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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: _______________to _______________
Commission File No. 1-14043
OCWEN ASSET INVESTMENT CORP.
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(Exact name of Registrant as specified in its charter)
Florida 65-078313
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 Palm Beach Lakes Boulevard
West Palm Beach, Florida 33401
--------------------------------------- ----------
(Address of principal executive office) (Zip Code)
(561) 682-8000
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Not applicable.
Securities registered pursuant to Section 12(g) of the Act: Not Applicable.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
At October 31, 2000, there were 6,100 shares of common stock of the Registrant
outstanding, all of which are owned indirectly by Ocwen Financial Corporation.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
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OCWEN ASSET INVESTMENT CORP.
THIRD QUARTER 2000 FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements (unaudited)....... 3
Consolidated Statements of Financial Condition.............. 3
Consolidated Statements of Operations....................... 4
Consolidated Statements of Comprehensive Income (Loss)...... 5
Consolidated Statements of Cash Flows....................... 6
Consolidated Statements of Changes in Shareholders' Equity.. 7
Notes to Consolidated Financial Statements.................. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 19
Signatures.................................................. 21
2
<PAGE>
OCWEN ASSET INVESTMENT CORP.
(A WHOLLY OWNED SUBSIDIARY OF OCWEN FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS:
Cash and amounts due from depository institutions .... $ 3,716,121 $ 2,085,437
Interest-bearing deposits ............................ 45,150,574 77,031,043
Securities available for sale, at fair value ......... -- 103,444,568
Trading securities ................................... 98,695,185 --
Commercial and multi-family loan portfolio, net ...... 42,664,474 59,519,840
Residential loan portfolio, net ...................... 40,734 2,417,647
Match funded residential loans and securities, net ... 123,900,063 157,793,868
Discount loan portfolio, net ......................... 13,095,653 --
Investment in real estate partnerships ............... 11,474,973 --
Investment in real estate, net ....................... 50,796,644 252,604,156
Real estate held for sale ............................ 160,588,878 --
Principal and interest receivable .................... 2,415,518 2,646,732
Other assets ......................................... 44,749,010 31,389,621
------------- -------------
Total assets ..................................... $ 597,287,827 $ 688,932,912
============= =============
LIABILITIES:
Securities sold under agreements to repurchase ....... -- $ 28,301,141
Obligations outstanding under lines of credit ........ 29,054,768 17,997,393
Obligations outstanding under lines of credit -
secured by real estate .............................. 105,115,071 141,173,063
11.5% Redeemable Notes due 2005 ...................... 96,477,068 140,486,483
Bonds - match funded agreements ...................... 114,687,515 141,515,143
Excess of net assets over purchase price ............. 47,922,828 56,840,751
Accrued expenses, payables and other liabilities ..... 20,610,872 23,911,170
------------- -------------
Total liabilities ................................ 413,868,122 550,225,144
------------- -------------
Commitments and Contingencies (Note 14)
SHAREHOLDER'S EQUITY:
Common Stock, $.01 par value; 10,000 shares authorized,
6,100 shares issued and outstanding
61 61
Additional paid-in capital ............................ 135,857,923 135,857,923
Retained earnings ..................................... 47,551,428 3,542,683
Accumulated other comprehensive income, net of taxes:
Unrealized losses on securities available for sale .. -- (713,326)
Cumulative translation adjustment ................... 10,293 20,427
------------- -------------
Total accumulated other comprehensive loss ....... 10,293 (692,899)
------------- -------------
Total shareholder's equity ....................... 183,419,705 138,707,768
------------- -------------
$ 597,287,827 $ 688,932,912
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
OCWEN ASSET INVESTMENT CORP.
(A WHOLLY OWNED SUBSIDIARY OF OCWEN FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Successor Predecessor Successor Predecessor
------------ ------------ ------------ ------------
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest bearing deposits ........................... $ 296,877 $ 207,516 $ 1,186,472 $ 1,028,339
Repurchase agreements ............................... 482,618 80,648 609,676 80,648
Securities available for sale ....................... 2,956,998 10,206,148 10,070,714 35,908,207
Commercial and multi-family loans ................... 3,199,094 2,381,253 7,049,568 6,250,607
Match funded residential loans and securities ....... 2,611,364 2,437,981 8,874,118 8,765,332
Residential loans ................................... 86,811 114,251 154,478 391,802
Discount loans ...................................... 346,878 489,779 1,375,551 748,497
Notes receivable .................................... 31,666 -- 36,944 --
------------ ------------ ------------ ------------
10,012,306 15,917,576 29,357,521 53,173,432
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Securities sold under agreements to repurchase ...... -- 1,473,096 224,052 6,154,263
Securities sold short ............................... -- 251,891 -- 251,891
Obligations outstanding under lines of credit ....... 699,078 785,199 1,425,431 2,097,709
11.5% Redeemable Notes due 2005 ..................... 3,252,590 4,111,250 10,763,397 12,376,650
Bonds-match funded agreements ....................... 2,948,351 2,103,660 9,094,629 6,880,040
------------ ------------ ------------ ------------
6,900,019 8,725,096 21,507,509 27,760,553
------------ ------------ ------------ ------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES .. 3,112,287 7,192,480 7,850,012 25,412,879
Provision for loan losses ........................... (311,522) 597,750 (291,396) 1,076,841
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . 3,423,809 6,594,730 8,141,408 24,336,038
------------ ------------ ------------ ------------
REAL ESTATE-OPERATING INCOME:
Rental income ....................................... 7,929,051 8,244,755 26,227,316 24,394,358
Other ............................................... 76,899 26,793 134,009 52,232
------------ ------------ ------------ ------------
8,005,950 8,271,548 26,361,325 24,446,590
------------ ------------ ------------ ------------
REAL ESTATE-OPERATING EXPENSES:
Rental operation .................................... 3,401,651 4,294,104 12,004,807 13,157,121
Depreciation ........................................ 433,348 1,352,441 1,422,914 3,806,345
Interest ............................................ 3,259,461 2,796,180 8,930,249 8,148,717
------------ ------------ ------------ ------------
7,094,460 8,442,725 22,357,970 25,112,183
------------ ------------ ------------ ------------
REAL ESTATE INCOME (EXPENSE), NET ..................... 911,490 (171,177) 4,003,355 (665,593)
------------ ------------ ------------ ------------
OTHER (INCOME) EXPENSES:
Management fees ..................................... 1,004,733 1,415,407 3,108,661 4,470,498
Due diligence expenses .............................. -- -- -- 122,745
Amortization of excess net assets over purchase price (2,995,176) -- (8,787,525) --
Unrealized (gain) on match funded securities
and trading securities .............................. (15,442,793) -- (15,442,793) --
(Gains) losses on securities available for sale,
derivatives and real estate held for sale, net ..... (17,519,708) 4,219,906 (24,001,742) 35,582,326
Other ............................................... 322,757 3,963,921 2,641,541 7,567,711
------------ ------------ ------------ ------------
(34,630,187) 9,599,234 (42,481,858) 47,743,280
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES AND MINORITY INTEREST ...... 38,965,486 (3,175,681) 54,626,621 (24,072,835)
Income tax expense .................................... 11,615,611 -- 16,284,197 --
Minority interest in net (loss) income of consolidated
subsidiary ........................................ -- (150,146) -- 1,795,925
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ........... 27,349,875 (3,325,827) 38,342,424 (22,276,910)
------------ ------------ ------------ ------------
Extraordinary gain on repurchase of debt, .......... 2,091,760 -- 5,666,321 --
------------ ------------ ------------ ------------
net of taxes
NET INCOME (LOSS) ................................... $ 29,441,635 $ (3,325,827) $ 44,008,745 $(22,276,910)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
OCWEN ASSET INVESTMENT CORP.
