-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UfQFPgmjBtR31gIHLBBkJ1wDJ05vGyLqBIA555+3xEUzXC+aCbNPLnnzmBZKtLQE TyHLVgfrkjNGahYTwkkP/w== 0000950123-96-004769.txt : 19960829 0000950123-96-004769.hdr.sgml : 19960829 ACCESSION NUMBER: 0000950123-96-004769 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960614 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960828 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITYSCAPE FINANCIAL CORP CENTRAL INDEX KEY: 0000866253 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 112994671 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-27314 FILM NUMBER: 96622509 BUSINESS ADDRESS: STREET 1: 565 TAXTER RD CITY: ELMSFORD STATE: NY ZIP: 10523-5200 BUSINESS PHONE: 9145926677 MAIL ADDRESS: STREET 1: 565 TAXTER RD CITY: ELMSFORD STATE: NY ZIP: 10523-5200 FORMER COMPANY: FORMER CONFORMED NAME: MANDI OF ESSEX LTD DATE OF NAME CHANGE: 19930328 8-K/A 1 CITYSCAPE FINANCIAL CORP 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): June 14, 1996 ------------- CITYSCAPE FINANCIAL CORP. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter)
DELAWARE 0-27314 11-2994671 -------- ------- ---------- State or Other Jurisdiction Commission (IRS Employer of Incorporation File Number Identification No.)
565 Taxter Road, Elmsford, New York 10523-5200 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code: (914) 592-6677 -------------- ------------------------------ Former name or former address, if changed since last report 2 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (c) Exhibits a-1 Report of Independent Auditors a-2 Statements of Financial Condition at June 30, 1996 (unaudited) and December 31, 1995 and 1994 a-3 Statements of Operations for the six months ended June 30, 1996 (unaudited) and 1995 (unaudited) and the years ended December 31, 1995, 1994 and 1993 a-4 Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 and for the six months ended June 30, 1996 (unaudited) a-5 Statements of Cash Flows for the six months ended June 30, 1996 (unaudited) and 1995 (unaudited) and the years ended December 31, 1995, 1994 and 1993 a-6 Notes to Financial Statements b-1 Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 1995 and the six months ended June 30, 1996 2.1* Agreement for the Sale and Purchase of the Entire Issued Share Capital of Heritable Group Limited, dated June 14, 1996 99.1* Press Release, dated June 14, 1996 * Filed previously in Form 8-K 3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K/A to be signed on its behalf by the undersigned hereunto duly authorized. CITYSCAPE FINANCIAL CORP. (Registrant) By: /s/ Robert Grosser ------------------ Name: Robert Grosser Title: President Dated: August 28, 1996 4 INDEX TO EXHIBITS
EXHIBITS DESCRIPTION PAGE - -------- ----------- ---- a-1 Report of Independent Auditors a-2 Statements of Financial Condition at June 30, 1996 (unaudited) and December 31, 1995 and 1994 a-3 Statements of Operations for the six months ended June 30, 1996 (unaudited) and 1995 (unaudited) and the years ended December 31, 1995, 1994 and 1993 a-4 Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 and for the six months ended June 30, 1996 (unaudited) a-5 Statements of Cash Flows for the six months ended June 30, 1996 (unaudited) and 1995 (unaudited) and the years ended December 31, 1995, 1994 and 1993 a-6 Notes to Financial Statements b-1 Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 1995 and the six months ended June 30, 1996 2.1* Agreement for the Sale and Purchase of the Entire Issued Share Capital of Heritable Group Limited, dated June 14, 1996 99.1* Press Release, dated June 14, 1996
- --------- * Filed previously in Form 8-K EX-99.A1 2 REPORT OF INDEPENDENT AUDITORS 1 Exhibit a-1 HERITABLE FINANCE LIMITED REPORT OF INDEPENDENT AUDITORS Auditors' report to: The members of Heritable Finance Limited We have audited the accompanying consolidated statements of financial condition of Heritable Finance Limited 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 years in the three-year period ended December 31, 1995. These 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. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Heritable Finance Limited and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. KPMG Chartered Accountants Registered Auditors London, United Kingdom April 2, 1996 1 EX-99.A2 3 STATEMENT OF FINANCIAL CONDITION 1 Exhibit a-2 HERITABLE FINANCE LIMITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (DOLLARS IN THOUSANDS)
JUNE 30, 1996 DECEMBER 31, DECEMBER 31, ----------- 1994 1995 ------------ ------------ (UNAUDITED) ASSETS Cash.................................................... $ 58 $ 47 $ 1,381 Accrued interest receivable............................. 1,583 1,699 1,790 Unamortized fees........................................ 2,982 3,962 1,078 Accounts receivable..................................... 799 379 521 Mortgage servicing rights............................... -- -- 30,479 Mortgage loans held for investment, net................. 159,806 172,702 39,501 Furniture, equipment and vehicles, net.................. 524 588 626 Other assets............................................ 2,142 2,125 163 -------- -------- -------- Total assets.................................... $167,894 $181,502 $ 75,539 ======== ======== ======== LIABILITIES Bank overdraft.......................................... $ -- $ -- $ -- Accounts payable and other liabilities.................. 1,588 1,678 3,773 Income taxes payable.................................... 1,095 2,127 14,249 Due to The Heritable and General Investment Bank Limited.............................................. 163,037 171,028 -- Due to City Mortgage Corporation........................ -- -- 26,718 Negative goodwill....................................... 2,116 1,882 1,773 -------- -------- -------- Total liabilities............................... 167,836 176,715 46,513 -------- -------- -------- STOCKHOLDERS' EQUITY Common stock 1,000 L1.00 par value "A" ordinary shares authorized, issued and outstanding in 1994, 1995 and 1996................................................. 2 2 2 Common Stock, 9,000 L1.00 par value "B" ordinary shares authorized, issued and outstanding in 1994, 1995 and 1996................................................. 14 14 14 Foreign currency translation adjustment................. 86 7 390 Retained earnings(deficit).............................. (44) 4,764 28,620 -------- -------- -------- Total stockholders' equity.............................. 58 4,787 29,026 -------- -------- -------- Total liabilities and stockholders' equity...... $167,894 $181,502 $ 75,539 ======== ======== ========
