options to purchase, at the then estimated fair value of $26.61 per share, 90,000 shares of the Company's common stock. Options granted vest in five equal installments beginning one year after the date of grant and for a five year period thereafter, except that all options become immediately vested upon a change in control of the Company (as defined in the option agreements). The options expire seven years after the date of grant. On August 16, 1995, 274,660 options were exercised at $10.00 per share. At December 31, 1995 and 1994, total unexercised options were 442,545 and 682,525, respectively, of which none and 129,080 options, respectively, were exercisable. 11. FEES FOR RELOCATION SERVICES Fees for relocation services, net, consist of the following: Predecessor ----------- Three months Nine months Year ended Year ended ended ended December 31, December 31, December 31, September 30, 1995 1994 1993 1993 (in thousands) Gross fees and expenses incurred for relocation services $451,061 $370,375 $73,455 $272,899 Less reimbursed expenses 389,614 311,408 60,839 230,879 ------- ------- ------ ------- Fees for relocation services, net $61,447 $58,967 $12,616 $42,020 ======= ======= ======= ======= 12. FRANCHISE OPERATIONS Included in expenses in the accompanying consolidated statements of operations are $49,315,000, $35,889,000, $8,674,000 and $26,987,000 of expenses (principally other operating expenses) related to franchise operations for the years ended December 31, 1995 and 1994, three months ended December 31, 1993, and the nine months ended September 30, 1993, respectively. 19 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- 13. INCOME TAXES The provision (benefit) for income taxes before extraordinary item consists of the following: Predecessor ----------- Three months Nine months Year ended Year ended ended ended December 31, December 31, December 31, September 30, 1995 1994 1993 1993 (in thousands) Federal: Current $14,018 $8,914 $67 $16,089 Deferred 4,934 1,034 (23,177) (2,050) -------- -------- --------- --------- 18,952 9,948 (23,110) 14,039 -------- -------- --------- ------- State: Current 5,271 1,673 665 3,904 Deferred 162 148 (5,477) 4 --------- --------- ---------- ----------- 5,433 1,821 (4,812) 3,908 --------- -------- ---------- -------- $24,385 $11,769 ($27,922) $17,947 ======= ======= ========= ======= A reconciliation of income taxes at the statutory rate to the effective rate is as follows: Predecessor ----------- Three months Nine months Year ended Year ended ended ended December 31, December 31, December 31 September 30, 1995 1994 1993 1993 Statutory rate 35.0% 35.0% 35.0% 35.0% State taxes, net of federal benefit 6.4 4.5 4.2 6.2 Goodwill amortization .8 1.9 0.2 2.2 Foreign operations .1 Other 1.7 2.9 0.6 ------- ------- --------- ----- Effective rate 44.0% 44.3% 39.4% 44.0% ===== ===== ===== ===== 20 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- Income taxes payable in the accompanying consolidated balance sheets are comprised principally of amounts owed to Fremont for income taxes. The components of the Company's deferred income taxes as reflected in the consolidated balance sheets are summarized as follows at December 31, 1995 1994 (in thousands) Deferred income tax assets Closed office and other reserves $11,733 $14,454 Deferred franchise costs 2,521 1,788 Accrued vacation pay 1,605 1,524 Allowance for bad debts 1,356 1,431 Deferred rents 1,347 1,379 Postretirement benefits 757 652 Deferred gain on sale/leaseback 302 344 Deferred compensation 743 252 Other 1,846 2,344 Pending and listing contracts 547 --------- ------- Total deferred income tax assets 22,757 24,168 ------- ------- Deferred income tax liabilities Depreciation 2,395 1,693 Relocation contracts 2,899 1,656 Effects of state taxes 666 1,354 Other 2,428 -------- -------- Total deferred income tax liabilities 8,388 4,703 --------- -------- Net deferred income tax assets $14,369 $19,465 ======= ======= Management believes it is more likely than not that the Company will fully utilize its deferred tax assets by applying them against taxable income to be generated in future years. The Company estimates that the majority of its deferred tax assets will be realized during the next three years. 21 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- 14. LEASE COMMITMENTS The Company leases certain of its offices and equipment under noncancelable operating leases. Minimum annual rental commitments under noncancelable operating leases and related sublease rentals are as follows at December 31, 1995: Minimum Sublease payments rentals (in thousands) Years ending December 31, 1996 $32,330 $3,965 1997 23,777 2,167 1998 17,764 1,167 1999 11,298 808 2000 6,298 565 Thereafter 9,426 1,126 ---------- ------- $100,893 $9,798 ======== ====== A portion of the above rental commitments and associated sublease rental income for closed offices have been accrued for in the reserve for closed offices. Rent expense was $27,203,655 (net of sublease rentals of $453,216) for the year ended December 31, 1995, $25,667,000 (net of sublease rentals of $451,000) for the year ended December 31, 1994, $7,060,000 (net of sublease rentals of $864,000) for the three months ended December 31, 1993, and $24,834,000 (net of sublease rentals of $724,000) for the nine months ended September 30, 1993. 