(A WHOLLY OWNED SUBSIDIARY OF OCWEN FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Successor Predecessor Successor Predecessor
------------ ------------ ------------ ------------
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) .............................................. $ 29,441,635 $ (3,325,827) $ 44,008,745 $(22,276,910)
Other comprehensive income, net of taxes:
Change in unrealized gain (loss) on securities available
for sale arising during the period ......................... -- (17,958,104) -- (13,679,407)
Unrealized foreign currency translation adjustment arising
during the period (net of taxes of $(116,611) and $5,456)
for the three and nine months ended September 30, 2000,
respectively ............................................... 216,562 (735,818) (10,134) (280,652)
Reclassification adjustment for (losses) gains
included in net income ..................................... 5,470,681 (2,157,387) 713,326 (1,108,505)
------------ ------------ ------------ ------------
Other comprehensive loss ....................................... 5,687,243 (20,851,309) 703,192 (15,068,564)
------------ ------------ ------------ ------------
Comprehensive income (loss) .................................... $ 35,128,878 $(24,177,136) $ 44,711,937 $(37,345,474)
============ ============ ============ ============
Disclosure of reclassification adjustment:
Unrealized holding gains (losses) arising during the period on
securities sold or impaired .................................... $ 16,485,794 $ (4,776,327) $ 13,135,540 $(35,089,865)
Add: Adjustment for realized (gains) losses and
impairment charges on securities available for sale
included in net income (loss) .............................. (11,015,113) 2,618,940 (12,422,214) 33,981,360
------------ ------------ ------------ ------------
Reclassification adjustment for losses (gains) included in net
income ......................................................... $ 5,470,681 $ (2,157,387) $ 713,326 $ (1,108,505)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
5
<PAGE>
OCWEN ASSET INVESTMENT CORP.
(A WHOLLY OWNED SUBSIDIARY OF OCWEN FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Successor Predecessor
------------- -------------
For the Nine Months Ended
September 30,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ......................................................... $ 44,008,745 $ (22,276,910)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Premium amortization, net ............................................. 10,405,309 25,520,705
Depreciation .......................................................... 1,422,914 3,806,345
Amortization of excess of net assets over purchase price .............. (8,787,525) --
Extraordinary gain on extinguishment of debt .......................... (8,072,832) --
Provision for loan losses ............................................. (291,396) 1,076,841
Unrealized holding gains on securities reclassified as trading ........ (15,442,793) --
Net (gains) losses on sales of securities, derivatives, and real estate (24,001,742) 35,582,326
Decrease in principal and interest receivable ......................... 231,214 4,632,499
Increase in other assets .............................................. (13,359,389) (5,558,065)
Decrease in accrued expenses, payables, and other liabilities ......... (3,300,298) (1,175,406)
Minority interest in losses ........................................... -- (1,795,925)
------------- -------------
Net cash (used) provided by operating activities ................................. (17,187,793) 39,812,410
------------- -------------
Cash flows from investing activities:
Principal payments received on securities available for sale ................. 17,327,069 16,125,781
Principal payments received from discount loans .............................. -- 138,300
Principal payments received from loans ....................................... 47,776,832 57,208,565
Purchase of securities available for sale ................................... (27,932,620) --
Increase in repurchase agreements ............................................ -- (34,382,497)
Proceeds from sale of securities ............................................. 40,931,870 48,516,666
Proceeds from sale of real estate ............................................ 83,222,295 --
Purchases of discount loans .................................................. (13,095,653) --
Purchases/originations of loans .............................................. (8,488,708) (22,151,922)
Investment in real estate partnerships ....................................... (11,474,973) --
Investment in real estate .................................................... (18,129,450) (11,612,818)
------------- -------------
Net cash provided by investing activities ........................................ 110,136,662 53,842,075
------------- -------------
Cash flows from financing activities:
Repurchase of 11.5% redeemable notes due 2005 ................................ (44,930,000) --
Principal payments on bonds - match funded agreements ........................ (24,956,762) (50,329,125)
Decrease in securities sold under agreements to repurchase ................... (28,301,141) (96,017,660)
Increase in securities sold short ............................................ -- 33,272,188
(Decrease) increase in obligations outstanding under lines of credit ......... (25,000,617) 6,061,411
------------- -------------
Net cash (used by) financing activities .......................................... (123,188,520) (107,013,186)
------------- -------------
Net decrease in cash and cash equivalents ........................................ (30,239,651) (13,358,701)
Change in cumulative translation adjustment ...................................... (10,134) (280,652)
Cash and cash equivalents at beginning of period ................................. 79,116,480 53,365,205
------------- -------------
Cash and cash equivalents at end of period ....................................... $ 48,866,695 $ 39,725,852
============= =============
Reconciliation of cash and cash equivalents at end of period:
Cash and amounts due from depository institutions ............................ $ 3,716,121 $ 3,331,593
Interest earning deposits .................................................... 45,150,574 36,394,259
------------- -------------
Total ..................................................................... $ 48,866,695 $ 39,725,852
============= =============
Supplemental disclosure of cash flow information:
Interest paid ................................................................ 28,836,155 13,663,610
Supplemental schedule of non-cash investing and financing activities:
Reclassification of properties from investment in real estate to real
estate held for sale ..................................................... $ 218,514,083 $ --
Transfer of securities available for sale to trading ......................... $ 98,695,185 $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
6
<PAGE>
OCWEN ASSET INVESTMENT CORP.