See accompanying notes to consolidated financial statements 1 EX-99.A3 4 STATEMENTS OF OPERATIONS 1 Exhibit a-3 HERITABLE FINANCE LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED FOR THE 6 MONTHS ENDED ------------------------------------------ ------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, 1993 1994 1995 1995 1996 ------------ ------------ ------------ ----------- ----------- (UNAUDITED) (UNAUDITED) REVENUES Interest income.................... $ 16,608 $ 17,978 $ 25,842 $ 12,797 $ 12,979 Fee and commission income.......... 2,355 3,846 4,530 1,991 1,650 Gain on sale of loans.............. -- -- -- -- 29,959 ------------ ------------ ------------ ----------- ----------- Total revenues 18,963 21,824 30,372 14,788 44,588 ------------ ------------ ------------ ----------- ----------- EXPENSES Salaries and employee benefits..... 1,903 2,980 4,017 3,262 3,362 Interest expense................... 11,339 7,644 12,278 5,914 5,149 Fee and commission expenses........ 1,209 2,776 4,456 1,450 1,760 Other operating expenses........... 4,881 4,071 2,455 768 317 Release of general provisions on sale of loans................... -- -- -- -- (1,530) ------------ ------------ ------------ ----------- ----------- Total expenses................ 19,332 17,471 23,206 11,394 9,058 ------------ ------------ ------------ ----------- ----------- EARNINGS (LOSS) BEFORE INCOME TAXES.............................. (369) 4,353 7,166 3,394 35,530 Provision (credit) for income taxes........................... (84) 1,191 2,358 1,002 11,674 ------------ ------------ ------------ ----------- ----------- NET EARNINGS (LOSS).................. $ (285) $ 3,162 $ 4,808 $ 2,392 $ 23,856 ========== ========== ========== ========= ========= Earnings (loss) per share $ (28.50) $ 316.20 $ 480.80 $ 239.20 $2,385.60 ========== ========== ========== ========= ========= Weighted average number of shares outstanding 10,000 10,000 10,000 10,000 10,000 ========== ========== ========== ========= =========
See accompanying notes to consolidated financial statements. 1 EX-99.A4 5 STATEMENTS OF STOCKHOLDERS' EQUITY 1 Exhibit a-4 HERITABLE FINANCE LIMITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
FOREIGN RETAINED CURRENCY COMMON EARNINGS/ TRANSLATION STOCK (DEFICIT) ADJUSTMENT TOTAL ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1992.............................. $ 16 $ 990 $ -- $ 1,006 Net loss.................................................. -- (285) -- (285) Foreign currency translation adjustment................... -- -- (20) (20) ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1993.............................. 16 705 (20) 701 Net earnings.............................................. -- 3,162 -- 3,162 Dividend paid in year..................................... -- (3,911) -- (3,911) Foreign currency translation adjustment................... -- -- 106 106 ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1994.............................. 16 (44) 86 58 Net earnings.............................................. -- 4,808 -- 4,808 Foreign currency translation adjustment................... -- -- (79) (79) ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1995.............................. 16 4,764 7 4,787 Net earnings (unaudited).................................. -- 23,856 -- 23,856 Foreign currency translation adjustment(unaudited)........ -- -- 383 383 ---------- ---------- ---------- ---------- BALANCE AT JUNE 30, 1996 (UNAUDITED)...................... $ 16 $ 28,620 $ 390 $ 29,026 ======= ======= ======= =======
See accompanying notes to consolidated financial statements. 1 EX-99.A5 6 STATEMENTS OF CASH FLOWS 1 Exhibit a-5 HERITABLE FINANCE LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED FOR THE 6 MONTHS ------------------------------------------ ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------------- 1993 1994 1995 JUNE 30, JUNE 30, ------------ ------------ ------------ 1995 1996 --------- --------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss)......................... $ (285) $ 3,162 $ 4,808 $ 2,392 $ 23,856 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization....... 324 262 59 73 42 Income taxes payable................ 27 301 1,071 758 12,122 Provision for losses................ (1,141) 2,236 797 1,403 (4,330) (Gain) loss on disposal of fixed assets............................ 49 (20) 13 7 (16) Net changes in operating assets and liabilities: Other............................... 328 (2,683) (566) 5,032 (23,239) (Increase) decrease in accrued interest receivable............... 193 (952) (115) (167) (92) - ----------- ----------- ------------ ----------- ----------- Net cash provided by (used in) operating activities........... (505) 2,306 6,067 9,498 8,343 - ----------- ----------- ------------ ----------- ----------- Cash flows from investing activities: Payment for acquisition of former associate................................ -- (912) -- -- -- (Increase) decrease in mortgage loans held for investment........................... 24,038 (8,359) (13,693) (16,747) 137,531 Net purchases of equipment.................. (249) (224) (376) (197) (230) - ----------- ----------- ------------ ----------- ----------- Net cash (used in) provided by investing activities............................... 23,789 (9,495) (14,069) (16,944) 137,301 - ----------- ----------- ------------ ----------- ----------- Cash flows from financing activities: Dividends paid.............................. -- (3,911) -- -- -- Increase (decrease) in amounts due to: The Heritable and General Investment Bank Limited.................................. (23,265) 10,720 7,991 6,343 (171,028) City Mortgage Corporation................ -- -- -- -- 26,718 - ----------- ----------- ------------ ----------- ----------- Net cash provided by (used in) financing activities.................................. (23,265) 6,809 7,991 6,343 (144,310) - ----------- ----------- ------------ ----------- ----------- Net increase (decrease) in cash............... 19 (380) (11) (1,103) 1,334 Cash at the beginning of the period........... 419 438 58 58 47 - ----------- ----------- ------------ ----------- ----------- Cash at the end of the period................. $ 438 $ 58 $ 47 $ (1,045) $ 1,381 =========== =========== ============ =========== ============ Supplemental disclosure of cash flow information: Income taxes paid (recovered)............... $ (951) $ 342 $ 1,479 -- -- =========== =========== ============ =========== ============ Interest paid............................... $ 11,339 $ 7,644 $ 12,278 $ 5,914 $ 5,357 =========== =========== ============ =========== ============
See accompanying notes to consolidated financial statements. 1 EX-99.A6 7 NOTES OF FINANCIAL STATEMENTS 1 Exhibit a-6 HERITABLE FINANCE LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1995 (UNAUDITED) AND 1996 (UNAUDITED) 1. ORGANIZATION Heritable Finance Limited ("the Company") is a consumer finance company that engages in the business of providing mortgage loans secured primarily by family residences in the UK. The majority of the Company's loans are second mortgages made to owners of single family residences who use the loan proceeds for such purposes as debt consolidation and financing of home improvements, amongst others. For the purposes of these financial statements the Group is defined as Heritable Finance Limited and its subsidiary companies. The principal subsidiaries at December 31, 1995, which are all registered in England and Wales, are wholly owned, and are listed below: Undertaking Assured Funding Corporation Limited Greyfriars Financial Services Limited Heritable Capital Plan Limited Home and Family Finance Limited Home Mortgage Corporation Limited Home Mortgages Limited Homestead Finance Limited Secured Funding Limited 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared in conformity with generally accepted accounting principles. The preparation of the financial statements requires the management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported revenues and expenses for the reported periods. Actual results could differ from those estimates. Combination The Group financial statements consolidate those of the Company and its subsidiary companies as at December 31, 1995. The consideration paid for companies acquired is allocated to each class of tangible net asset on the basis of the fair value to the Group of those assets at the date of acquisition. The excess of the purchase consideration over the fair value of the tangible net assets at the date of acquisition is capitalized as goodwill and is amortized over a period not exceeding ten years. Where the purchase consideration is less than the fair value of the tangible net assets acquired, negative goodwill is recognized which is allocated against the fair value of any non-current assets acquired. Where non-current assets are subsequently reduced to zero or, where there are no non-current assets to allocate negative goodwill against, the balance is carried forward and amortized over a period not exceeding ten years. All significant intercompany transactions and balances among the consolidated entities have been eliminated. 1 2 HERITABLE FINANCE LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1995 (UNAUDITED) AND 1996 (UNAUDITED) Fees and commission income Fees are recognized when they have been earned, and have either been paid or are considered to be recoverable with reasonable certainty. Acquisition costs Costs incurred in granting each advance are individually identified, and are amortized in proportion to income earned on the advance over its term. In the event of early repayment, any unamortized costs relating to that loan are written off immediately. The total of unamortized cost at the balance sheet date is included in advances to customers. Bad and doubtful debts Specific provisions are raised on loans which fall more than four installments in arrears, unless it is evident that the degree of risk on the loan is significantly increased. In such circumstances, the creation of a provision is brought forward. Specific provisions are also raised on the unsecured value of loans (which may be fully performing) to the extent that there is a shortfall in security, and also where the outstanding loan balance taken as a whole represents in excess of 150% of the loan balance at inception. When there is no prospect of recovery, outstanding debt is written off. In addition, general provisions are made having regard to the overall size and characteristics of the Group's loan portfolio. Furniture, equipment and vehicles, net Furniture, equipment and vehicles, net are stated at original cost less accumulated depreciation and amortization. Depreciation is computed principally by using the straight line method based on the estimated lives of the depreciable assets which are between three and five years. Expenditures for maintenance and repairs are charged directly to the appropriate operating account at the time the expense is incurred. Expenditures determined to represent additions and betterments are capitalized. The cost of assets sold or retired and the related amounts of accumulated depreciation are eliminated from the accounts in the year of sale or retirement. Any resulting profit or loss is reflected in the statement of operations. Mortgage loans held for investment, net Interest income includes income from mortgage loans held for investment, and is recognized on an accrual basis. SFAS No. 114 "Accounting by Creditors for Impairment of a Loan" (SFAS 114) as amended by SFAS No. 118 "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures" (SFAS 118) is effective for accounting periods beginning after December 15, 1994. SFAS 114 addresses