SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
AMENDMENT TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Amendment No. 1
Date of Report (Date of earliest event reported) September 21, 1995
FIRSTCITY FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE 1-7614 76-0243729
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
6400 IMPERIAL DRIVE, WACO, TX 76712
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (817) 751-1750
-----------------------------
<PAGE>
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------
On August 9, 1995, FirstCity Financial Corporation, a Delaware
corporation ("FirstCity"), through its wholly-owned subsidiary DFC Asset Corp.,
a Texas corporation, executed a stock purchase agreement to acquire (the
"Acquisition") 100 percent of the capital stock of each of Diversified Financial
Systems, Inc., an Indiana corporation ("Diversified Financial"), and Diversified
Performing Assets, Inc., an Indiana corporation ("Diversified Performing" and,
collectively with Diversified Financial, "Diversified"), from Randall R. Geist
and J. Michael Hester. On September 21, 1995, FirstCity consummated the
Acquisition. Diversified specializes in the acquisition, disposition and
servicing of distressed loans and loan-related assets. Diversified is
headquartered in Fort Wayne, Indiana with offices in Franklin, Massachusetts and
Richardson, Texas. In exchange for 100 percent of the capital stock of
Diversified Financial and Diversified Performing, FirstCity paid an aggregate of
$12.9 million in cash and notes (such $12.9 million comprised of an aggregate of
$14 million in cash and notes paid to Randall R. Geist and J. Michael Hester,
less cash acquired in the amount of $1.1 million). The Acquisition was
internally funded by FirstCity. A copy of the press release issued by FirstCity
upon consummation of the Acquisition, describing such consummation, is attached
hereto as Exhibit 99.1 and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
-----------------------------------------------------------------
(a) Financial statements of businesses acquired.
(i) Financial statements of Diversified Financial
Systems, Inc.
(ii) Financial statements of Diversified Performing
Assets, Inc.
(iii) Financial statements of Diversified Financial
Systems, L.P.
(b) Pro forma financial information.
(i) FirstCity Financial Corporation and Subsidiaries
Pro Forma Condensed Consolidated Financial
Statements.
(c) Exhibits.
The Exhibit Index at page 45 is incorporated herein by reference.
2
NYFS11...:\92\54892\0003\2236\FRMN155X.270
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRSTCITY FINANCIAL CORPORATION
/s/ Gary H. Miller
---------------------------------------
Gary H. Miller
Senior Vice President
and Controller
Date: November 22, 1995
3
<PAGE>
<PAGE>
Item 7(a)(i)
DIVERSIFIED FINANCIAL SYSTEMS, INC.
Fort Wayne, Indiana
FINANCIAL STATEMENTS
December 31, 1992, 1993 and 1994
and June 30, 1994 and 1995
4
<PAGE>
<PAGE>
DIVERSIFIED FINANCIAL SYSTEMS, INC.
Fort Wayne, Indiana
FINANCIAL STATEMENTS
December 31, 1992, 1993 and 1994
and June 30, 1994 and 1995
CONTENTS
REPORT OF INDEPENDENT AUDITORS.............................................6
FINANCIAL STATEMENTS
BALANCE SHEETS...................................................7
STATEMENTS OF INCOME AND RETAINED EARNINGS.......................8
STATEMENTS OF CASH FLOWS.........................................9
NOTES TO FINANCIAL STATEMENTS....................................11
5
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders
Diversified Financial Systems, Inc.
Fort Wayne, Indiana
We have audited the accompanying balance sheets of Diversified Financial
Systems, Inc. as of December 31, 1994 and 1993, and the related statements of
income and retained earnings and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of Diversified Financial Systems,
Inc. as of December 31, 1994 and 1993, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company
Oak Brook, Illinois
March 10, 1995
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED FINANCIAL SYSTEMS, INC.
