Exhibit 99.4
 Douglas Elliman Realty LLC
and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 2009, 2008 and 2007




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Index
December 31, 2009 and 2008
 Page(s)Report of Independent Registered Public Accounting Firm
    
    
    1Consolidated Financial StatementsConsolidated Statements of Financial Position
    
    
    2Consolidated Statements of Operations
    
    
    3Consolidated Statements of Changes in Members Equity
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-19




---



##### 



Report of Independent Registered Public Accounting Firm
 
  
 1




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Consolidated Statements of Financial Position

December 31, 2009 and 2008
 (in thousands of dollars)
 (Not coveredby AuditorsReport)2009
    
    
    2008AssetsCurrent assetsCash and cash equivalents
    
    $
    26,195
    
    
    $
    21,400Certificates of deposit
    
    
    725
    
    
    
    725Receivables
    
    
    4,702
    
    
    
    4,802Prepaid expenses and other current assets
    
    
    1,962
    
    
    
    2,694Total current assets
    
    
    33,584
    
    
    
    29,621Property, equipment and leasehold improvements, net
    
    
    13,498
    
    
    
    15,868Goodwill
    
    
    38,601
    
    
    
    38,578Trademarks
    
    
    21,663
    
    
    
    21,663Other intangible assets, net
    
    
    742
    
    
    
    939Deferred financing charges, net
    
    
    57
    
    
    
    120Security deposits and other non current assets
    
    
    920
    
    
    
    904Investments in non-consolidated businesses
    
    
    1,894
    
    
    
    Total assets
    
    $
    110,959
    
    
    $
    107,693Liabilities and Members EquityCurrent liabilitiesCurrent portion of notes payable and other obligations
    
    $
    233
    
    
    $
    334Current portion of notes payable to related parties
    
    
    5,517
    
    
    
    9,957Accounts payable and accrued expenses
    
    
    13,416
    
    
    
    14,409Accrued compensation
    
    
    2,946
    
    
    
    5,744Commissions payable
    
    
    4,040
    
    
    
    3,142Current portion of accrued royalties
    
    
    322
    
    
    
    322Total current liabilities
    
    
    26,474
    
    
    
    33,908Notes payable and other obligations, less current portion
    
    
    863
    
    
    
    1,018Notes payable to related parties, less current portion
    
    
    1,273
    
    
    
    5,875Deferred rent
    
    
    7,022
    
    
    
    5,123Accrued royalties, less current portion
    
    
    725
    
    
    
    1,047Total liabilities
    
    
    36,357
    
    
    
    46,971Commitments and contingencies (Note 12)Members equity
    
    
    74,602
    
    
    
    60,722Total liabilities and members equity
    
    $
    110,959
    
    
    $
    107,693
  2




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Consolidated Statements of Operations

Years Ended December 31, 2009, 2008 and 2007
 (in thousands of dollars)
 (Not covered
    
    
    (Not coveredby Auditors
    
    
    by AuditorsReport)
    
    
    Report)2009
    
    
    2008
    
    
    2007Revenues
    
    $
    283,851
    
    
    $
    352,680
    
    
    $
    405,595Costs and expensesSelling
    
    
    179,333
    
    
    
    236,973
    
    
    
    275,050General and administration
    
    
    85,237
    
    
    
    93,414
    
    
    
    90,778Total costs and expenses
    
    
    264,570
    
    
    
    330,387
    
    
    
    365,828Operating income
    
    
    19,281
    
    
    
    22,293
    
    
    
    39,767Other income (expense)Equity in net income of non-consolidatedbusinesses, net of tax
    
    
    2,090
    
    
    
    
    
    
    
    Interest income
    
    
    44
    
    
    
    308
    
    
    
    627Interest expense
    
    
    (2,457
    )
    
    
    (3,598
    )
    
    
    (4,936
    )Net income before taxes
    
    
    18,958
    
    
    
    19,003
    
    
    
    35,458Income tax expense
    
    
    223
    
    
    
    253
    
    
    
    748Net income
    
    $
    18,735
    
    
    $
    18,750
    
    
    $
    34,710
  3




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Consolidated Statements of Changes In Members Equity

Years Ended December 31, 2009, 2008 and 2007
 (in thousands of dollars)
 (Not covered
    
    
    (Not coveredby Auditors
    
    
    by AuditorsReport)
    
    
    Report)2009
    
    
    2008
    
    
    2007Balance, Beginning of Year
    
    $
    60,722
    
    
    $
    52,650
    
    
    $
    32,083Net income
    
    
    18,735
    
    
    
    18,750
    
    
    
    34,710Distributions to members
    
    
    (4,855
    )
    
    
    (10,678
    )
    
    
    (14,143
    )Balance, End of Year
    
    $
    74,602
    
    
    $
    60,722
    
    
    $
    52,650
  4




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Consolidated Statements of Cash Flows