accounting by creditors for impairment of a loan by specifying how allowances for credit losses for certain loans should be determined. A loan is impaired when it is probable that the creditor will be unable to collect all amounts in accordance with the contractual terms of the loan agreement. As an expedient, impairment is measured based on the fair value of the loan's collateral. At December 31, 1995, the Group's net investment in non-accrual loans was $36,097,950 after specific provisions of $13,004,578. The average net investment during 1995 in such loans was $41,381,164. These 2 3 HERITABLE FINANCE LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1995 (UNAUDITED) AND 1996 (UNAUDITED) disclosures are based on the Group's provisioning policy as described above and accordingly include loans where impairment is possible rather than probable. Income Taxes United Kingdom corporation tax and overseas taxes are provided, at appropriate rates, on the taxable profits for the year. Fair value of financial instruments SFAS No. 107 "Disclosures about Fair Value of Financial Instruments" (SFAS 107) requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial condition for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair value is based upon estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and the estimated future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amount does not represent the underlying value of the Company. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash The carrying amount of cash on hand is considered to be a reasonable estimate of fair market value. Mortgage loans held for investment The carrying value of loans held for investment is considered to be a reasonable estimate of the fair market value. Foreign currency translation The functional currency of the Group is pounds' sterling. Assets and liabilities are translated to USD rates current on December 31. Profit and loss items are translated at average rates of exchange for the period. Exchange differences arising from translation are taken to reserves. 3. INCOME TAXES The provision for income taxes is summarized as follows:
DECEMBER 31, DECEMBER 31, 1994 1995 DOLLARS IN DOLLARS IN THOUSANDS THOUSANDS ------------ ------------ Current: UK corporation tax......................................... $1,003 $1,697 Deferred................................................... 92 430 ------------ ------------ $1,095 $2,127 ========== ==========
3 4 HERITABLE FINANCE LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1995 (UNAUDITED) AND 1996 (UNAUDITED) The reconciliation of income tax computed at the UK corporation tax rate to the effective income tax rate is as follows:
DECEMBER 31, DECEMBER 31, 1994 1995 ------------ ------------ UK corporation tax rate...................................... 33.0% 33.0% Release of deferred tax valuation allowance.................. (6.3) -- Other........................................................ 0.7 (0.1) ------------ ------------ 27.4% 32.9% ========== ==========
Deferred taxes are summarized as follows:
DECEMBER 31, DECEMBER 31, 1994 1995 DOLLARS IN DOLLARS IN THOUSANDS THOUSANDS ------------ ------------ Deferred tax liabilities Arising from tax treatment of acquisition costs.......... $ 681 $ 1,110 ------------ ------------ Gross deferred tax assets Capital allowances and depreciation...................... 47 55 General provision..................................... 542 594 Other................................................. -- 31 ------------ ------------ 589 680 ------------ ------------ Net deferred tax liabilities............................... $ 92 $ 430 ========== ==========
4. RESERVE FOR LOSSES The activity in the reserve for losses on mortgage loans held for investment is summarized as follows: Specific reserve
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------- 1993 1994 1995 DOLLARS IN DOLLARS IN DOLLARS IN THOUSANDS THOUSANDS THOUSANDS ------------ ------------ ------------ Balance at beginning of year.................. $ 5,726 $ 4,844 $ 12,267 Acquisition of former associate company....... -- 5,029 -- Provision for losses.......................... 2,883 4,890 4,380 Charge-offs................................... (3,430) (2,646) (3,002) Recoveries.................................... (215) (271) (533) Foreign currency translation adjustment....... (120) 421 (107) ------------ ------------ ------------ Balance at end of year........................ $ 4,844 $ 12,267 $ 13,005 ========== ========== ==========
4 5 HERITABLE FINANCE LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1995 (UNAUDITED) AND 1996 (UNAUDITED) General Reserve
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------- 1993 1994 1995 DOLLARS IN DOLLARS IN DOLLARS IN THOUSANDS THOUSANDS THOUSANDS ------------ ------------ ------------ Balance at beginning of year.................. $ 1,108 $ 851 $ 1,729 Acquisition of former associate company....... -- 685 -- Provision for losses.......................... (234) 126 87 Foreign currency translation adjustment....... (23) 67 (15) ------------ ------------ ------------ Balance at end of year........................ $ 851 $ 1,729 $ 1,801 ========== ========== ==========
The amounts in the reserve for losses are expressed gross. The Company continues to record interest on impaired assets as an addition to the related mortgage loan balance. The amount of interest credited on these loans amounted to $3,649,561, $2,562,669 and $1,620,863 for the years ended December 31, 1995, 1994 and 1993, respectively. However, these amounts are offset by a corresponding charge to the reserve for losses, such that the net balance of mortgage loans held for investment after deducting the reserve for losses remains unchanged. 5. FURNITURE, EQUIPMENT AND VEHICLES, NET Furniture, equipment and vehicles, net at cost are summarized as follows:
