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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
EXHIBIT 99.1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re: Chapter 11
CONTIFINANCIAL CORPORATION, et al., Case No. 00-B-12184 (AJG)
(Jointly Administered)
Debtors.
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MONTHLY OPERATING STATEMENT FOR
THE PERIOD AUGUST 1 TO AUGUST 31, 2000
DEBTOR'S ADDRESS: 277 PARK AVENUE, NEW YORK, NY 10172
MONTHLY DISBURSEMENTS MADE BY
CONTIFINANCIAL CORPORATION AND
SUBSIDIARIES (Consolidated): $337,229,109
DEBTOR'S ATTORNEYS: DEWEY BALLANTINE LLP, 1301 AVENUE OF THE AMERICA'S, NEW
YORK, NY 10019 and TOGUT, SEGAL & SEGAL LLP, ONE PENN PLAZA, SUITE 3335, NEW
YORK, NY 10019
CONSOLIDATED MONTHLY OPERATING
PROFIT (LOSS): ($14,910,000)
REPORT PREPARER: CONTIFINANCIAL CORPORATION, DEBTOR
THIS OPERATING STATEMENT MUST BE SIGNED BY A REPRESENTATIVE OF THE DEBTOR
The undersigned, having reviewed the attached report and being familiar
with the Debtor's financial affairs, verifies under the penalty of perjury, that
the information contained therein is complete, accurate and truthful to the best
of my knowledge.
DATE: 09/22/00
/s/ Bill Higgins
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Bill Higgins, Controller
Indicated if this is an amended statement by checking here
AMENDED STATEMENT _______
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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 2000
(DOLLARS IN THOUSANDS)
ASSETS
Cash and cash equivalents $ 94,867
Restricted cash 3,566
FGIC 665
Greenwich 6,763
MBIA 1,413
Receivables held for sale, net 14,192
Accrued interest 2,000
Accrued servicing advances 57,301
Other receivables 9,816
Due from affiliates -
Interest-only and residual certificates 256,313
Capitalized servicing rights 15,586
Bond issuance rights 14,583
Premises and equipment 4,800
Other assets 4,160
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Total Assets $ 486,025
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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 2000
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Prepetition Liabilities subject to compromise:
Accounts payable $ 4,241
Accrued expenses 3,677
Accrued interest 4,500
Due to affiliates 330
Short-term debt 337,925
Taxes payable -
Long-term debt 699,048
Other Liabilities 14,649
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Prepetition Liabilities subject to compromise: 1,064,370
Postposition Liabilities:
Accounts payable 3,088
Accrued expenses 2,906
Due to affiliates 85
Deferred Income 640
Other liabilities 1,920
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Total Postposition Liabilities 8,629
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Total Liabilities 1,073,010
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STOCKHOLDERS' DEFICIT:
Preferred stock (par value $0.01 per share; 25,000,000 shares
authorized; none issued at December 31, 1999 and March 31,
1999) -
Common Stock (par value $0.01 per share; 250,000,000 shares
authorized; 47,657,539 shares issued at December 31, 1999
and March 31, 1999) 477
Paid-in capital 396,280
Accumulated deficit (958,538)
Treasury stock (1,001,273 and 910,169 shares of common stock,
at cost, at December 31, 1999 and March 31, 1999,
respectively) (25,209)
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Total Stockholders' Deficit (586,990)
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Total Liabilities and Stockholder's Deficit $ 486,025
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE MONTH OF AUGUST 31, 2000
(DOLLARS IN THOUSANDS)
August 31, 2000
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REVENUES:
Gains from sales of receivables $ 1,403
Interest 2,789
Servicing income (1,355)
Other income 279
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Total revenues 3,116
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EXPENSES:
Compensation and benefits 8,796
Interest (673)
Other general and administrative 4,629
Other charges (1,621)
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Total expenses 11,131
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Loss before reorganization items and provision
for income taxes (8,015)
Reorganization items:
Professional fee expense -