Years Ended December 31, 2009, 2008 and 2007
 (in thousands of dollars)
 (Not covered
    
    
    (Not coveredby Auditors
    
    
    by AuditorsReport)
    
    
    Report)2009
    
    
    2008
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    18,735
    
    
    $
    18,750
    
    
    $
    34,710Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation and amortization
    
    
    4,703
    
    
    
    5,746
    
    
    
    6,495Loss on sale and disposal of property and equipment
    
    
    172
    
    
    
    132
    
    
    
    1Interest paid in-kind, net
    
    
    (55
    )
    
    
    369
    
    
    
    395Amortization of discount on subordinated debt, net
    
    
    1,299
    
    
    
    714
    
    
    
    267Equity in net income of non-consolidated businesses, net
    
    
    (2,090
    )
    
    
    
    
    
    
    Deferred rent
    
    
    1,899
    
    
    
    836
    
    
    
    Changes in operating assets and liabilitiesReceivables
    
    
    100
    
    
    
    936
    
    
    
    (1,908
    )Prepaid expenses and other assets
    
    
    732
    
    
    
    344
    
    
    
    (803
    )Other assets
    
    
    (16
    )
    
    
    9
    
    
    
    Accounts payable and accrued expenses
    
    
    (3,346
    )
    
    
    (1,258
    )
    
    
    4,578Commissions payable
    
    
    898
    
    
    
    (1,020
    )
    
    
    (286
    )Accrued royalties
    
    
    (322
    )
    
    
    (322
    )
    
    
    774Net cash provided by operating activities
    
    
    22,709
    
    
    
    25,236
    
    
    
    44,223Cash flows from investing activitiesCapital expenditures
    
    
    (2,245
    )
    
    
    (3,372
    )
    
    
    (4,903
    )Investments in non-consolidated businesses, net
    
    
    (249
    )
    
    
    
    
    
    
    Other
    
    
    (23
    )
    
    
    3
    
    
    
    Net cash used in investing activities
    
    
    (2,517
    )
    
    
    (3,369
    )
    
    
    (4,903
    )Cash flows from financing activitiesPayments of notes payable and other obligations
    
    
    (256
    )
    
    
    (262
    )
    
    
    (688
    )Payments of notes payable to related parties
    
    
    (10,286
    )
    
    
    (16,718
    )
    
    
    (15,880
    )Distributions to members
    
    
    (4,855
    )
    
    
    (10,678
    )
    
    
    (14,143
    )Net cash used in financing activities
    
    
    (15,397
    )
    
    
    (27,658
    )
    
    
    (30,711
    )Net change in cash and cash equivalents
    
    
    4,795
    
    
    
    (5,791
    )
    
    
    8,609Cash and cash equivalentsBeginning of year
    
    
    21,400
    
    
    
    27,191
    
    
    
    18,581End of year
    
    $
    26,195
    
    
    $
    21,400
    
    
    $
    27,191Supplemental disclosure of cash flow informationInterest paid
    
    $
    1,075
    
    
    $
    2,500
    
    
    $
    4,034Income taxes paid
    
    
    264
    
    
    
    608
    
    
    
    1,601
  5




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 1.
    
    Basis of Presentation
 Principles of Consolidation
The consolidated financial statements include the accounts of Douglas Elliman Realty LLC,
formerly Montauk Battery Realty LLC, a New York limited liability company, and its
wholly-owned subsidiaries (the Company). All significant intercompany balances and
transactions have been eliminated in consolidation.Nature of Operations
The Company is engaged primarily in the real estate brokerage business through its principal
subsidiaries, Douglas Elliman LLC (Douglas Elliman), a residential real estate brokerage
company based in New York City and its Long Island based operations, B&H Associates of New
York LLC and B&H of the Hamptons LLC, both of which conduct business as Prudential Douglas
Elliman Real Estate (Prudential Douglas Elliman). The Company is engaged in property
management through its subsidiary, Residential Management Group LLC, which conducts business
as Douglas Elliman Property Management (DEPM). The Company is also engaged in the mortgage
brokerage business through its subsidiary, Burr Enterprise, Ltd., which conducts business as
Preferred Empire Mortgage Company (Preferred). Additional services provided by the Company
include title search and appraisal services through PDE Title LLC (Title) and marketing
consulting services through DE Worldwide Consulting LLC (DEWW).Organization
On October 15, 2002, Montauk Battery Realty LLC was formed to consolidate the ownership of
the then Companys operating entities, B&H Associates of New York LLC and B&H of the Hamptons
LLC, under one company, which was completed on December 19, 2002. On March 14, 2003, the
Company acquired Douglas Elliman and DEPM and, on May 19, 2003, Montauk Battery Realty LLC
changed its name to Douglas Elliman Realty LLC. In October 2004, upon receipt of required
regulatory approvals, the Company purchased all of the then outstanding membership interests
in Burr Enterprises Ltd., which conducts business as Preferred.
 2.
    