DECEMBER 31, DECEMBER 31, 1994 1995 DOLLARS IN DOLLARS IN THOUSANDS THOUSANDS ------------ ------------ Furniture.................................................. $ 305 $ 65 Equipment.................................................. 1,628 710 Vehicles................................................... 302 335 ------------ ------------ 2,235 1,110 Less: accumulated depreciation............................. (1,711) (522) ------------ ------------ Furniture, equipment and vehicles, net..................... $ 524 $ 588 ========== ==========
6. AMOUNTS OWED TO THE HERITABLE AND GENERAL INVESTMENT BANK
DECEMBER 31, DECEMBER 31, 1994 1995 DOLLARS IN DOLLARS IN THOUSANDS THOUSANDS ------------ ------------ Advances from The Heritable and General Investment Bank Limited........................................................ $158,684 $170,766 Group relief payable............................................. 442 262 Dividend payable................................................. 3,911 -- -------- -------- $163,037 $171,028 ======== ========
At December 31, 1995, advances of $152,494,819 bear interest at market rates based on the three-month LIBOR rate plus a margin of 0.9%. The remaining $18,270,997 bears no interest. 5 6 HERITABLE FINANCE LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1995 (UNAUDITED) AND 1996 (UNAUDITED) 7. ACQUISITION OF HOME MORTGAGES LIMITED On July 29, 1994, Heritable Finance Limited acquired the entire share capital of Home Mortgages Limited. The acquisition was accounted for under the purchase method of accounting. The excess of the fair value of tangible net assets acquired over the consideration paid gave rise to negative goodwill of $2,159,838 which has been carried forward as a deferred credit and is being amortized over a period of ten years. 8. EMPLOYEE BENEFIT PLAN Heritable Finance Limited is a member of a non-contributory defined benefits pension plan, The Heritable Group Retirement and Death Benefits Scheme. Employees become eligible to join the plan following a probationary employment period of six months and a minimum age of twenty-five years. During the year ended December 31, 1995, $507,578 (1994: $436,578; 1993: $394,242) was recognized as pension costs in the profit and loss account. 9. CONCENTRATION OF RISK The Company operates as a mortgage provider in the UK domestic market with various regional concentrations and is therefore vulnerable to fluctuations in the UK housing market. For the year ended December 31, 1995 and 1994, there were no customers who individually accounted for 10% or more of total revenues. 10. SUBSEQUENT EVENTS At December 31, 1995, the Company was owned by The Heritable and General Investment Bank Limited whose ultimate parent company was CoreStates Financial Corp., a company incorporated in the US. On June 14, 1996, Heritable Finance Limited was acquired by City Mortgage Corporation Limited, an indirect wholly-owned subsidiary of Cityscape Financial Corp., in exchange for cash and shares of that company's common stock. Cityscape Financial Corp. is a US incorporated consumer finance company, engaged in the business of originating, purchasing, selling and servicing mortgage loans secured primarily by one- to four-family residences. 6 7 HERITABLE FINANCE LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1995 (UNAUDITED) AND 1996 (UNAUDITED) 11. COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases premises and equipment under operating leases with various expiration dates. Both leases are subject to renegotiation every five years. Minimum annual rental payments at December 31, 1995 are as follows:
DOLLARS IN YEAR ENDED THOUSANDS --------------------------------------------------------------------------- ---------- 1996....................................................................... $ 331 1997....................................................................... 331 1998....................................................................... 331 1999....................................................................... 331 2000....................................................................... 331 Thereafter................................................................. 3,338 ------ Total...................................................................... $4,993 ======
Rent expense for office space amounted to $333,070, $265,188 and $316,962 for the years ended December 31, 1995, 1994 and 1993, respectively. Litigation In the normal course of business, the Company is subject to various legal proceedings and claims, the resolution of which, in management's opinion, will not have a material adverse effect on the consolidated statements of financial condition or on the related consolidated statements of operations, stockholders' equity and cash flows of the Company. 12. LOAN COMMITMENTS At December 31, 1995 and 1994 there were no material undrawn loan commitments. 7 EX-99.B1 8 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT 1 Exhibit b-1 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following tables set forth unaudited pro forma consolidated financial data for the Registrant for the year ended December 31, 1995 illustrating the estimated effects of (i) the Registrant's purchase on September 30, 1995 of the 50% of the capital stock of City Mortgage Corporation Limited ("CSC-UK") which was not previously owned by the Registrant (the "UK Acquisition") as if it had occurred on May 2, 1995, the date CSC-UK commenced operations, (ii) the J&J Acquisition as if it had occurred as of January 1, 1995 and (iii) the Heritable Acquisition as if it had occurred as of January 1, 1995. The unaudited pro forma consolidated financial data have been prepared using the purchase method of accounting, whereby the total costs of the UK Acquisition, the J&J Acquisition and the Heritable Acquisition will be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the effective date of the UK Acquisition, J&J Acquisition and the Heritable Acquisition, respectively. The unaudited pro forma consolidated financial data do not purport to represent what the results of operations or financial position of the Company would have actually been if the UK Acquisition, the J&J Acquisition and the Heritable Acquisition had in fact occurred on such dates or to project the results of operations or financial position of the Company for any future date or period.