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Loss after reorganization items (8,015)
Taxes 6,895
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Net loss $(14,910)
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE MONTH OF AUGUST 31, 2000
(DOLLARS IN THOUSANDS)
August 31, 2000
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Net loss $ (14,910)
Adjustments to reconcile net loss to cash
Depreciation and Amortization 324
Provision for Loan Loss (4,980)
Net Change in:
Excess Spread Receivables 6,538
Capitalized Servicing Receivables (primarily
amortization) 1,859
Intercompany Receivables -
Accounts Receivable and Other Assets 40,310
Accounts Payable and Other Liabilities 4,896
Intercompany Payables 2
Other (683)
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Net cash used in operating activities 33,356
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Sale of PPE 4,778
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Net cash used in investing and financing activities 4,778
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Net decrease in cash and cash equivalents 38,134
Cash at beginning of period 69,140
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Cash at end of period $ 107,274
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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
FOOTNOTES TO THE FINANCIAL STATEMENTS
1. THE COMPANY
ContiFinancial Corporation together with its subsidiaries (collectively, the
"Company" or "CFC") engages in the consumer finance business by originating and
servicing primarily non-conforming home equity loans ("HELs"). Through
ContiMortgage Corporation ("CMC") and ContiWest Corporation ("CWC"), the Company
is an originator, purchaser, seller and servicer of home equity loans made to
borrowers whose borrowing needs may not be met by traditional financial
institutions due to credit exceptions or other factors. These loans are
primarily for debt consolidation, home improvements, education or refinancing
and are most often secured by first mortgages on single family residential
properties.
In fiscal 1999 and continuing through fiscal 2000, CFC incurred significant
losses. Over this period CFC experienced a significant decline in liquidity. At
December 31, 1999 CFC's stockholders' equity had been reduced to a deficit
balance.
On May 12, 2000, CFC announced an agreement to sell its CMC servicing platform
and servicing rights to Fairbanks Capital Corp. (the "Fairbanks Sale"). This
sale has been approved by the bankruptcy court and the sale closed in July 2000.
On May 17, 2000, CFC and 18 of its affiliates continued the restructuring of its
outstanding debt by commencement of cases under Chapter 11 of the United States
Bankruptcy Code. CFC's management is currently executing a plan (the
"Restructuring Plan") of focusing CFC's and the Company's operations on the most
promising of its origination channels, and continuing the search for a buyer of
certain of CFC's assets, primarily the origination operations of CMC.
Under Chapter 11, certain claims against the Debtor in existence prior to the
filing of the petitions for relief under the federal bankruptcy laws are stayed
while the Debtors continue business operations as Debtors-in-possession. Those
claims are reflected in the financial statements as liabilities subject to
compromise. Additional liabilities subject to compromise may arise subsequent to
the filing date resulting from rejection of executory contacts, including
leases, and from the determination by the court (or agreed to by parties in
interest) of allowed claims for contingencies and other disputed amounts. Claims
secured against the Debtors' assets ("Secured Claims") also are stayed, although
the holders of such claims have the right to move the court for relief from the
stay. Secured Claims are secured primarily by liens on the Debtors' property,
plant and equipment.
2. GENERAL
The accompanying financial statements are the consolidated financial statements
of ContiFinancial and subsidiaries. They include the results of operations of
ContiFinancial and its 18 direct and indirect debtor subsidiaries collectively,
"the Debtors" and the results of operations for (the "non-Debtors") that are
non-debtors. (See listing below of Debtors and non-Debtors).