    Summary of Significant Accounting Policies
 Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America 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 and Cash Equivalents
The Company considers all highly liquid financial instruments with an original maturity of
less than three months to be cash equivalents. Excluded from cash and cash equivalents are
certificates of deposit of $725 as of December 31, 2009 and 2008 as the original maturities
of these deposits are in excess of three months.
 6




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 Receivables
Receivables consist of commissions earned on sales transactions which closed prior to the
Companys year-end but for which the related commissions have not yet been received.
Receivables also consist of commissions advanced to the Companys agents for transactions
that have not yet closed. The Company provides an allowance for potential losses on
uncollectible receivables based principally on the specific identification method.
Uncollectible accounts are written off when the likelihood of collection is remote and when
collection efforts have been abandoned.Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Depreciation is provided using the straight-line method over
the estimated useful lives of the related assets. The cost of leasehold improvements is
amortized over the lesser of the length of the related leases or the estimated useful lives
of the improvements. Costs of major additions and betterments are capitalized while
expenditures for routine maintenance and repairs are charged to expense as incurred. When
property and equipment are sold or otherwise disposed of, the cost and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss is reflected in
general and administrative expense.Software Costs
Costs associated with the acquisition and development of internal-use software that are
incurred during the preliminary project stage are expensed as incurred. Costs incurred
during the application development stage, including design, coding, installation and testing,
are capitalized and are included in property and equipment. Once the software has been put
into use, any additional costs such as costs for maintenance and training are expensed.
Amortization of capitalized amounts commences on the date the software is placed into use and
is computed using the straight-line method over the estimated economic life of the software,
which is generally three to five years.Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in business
circumstances indicate the carrying value of the assets may not be recoverable. In reviewing
for impairment, the Company compares the carrying value of the assets to the anticipated
undiscounted future cash flows expected from the use of the assets and their eventual
disposition. When the estimated undiscounted future cash flows are less than their carrying
amount, an impairment loss is recognized equal to the difference between the assets fair value and its
carrying amount. No impairment losses were recognized in 2009, 2008 or 2007.Goodwill and Trademarks
Goodwill and intangible assets with indefinite lives are not amortized, but instead are
tested for impairment on an annual basis at December 31, or whenever events or changes in
business circumstances indicate the carrying value of the assets may not be recoverable.Goodwill is tested by estimating the fair value of each reporting unit to which the goodwill
relates using a discounted cash flow model with an appropriate risk adjusted discount rate.
The fair value of each reporting unit is then compared with the carrying value to determine
if any impairment
 7




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 exists. The Company performed its goodwill impairment test for each of the years ended
December 31, 2009, 2008, and 2007 and no impairments were noted.The fair value of trademarks is calculated using a relief from royalty payments method.
This approach involves two steps: (i) estimating reasonable royalty rates for its trademarks
and (ii) applying these royalty rates to a net sales stream and discounting the resulting
cash flows to determine fair value. This fair value is then compared with the carrying value
of each trademark. The Company performed its trademark impairment test for each of the years
ended December 31, 2009, 2008 and 2007 and no impairment was noted.Other Intangible Assets
Other intangible assets consist primarily of acquired management contracts. Amortization of
management contracts is being provided over fifteen years.Deferred Financing Charges
Deferred financing charges consist primarily of professional fees related to the acquisition
of new financing and the restructuring of the Companys debt obligations. These are being
amortized over the life of the related debt obligations.Investments in Non-Consolidated Businesses
The Company accounts for its investments in Innova Risk Services LLC (Innova) and DE
Capital Mortgage LLC (DECM) under the equity method as the Company has determined that
neither Innova nor DECM meet the criteria of a variable interest entity and accordingly the Company
applies the voting interest model to this investment.Leases
The Company leases office space for use in operations. The Companys leases are evaluated at
inception or at any subsequent material modification and, depending on the lease terms, are
classified as either capital leases or operating leases. For operating leases containing
predetermined fixed escalations of the minimum rentals during the term of the lease, the
Company recognizes the related rental expense on a straight-line basis over the life of the
lease, beginning with the point at which control and possession of the leased properties is
obtained. Incentives provided in operating lease agreements such as reimbursements of
capital expenditures by the landlord are also deferred and are recorded as a reduction of
rent expense on a straight line basis over the life of the lease. The Company records
differences between the amounts charged to operations and amounts paid as deferred rent.Revenue Recognition
Revenue is recognized only when persuasive evidence of an arrangement exists, the price is
fixed or determinable, the transaction has been completed and collectibility of the resulting
receivable is reasonably assured.Real estate and mortgage commissions earned by the Companys real estate and mortgage
brokerage businesses are recorded as revenue on a gross basis upon the closing of a real
estate transaction as evidenced when the escrow or similar account is closed, the transaction
documents have been recorded and funds are distributed to all appropriate parties.
Commissions and
 8