BALANCE SHEETS
June 30,
.................December 31,............... 1995
------------
1993 1994 (Unaudited)
---- ---- -----------
<S> <C> <C> <C>
ASSETS
Cash $ 786,797 $ 1,783,654 $ 807,101
Unamortized cost of loan portfolios (Note 4) 20,333,235 39,329,648 41,674,709
Receivables from related parties (Note 11) 542,584 4,301,427 5,427,591
Notes receivable (Note 7) 2,153,859 1,100,670 928,672
Other receivables (Note 6) 1,929,311 985,744 1,101,727
Investment in partnerships (Notes 11 and 12) 6,216,446 1,332,538 1,267,477
Furniture and equipment, net of accumulated
depreciation 139,381 162,352 146,937
Real estate held for sale 1,029,573 800,000 --
Deferred financing costs 432,770 325,379 230,861
Accrued interest receivable and other assets 401,867 782,638 818,020
----------- ----------- -----------
$33,965,823 $50,904,050 $52,403,095
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Collateralized loans (Note 8) $19,873,090 $35,273,416 $35,712,307
Notes payable - shareholders and
related parties (Note 10) 2,248,800 1,039,800 979,860
Accounts payable 318,503 727,992 765,551
Accounts payable - related parties (Note 11) -- 398,892 688,217
Other borrowings (Note 9) 407,982 332,766 --
Accrued interest payable and other liabilities 1,126,149 751,155 856,272
----------- ----------- -----------
Total liabilities 23,974,524 38,524,021 39,002,207
Shareholders' equity
Common stock - without par value; 10,000
shares authorized, 200 shares issued 1,000 1,000 1,000
Retained earnings 10,370,299 15,159,029 16,179,888
----------- ----------- -----------
10,371,299 15,160,029 16,180,888
Common treasury stock - at cost (Note 13) 380,000 2,780,000 2,780,000
----------- ----------- -----------
9,991,299 12,380,029 13,400,888
----------- ----------- -----------
$33,965,823 $50,904,050 $52,403,095
=========== =========== ===========
<FN>
See accompanying notes to financial statements
</TABLE>
7
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED FINANCIAL SYSTEMS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
Years Ended Six Months Ended
........................December 31,............. ............June 30,..........
------------ --------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
..........(Unaudited).........
<S> <C> <C> <C> <C> <C>
Income
Receipts from loan portfolios $ 2,933,686 $ 9,618,378 $ 25,704,279 $ 11,912,334 $ 14,696,029
Servicing fee income (Note 11) 6,811,539 5,693,881 5,849,394 3,188,682 2,425,463
Equity in earnings of partnerships 4,332,768 2,164,550 1,510,884 2,326,158 377,909
Fees earned under First Lake
Agreement (Note 3) 31,631 887,203 1,165,236 658,968 --
Gain on early extinguishment
of debt (Note 8) -- -- 333,965 333,965 --
Data processing revenue (Note 11) -- -- 604,642 304,639 274,752
Gain on portfolio sale (Note 13) -- -- 436,521 436,521 --
Interest 17,411 85,181 80,600 16,577 11,621
Other 11,591 81,442 108,966 27,820 18,594
------------ ------------ ------------ ------------ ------------
14,138,626 18,530,635 35,794,487 19,205,664 17,804,368
Expenses
Amortization of loan portfolio costs 2,468,743 5,907,185 16,300,766 8,638,140 9,481,572
Salaries and related taxes 2,781,095 2,338,915 2,895,932 1,354,282 1,453,676
Legal 1,114,922 1,734,749 2,359,970 926,428 1,188,107
Interest 618,662 1,769,530 2,523,977 1,218,742 2,127,088
Asset protection expense 146,910 906,849 706,744 283,266 46,675
Financing costs 56,519 504,210 689,544 313,522 617,019
Consulting fees (Note 13) -- 860,000 -- -- --
Servicing fees 421,567 832,850 962,440 428,313 160,111
Telephone 326,542 292,834 316,911 163,528 94,104
Provision for loss on real estate
held for sale -- -- 229,573 -- --
Insurance 167,074 280,958 305,222 154,050 205,297
Field agents' travel expenses 266,177 153,234 138,734 66,360 73,771
Rent 173,701 163,947 194,194 96,302 85,287
Postage 28,466 115,445 430,516 203,660 199,101
Data processing 157,918 197,356 343,241 169,256 152,416
Professional fees 159,018 188,215 358,053 253,944 143,709
Other 543,996 605,966 1,055,565 376,586 635,911
------------ ------------ ------------ ------------ ------------
9,431,310 16,852,243 29,811,382 14,646,379 16,663,844
------------ ------------ ------------ ------------ ------------
NET INCOME 4,707,316 1,678,392 5,983,105 4,559,285 1,140,524
Retained earnings at beginning of period 5,178,485 9,270,982 10,370,299 10,370,299 15,159,029
Distributions to shareholders (614,819) (579,075) (1,194,375) (479,084) (119,665)
------------ ------------ ------------ ------------ ------------
RETAINED EARNINGS AT END OF PERIOD $ 9,270,982 $ 10,370,299 $ 15,159,029 $ 14,450,500 $ 16,179,888
============ ============ ============ ============ ============
<FN>
See accompanying notes to financial statements
</TABLE>
8
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED FINANCIAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
Years Ended Six Months Ended
...................December 31,........... ............June 30,............