22 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- 15. TRANSACTIONS WITH AFFILIATES Transactions with Parent and Other Affiliates - In the ordinary course of business, the Company has transactions with certain affiliated companies. Transactions with its parent and other affiliates were as follows: Predecessor ----------- Three months Nine months Year ended Year ended ended ended December 31, December 31, December 31, September 30, 1995 1994 1993 1993 (in thousands) Management fees to parent - Fremont $508 $550 $137 $ -- Federal and state income taxes paid to parent - Fremont 8,246 917 1,312 Relocation revenues from Bechtel Group, Inc. 1,907 Relocation revenues from Sears affiliated entities 2,210 Management fees to parent - Sears affiliated entities 1,464 Insurance - Sears affiliated entities 6,133 Profit sharing - Sears affiliated entities 1,727 Data processing and other allocated expenses - Sears affiliated entities 3,927 Insurance - The Predecessor participated in a self-insured medical insurance plan administered by Sears through September 30, 1993. The Predecessor's portion of medical insurance expense was $4,157,000 for the nine months ended September 30, 1993. In addition, during the nine months ended September 30, 1993, the Predecessor paid $1,976,000 related to worker's compensation and general insurance programs administered by its parent. Management Fees to Parent - Management fees to Fremont for the year ended December 31, 1995, December 31, 1994, and the three months ended December 31, 1993, consist of charges for accounting, finance and other support services. Management fees to Predecessor's parent, charged through September 30, 1993, consist of charges for accounting, legal, treasury and employee benefit administration and other support services. These costs have been allocated to the Company on the basis of various factors which take into consideration the relative costs and expenses incurred by the parent in providing such services to the Company. Management believes that the amounts 23 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- allocated to the Company have been computed and charged to the Company on a reasonable basis. 16. COMMITMENTS AND CONTINGENCIES Data Processing - The Company entered into an agreement as of August 1, 1994, with Advantis, a general partnership between affiliates of Sears and International Business Machines Corporation. Under the agreement, Advantis will continue to provide the Company with information processing, data networking and related services. As to central processing unit information services, the agreement is exclusive, but there is no minimum annual commitment. The agreement replaces an earlier agreement with Advantis which had a minimum annual commitment of approximately $6,600,000. The agreement will expire, unless earlier terminated or extended, on December 31, 1998. Communications - The Company entered into an agreement as of December 13, 1994, with AT&T. Under this agreement, AT&T will provide the Company with voice communications services formerly provided by Advantis. Pursuant to the agreement, the Company has an aggregate minimum annual commitment of approximately $3,000,000 subject to various cost of living and usage adjustments. The agreement will expire, unless earlier terminated or extended, on December 14, 1998. Litigation - The Company and its subsidiaries are defendants in certain lawsuits involving routine litigation incidental to the businesses in which they are engaged. Based on the opinions of in-house and external counsel, the Company believes that any liability which may result from disposition of these lawsuits will not have a material effect on the Company's consolidated financial position or results of operations. 17. FIDUCIARY FUNDS Fiduciary Funds - The consolidated financial statements do not include the assets and liabilities or activities of various fiduciary funds. At December 31, 1995 and 1994, such funds amounted to $37,570,000 and $28,774,000, respectively. These funds are primarily comprised of deposits by homebuyers pending close of escrow or transfer of title. The Company is subject to various disclosure and fiduciary duties under certain state laws with which the Company believes it currently complies. Advertising Fund - Under terms of CBRA's franchise agreements, company-owned brokerages and franchisees are required to contribute to an advertising fund administered by the Company. The consolidated financial statements do not reflect the net assets or activities of the advertising fund. Net assets of the advertising fund aggregated 24 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- $2,065,000 and $1,928,000 at December 31, 1995 and 1994, respectively. For the years ended December 31, 1995 and 1994, the three months ended December 31, 1993, and the nine months ended September 30, 1993, the Company contributed $2,983,000, $3,087,000, $763,000 and $2,582,000, respectively, and franchisees contributed $13,683,000, $13,093,000, $3,026,000 and $8,325,000, respectively, to the advertising fund. 18. FAIR VALUE INFORMATION The following disclosure of the estimated fair value of financial instruments at December 31, 1995 and 1994, is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying values of cash and cash equivalents, accounts and commissions receivable, accounts payable and accrued expenses, and notes payable at December 31, 1995 and 1994, are a reasonable estimate of their fair value. The carrying value of notes receivable and subordinated receivable from sale of relocation receivables, excluding notes aggregating $208,000 and $641,000, net, at December 31, 1995 and 1994, respectively, approximates fair value estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the remaining maturities. The fair value of the $208,000 and $641,000 of notes receivable at December 31, 1995 and 1994, respectively, is net of an allowance for doubtful accounts of $175,000 and $241,000, respectively, and is comprised of numerous notes receivable with varying interest rates, collateral values and payment characteristics arising from the Company's real estate brokerage operations and certain nonperforming notes receivable; accordingly, the fair value of these notes receivable was not estimated because it was not practical without excessive cost in relation to the amount of the notes receivable to reasonably assess the credit adjustment that would be applied for such loans. 