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 royalties expenses are recognized concurrently with related revenues. Property
management fees earned by DEPM are recorded as revenue when the related services are
performed.From time to time, Douglas Elliman receives a portion of its commissions in advance of the
closing of a brokered real estate transaction. In turn, Douglas Elliman advances the related
commissions to the agent responsible for brokering the transaction. Because the Companys
commission is not earned until the transaction closes, the advance commissions received by
Douglas Elliman are recorded as deferred income and are included in accounts payable and
accrued expenses in the consolidated statement of financial position. Further, advances to
agents under these arrangements are recorded as receivables in the consolidated statement of financial position.
Upon closing of the transaction, the Company will receive the remainder of its commission
and will recognize the related revenue on the sale as well as the commission expense due to
the agent.Advertising Costs
Advertising costs are expensed as incurred and are included in selling expenses.Income Taxes
The Company is a limited liability company. The members of a limited liability company are
taxed on their proportionate share of the Companys taxable income. Accordingly, no provision
or liability for Federal income taxes is included in the financial statements, except for
Preferred which is taxed as a C-Corporation. The Company is, however, subject to New York
City Unincorporated Business Tax (UBT) and accordingly has recorded a provision for UBT in
its consolidated financial statements.Effective January 1, 2009, the Company adopted the provisions of a recently issued accounting
pronouncement related to uncertain tax positions. With the adoption of this guidance, the
Company now recognizes tax liabilities when, despite the Companys belief that its tax return
positions are supportable, the Company believes that certain positions may not be fully
sustained upon review by tax authorities. Benefits from tax positions are measured at the
largest amount of benefit that is greater than 50 percent likely of being realized upon
settlement. To the extent that the final tax outcome of these matters is different than the
amounts recorded, such differences impact income tax expense in the period in which such
determination is made. Interest and penalties, if any, related to accrued liabilities for
potential tax assessments are included in income tax expense. Adoption of this guidance did
not have a material impact on the Companys consolidated financial statements.
 9




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 Fair Value Measurements
The Company measures fair value as the price that would be received to sell an asset or paid
to transfer a liability in the principal or most advantageous market in an orderly
transaction between market participants. As such, fair value is a market-based measurement
that should be determined based on assumptions that market participants would use in pricing
an asset or liability. As a basis for considering assumptions, generally accepted accounting
principles establishes a three-level hierarchy for fair value measurements based upon the
transparency of inputs to the valuation of an asset or liability as of the measurement date: Level 1 Observable inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets; Level 2 Inputs to the valuation methodology include quoted prices for similar assets or
liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the same term of the financial instrument;
and Level 3 Unobservable inputs to the valuation methodology in which there is little or no
market data and which are significant to the fair value measurement.The fair value hierarchy gives the highest priority to quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs
(Level 3). If the inputs used to measure the financial instruments fall within different
levels of the hierarchy, the categorization is based on the lowest level input that is
significant to the fair value measurement of the instrument.At December 31, 2009 and 2008, the Company holds $12,574 and $13,786 of Level 1 cash
equivalents and $725 and $725 of Level 2 certificates of deposit that are measured at fair
value on a recurring basis. The Company does not have any assets or liabilities that are
based on Level 2 or Level 3 inputs.Fair Value of Financial Instruments
The carrying amounts of the Companys cash equivalents, receivables, payables and other
current liabilities approximate fair value due to their short maturity. The carrying value
of the Companys long-term debt approximates fair value because the underlying instruments
are variable-rate notes based on a current market rate. The carrying value of the Companys
related-party debt approximates fair value due to its current maturities. Because there are no quoted market
rates for the Companys debt, nor is there an active market for the debt, the Company
determined its fair value through the use of a discounted cash flows model, using a discount
rate that is commensurate with rates that it believes it can obtain in the current market to
obtain similar debt under similar terms.Subsequent Events
The Company evaluated all events or transactions that occurred after the balance sheet date
of December 31, 2009 through March 1, 2010, the date it issued these financial statements.
During this period, the Company did not have any material recognizable or nonrecognizable
subsequent events.
 10