------------ --------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
..........(Unaudited)..........
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash collected from acquired
loan portfolios $ 2,933,686 $ 9,618,378 $ 25,704,279 $ 11,912,334 $ 14,696,029
Cash received for servicing fees 6,789,248 5,428,995 5,911,560 3,450,248 2,625,060
Other cash received 60,633 112,755 2,628,814 1,675,154 601,366
Cash paid to vendors and employees (6,077,039) (8,126,271) (10,823,228) (4,979,567) (3,900,451)
Interest paid (459,728) (1,676,778) (2,667,886) (1,470,428) (2,141,161)
Purchase of loan portfolios (13,548,825) (9,962,403) (30,993,994) (14,955,664) (11,826,634)
Deposits (paid) received, net (56,939) 425,975 (2,320) 816,856 (611,476)
------------ ------------ ------------ ------------ ------------
Net cash used in operating activities (10,358,964) (4,179,349) (10,242,775) (3,551,067) (557,267)
CASH FLOWS FROM INVESTING ACTIVITIES
Notes receivable -- (2,071,259) (444,134) (183,874) --
Collections on notes receivable -- -- 132,064 7,000 171,998
Capital distributions from
partnership 1,828,500 3,784,631 3,052,880 2,095,141 442,970
Cash advanced to affiliates and
shareholders (906,154) (699,479) (2,347,093) (981,899) (1,162,347)
Repayment of advances -- -- 392,356 167,000 --
Proceeds from sale of real estate
held-for-sale -- -- -- -- 736,398
Maturity of certificate of deposit 50,000 137,500 -- -- --
Property and equipment
expenditures (152,294) (39,434) (82,916) (58,706) (12,324)
Cash paid for net assets of
Diversified Financial Planners, Inc. -- (80,247) -- -- --
Cash paid for limited partner's
interest in
Diversified Financial Partners III LP -- -- (1,270,000) (1,270,000) --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities 820,052 1,031,712 (566,843) (225,338) 176,695
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related parties 250,000 -- -- -- --
Repayment of advances from
related parties (421,712) (90,000) -- -- --
Financing fees (927,562) (73,604) (570,034) (678,017) (522,501)
Borrowings on collateralized loans 14,293,689 9,312,403 45,077,422 19,505,441 11,826,634
Principal payments on other
borrowings -- (33,334) (75,216) (112,466) (332,766)
Principal payments on
collateralized loans (1,233,208) (7,445,718) (30,621,214) (11,752,649) (11,387,743)
Borrowings on notes payable -
related parties -- 1,172,800 180,000 178,947 205,000
Repayment of notes payable -- -- (1,389,000) (1,356,000) (264,940)
Cash distributions to shareholders (614,819) (579,075) (795,483) (548,834) (119,665)
Purchase of common treasury stock -- (245,000) -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 11,346,388 2,018,472 11,806,475 5,236,422 (595,981)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash 1,807,476 (1,129,165) 996,857 1,460,017 (976,553)
Cash at beginning of period 108,486 1,915,962 786,797 786,797 1,783,654
------------ ------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ 1,915,962 $ 786,797 $ 1,783,654 $ 2,246,814 $ 807,101
============ ============ ============ ============ ============
<FN>
(Continued)
</TABLE>
9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED FINANCIAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
Years Ended Six Months Ended
..................December 31,................ .............June 30,.........