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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
FOOTNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
Debtors:
Name Case Number
---- -----------
ContiFinancial Corporation 00B-12184 (AJG)
ContiTrade Services L.L.C. 00B-12185 (AJG)
ContiWest Corporation 00B-12186 (AJG)
ContiMortgage Corporation 00B-12187 (AJG)
ContiFinancial Services Corporation 00B-12189 (AJG)
Resource One Consumer Discount Company, Inc. 00B-12190 (AJG)
Warminster National Abstract, Inc. 00B-12191 (AJG)
Keystone Capital Group, Inc. 00B-12192 (AJG)
Keystone Mortgage Investments 00B-12193 (AJG)
ZTS Corporation 00B-12194 (AJG)
Resource One Mortgage of Oxford Valley, Inc. 00B-12195 (AJG)
Resource One Consumer Discount Company of Minnesota, Inc. 00B-12196 (AJG)
Resource One Mortgage of Delaware Valley, Inc. 00B-12197 (AJG)
ResourceCorp Financial, Inc. 00B-12198 (AJG)
ContiInsurance Agency, Inc. 00B-12199 (AJG)
Crystal Mortgage Company, Inc. 00B-12200 (AJG)
Lenders M.D., Inc. 00B-12201 (AJG)
California Lending Group, Inc. 00B-12202 (AJG)
ContiAssets Receivables Management L.L.C. 00B-12203 (AJG)
Royal Mortgage Partners L.P. 00B-13732 (AJG)
Fidelity Mortgage Decisions Corporation 00B-13733 (AJG)
Non-Debtors
ContiAuto Asset Funding, Con6Funding Corporation, ContiSecurities Asset Funding
Corp, ContiSecurities Asset Funding Corp. II, ContiSecurities Asset Funding
Corp. III, ContiSecurities Asset Funding Corp. IV, ContiSecurities Asset Funding
Corp. V, ContiSecurities Asset Funding L.L.C., ContiSecurities Asset Funding II
L.L.C., ContiTrade Services Corporation, ContiSecurities Holding Corporation,
ContiSecurities Residual Corporation, ContiSecurities Residual Corporation II,
ContiSecurities Residual Corporation III, ULG Consumer Lending, Avatar Financial
Corp., Avatar Insurance Agency, Inc. and NFI Servicing, Inc,.
The non-debtors revenue and pretax net income for the month of August 31, 2000,
and total assets and liabilities, all before consolidation adjustments, as of
August 31, 2000 were as follows (dollars in thousands):
Revenue $ 3,940
Pretax Net Income $ 2,300
Assets $ 261,533
Liabilities $ (45,761)
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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
FOOTNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The Company has not completed the process of reconciling the pre- and
post-petition liabilities. In addition, pursuant to court order, the Company has
been authorized to pay certain prepetition operating liabilities incurred in the
ordinary course of business (e.g., salaries, appraisals, credit reports).
Accordingly, liabilities subject to compromise is subject to change.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of significant accounting policies.
INCOME RECOGNITION
Gains and losses from sales of mortgage loans are recognized upon delivery and
acceptance of loans by whole-loan investors or upon the securitization and sale
of the loans in the form of REMIC certificates, as applicable. Gains and losses
from sales of whole loans are calculated based upon the difference between the
net sales proceeds and the net carrying amount of the loans sold. Net sales
proceeds include cash and deferred sales premiums, less sales costs, if
applicable. The net carrying amount includes the outstanding principal balance,
the net deferral of origination fees and costs, purchase premiums and discounts,
and valuation reserves, if any. Gains from securitizations represent the present
value of the differential between the interest rate earned on the loans sold and
the pass-through rate paid to the securitization investors, after considering
the effects of estimated (as determined by CFC) prepayments, defaults and other
costs, including normal servicing fees, less the costs of originating such loans
(described above).
Servicing fees consist of the retained interest spread earned on loans serviced
for investors, capitalized servicing fees receivables, late charges, prepayment
penalties and other miscellaneous fees collected from mortgagors, less the
master servicing cost of The Conti Group, the interest cost of the Greenwich
Servicer Advance Facility and the amortization of deferred sales premiums and
capitalized servicing fees receivables. The retained interest spread is
recognized on an accrual basis but is payable only out of interest collected.