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 Recently Issued Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting
Standards Codification (the Codification). The Codification is the single source of
authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of
Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related
literature. The Codification eliminates the GAAP hierarchy contained in Statement of
Financial Accounting Standards and establishes one level of authoritative GAAP. All other
literature is considered non-authoritative. The Codification is effective for financial
statements issued for interim and annual periods ending after September 15, 2009. In
response, the Company has used plain English or included the references to the Codification,
as appropriate, in these consolidated financial statements.In January 2009, the FASB issued new accounting guidance on fair value measurement. The
guidance does not require any new fair value measurements but provides a definition of fair
value, establishes a framework for measuring fair value, and expands disclosure about fair
value measurements. On January 1, 2009, the Company adopted the guidance as it relates to
nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair
value in the financial statements on at least an annual basis. The guidance defines fair
value, establishes a framework for measuring fair value in accounting principles generally
accepted in the United States of America (GAAP), and expands disclosures about fair value
measurements. The provisions of this standard apply to other accounting pronouncements that
require or permit fair value measurements and are to be applied prospectively with limited
exceptions. The adoption of the guidance did not have a material impact on the Companys
consolidated financial statements.In May 2009, the FASB issued guidance which establishes general standards of: 1) the period
after the balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in the
financial statements; 2) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements; and 3) the
disclosures that an entity should make about events or transactions that occurred after the
balance sheet date. The adoption of this guidance did not impact the Companys consolidated
financial statements.In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for
the consolidation of variable interest entities. The amended guidance eliminates exceptions
to consolidating qualifying special purpose entities, contains new criteria for determining
the primary beneficiary, and increases the frequency of required reassessments to determine
whether a company is the primary beneficiary of a variable interest entity. This guidance
also contains a new requirement that any term, transaction, or arrangement that does not have
a substantive effect on an entitys status as a variable interest entity, a companys power
over a variable interest entity, or a companys obligation to absorb losses or its right to
receive benefits of an entity must be disregarded. The elimination of the qualifying
special-purpose entity concept and its consolidation exception means more entities will be
subject to consolidation assessments and reassessments. The Company will adopt these
statements for interim and annual reporting periods beginning on January 1, 2010. The Company
is currently evaluating the impact of this amended guidance on its consolidated financial
statements.
 11




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 3.
    
    Property and Equipment
 Property and equipment at consists of the following at December 31:
 2009
    
    
    2008Furniture, fixtures and office equipment
    
    $
    19,528
    
    
    $
    20,426Computer software
    
    
    6,378
    
    
    
    7,051Leasehold improvements
    
    
    18,313
    
    
    
    18,581Automobiles
    
    
    137
    
    
    
    137Construction in progress
    
    
    1,279
    
    
    
    10645,635
    
    
    
    46,301Less, accumulated depreciation and amortization
    
    
    (32,137
    )
    
    
    (30,433
    )$
    13,498
    
    
    $
    15,868
 The estimated useful lives of furniture, fixtures and office equipment ranges from five to
ten years. Computer software has an estimated useful life of three to five years, and
automobiles have a life of six years. Leasehold improvements are depreciated based on the
lesser of the remaining life of the lease or the useful life of the leasehold improvement.
Construction in process is not depreciated until the related asset is placed into service.
Depreciation and amortization expense was $4,443, $5,507 and $6,047 for the years ended
December 31, 2009, 2008 and 2007, respectively.
 For the years ended December 31, 2009, 2008 and 2007 the Company capitalized $0, $490 and
$561 respectively, for costs related to software acquired for internal use. Unamortized
software costs amounted to $844 and $1,723 at December 31, 2009 and 2008, respectively.
Amortization of software costs, which is included in depreciation and amortization expense,
was $880, $1,044 and $1,045 for the years ended December 31, 2009, 2008 and 2007,
respectively.
 4.
    
    Investments in Non-Consolidated Businesses
 During 2006, the Company invested $1,500 for a 50% interest in a property and casualty
insurance broker (the Broker). The Company made this investment in order to enter into the
insurance brokerage business. Under the operating agreement, profits and losses are shared
equally by each partner. While the Company shares a board seat with its joint venture
partner, most day to day decisions are made by such partner as the Managing Member.
 The Companys investment in the Broker was financed entirely with debt funded by the parent
company of the Managing Member. The note bore interest at 7% per year and the principal and
interest were to be repaid from the Companys share of the earnings of the Broker. Since
inception, the Companys equity in the earnings of the Broker is $2,057. Distributions of
$1,748 have been applied to fully repay the original capital loan of $1,500 plus interest
thereon of $248. Additionally, distributions of $198 have been received in order to pay
taxes owed on the Brokers
 12




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 earnings on behalf of the Company. At December 31, 2009, the Companys investment in
the Broker is $1,612.
 Prior to the year ended December 31, 2009, the Company had not accounted for its investment
in the Broker, nor had it recorded its equity in the earnings of the Broker. During 2009,
the Company recorded a cumulative adjustment to record its original investment, all
accumulated earnings not previously recorded and all distributions made to repay the
aforementioned capital loan and taxes. The Companys equity in the earnings of the Broker
related to periods prior to January 1, 2009 was $1,293 and this amount is included in the
equity in earnings recorded in the current year. Because the effects on all prior periods
individually, and the cumulative effect of such earnings, are immaterial, the cumulative
effect of the change has been included in the Companys results of operations in the current
period.
 In July 2009, the Company invested $249 for a 49.9% interest in an entity called DE Capital
Mortgage LLC (DECM), with 50.1% owned by its joint venture partner. DECM operates as a
mortgage lender in the New York Metropolitan area. The Companys equity in the earnings of
DECM through December 31, 2009 were $33 and, accordingly, the Companys investment in DECM is
$282 at December 31, 2009.
 5.
    