(A WHOLLY OWNED SUBSIDIARY OF OCWEN FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional other
----------------------------- paid-in Retained comprehensive
Shares Amount capital earnings income (loss) Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 ...... 6,100 $ 61 $ 135,857,923 $ 3,542,683 $ (692,899) $ 138,707,768
Net income ........................ -- -- -- 44,008,745 -- 44,008,745
Change in unrealized gains on
securities available for sale.... -- -- -- -- 713,326 713,326
Change in cumulative translation . -- -- -- -- (10,134) (10,134)
------------- ------------- ------------- ------------- ------------- -------------
Balance at September 30, 2000 .... 6,100 $ 61 $ 135,857,923 $ 47,551,428 $ 10,293 $ 183,419,705
============= ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
7
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 ACQUISITION OF THE COMPANY
BASIS OF PRESENTATION
On October 7, 1999, Ocwen Asset Investment Corp. was acquired by Ocwen
Financial Corporation ("OCN"). On October 20, 1999, Ocwen Asset Investment Corp.
merged (the "Subsequent Merger") into Small Commercial Properties Corporation I
("SCP"), a Florida corporation and an indirect wholly owned subsidiary of OCN.
Immediately thereafter, SCP changed its name to Ocwen Asset Investment Corp.
(hereinafter referred to as "OAC" or the "Company"). As a result of the
Subsequent Merger, on October 20, 1999, the Company ceased to qualify as a real
estate investment trust under the Internal Revenue Code of 1986, as amended. A
vertical line has been used to separate the post-acquisition consolidated
financial statements of the Company from the pre-acquisition consolidated
financial statements of the Company (the "Predecessor"). The effects of the
acquisition resulted in a new basis of accounting reflecting fair values of
assets and liabilities at that date. The consolidated financial statements of
the Predecessor are presented at the Predecessor's historical cost.
NOTE 2 ORGANIZATION
The Company's consolidated financial statements include the accounts of
the Company and its subsidiaries. The Company directly owns two subsidiaries,
Ocwen General, Inc. (the "General Partner") and Ocwen Limited, Inc. (the
"Limited Partner"). The General Partner and the Limited Partner own 0.9% and
90.4%, respectively, of Ocwen Partnership, L.P. (the "Operating Partnership").
Additionally, the Company, the General Partner, the Limited Partner and the
Operating Partnership have established a variety of wholly owned subsidiaries
for operational purposes.
The Company has a management agreement with Ocwen Capital Corporation
("OCC"), a wholly owned subsidiary of OCN, under which OCC advises the Company
on various facets of its business and manages its day-to-day operations, subject
to the supervision of the Company's Board of Directors. For its services, OCC
receives a quarterly base management fee and, if certain thresholds are met, an
incentive fee. During the three months and nine months ended September 30, 2000,
OCC earned from the Company $1.0 million and $3.1 million in management fees,
respectively.
The Company also has servicing agreements with Ocwen Federal Bank FSB
(the "Bank"), a wholly owned subsidiary of OCN, for the servicing of all of the
Company's mortgage loans. In addition, the Bank in its capacity as servicer or
special servicer receives fees from certain mortgage-backed securities in which
the Company owns a subordinate or residual interest. During the three months and
nine months ended September 30, 2000, the Bank earned from the Company $0.3
million and $1.6 million in servicing fees, respectively.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company and its
subsidiaries follow U.S. generally accepted accounting principles ("GAAP"). The
policies, which materially affect the determination of the Company's financial
position, results of operations and cash flows, are summarized below.
In the opinion of management, the accompanying financial statements
contain all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the Company's financial condition at September 30, 2000
and December 31, 1999, the results of its operations for the three months and
nine months ended September 30, 2000 and 1999, its comprehensive income for the
three months and nine months ended September 30, 2000 and 1999, its cash flows
for the nine months ended September 30, 2000 and 1999, and its changes in
stockholder's equity for the nine months ended September 30, 2000. The results
of operations and other data for the three month and nine month periods ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for any other interim periods or the entire year ended December 31,
2000. The unaudited consolidated financial statements presented herein should be
read in conjunction with the audited consolidated financial statements and
related notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial statements include the accounts of
OAC and its subsidiaries as described in Note 2 above. All significant
intercompany transactions and balances have been eliminated.
8
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP
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. Material estimates that are particularly susceptible to
significant change in the near or medium term relate to the valuation of trading
and match funded securities and the determination of the allowance for loan
losses on loans and discount loans.
RECLASSIFICATION
Certain amounts included in the September 30, 1999 consolidated
financial statements have been reclassified in order to conform to the September
30, 2000 presentation.
INVESTMENT IN REAL ESTATE PARTNERSHIPS
The Company's investments in real estate partnerships are accounted for
under the equity method of accounting. Under the equity method of accounting, an
investment in the shares or other interests of an investee is recorded at cost
of the shares or interests acquired and thereafter is periodically increased
(decreased) by the investor's proportionate share of earnings (losses) of the
investee and decreased by the dividends or distributions received by the
investor from the investee.