FOR THE YEAR ENDED DECEMBER 31, 1995 ----------------------------------------------------------------- PRO FORMA ADJUSTMENTS ----------------------------------- HISTORICAL CSC-UK J&J HERITABLE PRO FORMA ---------- ------- ------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) REVENUES Gain on sale of loans........... $ 38,198 -- $13,045(1) $ 15,654(2) $66,897 Mortgage origination income..... 2,963 -- -- 4,530(3) 7,493 Interest income................. 6,706 -- 1,435(4) 7,884(5) 16,025 Servicing income................ 777 -- -- -- 777 Earnings from partnership interest..................... 482 -- -- -- 482 Other........................... 385 -- 279(6) -- 664 ------- ------- ------- ------- ------- Total revenues.......... 49,511 -- 14,759 28,068 92,338 ------- ------- ------- ------- ------- EXPENSES Salaries and employee benefits..................... 12,165 39(7) 1,926(8) 4,292(9) 18,422 Interest expense................ 4,610 -- 1,182(10) 2,923(11) 8,715 Selling expenses................ 2,895 -- 1,491(6) 4,456(3) 8,842 Other operating expenses........ 6,582 -- 2,531(6) 2,455(3) 11,568 Amortization of goodwill........ 494 819(12) 1,920(13) 4,120(14) 7,353 ------- ------- ------- ------- ------- Total expenses.......... 26,746 858 9,050 18,246 54,900 ------- ------- ------- ------- ------- Earnings before minority interest, income taxes and extraordinary item........... 22,765 (858) 5,709 9,822 37,438 Minority interest............... 2,379 (2,379)(15) -- -- -- ------- ------- ------- ------- ------- Earnings before income taxes and extraordinary item........... 20,386 1,521 5,709 9,822 37,438 Provision for income taxes...... 8,515 631(16) 2,369(16) 4,076(16) 15,591 ------- ------- ------- ------- ------- Earnings before extraordinary item......................... 11,871 890 3,340 5,746 21,847 Extraordinary item.............. (296) -- -- -- (296) ------- ------- ------- ------- ------- Net earnings...................... $ 11,575 $ 890 $ 3,340 $ 5,746 $21,551 ======= ======= ======= ======= ======= Earnings per share before extraordinary item.............. $ 0.50 N/A N/A N/A $ 0.84 Extraordinary item (per share).... (0.01) N/A N/A N/A (0.01) ------- ------- ------- ------- ------- Primary earnings per share........ $ 0.49 N/A N/A N/A $ 0.83 ======= ======= ======= ======= ======= Weighted average shares outstanding..................... 23,838 1,500(17) 548(18) 99(19) 25,985 ======= ======= ======= ======= ======= Supplemental earnings per share(20)....................... $ 0.80 ======= Supplemental weighted average shares outstanding(21).......... 27,396 =======
1 2 Notes to Unaudited Pro Forma Financial Statements for the year ended December 31, 1995 (1) Reflects gain on sale of approximately $19.6 million from the sale of approximately $46.7 million of loans acquired as a result of the J&J Acquisition as if such loans were sold under the mortgage loan repurchase facility CSC-UK had with Greenwich prior to March 31, 1996 (the "Old Greenwich Facility") with a participation by Greenwich in such gain of 33%. Pro forma gain on sale gives effect to the sale of all of J&J's loan portfolio outstanding as of December 31, 1995 and not J&J's mortgage loan production for 1995. As a result, the Company's gain on sale for such J&J loans in 1995 may not be indicative of the gain on sale J&J would have had for 1995 or for J&J's future loan originations. (2) Reflects gain on sale of approximately $23.5 million from the sale of approximately $124.9 million of loans acquired as a result of the Heritable Acquisition as if such loans were sold under the Old Greenwich Facility with a participation by Greenwich in such gain of 33%. Pro forma gain on sale gives effect to the sale of such portion of Heritable's loan portfolio and not Heritable's mortgage loan production for 1995. As a result, the Company's gain on sale for such Heritable loans in 1995 may not be indicative of the gain on sale Heritable would have had for 1995 or for Heritable's future loan originations. (3) Reflects the 1995 historical operating results for Heritable. (4) Reflects the accretion of interest related to the mortgage servicing receivables associated with the sale of loans acquired as a result of the J&J Acquisition. (5) Reflects the accretion of interest of $1.7 million related to the mortgage servicing receivables associated with the sale of loans acquired as a result of the Heritable Acquisition, and interest income of $6.2 million on the remaining loan portfolio. (6) Reflects the 1995 historical operating results for J&J. (7) Reflects additional bonus expense resulting from the increased pre-tax profits related to the pro forma effect of the UK Acquisition on May 2, 1995. (8) Reflects historical J&J expense and the additional bonus