    Intangible Assets
 Intangible assets at consist of the following at December 31:
 2009
    
    
    2008Goodwill
    
    $
    38,601
    
    
    $
    38,579Trademarks
    
    
    21,663
    
    
    
    21,663Deferred financing charges
    
    
    506
    
    
    
    506Other intangible assets
    
    
    2,735
    
    
    
    2,73563,505
    
    
    
    63,482Less: accumulated amortization on amortizable intangibles
    
    
    (2,442
    )
    
    
    (2,182
    )$
    61,063
    
    
    $
    61,300
 Amortization of other intangibles and deferred financing charges for the years ended December
31, 2009, 2008 and 2007 was $260, $239 and $448, respectively. Amortization expense is
estimated to be $255, $215, $129, $105, and $95 during the five years ended December 31, 2009
through 2013, respectively.
 13




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 6.
    
    Notes Payable and Other Obligations
 Notes payable and other obligations were comprised of the following at December 31:
 2009
    
    
    2008Notes payable and other obligationsPayment obligation  former owner
    
    $
    337
    
    
    $
    318Term note payable  bank
    
    
    759
    
    
    
    935Notes payable issued in connection with acquisitions
    
    
    
    
    
    
    99Total notes payable and other obligations
    
    
    1,096
    
    
    
    1,352Less, current maturities
    
    
    (233
    )
    
    
    (334
    )Amount due after one year
    
    $
    863
    
    
    $
    1,018
 Payment Obligation  Former Owner
In connection with the acquisition of Douglas Elliman, the Company assumed an obligation to
make a payment to a former owner of Douglas Elliman in an amount up to $4,000, due in 2003
and 2004. The first payment was made in 2003. The second liability for the payment was
settled in 2005, with a partial payment to the former owner, and a partial assumption of a
deferred compensation liability. The remaining liability bears interest at 5% per year and
is payable at various points through 2013.Term Note Payable  Bank
In December 2002, Prudential Douglas Elliman borrowed $1,940 from a bank, bearing interest at
7% per annum, due in 2008. In October 2008, the note was renegotiated at an interest rate of
6.26% per annum, due in 2013. Principal is payable in the amount of $15 per month for the
term of the loan. The loan is collateralized by the assets of Prudential Douglas Elliman to
the extent of the unpaid principal and interest.Notes Payable Issued in Connection with Acquisitions
Prudential Douglas Elliman had issued various other notes in connection with acquisitions of
real estate brokerage companies bearing interest at various rates up to 6%, which matured and
were fully repaid during 2009.
 14




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 Scheduled Maturities
Scheduled maturities of notes payable and other obligations are as follows:
 Year ending December 31
    
    20092010
    
    $
    2332011
    
    
    3782012
    
    
    2522013
    
    
    1752014
    
    
    58Total
    
    $
    1,096
 7.
    
    Notes Payable to Related Parties
 Notes payable to related parties were as follows at December 31:
 2009
    
    
    2008Acquisition subordinated note payable  PREFSA
    
    $
    2,487
    
    
    $
    6,759Acquisition subordinated note payable  Vector
    
    
    2,487
    
    
    
    6,759Franchise term notes payable  PREA
    
    
    1,816
    
    
    
    2,314Total notes payable to related parties
    
    
    6,790
    
    
    
    15,832Less, current maturities
    
    
    (5,517
    )
    
    
    (9,957
    )Amount due after one year
    
    $
    1,273
    
    
    $
    5,875
 Acquisition Notes Payable  PREFSA and Vector
In connection with the acquisition of Douglas Elliman and DEPM, PREFSA and Vector Group Ltd.
(Vector) each lent the Company $9,500 of subordinated debt, due 2013 (the Subordinated
Debt). The Subordinated Debt was subordinate to the Term Note and bears interest at 12% per
annum, of which 10% is payable in cash and 2% accrues and is added to the principal amount.
In connection with the issuance of the Subordinated Debt, PREFSA and Vector each acquired
additional membership interests representing a 15% fully-diluted interest in the Company.
Based on an appraisal conducted by an third party, the Company valued those membership
interests at $2,500 and recorded this amount as a reduction to the principal amount of the
Subordinated Debt. The Company is amortizing the value of these membership interests over
the term of the Subordinated Debt using the interest method. Amortization of $711, $714 and
$267 was recorded during the years ended December 31, 2009, 2008 and 2007, respectively, and
is included as a component of interest expense. The remaining unamortized discount on these
notes is $129 at December 31, 2009 and is recorded as a reduction in the face amount of the
debt. The Subordinated Debt is payable in eight equal quarterly installments. The first
payments of $1,182 were made on each note on September 1, 2008. The Subordinated Debt will
mature June 1, 2010.
 15