------------ --------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
..........(Unaudited).........
<S> <C> <C> <C> <C> <C>
Reconciliation of net income to net
cash used in operating activities
Net income $ 4,707,316 $ 1,678,392 $ 5,983,105 $ 4,559,285 $ 1,140,524
Amortization of loan portfolio costs 2,468,743 5,907,185 16,300,766 8,638,140 9,481,572
Amortization of deferred financing
costs 64,186 504,210 295,896 729,557 617,019
Provision for loss on real estate
held for sale -- -- 229,573 -- --
Loss on real estate held for sale -- -- -- -- 63,602
Depreciation 46,891 70,257 59,945 33,195 27,739
Gain on early extinguishment of debt -- -- (333,965) 333,965 --
Equity in earnings of partnership (4,332,768) (2,164,550) (1,510,884) (2,471,413) (377,910)
Gain on portfolio sale -- -- (436,521) (436,521) --
Purchase of loan portfolios (13,548,825) (9,962,403) (30,993,994) (14,955,664) (11,826,634)
Decrease (increase) in receivables (118,191) (1,051,960) 123,929 598,135 (115,181)
Increase in accounts payable and
accrued liabilities 353,684 839,520 39,375 (579,746) 432,002
------------ ------------ ------------ ------------ ------------
Net cash used in operating activities $(10,358,964) $ (4,179,349) $(10,242,775) $ (3,551,067) $ (557,267)
============ ============ ============ ============ ============
Schedule of noncash investing and
financing activities
Note payable issued in connection
with purchase of loan portfolio 4,750,000
Assets acquired from Diversified
Partners III LP $ 6,693,027
Notes payable and other liabilities
assumed (2,081,385)
Corporation's equity in net assets of
Diversified Partners III LP at date
of partnership termination (3,341,642)
------------
Cash paid $ 1,270,000
============
<FN>
See accompanying notes to financial statements
</TABLE>
10
<PAGE>
<PAGE>
DIVERSIFIED FINANCIAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 1 - NATURE OF BUSINESS
The Corporation is engaged in the business of providing collection services for
companies who have acquired loan portfolios from the Federal Deposit Insurance
Corporation (FDIC), Resolution Trust Corporation (RTC) and other sources. The
Corporation also acquires loan portfolios for its own account, from these same
sources, at substantial discounts from principal amounts outstanding and
liquidates the portfolios through collection efforts or through bulk sales to
financial institutions.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Recognition: The Corporation receives a fee, based upon a specified
- ------------------
percentage of collections, from the loan portfolios serviced.
Income from acquired loan portfolios is recognized as collections are received.
Portfolio cost is amortized over periods ranging from three to five years based
upon the ratio of the portfolio's original cost over the undiscounted estimated
total cash collections times the amount of cash received during the period.
Amortization of portfolio costs is accelerated if estimated cash collections are
subsequently revised downward. The cost recovery method is used for income tax
purposes.
Investment in Partnerships: The Corporation's investment in partnerships is
- --------------------------
carried at cost, plus its share of the partnerships' earnings. In the case of
Diversified Financial Systems, L.P., the partners were first allocated an
interest factor through October 15, 1993.
Furniture and Equipment: Furniture and equipment are stated at cost less
- -----------------------
accumulated depreciation of $137,468 at December 31, 1993, $197,413 at December
31, 1994 and $237,099 at June 30, 1995. Depreciation is computed on accelerated
methods over the estimated service lives of the related assets.
Real Estate Held for Sale: Real estate held for sale is carried at the lower of
- -------------------------
cost or fair value less estimated selling expenses. Valuation allowances are
recognized when fair value less estimated selling expenses is less than the cost
of the asset, by charges to earnings.