25 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- The fair value of the Company's Senior Subordinated Notes payable with a carrying value of $29,350,000 at December 31, 1994, was $31,929,000 based on the amount paid to repurchase the notes in the open market in 1995. The fair value information presented herein is based on pertinent information available to management as of December 31, 1995 and 1994. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. 19. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides certain healthcare and life insurance benefits for retired employees. Generally, qualified employees may become eligible for these benefits if they retire in accordance with the Company's established retirement policy and are continuously insured under the Company's insurance plans prior to retirement. All retired employees of the Company who are age 55 with 15 years of continuous service in a plan offered by the Company are eligible for these benefits. The Company's postretirement benefit plans currently are not funded. The Company has the right to modify or terminate these plans. The Company accrues the cost of retiree healthcare and life insurance benefits during the employee's service with the Company. Postretirement benefits costs were comprised of the following: Predecessor ----------- Three months Nine months Year ended Year ended ended ended December 31, December 31, December 31, September 30, 1995 1994 1993 1993 (in thousands) Service costs (benefits) earned during the period $120 $141 ($68) $424 Interest costs on accumulated postretirement benefit obligation 81 93 (46) 282 ----- ----- ------- ----- Postretirement benefit costs (benefits) $201 $234 ($114) $706 ==== ==== ====== ==== 26 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- Accumulated postretirement benefits were as follows at December 31, 1995 1994 (in thousands) Accumulated postretirement benefit obligation: Retirees & Dependents $85 $52 Fully eligible active plan participants 273 191 Other active plan participants 948 922 ------- ------- Accumulated postretirement benefit obligation 1,306 1,165 Unrecognized gain 415 390 ------- ------- Accrued postretirement benefit costs recognized in the consolidated balance sheets $1,721 $1,555 ====== ====== Subsequent to the adoption of Statement of Financial Accounting Standards No.106, Employers' Accounting for Postretirement Benefits Other Than Pensions, at January 1, 1992, the Company modified the cost-sharing provisions related to retiree contributions. These modifications reduced the Company's accumulated postretirement benefit obligation as of December 31, 1992. The unamortized effects of the negative plan amendments were eliminated in connection with the accounting for the Acquisition. The weighted average healthcare costs trend rate used in measuring the accumulated postretirement benefit obligation and postretirement benefit cost was 8.0% in 1995, gradually declining to 5.5% in 2001, and remaining at that level thereafter. A 1.0% increase in the assumed healthcare cost trend rate for each year would increase the accumulated postretirement benefit obligation by $43,000 and would increase the sum of the service cost and interest cost by $7,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.0%. 20. EXTRAORDINARY ITEM RELATED TO THE EARLY EXTINGUISHMENT OF DEBT During the year ended December 31, 1995, the Company incurred an extraordinary loss of $2,027,000 net of income tax benefits of $1,593,000. The loss was related to the repurchase of senior subordinated notes. 27 COLDWELL BANKER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------- During the year ended December 31, 1994, the Company incurred an extraordinary loss of $5,963,000 net of income tax benefits of $4,685,000. The loss was related to the refinancing of the senior indebtedness and repurchase of senior subordinated notes. 21. QUARTERLY INFORMATION (UNAUDITED) Year ended December 31, 1995 --------------------------------------------------- First Second Third Fourth quarter quarter quarter quarter Revenues $126,850 $186,038 $207,713 $178,145 ======== ======== ======== ======== Income (loss) before provision (benefit) for income taxes and extraordinary item ($10,907) $ 15,473 $31,931 $18,968 ========= ======== ======= ======= Income (loss) before extraordinary item ($6,231) $8,757 $17,514 $11,040 ======== ====== ------- ------- Net income (loss) ($8,294) $8,829 $17,514 $11,004 ======== ====== ======= ======= Year ended December 31, 1994 ---------------------------------------------------- First Second Third Fourth quarter quarter quarter quarter Revenues $129,518 $201,469 $193,973 $158,000 ======== ======== ======== ======== Income (loss) before provision (benefit) for income taxes and extraordinary item ($30,666) $28,177 $27,775 $1,281 ========= ======= ======= ====== Income (loss) before extraordinary item ($16,253) $14,934 $14,669 $1,448 ========= ======= ======= ====== Net income (loss) ($16,253) $13,525 $14,669 ($3,106) ========= ======= ======= ======== 28