REAL ESTATE HELD FOR SALE
Real estate held for sale is reported at the lower of the carrying
amount or fair value less cost to sell. Real estate is classified as held for
sale when the Company has committed to a plan to sell the assets, and
depreciation is discontinued. Gains and losses on the sale of real estate held
for sale are included as a component of other (income) expense.
SECURITIES
Securities are reported on the statement of financial position at fair
value. Fair value is determined within a range based on third party dealer
quotations, where available and internal values, subject to an internal review
process.
On September 30, 2000 the Company changed its accounting policy for
securities available-for-sale and match funded securities to account for these
securities as trading. For these securities, changes in fair value are reported
in income in the period of change. Previously, the Company accounted for its
securities as available for sale, for which the unrealized gains and losses for
these securities were reported as a separate component of accumulated other
comprehensive income in shareholder's equity.
RISKS AND UNCERTAINTIES
In the normal course of business, the Company encounters primarily two
significant types of economic risk: credit and market. Credit risk is the risk
of default on the Company's loan portfolios that results from a borrower's
inability or unwillingness to make contractually required payments. Market risk
primarily reflects changes in the value of securities available for sale and
investments in real estate due to changes in interest rates or other market
factors, including the rate of prepayments of principal, the value of the
collateral underlying loans and the valuation of real estate held by the
Company.
RECENT ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended by FAS 137 and 138 (collectively, "FAS 133").
FAS 133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000; accordingly, the Company is required to adopt FAS 133 on January
1, 2001.
9
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
FAS 133 requires that all derivative instruments be recorded on the
balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of hedge transaction.
o For fair-value hedging transactions in which the Company is hedging
changes in fair value of an asset, liability or firm commitment,
changes in the fair value of the derivative instrument will
generally be offset in the income statement by changes in the hedged
item's fair value.
o For cash-flow hedging transactions in which the Company is hedging
the variability of cash flows related to a variable-rate asset,
liability, or a forecasted transaction, changes in the fair value of
the derivative instrument will be reported in other comprehensive
income. The gains and losses on the derivative instrument that are
reported in other comprehensive income will be reclassified to
earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item.
o For hedge transactions of net investments in foreign operations,
changes in fair value of the derivative instrument will be recorded
in the cumulative translation adjustment account within equity.
The ineffective portion of all hedges will be recognized in current
period earnings.
o For other derivative instruments used by the Company for risk
management purposes which do not meet the hedge accounting criteria
and, therefore, do not qualify for hedge accounting, these
derivative instruments will be accounted for at fair value with
changes in fair value recorded in the income statement. Had the
Company adopted FAS 133 on October 1, 2000, the Company estimates
that it would have recorded a net of tax, cumulative effect
adjustment of $0.5 million (gain) in accumulated other comprehensive
income to recognize at fair value all derivative instruments that
would have been designated as cash-flow hedging instruments. At
September 30, 2000 the Company did not have any designated fair
value hedges.
The Company estimates that the impact of adoption of FAS 133 on its
hedges of net investments in foreign operations will not be material.
NOTE 4 RISK MANAGEMENT INSTRUMENTS
The following table indicates the interest rate swaps outstanding at
September 30, 2000, pursuant to which the Company receives payments from a
counterparty based on a floating rate of interest equal to LIBOR and agrees to
pay a fixed rate of interest to such party on a specified notional amount:
Notional LIBOR Floating Rate at
Maturity Amount Index Fixed Rate End of Period Fair Value
-------- ------ ----- ---------- ------------- ----------
(Dollars in Thousands)
2001 59,000 1-month 5.995 6.629 251
At September 30, 2000, the Company had foreign currency futures
contracts to hedge currency exposure in connection with its investment in
residual interests backed by residential mortgage loans originated in the United
Kingdom, which are held by a wholly-owned foreign subsidiary of the Company.
Currency futures contracts are commitments to either purchase or sell foreign
currency at a future date for a specified price. At September 30, 2000, the fair
value of the British Pound futures contracts was $(0.4) million. In addition,
the Company entered into foreign currency futures contracts to hedge its
Canadian dollar exposure in connection with its investment in the shopping
center located in Halifax, Nova Scotia, which is held by a wholly owned foreign
subsidiary of the Company. At September 30, 2000, the fair value of the Canadian
Dollar futures contract was $0.3 million. Gains and losses on these foreign
currency futures contracts are recorded in the Consolidated Statements of
Financial Condition offsetting the item being hedged.
10
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 5 TRADING SECURITIES
As discussed in Note 3 above, the Company changed its policy for
securities available-for-sale and match funded securities to account for them as
trading securities. The Company believes that this treatment more appropriately
reflects the impact on its results of operations arising from changes in the
value of these securities. In connection with this change, securities available
for sale are now classified as trading securities. As a result, net unrealized
gains as of September 30, 2000 of $15.4 million have been included in the
statement of operations.
During the third quarter, the Company purchased subordinate securities
with a fair value of approximately $18.0 million from Investors Mortgage
Insurance Company, a wholly-owned subsidiary of OCN. These securities are
included in Trading Securities at September 30, 2000.
NOTE 6 LOAN PORTFOLIO
The Company's loan portfolio consisted of the following at the dates
indicated.
September 30, December 31,
2000 1999
----------- -----------
(Dollars in Thousands)
Single-family residential .............. $ 34 $ 2,541
Multi-family residential ............... 8,737 34,830
Commercial real estate:
Hotel .............................. 32,911 24,809
----------- -----------
Total loans ..................... 41,682 62,180
Premium/(discount) ..................... 1,524 488
Allowance for loan losses .............. (501) (731)
----------- -----------
Loans, net ......................... $ 42,705 $ 61,937
=========== ===========
The following table represents a summary of the Company's
non-performing loans (past due 90 days or more) at the dates indicated.
September 30, December 31,
2000 1999
----------- -----------
(Dollars in Thousands)
Single-family residential............... $ -- $ 682
Multi-family............................ 3,037 3,005
----------- -----------
$ 3,037 $ 3,687
=========== ===========
At September 30, 2000 and December 31, 1999, the Company had no
investment in impaired loans as defined in accordance with SFAS No. 114, as
amended by SFAS No. 118.
