RADIAN INTERNATIONAL LLC (A DELAWARE LIMITED LIABILITY COMPANY) (UNAUDITED) CONDENSED CONSOLIDATED BALANCE SHEETS, JUNE 30, 1998 AND DECEMBER 31, 1997 - --------------------------------------------------------------------------- JUNE 30, DEC 31, ASSETS 1998 1997 CURRENT ASSETS: Cash and cash equivalents $ 1,793,282 $ 2,319,038 Trade accounts receivable, net 78,324,280 75,969,419 Inventories 5,685,342 4,602,934 Other current assets 4,756,489 7,902,832 ------------ ------------ Total current assets 90,559,393 90,794,223 PROPERTY AND EQUIPMENT, Net 30,615,927 32,583,658 GOODWILL, Net 16,885,310 17,032,010 RETAINAGE RECEIVABLE 6,389,870 6,242,905 OTHER ASSETS 12,770,455 13,058,922 ------------ ------------ TOTAL ASSETS $157,220,955 $159,711,718 ------------ ------------ ------------ ------------ LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES: Short-term borrowings $ 44,215,334 $ 37,882,381 Current portion of long-term debt - 20,462 Trade accounts payable 5,024,389 11,250,385 Accrued payroll and related items 12,656,220 12,154,016 Accrued income taxes 335,775 511,361 Restructuring and termination liabilities 3,048,958 5,155,748 Other current liabilities 9,470,414 13,645,636 ------------ ------------ Total current liabilities 74,751,090 80,619,989 EMPLOYEE BENEFIT PLANS 6,916,749 6,529,643 LONG-TERM DEBT - 204,620 OTHER LONG-TERM LIABILITIES 512,814 606,590 ------------ ------------ Total liabilities 82,180,653 87,960,842 COMMITMENTS AND CONTINGENCIES MINORITY INTEREST IN SUBSIDIARIES 385,145 427,806 MEMBERS' EQUITY 74,655,157 71,323,070 ------------ ------------ TOTAL LIABILITIES AND MEMBERS' EQUITY $157,220,955 $159,711,718 ------------ ------------ ------------ ------------ -1- RADIAN INTERNATIONAL LLC (A DELAWARE LIMITED LIABILITY COMPANY) (UNAUDITED) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 - ------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 1998 1997 REVENUE: Commercial contracts $ 80,517,485 $ 93,018,550 United States government contracts 56,773,815 63,366,374 -------------- -------------- Total revenue 137,291,300 156,384,924 COST OF SERVICES AND SALES 78,859,082 96,505,041 -------------- -------------- GROSS PROFIT 58,432,218 59,879,883 OVERHEAD AND GENERAL AND ADMINISTRATIVE EXPENSES 54,528,498 58,832,720 INTEREST EXPENSE 1,118,750 1,224,083 GAIN ON SALE OF BUSINESS UNITS (965,873) - -------------- -------------- INCOME (LOSS) BEFORE INCOME TAXES 3,750,843 (176,920) PROVISION FOR INCOME TAXES 248,780 1,260,146 -------------- -------------- NET INCOME (LOSS) $ 3,502,063 $ (1,437,066) -------------- -------------- -------------- -------------- See notes to condensed consolidated financial statements. -2- RADIAN INTERNATIONAL LLC (A DELAWARE LIMITED LIABILITY COMPANY) (UNAUDITED) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 - ---------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 1998 1997 OPERATING ACTIVITIES: Net income (loss) $ 3,502,063 $ (1,437,066) Depreciation and amortization 5,797,402 4,160,328 Gain on sale of business units (965,873) - Deferred taxes (38,504) (1,248,510) Unrealized gain on investments 418,422 - Currency translation adjustment (236,920) (74,934) Changes in assets and liabilities: Trade accounts and retainage receivable (2,501,825) (11,949,221) Other receivables 3,463,889 (5,045,387) Inventories (1,082,409) 217,409 Other assets 214,947 (882,546) Trade accounts payable (6,225,996) (6,714,266) Accrued payroll and related items 502,204 (146,222) Restructuring and termination (2,106,790) (3,443,000) Employee benefit plans 119,904 2,909,884 Other current liabilities (4,425,461) 9,049,089 -------------- -------------- Cash used in operating activities (3,564,947) (14,604,442) -------------- -------------- INVESTING ACTIVITIES: Purchases of property, equipment and leasehold improvements - net (3,541,111) (2,264,350) Proceeds from sale of business units 1,102,413 - Investments and other assests (545,702) 1,021,857 -------------- -------------- Cash used in investing activities (2,984,400) (1,242,493) -------------- -------------- FINANCING ACTIVITIES: Proceeds from short-term borrowings 13,784,795 48,205,000 Repayments of short-term borrowings (7,472,304) (32,216,727) Repayments of