expense resulting from the increased pre-tax profits related to the pro forma effect of the J&J Acquisition occurring on January 1, 1995. (9) Reflects historical Heritable expense and the additional bonus expense resulting from the increased pre-tax profits related to the pro forma effect of the Heritable Acquisition occurring on January 1, 1995. (10) Reflects interest expense on the remaining average debt balance after the application of the proceeds of the assumed sale of loans on January 1, 1995 to pay down warehouse debt. (11) Reflects interest expense related to the assumed warehouse debt supporting Heritable's remaining loan portfolio. (12) Reflects the amortization of the $19.7 million of goodwill for the period May 2, 1995 through September 30, 1995 recognized as a result of the UK Acquisition using the straight-line method over a 10-year period. The Company acquired the 50% interest in CSC-UK not then owned by the Company through the issuance to the three other shareholders of an aggregate of 3.6 million shares of the Company's Common Stock valued at $21.6 million. In addition to the goodwill, the Company acquired assets of $9.0 million, consisting primarily of mortgage servicing receivables, and assumed liabilities of $4.1 million. (13) Reflects the amortization of the $19.2 million of goodwill recognized as a result of the J&J Acquisition using the straight-line method over a 10-year period. CSC-UK acquired all the outstanding stock of J&J for L15.0 million ($22.7 million) and 548,000 shares of the Company's Common Stock valued at $9.8 million. In addition to the goodwill, the Company acquired assets of $53.8 million, consisting primarily of mortgage loans held for sale, and assumed liabilities of $38.8 million. (14) Reflects the amortization of the $41.2 million of goodwill recognized as a result of the Heritable Acquisition using the straight-line method over a 10-year period. CSC-UK acquired all the outstanding stock of Heritable for approximately $66.0 million, including 99,362 shares of the Company's Common 2 3 Stock valued at $2.5 million. In addition to the goodwill, the Company acquired assets of $221.2 million, consisting primarily of mortgage loans held for sale, and assumed liabilities of $193.2 million. (15) Reflects adjustment related to elimination of the 50% equity earnings for the period prior to the UK Acquisition. (16) Reflects tax impact of the pro forma adjustments recorded at a 41.5% effective rate. (17) Reflects the adjustment (for the partial year from May 2, 1995 through September 30, 1995) of the 3.6 million shares of Common Stock issued in the UK Acquisition as if those shares were issued and outstanding for the entire period from May 2, 1995 through December 31, 1995. (18) Reflects the impact of the 548,000 shares of Common Stock issued in the J&J Acquisition remaining outstanding for the entire year ended December 31, 1995. (19) Reflects the impact of the 99,362 shares of Common Stock issued in the Heritable Acquisition remaining outstanding for the entire year ended December 31, 1995. (20) Gives effect to the application of a portion of the net proceeds of the December 1995 public offering to repay outstanding debt at the time of such offering as if such application occurred on January 1, 1995, resulting in a net increase of $464,000 in net earnings due to a reduction in interest expense. (21) Gives effect to the inclusion of 1,411,200 shares of Common Stock at $8.37 per share net to the Company to repay the outstanding debt as discussed in Note 20 above. 3 4 The following tables set forth unaudited pro forma consolidated financial data for the Registrant for the six months ended June 30, 1996 illustrating the estimated effects of (i) the J&J Acquisition as if it had occurred as of January 1, 1995 and (ii) the Heritable Acquisition as if it had occurred as of January 1, 1995. The results of operations of J&J and Heritable are included in the Company's historical results from April 23, 1996 and June 14, 1996, respectively, the dates of their respective acquisitions. The unaudited pro forma consolidated financial data have been prepared using the purchase method of accounting, whereby the total costs of the J&J Acquisition and the Heritable Acquisition will be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the effective date of the J&J Acquisition and the Heritable Acquisition, respectively. The unaudited pro forma consolidated financial data do not purport to represent what the results of operations or financial position of the Company would have actually been if the J&J Acquisition and the Heritable Acquisition had in fact occurred on such date or to project the results of operations or financial position of the Company for any future date or period.