During September 2000, the Bank, as servicer for the Company's
commercial and multi-family loan portfolio (see Note 2 above), received net cash
proceeds of approximately $28.6 million, which related to the partial payoff of
one of the Company's commercial loans. These proceeds were remitted to the
Company on October 4, 2000. The remaining principal balance of approximately
$4.0 million was received by the Bank during October 2000 and is expected to be
remitted to the Company in November 2000.
11
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 7 MATCH FUNDED RESIDENTIAL LOANS AND SECURITIES, NET
Match funded residential loans and securities is comprised of the
following at the dates indicated.
September 30, December 31,
2000 1999
----------- -----------
(Dollars in Thousands)
Single family residential loans .............. $ 87,721 $ 105,596
Allowance for loan losses .................... (367) (495)
----------- -----------
Match funded residential loans, net .. 87,354 105,101
Match funded securities ..................... 36,546 52,693
----------- -----------
Balance at end of period ..................... $ 123,900 $ 157,794
=========== ===========
The following table represents a summary of the Company's
non-performing loans (past due 90 days or more) at the dates indicated in the
match funded loan portfolio.
September 30, December 31,
2000 1999
----------- -----------
(Dollars in Thousands)
Match funded loans............................ $ 260 $ 1,127
=========== ===========
Bonds-match funded agreements were comprised of the following at the
dates indicated:
September 30, December 31,
2000 1999
----------- -----------
(Dollars in Thousands)
OAC Mortgage Residential Securities, Inc....... $ 79,894 $ 100,968
Ocwen NIM Corp................................. 34,794 40,547
----------- -----------
$ 114,688 $ 141,515
=========== ===========
NOTE 8 INVESTMENT IN REAL ESTATE PARTNERSHIPS
During January 2000, the Company invested approximately $11.5 million
in real estate partnerships. At September 30, 2000, the Company's investment in
real estate partnerships consisted of interests in five limited partnerships
operating as real estate ventures, consisting of multi-family type properties.
NOTE 9 REAL ESTATE HELD FOR SALE
At September 30, 2000, real estate held for sale included a commercial
office property in San Francisco, California, and two shopping centers, one each
located in (i) Bradenton, Florida; and (ii) Havre, Montana. The following table
sets forth the Company's real estate held for sale:
September 30,
2000
-----------
(Dollars in Thousands)
Office buildings.............................. $ 135,301
Building improvements......................... 15,339
Tenant improvements and lease commissions..... 9,949
-----------
$ 160,589
===========
On August 16, 2000, the Company sold its 10 United Nations Plaza
property located in San Francisco for $15.5 million, less commissions and
closing costs, for a pretax gain of $2.7 million. On September 21, 2000, the
Company sold its 450 Sansome Street property located in San Francisco for $44.4
million, less commission and closing costs, for a pretax gain of $14.0 million.
12
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
On November 1, 2000, the Company sold its remaining San Francisco
property located at 225 Bush Street, for aggregate proceeds of approximately
$143.5 million, less closing costs and pro rations of certain contractual
obligations that survive closing, for cash proceeds, net of financings, of
approximately $60.3 million and a gain of $0.1 million.
NOTE 10 INVESTMENT IN REAL ESTATE
The investment in real estate at September 30, 2000 was comprised of an
office building in Jacksonville, Florida, and a shopping plaza located in
Halifax, Nova Scotia. The following table sets forth the Company's investment in
real estate for the dates indicated:
September 30, December 31,
2000 1999
----------- -----------
(Dollars in Thousands)
Office buildings ............................. $ 32,108 $ 202,607
Retail ....................................... 9,471 33,224
Building improvements ........................ 10,027 17,590
Tenant improvements and lease commissions .... 1,192 8,150
Furniture and fixtures ....................... 52 44
----------- -----------
52,850 261,615
Accumulated depreciation and amortization .... (2,053) (9,011)
----------- -----------
Investment in real estate, net ........... $ 50,797 $ 252,604
=========== ===========
NOTE 11 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OBLIGATIONS
OUTSTANDING UNDER LINES OF CREDIT
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE. Securities sold under
agreements to repurchase were $28.3 million at December 31, 1999. These
obligations were paid in full during the nine months ended September 30, 2000.
Interest expense with respect to these obligations for the nine months ended
September 30, 2000 was $0.2 million. There was no expense for the third quarter
ended September 30, 2000.
OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT. Obligations outstanding
under lines of credit amounted to $29.1 million and $18.0 million at September
30, 2000 and December 31, 1999, respectively. These borrowings are pursuant to a
three year agreement, which is collateralized by $15.2 million in commercial
loans. No further draws are permitted under this line of credit. Interest
expense was $0.7 million and $1.4 million for the three months and nine months
ended September 30, 2000, respectively.
OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT - REAL ESTATE.
Obligations outstanding under lines of credit secured by real estate amounted to
$105.1 million and $141.2 million at September 30, 2000 and December 31, 1999,
respectively. These borrowings are pursuant to a three-year agreement. Interest
expense during the three months and nine months ended September 30, 2000 was
$3.2 million and $8.9 million, respectively. Set forth below is information
regarding the Company's indebtedness relating to its investment in real estate
and real estate held for sale at September 30, 2000:
Principal
Property Amount Interest Rate Maturity Date
-------- ------ ------------- -------------
(Dollars in Millions)
Bush Street Property.... $ 75.0 LIBOR plus 1.75% April, 2001
Other................... $ 30.1 LIBOR plus 2.40% June, 2001 (1)
(1) As of September 30, 2000, this line of credit was collateralized by
$53.4 million in investments in real estate. No further draws are
permitted under this line of credit.
In addition to payment and, in the case of the Company's secured
indebtedness, collateralization requirements, the Company is subject to various
other covenants in the agreements evidencing its indebtedness, including the
maintenance of specified amounts of equity. At September 30, 2000, the Company
was in compliance with all obligations under the agreements evidencing its
indebtedness with respect to the Company's equity and that of its operating
partnership's equity, as defined in the applicable agreement.