long-term debt (204,620) (43,275) Tax distributions to members (84,280) - -------------- -------------- Cash provided by financing activities 6,023,591 15,944,998 -------------- -------------- CHANGE IN CASH AND CASH EQUIVALENTS (525,756) 98,063 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,319,038 1,847,715 -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,793,282 $ 1,945,778 -------------- -------------- -------------- -------------- SUPPLEMENTAL DISCLOSURE - Cash paid for interest $ 450,801 $ 1,026,746 -------------- -------------- -------------- -------------- See notes to condensed consolidated financial statements. -3- RADIAN INTERNATIONAL LLC (A DELAWARE LIMITED LIABILITY COMPANY) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 1 - BASIS OF PRESENTATION: The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and disclosures included in the Company's 1997 consolidated financial statements for the years ended December 31, 1997 and 1996. The condensed consolidated financial statements include all adjustments (consisting only of normal recurring items) which management considers necessary to present fairly the financial position of the Company as of June 30, 1998 and December 31, 1997 and the results of operations for the six-month periods ended June 30, 1998 and June 30, 1997. Certain items in the prior year's financial statements have been reclassified to be consistent with the 1998 presentation. The results of operations for the interim periods are not necessarily indicative of operating results to be expected for the full year. NOTE 2 - RESTRUCTURING AND TERMINATION ACCRUALS: During 1997, the Company reorganized its operations, resulting in the termination of approximately 50 employees, and accrued termination payments of $3,149,000, which will be substantially paid out within 1998. At June 30, 1998 approximately $2,055,000 remains to be expended to complete the restructuring. Additionally, at December 31, 1997, the Company accrued $2,001,000 related to amounts to be paid to three former executives under consulting agreements, at June 30, 1998; approximately $993,000 remains to be paid. NOTE 3 - INVENTORIES: Inventories at June 30, 1998 consisted of the following: Raw materials and supplies $2,369,810 Work-in-progress 2,163,149 Finished goods 1,152,383 ---------- Total $5,685,342 ---------- ---------- -4- RADIAN INTERNATIONAL LLC (A DELAWARE LIMITED LIABILITY COMPANY) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 4 - COMPREHENSIVE INCOME: The Company adopted Statement of Financial Accounting Standard (SFAS) No. 130 "Reporting of Comprehensive Income", effective in 1998. SFAS No. 130 established standards for the reporting and display of comprehensive income and its components. Other comprehensive income of the Company consists of unrealized gains or losses on marketable securities, foreign currency translation adjustments, and minimum pension liability adjustments. SFAS No. 130 does not affect the measurement of the items included in other comprehensive income; it affects only where those items are displayed and how they are described. Comprehensive income is as follows: SIX MONTHS ENDED JUNE 30, 1998 1997 ------------- -------------- Net income (loss) $ 3,502,063 $ (1,437,066) Other comprehensive income, net of tax: Unrealized gain on marketable securities 418,422 - Realized loss on marketable securities - 17,429 Foreign currency translation adjustments (236,920) (74,934) Minimum pension liability adjustment (267,202) (36,908) ------------- -------------- (85,700) (94,413) ------------- -------------- Comprehensive income $ 3,416,363 $ (1,531,479) ------------- -------------- ------------- -------------- NOTE 5 - SALE OF BUSINESS UNITS In February 1998, the Company sold its Materials & Mechanical Engineering business unit to Hartford Steam Boiler Inspection and Insurance Company for $1,102,413. A gain of $965,873 was recognized. NOTE 6 - SUBSEQUENT EVENT On July 31, 1998, the members sold 100% of their interest in Radian International LLC to Dames & Moore Group. In connection with the sale, the sellers or their affiliates forgave the Company's outstanding borrowings of $40,780,843 under the revolving credit agreement. -5-