FOR THE SIX MONTHS ENDED JUNE 30, 1996 --------------------------------------------------------- PRO FORMA ADJUSTMENTS ------------------------ HISTORICAL J&J HERITABLE PRO FORMA ---------- -------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) REVENUES Gain on sale of loans................... $ 104,237 $(19,567)(1) $ (23,488)(2) $ 61,182 Mortgage origination income............. 2,192 -- 1,650(3) 3,842 Interest income......................... 9,478 (376)(4) 2,650(5) 11,752 Servicing income........................ 1,356 -- -- 1,356 Earnings from partnership interest...... 260 -- -- 260 Other................................... 636 134(6) -- 770 -------- -------- -------- -------- Total revenues.................. 118,159 (19,809) (19,188) 79,162 EXPENSES Salaries and employee benefits.......... 20,653 (429)(7) 1,877(8) 22,101 Interest expense........................ 6,382 483(9) 1,340(10) 8,205 Selling expenses........................ 4,375 753(6) 1,760(3) 6,888 Other operating expenses................ 9,807 975(6) 317(3) 11,099 Amortization of goodwill................ 1,527 600(11) 1,888(12) 4,015 -------- -------- -------- -------- Total expenses.................. 42,744 2,382 7,182 52,308 -------- -------- -------- -------- Earnings before income taxes............ 75,415 (22,191) (26,370) 26,854 Provision for income taxes.............. 31,297 (9,209)(13) (10,944)(13) 11,144 -------- -------- -------- -------- Net earnings.............................. $ 44,118 $(12,982) $ (15,426) $ 15,710 ======== ======== ======== ======== Earnings per share: Primary................................. $ 1.46 N/A N/A $ 0.51 ======== ======== ======== ======== Fully diluted........................... $ 1.41 N/A N/A $ 0.51 ======== ======== ======== ======== Weighted average shares outstanding: Primary................................. 30,152 548(14) 99(15) 30,799 ======== ======== ======== ======== Fully diluted........................... 31,941 548(14) 99(15) 32,588 ======== ======== ======== ======== Supplemental earnings per share(16)....... $ 0.51 ======== Supplemental weighted average shares outstanding(17)......................... 31,625 ========
4 5 Notes to Unaudited Pro Forma Financial Statements for the six months ended June 30, 1996 (1) Reflects an adjustment to the gain on sale on approximately $46.7 million of J&J loans that, for pro forma purposes, are shown as sold in fiscal 1995. (2) Reflects an adjustment to the gain on sale on approximately $124.9 million of Heritable loans, that, for pro forma purposes, are shown as sold in fiscal 1995. (3) Reflects historical results for the period January 1, 1996 to June 14, 1996 for Heritable. (4) Reflects reduced interest accreted as a result of lower mortgage servicing receivables recorded under the Old Greenwich Facility for J&J loans that, for pro forma purposes, are shown as sold in fiscal 1995. (5) Reflects reduced interest accreted as a result of lower mortgage servicing receivables recorded under the Old Greenwich Facility for Heritable loans that, for pro forma purposes, are shown as sold in fiscal 1995, offset by interest income on loans acquired in the Heritable Acquisition but not sold. (6) Reflects historical results for the period January 1, 1996 to April 23, 1996 for J&J. (7) Reflects historical J&J expense for the period January 1, 1996 to April 23, 1996 adjusted for the reduction in bonus expense resulting from lower pro forma pre-tax earnings for the six month period ended June 30, 1996. (8) Reflects historical Heritable expense for the period January 1, 1996 to June 14, 1996 adjusted for the reduction in bonus expense resulting from lower pro forma pre-tax earnings for the six month period ended June 30, 1996. (9) Reflects interest expense on the average debt balance on warehouse debt plus advances under the Old Greenwich Facility related to the J&J loans. (10) Reflects interest expense on the average debt balance on warehouse debt plus advances under the Old Greenwich Facility related to the Heritable loans. (11) Reflects amortization of the $19.2 million of goodwill recognized as a result of the J&J Acquisition for the period January 1, 1996 to April 23, 1996 using the straight-line method over a 10-year period. CSC-UK acquired all the outstanding stock of J&J for L15.0 million ($22.7 million) and 548,000 shares of the Company's Common Stock valued at $9.8 million. In addition to the goodwill, the Company acquired assets of $53.8 million, consisting primarily of mortgage loans held for sale, and assumed liabilities of $38.8 million. (12) Reflects amortization of the $41.2 million of goodwill recognized as a result of the Heritable Acquisition for the period January 1, 1996 to June 14, 1996 using the straight-line method over a 10-year period. CSC-UK acquired all the outstanding stock of Heritable for approximately $66.0 million, including 99,362 shares of the Company's Common Stock valued at $2.5 million. In addition to the goodwill, the Company acquired assets of $221.2 million, consisting primarily of mortgage loans held for sale, and assumed liabilities of $193.2 million. (13) Reflects tax impact of the pro forma adjustments recorded at a 41.5% effective rate. (14) Reflects the impact of the 548,000 shares of Common Stock issued in the J&J Acquisition remaining outstanding for the six month period ended June 30, 1996. (15) Reflects the impact of the 99,362 shares of Common Stock issued in the Heritable Acquisition remaining outstanding for the six month period ended June 30, 1996. (16) Gives effect to the application of a portion of the net proceeds to be received by the Company from the Offering to repay outstanding debt at the time of the Offering as if such application had occurred on January 1, 1995, resulting in a net increase of $433,000 in net earnings due to a reduction in interest expense. (17) Gives effect to the inclusion of 825,500 shares of Common Stock at $31.53 per share net to the Company to repay the outstanding debt as discussed in Note 16 above. 5 -----END PRIVACY-ENHANCED MESSAGE-----