Deferred Financing Costs: Deferred financing costs represent origination and
- ------------------------
legal fees associated with obtaining the Corporation's loans and are being
amortized over the respective periods the loans are outstanding on a level yield
basis.
Income Taxes: Effective August 24, 1989, the Corporation's shareholders elected
- ------------
S corporation status under Section 1362 of the Internal Revenue Code and a
similar section of state income tax law. The statutes provide that, in lieu of
corporate income taxes, the shareholders are taxed on their proportionate shares
of the Corporation's taxable income or loss.
Basis of Presentation of Unaudited Interim Financial Information: Financial
- ----------------------------------------------------------------
information for the six months ended June 30, 1995 and 1994 has been derived
from the Corporation's unaudited financial statements and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair presentation of financial position, results of operations and cash flows.
Reclassifications: Certain reclassifications were made to the 1993 financial
- -----------------
statements to be comparable with the 1994 presentation.
11
<PAGE>
<PAGE>
NOTE 3 - FIRST LAKE CORP. AGREEMENT
The Corporation has a loan purchase, servicing and consulting agreement with
First Lake Corp. (FLC), a wholly-owned subsidiary of National Bancorp, Inc. The
Corporation services all loans purchased by FLC pursuant to the agreement, in
exchange for a fee equal to a negotiated percentage of amounts collected from
the loan portfolios and which generally has been within a range of 10% to 15%.
The agreement also provides for additional amounts payable to Diversified when
third party financing has been paid, on a portfolio-by-portfolio basis. These
additional amounts have ranged between 50% and 70% of amounts collected by FLC,
less all FLC direct and indirect expenses. The Corporation recorded $31,631 in
1992, $887,203 in 1993 and $1,165,236 in 1994 as additional income under this
agreement. (See Note 14)
NOTE 4 - UNAMORTIZED COST OF LOAN PORTFOLIOS
The unamortized cost of loan portfolios is comprised of the following
components:
<TABLE>
<CAPTION>
June 30,
...........December 31,......... 1995
-----------
1993 1994 (Unaudited)
---- ---- -----------
<S> <C> <C> <C>
Principal amount of loans outstanding
at date of purchase $107,793,824 $278,499,835 $401,188,623
Discount 78,912,657 214,321,489 325,183,644
----------- ----------- -----------
Original cost 28,881,167 64,178,346 76,004,979
Accumulated amortization (8,547,932) (24,848,698) (34,330,270)
----------- ----------- -----------
Unamortized cost $ 20,333,235 $ 39,329,648 $ 41,674,709
=========== =========== ===========
Estimated future cash collections
(unaudited) $ 31,695,000 $ 65,881,392 $ 68,218,000
=========== =========== ===========
Principal and accrued interest
on loans outstanding (unaudited) $ 85,344,000 $228,391,000 $243,117,000
=========== =========== ===========
</TABLE>
NOTE 5 - ASSET PURCHASE
In 1993, the Company entered into an agreement with Diversified Financial
Planners, Inc. (DFP) to purchase selected assets and assume certain notes and
liabilities of DFP. Additionally, promissory notes of the Company were issued to
DFP.
The following summarizes the assets purchased and liabilities assumed:
<TABLE>
<S> <C>
Assets purchased
Real estate $ 1,029,573
Loan portfolios 340,000
Notes receivable 82,600
Equipment 14,627
-------------------
Total assets purchased $ 1,466,800
===================
Liabilities
Notes payable to DFS $ 916,000
Mortgage note 285,760
Land contracts 161,112
Other liabilities 6,701
-------------------
Total liabilities assumed $ 1,369,573
===================
</TABLE>
In addition, the Company paid DFP $80,247 in cash and its payable to DFP of
$16,980 was canceled.