13
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 12 11.5% REDEEMABLE NOTES AND BONDS-MATCH FUNDED AGREEMENTS
During the third quarter 2000, the Company repurchased in the open
market $15.1 million of its outstanding 11.5% Redeemable Notes due 2005
("Redeemable Notes"). This resulted in the Company realizing an extraordinary
gain of $2.1 million, net of taxes. At September 30, 2000, the outstanding par
balance of the Redeemable Notes was $98.1 million. Interest expense on the
Redeemable Notes during the three months and nine months ended September 30,
2000 was $3.3 million and $10.8 million, respectively. In light of favorable
market conditions, the Company continues to consider the additional repurchase
of some or all of its Redeemable Notes.
The indenture under which the Redeemable Notes were issued (the
"Indenture") prohibits the Company from incurring or issuing debt, other than
certain permitted indebtedness ("Permitted Indebtedness"), if certain financial
tests are not satisfied. One such test requires that the ratio of adjusted Funds
from Operations ("FFO") to adjusted fixed charges for the previous four fiscal
quarters exceeds 1.25 to 1.00. FFO to adjusted fixed charges for the four
quarters ended September 30, 2000 was 3.2 to 1.
The Indenture also prohibits the Company from making certain restricted
payments, including dividends. As of September 30, 2000, the Company was
permitted to make restricted payments of approximately $2.5 million. The Company
continues to consider the expenditure of that sum for any such restricted
payments, including dividends.
At September 30, 2000 and December 31, 1999 bonds-match funded
agreements amounted to $114.7 million and $141.5 million, respectively. Interest
expense was $2.9 million and $9.1 million for the three months and nine months
ended September 30, 2000, respectively.
NOTE 13 BUSINESS SEGMENT REPORTING
SFAS No. 131 requires public enterprises to report financial and
descriptive information about its reportable operating segments. Operating
segments are defined as components of an enterprise that (a) engage in business
activities from which they may earn revenues and incur expenses, (b) whose
operating results are regularly reviewed by the enterprise's chief operating
decision maker to make decisions about resources to be allocated to the segment
and assess its performance, and (c) for which discrete financial information is
available. An operating segment may engage in business activities for which it
has yet to earn revenues. The Company conducts a variety of business activities
within the following segments:
<TABLE>
<CAPTION>
Other
Net Interest Expenses Real Estate Net (Loss) Total
Income (Income) Income, Net Income Assets
------------ ------------ ------------ ------------ ------------
AT OR FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000:
<S> <C> <C> <C> <C> <C>
Commercial real estate .................. $ (1,007,107) $(11,089,992) $ 911,490 $ 10,994,375 $204,253,293
Commercial loans ........................ 1,498,028 437,226 -- 1,060,802 117,358,445
Domestic subprime single family
residential lending ................. 687,286 (11,327,422) -- 12,014,708 110,993,533
Single family residential discount loans 1,166,786 1,109,891 -- 56,895 110,458,866
Corporate items and other ............... 795,728 (4,519,126) -- 5,314,854 54,223,690
------------ ------------ ------------ ------------ ------------
$ 3,140,721 $(25,389,423) $ 911,490 $ 29,441,634 $597,287,827
============ ============ ============ ============ ============
AT OR FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000:
Commercial real estate .................. $ (3,440,631) $(14,676,472) $ 4,003,355 $ 15,239,196 $204,253,293
Commercial loans ........................ 3,180,795 1,399,093 -- 1,781,702 117,358,445
Domestic subprime single family
residential lending ................. 3,023,478 (9,524,786) -- 12,548,264 110,993,533
Single family residential discount loans 3,671,496 1,983,242 -- 1,688,254 110,458,866
Corporate items and other ............... 1,414,874 (11,336,454) -- 12,751,328 54,223,690
------------ ------------ ------------ ------------ ------------
$ 7,850,012 $(32,155,377) $ 4,003,355 $ 44,008,744 $597,287,827
============ ============ ============ ============ ============
</TABLE>
14
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
The Company's commercial real estate activities include acquisition of
real estate properties held for investment and sale. The Company's commercial
loan activities include the origination of multi-family and commercial real
estate loans and the acquisition of subordinate interests in commercial
mortgage-backed securities. Domestic subprime single family residential lending
includes the Company's acquisition and securitization of residual interests in
mortgage-backed securities collateralized by loans to non-conforming borrowers.
Single family residential discount loan activities includes asset acquisition
and resolution of single family residential mortgages and securitization of
single family residential loans. Corporate items and other consists primarily of
individually insignificant business activities, amounts not allocated to the
operating segments, transfer pricing mismatches, extraordinary gains,
amortization of excess of net assets over purchase price, and other general
corporate expenses.
Interest income and expense have been allocated to each business
segment for the investment of funds raised or funding of investments made taking
into consideration the duration of such liabilities or assets. Allocations of
non-interest expense generated by corporate support services were made to each
business segment based upon management's estimate of time and effort spent in
the respective activity. Income taxes are allocated to each business segment
based on the Company's statutory tax rate. As such, the resulting amounts
represent estimates of the contribution of each business activity to the
Company. Other Expenses (Income) also includes: gains (losses) on securities,
derivatives and real estate held for sale, net; income tax expense; and
extraordinary gains on repurchase of debt, net of taxes.
Prior to the acquisition of the Company by OCN, the Company did not
operate in business segments. Accordingly, it is not practicable to present
comparative segment data for the periods ended September 30, 1999.
NOTE 14 COMMITMENTS AND CONTINGENCIES
At September 30, 2000, the Company had $5.4 million in outstanding
commitments to fund construction loans secured by multi-family and commercial
properties. The following table details the amounts committed at such date.