Late charges and other miscellaneous fees are credited to income as collected.
Interest income is recorded as earned. Mortgage loans are placed on nonaccrual
status when the loans become ninety days past due. When a mortgage loan is
classified as nonaccrual, the accrual of interest income ceases, and all
interest income previously accrued and unpaid on such mortgage loans is
reversed.
GAIN ON SALE OF RECEIVABLES
A major source of income for the Company is the recognition of gains in
connection with securitizations and whole loan sales. In a typical
securitization, the Company sells loans or other assets to a special purpose
entity, established for the limited purpose of buying the assets from the
company and transferring such assets to a trust, most often a REMIC. The REMIC
issues interestbearing securities that are collateralized by the underlying pool
of mortgage loans or other assets, as the case may be. The proceeds are used as
consideration to purchase the assets from the Company. Typically, the securities
are sold at an amount that is the same (or nearly the same) as the underlying
mortgage loan amounts, and the Company retains a residual interest that
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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
FOOTNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
represents its right to receive, over the life of the securitization, the excess
of the weighted average coupon on the loan securitized over the sum of the
interest rate on the securities sold, a normal servicing fee, a trustee fee, an
insurance fee (where applicable) and the credit losses relating to the loan or
other assets securitized (the "Excess Spread Receivable" or ESR). In accordance
with SFAS No. 125, the present value of the estimated ESR is treated as
additional sale proceeds and included in Gain on Sale of Receivables at the time
of securitization. In a securitization, the Company sells it entire interest in
the loans directly to investors, with all proceeds realized in cash at the time
of sale. Gain on Sale of Receivables also includes any adjustments to ESR that
may result from the quarterly fair value evaluation, and also includes points,
origination fees and direct origination costs associated with broker and direct
retail mortgage originations; purchase premiums associated with the acquisition
of whole loans from correspondents; hedge results; transaction costs; and fees
earned in connection with securitization services provided to Strategic Alliance
clients. All such fees are recognized in Gain on Sale of Receivables at the time
the related loans are sold or securitized.
INTEREST-ONLY AND RESIDUAL CERTIFICATES
ESR, reported as "Interest-only and residual certificates" in the accompanying
Consolidated Balance Sheets, is the present value of the retained residual
interest (as described above) that the Company expects to receive over the life
of a securitization, taking into consideration estimated prepayment speeds and
credit losses, and discounted at a rate which the Company believes is an
appropriate risk-adjusted market rate of return for the ESR asset. ESR is
realized over the life of the securitization as cash distributions are received
form the trust.
In accordance with SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by Mortgage
Banking Enterprise," the Company continues to classify ESR as "trading
securities". As such, they are carried at fair value in the Consolidated Balance
Sheets. Unrealized changes in ESR fair value are included in Gain on sale of
receivables on the accompanying Consolidated Statements of Income in the period
of change.
ESR fair value assumptions
The Company estimates the fair value of ESR through the application of a
discounted cash flow analysis, which required the use of various assumptions. A
significant factor affecting the level of estimated future ESR cash flow is the
rate at which the underlying principal of the securitized loans is reduced.
Prepayments represent principal reductions in excess of contractually scheduled
reductions; prepayment speeds are generally expressed as an annualized
Conditional (or Constant) Prepayment Rate ("CPR"). Estimated future CPR is a
significant assumption in the determination of ESR fair value. Additional
assumptions include estimated future credit losses and the discount rate.
The Company continuously monitors the fair value of ESR and reviews the factors
expected to influence future CPR and credit losses. In developing assumptions
regarding estimated future CPR, the Company considers a variety of factors, many
of which are interrelated. These include, among other things, historical
performance, characteristics of borrowers (e.g. credit quality and
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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
FOOTNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
loan-to-value relationship) and market factors that influence competition. If
changes in assumptions regarding estimated future CPR or credit losses are
necessary, ESR fair value is adjusted accordingly.