12
<PAGE>
<PAGE>
NOTE 6 - OTHER RECEIVABLES
Other receivables consisted of the following:
December 31,
1993 1994
---- ----
<TABLE>
<S> <C> <C>
Related parties - services and fees (see Note 11) $457,435 $423,900
First Lake Corp. (see Note 3) 929,604 263,535
Soil Remediation Services, Inc. (see Note 11) 200,000 --
MEPCO (see Note 11) 150,377 --
Weiss Machinery 149,937 149,937
Other 41,958 148,372
-------- --------
$1,929,311 $985,744
========== ========
</TABLE>
NOTE 7 - NOTES RECEIVABLE
Notes receivable consisted of the following:
<TABLE>
<CAPTION>
June 30,
.........December 31,........... 1995
-----------
1993 1994 (Unaudited)
---- ---- -----------
<S> <C> <C> <C>
Lake Technology Products, Inc.
Note receivable with interest at 2% over
the prime rate, maturing December 31, 1998,
principal and interest of $14,624 is payable
monthly (see Note 11) $ 1,205,259 $ -- $ --
Note receivable with interest at 2% over the prime rate, maturing December 31,
1998, principal and interest of $1,941 is payable
monthly (see Note 11) 160,000 -- --
Graves/Statewide
Statewide 7.5% note receivable (face value $600,000), maturing January 20,
1998, principal and interest of $14,535 is payable monthly,
collateralized by business assets 600,000 480,518 393,309
Graves/Statewide
Graves notes under a $100,000 line of credit, interest at 2% over the prime
rate, due May 1,
1995 -- 80,000 80,000
Graves note, interest at 2% over the prime rate 22,800 22,800 22,800
Demand note from Emergency Medical Vehicles Co.
with interest at 2% over the prime rate -- 77,000 --
6% demand notes from employee 48,000 35,416 27,627
5% demand note from Windsor Air, Inc.
(see Note 11) 50,300 50,300 50,300
5% demand note from Diversified Insurance
Marketing, Inc. (see Note 11) 67,500 69,170 69,170
FGH Associates (see Note 11) -- 285,466 285,466
----------- ----------- -----------
$ 2,153,859 $ 1,100,670 $ 928,672
=========== =========== ===========
</TABLE>
Graves and Statewide are intrastate trucking companies with common ownership.
The Statewide note was acquired in 1993 and the Graves line of credit and demand
note were part of a financial restructuring of those companies.
13
<PAGE>
<PAGE>
NOTE 8 - COLLATERALIZED LOANS
Collateralized loans are as follows:
<TABLE>
<CAPTION>
June 30,
........December 31,...... 1995
------------
1993 1994 (Unaudited)
---- ---- -----------
<S> <C> <C> <C>
Foothill loan and security agreement
Base loan $ 6,549,627 $ -- $ --
Term note 221,355 -- --
Hilco note 4,750,000 -- --
American National Bank and Trust
Company of Chicago 8,352,108 28,501,032 30,713,220
Transamerica loan
Term loan -- 1,391,405 --
Performing loan -- 4,901,751 4,587,572
Star Financial Bank, interest payable at
8.5%, due January 25, 1996, principal
and interest of $14,535 are payable monthly -- 479,228 411,515
----------- ----------- -----------
$19,873,090 $35,273,416 $35,712,307
=========== =========== ===========
</TABLE>
Effective February 28, 1994, the Corporation and Diversified Performing Assets,
Inc. (see Note 11) entered into a Loan and Security Agreement with Transamerica
Business Credit Corporation to refinance all existing debt due Foothill Capital,
Hilco and a portion of the debt due American National Bank and Trust Company of
Chicago. The agreement provides for a $25,000,000 master credit facility to
facilitate the refinancing and/or purchase of new loan portfolios. Part of the
master credit facility is a $6,000,000 term loan to refinance a portfolio of
nonperforming loans. Interest under the master credit facility is prime plus 2%.
Principal reductions and interest are serviced through cash receipts from the
respective loan portfolios. The term loan is due August 31, 1995 with interest
payable at prime plus 3% and payable in monthly installments of $333,333
beginning April 1, 1994. The agreement provides for accelerated payments under
certain circumstances and contains various financial covenants relating to
tangible net worth, minimum acceptable debt to net worth and interest coverage
ratios. The early retirement of the Hilco note resulted in a gain of $333,965.