September 30,
2000
-------------
(Dollars in Thousands)
Multi-family....................... $ 417
Hotels............................. 4,955
---------
Total committed amount......... $ 5,372
=========
On April 20, 1999, a complaint was filed on behalf of a putative class
of public shareholders of the Company in the Circuit Court of the Fifteenth
Judicial Circuit, Palm Beach County, Florida against OCN and the Company. On
April 23, 1999, a complaint was filed on behalf of putative classes of public
shareholders of the Company in the Circuit Court of the Fifteenth Judicial
Circuit, Palm Beach County, Florida against the Company and certain directors of
the Company. The plaintiffs in both complaints sought to enjoin consummation of
the acquisition of the Company by OCN. The cases were consolidated, and on
September 13, 1999 a consolidated amended complaint was filed. The injunction
was denied, and on October 14, 1999, OCN was dismissed as a party. Plaintiffs'
remaining claims are for damages for alleged breaches of common law fiduciary
duties. Discovery is ongoing.
On June 3, 1999, Walton Street Capital, L.L.C. ("Walton") filed suit
against the Company and the Operating Partnership in the Circuit Court of Cook
County, Illinois. Walton has alleged that the Company committed an anticipatory
breach of contract with respect to the proposed sale by the Company of all of
its interest in its commercial mortgage-backed securities portfolio to Walton.
Walton has claimed damages in an amount in excess of $20 million. As of October
20, 2000, Walton, the Company and the Operating Partnership have filed Motions
for Summary Judgment. The Company believes this suit is without merit and
continues to vigorously defend against the same. Discovery has been suspended
pending the adjudication of the motions.
The Company is subject to various other pending legal proceedings. In
management's opinion, the resolution of these other claims will not have a
material effect on the consolidated financial statements.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Pursuant to General Instruction (H)(2)(a) of Form 10-Q, the following discussion
has been reduced to a narrative analysis of the results of operation, including
the reasons for changes in the amount of revenue and expense items during the
third quarter of 2000 versus the third quarter of 1999.
RESULTS OF OPERATIONS
GENERAL. The Company recorded net income of $29.4 million for the
quarter ended September 30, 2000 as compared to a net loss of $3.3 million for
the quarter ended September 30, 1999. The increase in net income was primarily
due to an unrealized gain on securities reclassified as trading of $15.4
million, gains of $17.5 million on the sale of real estate held for sale (see
Notes 3, 5 and 9 to the Consolidated Financial Statements, which are
incorporated herein by reference), an extraordinary gain of $2.1 million on the
repurchase of the 11.5% Redeemable Notes due 2005, and $3.0 million amortization
of net assets over purchase price. Net income for the nine months ended
September 30, 2000 was $44.0 million, compared to a net loss of $22.3 million
for the same period a year ago.
INTEREST INCOME. Interest income decreased $5.9 million to $10.0
million for the quarter ended September 30, 2000, compared to $15.9 million for
the comparable period in 1999. This decrease was primarily due to a reduction in
interest income on the securities available for sale portfolio of $7.2 million,
which resulted from lower average balances in the residential securities
portfolio arising from the sale of some securities in the fourth quarter of 1999
and the continuing amortization and prepayment of the underlying loans. Interest
income for the nine months ended September 30, 2000 was $29.4 million, compared
to $53.2 million for the same period a year ago.
INTEREST EXPENSE. Interest expense for the quarter ended September 30,
2000 decreased $1.8 million to $6.9 million as compared to $8.7 million for the
same period a year ago. This decrease was primarily due to a reduction of $1.5
million in interest expense from securities sold under agreements to repurchase,
primarily due to the sale of securities. Interest expense does not include the
expense associated with the borrowings secured by investments in real estate,
which is included in the operations of the Company's real estate. See " -Real
Estate Income (Expense), Net" below. Interest expense for the nine months ended
September 30, 2000 was $21.5 million, compared to $27.8 million for the same
period a year ago.
NET INTEREST INCOME. Net interest income before provision for loan
losses during the quarter ended September 30, 2000 decreased $4.1 million to
$3.1 million from $7.2 million in the same period of 1999, as discussed above.
Net interest income was $7.9 million for the nine months ended September 30,
2000, compared to $25.4 million for the same period a year ago.
PROVISION FOR LOAN LOSSES. The provision for loan losses, net of
recoveries, for the quarter ended September 30, 2000 was $(0.03) million,
compared to $0.6 million for the same period of 1999. This change reflects the
Company's evaluation of current economic conditions, a credit review of loans,
an analysis of specific loan situations and the size and composition of the
commercial and multi-family loan portfolios.
REAL ESTATE INCOME (EXPENSE), NET. Real estate income, net increased
$1.1 million to $0.9 million for the quarter ended September 30, 2000, compared
to a loss of $0.2 million for the same period in 1999. This increase was
primarily due to a $0.3 million increase in rental income, which resulted from
higher occupancy and increased rental rates, and the discontinuance of
depreciation expense for real estate reclassified to held for sale. See Notes 9
and 10 to the Consolidated Financial Statements, which are incorporated herein
by reference. Real estate income, net was $4.0 million for the nine months ended
September 30, 2000 compared to a net loss of $0.7 million for the same period a
year ago.