Assumptions regarding future CPR and credit losses are subject to volatility
that could materially affect operating results. Both the amount and timing if
estimated ESR cash flows are dependent on the performance of the underlying
loans, and actual cash flows may vary significantly from expectations. If actual
prepayments or credit losses were to exceed the assumptions used to determine
ESR fair value, the ESR carrying value would be reduced through a charge to
earnings, which could cause the Company to report losses in future periods.
Similarly, actual prepayments or credit losses that are less than the
assumptions used to determine ESR fair value could result in an increase in ESR
carrying value and earnings in future periods.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of no more than three months to be cash equivalents.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans are valued at the lower of cost or market as determined by
outstanding commitments from investors or current investor yield requirements
calculated on the aggregate loan basis.
OTHER LOANS
Other loans includes mortgage loans that are not currently salable because they
do not currently meet investor requirements due to collection or underwriting
issues. Other loans are carried at lower of cost or market.
LOAN ORIGINATION FEES AND COSTS
Loan origination fees, purchase discounts and premiums, and direct loan
origination costs associated with loans held for sale are deferred until the
related loans are sold and are included in the calculation of gain or loss on
sale.
CAPITALIZED SERVICING FEES RECEIVABLE
Effective April 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights." SFAS 122
requires that upon sale or securitization of servicing retained mortgages,
companies capitalize the costs associated with the right to service mortgage
loans based on their relative fair values. Effective January 1, 1997, SFAS 122
was superseded by SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," with minor amendments. SFAS
125 addresses the accounting for transfers of financial assets in which the
transferor has some continuing involvement either with the assets transferred or
with the transferee. A transfer of financial assets in which the transferor
surrenders control over those assets is accounted for as a
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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
FOOTNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
sale to the extent that consideration other than beneficial interest in the
transferred assets is received in exchange. SFAS 125 requires that liabilities
and derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value, if practicable. In
addition, SFAS 125 requires that servicing assets and liabilities be
subsequently amortized over their estimated life and assessment of asset
impairment be based on such assets' fair value. SFAS 125 was applied to
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. The Company determines fair value based on
the present value of estimated net future cash flows related to servicing
income. The cost allocated to the servicing rights is amortized in proportion to
and over the period of estimated net future servicing fee income.
SERVICING ADVANCES
Servicing advances represent amounts funded by the Company on the behalf of the
mortgagor relating to insurance or tax payments and also advances for delinquent
loans which will ultimately be reimbursed from the proceeds of a loan sale or
from the proceeds of a foreclosure sale, if any.
INCOME TAXES
The Company follows the provisions set forth in SFAS No. 109, "Accounting for
Income Taxes." SFAS 109 utilizes the balance sheet method, and deferred taxes
are determined based on the estimated future tax effects of differences between
the financial statement and tax bases of assets and liabilities given the
provision of the enacted tax laws.
4. INSURANCE
Premiums to date for all insurance policies, including worker's compensation and
disability insurance, have been fully paid and are in full force and effect.
5. PAYROLL AND RELATED TAXES
I. All wages and salaries paid (gross) or incurred.
Time Period Paid Accrued
---- -------
Month of August 3,218,888 192,365
II. The amount of payroll taxes withheld
Time Period Paid
----
Month of August 854,604
III. The amount of employer payroll tax withheld
Time Period Paid
----
Month of August 167,783
IV. The gross taxable sales N/A
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CONTIFINANCIAL CORPORATION AND SUBSIDIARIES
FOOTNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
V. Sales taxes collected N/A
VI. Property Taxes -
VII. Any other taxes
VIII. The date and amount paid to each taxes
entity for taxes in II, III, and V above.
Taxing entity August
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Federal 548,939
Social Security 248,296
Medicare 87,271
State Income Tax 101,360
State Disability 3,062
Workmen's Comp -
Local Taxes 33,458
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Subtotal 1,022,387
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