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 Franchise term notes payable
In December 2002, The Prudential Real Estate Affiliates, Inc. (PREA or the Franchiser),
an affiliate of PREFSA, lent Prudential Douglas Elliman $3,300 bearing interest at 9% per
annum and due in annual installments of principal and interest of $514 through 2012. In
March 2003, PREA lent Douglas Elliman $1,250 bearing interest at 8% per annum and due in
annual installments of principal and interest of $186 through 2013.
 Scheduled Maturities
Scheduled maturities of debt to related parties are presented below.
 Year ending December 31
    
    20092010
    
    $
    5,5172011
    
    
    5892012
    
    
    6482013
    
    
    362014
    
    
    Thereafter
    
    
    Total
    
    $
    6,790
 8.
    
    Franchise Agreements and Royalty Fees
 Douglas Elliman is party to a franchise agreement with PREA which was entered into in March
2003. The agreement provides for Douglas Elliman to make monthly payments of royalty fees to
PREA based on the level of gross revenue, with a royalty rate ranging from 1.8% to 6.0% of
gross revenues earned. Pursuant to the franchise agreement, Douglas Elliman was granted a
25% deferral of applicable royalty fees, which is payable in monthly installments beginning
in the first month of the fourth year. A balance of $1,047 and $1,369 was accrued at
December 31, 2009 and 2008, respectively and is included in accrued royalties in the
consolidated statement of financial position. The agreement also provides for Douglas
Elliman to remit advertising and annual franchise fees to PREA, which are based on gross
revenues and the number of offices occupied.For the years ended December 31, 2009, 2008 and 2007, total royalty fees incurred under the
franchise agreements amounted to approximately $4,212, $5,340 and $6,216, respectively.The Franchiser has significant rights over the use of the franchised service marks and the
conduct of the brokerage companies business. The franchise agreements require the companies
to coordinate with the Franchiser on significant matters relating to their operations,
including the opening and closing of offices, make substantial royalty payments to the
Franchiser and contribute significant amounts to national advertising funds maintained by the
Franchiser, indemnify the Franchiser against losses arising out of the operations of their
business under the franchise agreements and maintain standards and comply with guidelines
relating to their operations which are applicable to all franchisees of the Franchisers real
estate franchise system.
 
 16




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 The Franchiser has the right to terminate Douglas Ellimans and Prudential Douglas
Ellimans franchises, upon the occurrence of certain events, including a bankruptcy or
insolvency event, a change in control, a transfer of rights under the franchise agreement and
a failure to promptly pay amounts due under the franchise agreements.
 The franchise agreements grant Douglas Elliman and Prudential Douglas Elliman exclusive
franchises in New York for the counties of Nassau and Suffolk on Long Island and for
Brooklyn, Queens and Manhattan, subject to various exceptions and to meeting certain annual
revenue thresholds. If Douglas Elliman or Prudential Douglas Elliman fails to achieve these
levels of revenues for two consecutive years or otherwise materially breaches the franchise
agreements, the Franchiser would have the right to terminate the applicable brokerage
companys exclusivity rights.
 A termination of Douglas Ellimans or Prudential Douglas Ellimans franchise agreement could
have a material adverse affect on the Company.
 9.
    
    Income Taxes
 Income tax expense includes a provision for New York City Unincorporated Business Tax (UBT)
and income tax benefits specifically related to Preferred, which is taxed as a C-
Corporation. The following are the components of income tax expense (benefit) for the years
ended December 31:
 2009
    
    
    2008
    
    
    2007Provision for New York City UBT
    
    $
    449
    
    
    $
    650
    
    
    $
    1,024Income tax benefit for Preferred
    
    
    (226
    )
    
    
    (397
    )
    
    
    (276
    )Income tax expense
    
    $
    223
    
    
    $
    253
    
    
    $
    748
 Additionally, the benefit for income taxes related to Preferred is comprised of
the following at December 31:
 2009
    
    
    2008
    
    
    2007Current provision (benefit):Federal
    
    $
    (260
    )
    
    $
    (478
    )
    
    $
    (212
    )State and local
    
    
    34
    
    
    
    81
    
    
    
    (7
    )Total current provision (benefit)
    
    
    (226
    )
    
    
    (397
    )
    
    
    (219
    )Deferred benefit:Federal
    
    
    
    
    
    
    
    
    
    
    (7
    )State and local
    
    
    
    
    
    
    
    
    
    
    (50
    )Total deferred provision (benefit)
    
    
    
    
    
    
    
    
    
    
    (57
    )Total provision (benefit)  Preferred
    
    $
    (226
    )
    
    $
    (397
    )
    