The Corporation has a $40,000,000 loan and security agreement with American
National Bank and Trust Company of Chicago. All borrowings are on demand notes
due on or before September 30, 1995, and collateralized by all of the acquired
loan portfolios and the underlying collateral. Interest is payable at 2% over
the prime rate. The loan is reduced by applying 87.5% of all payments received
from the acquired portfolios to principal and interest. Additionally, the
Corporation has provided the Bank with irrevocable letters of credit totaling
$2,000,000.
14
<PAGE>
<PAGE>
NOTE 9 - OTHER BORROWINGS
Other borrowings consisted of the following:
<TABLE>
<CAPTION>
December 31,
1993 1994
---- ----
<S> <C> <C>
Mortgage note with interest payable at variable rates, principal
is payable in accordance with an adjustable amortization schedule
and due on April 1, 2013, collateralized by certain real estate $285,760 $285,760
8% land contracts, payable in thirty-four monthly principal and
interest payments of $6,268, collateralized by certain real estate 47,006 47,006
-------- --------
$332,766 $332,766
======== ========
</TABLE>
The borrowings were paid in 1995.
NOTE 10 - NOTES PAYABLE - SHAREHOLDER AND RELATED PARTIES
Notes payable to Randall R. Geist (60% shareholder) and related parties
consisted of the following:
<TABLE>
<CAPTION>
June 30,
December 31, 1995
------------
1993 1994 (Unaudited)
---- ---- -----------
<S> <C> <C> <C>
Geist Notes
Installment note with interest payable at the prime rate, adjusted annually on
January 1, principal payments of $57,600 and interest are
due semi-annually $ 576,000 $ 460,800 $ 237,607
Installment note payable to Geist, interest payable at the prime rate, adjusted
annually on January 1, principal payments of $34,000 and
interest are due semi-annually 340,000 272,000 272,000
5% demand note payable to Geist 160,000 127,000 127,000
12% demand note payable to GHF Funding
Group (See Note 11) 1,172,800 180,000 138,253
10% demand notes payable to Diversified
Financial Southeast, Inc. -- -- 205,000
----------- ----------- -----------
$ 2,248,800 $ 1,039,800 $ 979,860
=========== =========== ===========
</TABLE>
Minimum annual principal payments as of June 30, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 653,453
1997 183,200
1998 75,207
1999 68,000
-----------------
$ 979,860
=================
</TABLE>
15
<PAGE>
<PAGE>
NOTE 11 - RELATED PARTY TRANSACTIONS
The Corporation is 60% owned by Randall R. Geist, and 40% by J. Michael Hester.
Mr. Geist and Mr. Hester are involved in numerous other businesses, some of
which also have transactions with the Corporation. These entities are as
follows:
Diversified Performing Assets, Inc. (60% owned by Geist and 40% owned by
Hester)
Diversified Financial Systems L.P. (See Note 12)
Diversified Financial Planners, Inc. (100% owned by Geist)
Business Revenue Data Systems, Inc. (84% owned by Geist)
Windsor Air, Inc. (50% owned by Geist)
Diversified Financial Recovery, Inc. (100% owned by Geist)
Diversified Financial Partners III L.P. (See Note 12)
Diversified Financial Partners I (100% owned by Geist)
Lake Technology Products, Inc. (66 2/3% owned by Geist and 33 1/3% by
Hester)
GHF Funding Group (33 1/3% owned by Geist and 33 1/3% owned by Hester)
Diversified Financial Southeast, Inc. (60% owned by Geist and 40% owned by
Hester)
Metro Diversified Limited Partnership (49.5% owned by Diversified
Financial Southeast, Inc.)
Diversified Coolidge Equities Limited Partnership (49.5% owned by
Diversified Financial Southeast, Inc.)
Metro Diversified, Inc. (50% owned by Diversified Financial Southeast,
Inc.)