OTHER (INCOME) EXPENSES. Other (income) expenses increased $44.2
million for the quarter ended September 30, 2000 to income of $34.6 million from
an expense of $9.6 million in the same period a year ago. This increase was
primarily due to the amortization of excess of net assets over purchase price
for $3.0 million, which resulted from the acquisition of the Company by OCN; a
decrease of $0.4 million in management fees due to lower Average Invested Assets
balances (See Notes 1 and 2 to the Consolidated Financial Statements, which are
incorporated herein by reference); (gains) losses on securities, derivatives and
sale of real estate held for sale, net increased $21.7 million to a gain of
$17.5 million for the quarter ended September 30, 2000, of which (i) $16.7
million relates to the sale of real estate, and (ii) $0.8 million relates to the
sale of interest rate swaps with notional amounts of $75.0 million due 2001 and
$27.0 million due 2003. Other expenses (income) was $(42.5) million for the nine
months ended September 30, 2000, compared to an expense of $47.7 million for the
same period a year ago.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are not, and certain statements
contained in future filings by the Company with the Securities and Exchange
Commission (the "Commission"), in the Company's press releases or in the
Company's other public or shareholder communications may not be, based on
historical facts and are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements,
which are based on various assumptions (some of which are beyond the Company's
control), may be identified by reference to a future period(s) or by the use of
forward-looking terminology such as "believe," "commitment," "consider,"
"continue," "could," "estimate," "expect," "foresee," "in the event of," "may,"
"plan," "whether," "will," "would," future or conditional verb tenses, similar
terms, variations on such terms or negatives of such terms. Although the Company
believes the anticipated results or other expectations reflected in such
forward-looking statements are based on reasonable assumptions, it can give no
assurance that those results or expectations will be attained. Actual results
could differ materially from those indicated in such statements due to risks,
uncertainties and changes with respect to a variety of factors, including, but
not limited to, international, national, regional or local economic environments
(particularly in the market areas where the Company operates), government fiscal
and monetary policies (particularly in the market areas where the Company
operates), prevailing interest or currency exchange rates, effectiveness of
interest rate, currency and other hedging strategies, laws and regulations
affecting investment companies and real estate (including access for disabled
persons and environmental compliance), credit, prepayment, basis, default,
subordination and asset/liability risks, loan servicing effectiveness, course of
negotiations and ability to reach agreement with respect to material terms of
any particular transaction, satisfaction or fulfillment of agreed upon terms and
conditions of closing or performance, timing of transaction closings,
discontinuation of investment activities, availability of and costs associated
with obtaining adequate and timely sources of liquidity, dependence on existing
sources of funding, ability to repay or refinance indebtedness (at maturity or
upon acceleration), ability to meet collateral calls by lenders (upon
re-valuation of the underlying assets or otherwise) and to generate revenues
sufficient to meet debt service payments and other operating expenses, size of,
nature of and yields available with respect to the secondary market for mortgage
loans and financial, securities and securitization markets in general,
allowances for loan losses, geographic concentrations of assets (temporary or
otherwise), timely leasing of unoccupied square footage (generally and upon
lease expiration), changes in real estate conditions (including liquidity,
valuation, revenues, rental rates, occupancy levels and competing properties),
adequacy of insurance coverage in the event of a loss, known or unknown
environmental conditions, external management, other factors generally
understood to affect the real estate acquisition, mortgage and leasing markets
and securities investments, and other risks detailed from time to time in the
Company's reports and filings with the Commission, including its periodic
reports on Forms 10-Q, 8-K, and 10-K and Exhibit 99.2, Risk Factors, filed with
the Company's 1999 Form 10-K. Given these uncertainties, readers are cautioned
not to place undue reliance on such statements. The Company does not undertake,
and specifically disclaims any obligation, to publicly release the results of
any revisions which may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement of Merger dated as of July 25, 1999 among Ocwen
Financial Corporation, Ocwen Asset Investment Corp. and
Ocwen Acquisition Company (1)
2.2 Agreement and plan of Merger and Reorganization dated as
of October 19, 1999 between Ocwen Asset Investment Corp.
and Small Commercial Properties Corporation I (2)
3.1 Amended and Restated Articles of Incorporation (2)
3.2 Amended and Restated Bylaws (2)
4.1 Form of Common Stock certificate (2)
4.2 Form of Indenture between the Company and Norwest Bank
Minnesota, National Association, as Trustee thereunder for
the 11.5% Redeemable Notes due 2005 (3)
10.1 First Amended and Restated Management Agreement (4)
10.2 Loan Agreement, dated as of April 24, 1998, between OAC
and Greenwich Financial Products Inc. (4)
10.3 Third Amended and Restated Agreement of Limited
Partnership of Ocwen Partnership L.P., (5)
10.4 Amended and restated Loan Agreement, dated as of June 10,
1998, by and among, inter alia, OAIC California
Partnership, L.P., OAIC California Partnership II, L.P.,
Salomon Brothers, Realty Corp. and LaSalle National Bank.
(5)
10.5 Loan Agreement, dated as of April 7, 1998, between OAIC
Bush Street, LLC and Salomon Brothers Realty Corp. (6)
10.6 Second Extension of Term Agreement (2)
10.7 Compensation and Indemnification Agreement, dated as of
May 6, 1999, between the Company and the independent
committee of the Board of Directors (7)
10.8 First Amendment to Loan Agreement and Guaranty, dated as
of July 9, 1999, made by and among OAIC Bush Street, LLC,
Salomon Brothers Realty Corp, Ocwen Partnership, L.P. and
LaSalle Bank National Association (7)
10.9 Second Amendment to Guarantee of Payment, dated as of July
9, 1999, made by and between Salomon Brothers Realty Corp.
and Ocwen Partnership, L.P. (7)
10.10 Indemnity Agreement, dated August 24, 1999, among OCN and
the Company's directors (7)
10.11 First Amendment to Agreement, dated March 30, 2000 between
HCT Investments, Inc. and OAIC Partnership I, L.P. (8)
10.12 225 Bush Street Agreement of Purchase and sale dated July
19, 2000, made by and among OAIC Bush Street, LLC, Flynn
Land Company, Inc. and GEM Investors, Inc. and amendments
one, two, and three thereto (9)
27 Financial Data Schedule for the period ended September 30,
2000 (filed herewith) (9)
99.1 Investment Guidelines (3)
99.2 Risk Factors (2)
18
<PAGE>
================================================================================
(1) Incorporated by reference to Ocwen Financial Corporation's
Current Report on Form 8-K filed with the Commission on
July 26, 1999.
(2) Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1999.
(3) Incorporated by reference to the Company's Registration
Statement on Form S-4 (File No. 333-64047), as amended, as
declared effective by the Commission on February 12, 1999.
(4) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March
31, 1998.
(5) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June
30, 1998.
(6) Incorporated by reference to the Company's Current Report
on Form 8-K filed with the Commission on April 23, 1998.
(7) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1999.
(8) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March
31, 2000.
(9) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 2000.
(b) Reports on Form 8-K filed during the quarter ended September 30,
2000:
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
OCWEN ASSET INVESTMENT CORP.
By: /s/ MARK S. ZEIDMAN
-----------------------------------------------
Mark S. Zeidman
Senior Vice President and Chief Financial
Officer (On behalf of the Registrant and as its
principal financial officer)
Date: November 13, 2000
20