    $
    (276
    )
 17




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 Deferred tax assets of $302 and $183, resulting primarily from state and local net
operating loss carry forwards, are fully reserved at December 31, 2009 and 2008,
respectively, as management of Preferred has determined, based on recent operating results
and the current economic climate, that it is more likely than not that those deferred tax
assets will not be realized. Additionally, during the year ended December 31, 2009,
Preferred incurred net operating losses for Federal income tax purposes, which resulted in
receivables of approximately $260 in refundable income taxes being recorded at December 31,
2009 which is included in prepaid expenses and other current assets in the consolidated
statement of financial position. Preferred has state and local net operating loss carry
forwards of $302 which may be utilized to offset future state and local taxes expiring at
various dates through 2028.
 Liabilities for uncertain tax positions reflected as of December 31, 2009 are not significant
and it is not anticipated that they will materially change in the next 12 months. With
limited exceptions, the Company is no longer subject to tax audits by taxing authorities for
years through 2006 for all jurisdictions. Although the outcome of tax audits is always
uncertain, the Company believes that its tax positions will generally be sustained under
audit.
 10.
    
    Related Party Transaction
 The Company has an accrual for a special management fee of $800 and $500 to Vector at
December 31, 2009 and 2008, respectively, which is included in accounts payable and accrued
expenses, and recorded expense of $1,100, $800 and $1,300 for the years ended December 31,
2009, 2008 and 2007, respectively, which is included in general and administrative expenses
in the accompanying consolidated financial statements.
 The Company has debt outstanding to related parties. See Note 7  Notes Payable to Related Parties.
 11.
    
    Defined Contribution Plans
 Douglas Elliman, Prudential Douglas Elliman and DEPM sponsor individual 401(k) plans which
allow eligible employees to make pre-tax contributions. Employees who have completed one
year of service, as defined, are eligible to participate in the plans. Prior to 2009, the
plans provided for matching employer contributions ranging from 10% to 25% of employee
contributions up to a maximum annual contribution of $4 per employee. This was changed in
2009 and the plans no longer provide matching contributions. Participants are immediately
vested in their contributions made. Matching contributions for the years ended December 31,
2008 and 2007 amounted to $363 and $380, respectively.
 12.
    
    Commitments and Contingencies
 Litigation
 The Company is involved in litigation through the normal course of business. Certain claims
arising before the date of acquisition of Douglas Elliman and DEPM are subject to
indemnification agreements with the prior owners. The majority of these claims have been
referred to the insurance carrier and related counsel. The Company believes that the
resolution of these matters will not have a material adverse effect on the financial position, results of operations or
cash flows of the Company.
 18




---



##### 



Douglas Elliman Realty LLC and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009 and 2008
(Information as of December 31, 2008 and for the
years ended December 31, 2008 and 2007 not
covered by Auditors Report included herein)
 (in thousands of dollars)
 Leases
The Company and its subsidiaries are obligated under various operating lease agreements for
office facilities. Certain leases are non-cancelable and expire on various dates through
March 2020. Additionally, certain leases contain escalating minimum rentals, which are
amortized on a straight line basis over the non-cancellable portion of the leases. Total
rent expense charged to operations under the leases for the year ended December 31, 2009,
2008 and 2007 is approximately $15,485, $13,663 and $13,722, respectively, and is included in
occupancy expense in the consolidated statement of income. In connection with these leases,
the Company has a deferred rent liability of $7,022 and $5,123 at December 31, 2009 and 2008,
respectively.Future minimum rental payments under the operating leases at December 31, 2009 are as
follows:
 Year ending December 31
    
    20092010
    
    
    13,0482011
    
    
    11,7732012
    
    
    10,5792013
    
    
    9,7442014
    
    
    9,272Thereafter
    
    
    48,877Total
    
    $
    103,293
 The Company entered into letter of credit agreements with a bank totaling $725 in relation to
certain office leases which expire on various dates through September 2010. Certificates of
deposit of $725 with the same maturities are pledged as collateral for these letters of
credit.
 13.
    
    Risks and Uncertainties
 The Company operates primarily in the New York City and Long Island residential real estate
markets, which subjects the Company to a degree of risk. The profitability of the Company is
dependant upon the activity within these markets, which could be impacted by various external
factors such as the general state of the economy, declines in home selling prices and the
availability of credit to buyers. The recent decline in the overall economy had a negative
impact on the Companys sales going into 2009, however the Company anticipated the decline.
The Company believes it has taken appropriate actions to reduce its costs in light of the
current and forecasted sales trends. However, further declines in demand and lack of
availability of credit to potential home buyers could materially impact the Companys
profitability in 2010.
 The Company and its subsidiaries may, from time to time, maintain demand deposits in excess
of federally insured limits in the normal course of business. The Company mitigates this
risk by placing cash and cash equivalents with financial institutions with high credit
ratings.
 Substantially all of the Companys receivables are derived from commissions earned and
are due from escrow and other residential real estate transfer agents. These receivables are
unsecured.
 19