Diversified Insurance Marketing, Inc. (100% owned by Geist)
Business Revenue Systems, Inc. (100% owned by Hester)
Quantum, Inc. (86 2/3% owned by Geist)
Compositives, Inc. (100% owned by Geist)
Compositives O.M., Inc. (100% owned by Geist)
FGH Associates (33 1/3% owned by Geist)
Petroleum Protective Systems, Inc. (100% owned by Geist)
Soil Remediation Services, Inc. (50% owned by Geist)
16
<PAGE>
<PAGE>
Receivables from and payables to related parties were comprised of the
following:
<TABLE>
<CAPTION>
---------------------December 31,-------------------- ---------June 30,---------
--------1 9 9 3--------- --------1 9 9 4--------- ---------1 9 9 5----------
------- ------- -------
Receivables Payables Receivables Payables Receivables Payables
----------- -------- ----------- -------- ----------- --------
--------(Unaudited)-------
--------------------------
<S> <C> <C> <C> <C> <C> <C>
Diversified Performing
Assets, Inc. $ -- $ -- $ -- $ -- $ 114,304 $ --
Diversified Financial
Systems, L.P. -- -- -- -- 27,391 --
Business Revenue Data
Systems, Inc. -- -- -- -- 36,760 --
Windsor Air, Inc. -- -- -- -- 8,500 --
Lake Technology Products, Inc. -- -- -- -- 39,757 --
Quantum, Inc. -- -- -- -- 30,081 --
FGH Associates -- -- 270,668 -- 338,332 --
Diversified Financial
Southeast, Inc. 1,000 -- 1,000 -- 1,000 --
Randall R. Geist 373,584 -- 199,400 398,892 215,333 688,217
J. Michael Hester 167,000 -- 114,400 -- 143,556 --
Notes receivable - Randall R
Geist -- -- 1,267,831 -- 1,267,831 --
Notes receivable - J. Michael
Hester -- -- 682,678 -- 682,678 --
Metro Diversified Limited
Partnership 1,000 -- 1,000 -- 1,000 --
Compositives, Inc. -- -- 613,119 -- 964,426 --
Compositives O.M., Inc. -- -- 540,933 -- 685,791 --
Petroleum Protective Systems,
Inc. (previously classified as
MEPCO) -- -- 400,398 -- 647,531 --
Soil Remediation Services, Inc. -- -- 210,000 -- 223,320 --
---------- ---------- ---------- ---------- ---------- ----------
$ 542,584 $ -- $4,301,427 $ 398,892 $5,427,591 $ 688,217
========== ========== ========== ========== ========== ==========
</TABLE>
The Corporation paid $48,000, $48,000 and $87,000 in rental fees to Business
Revenue Data Systems, Inc. for office space during 1992, 1993 and 1994,
respectively. The Corporation paid Windsor Air, Inc. $2,000 a month plus
expenses for aircraft time in 1992, 1993 and 1994, respectively.
During 1994, the Corporation sold performing loans for cash in the amount of
$1,918,000 to Diversified Performing Assets, Inc. (DPAI), a company formed by
the shareholders of the Corporation. Bank loans were reduced by $1,428,000. The
remaining proceeds were used for general corporate purposes. During the six
months ended June 30, 1995, the Corporation sold performing loans to DPAI for
cash in the amount of $5,116,854. Bank loans were reduced by $3,242,565. The
remaining proceeds were used for general corporate purposes. As part of their
agreement with DPAI, the Corporation is required to replace any of the loans
sold to DPAI that subsequently become nonperforming. Nonperforming loans are
defined as loans that have not made a contractual payment within 61 days.
17
<PAGE>
<PAGE>
As of January 1, 1994, notes receivable from Lake Technology Products, Inc. were
rewritten as notes receivable from Randall R. Geist and J. Michael Hester as
part of a recapitalization of Lake Technology Products, Inc.
The Corporation's servicing fees are primarily received from related entities.
The Corporation recognized the following collection fees from related parties:
<TABLE>
<CAPTION>
---------------December 31,------------------ -----------June 30,---------
---1992--- ---1993--- ---1994--- ---1994--- ---1995---
---------- ---------- ---------- ---------- ----------
--------(Unaudited)-------
--------------------------
<S> <C> <C> <C> <C> <C>
Diversified Financial Systems L.P. $ 2,607,958 $ 1,968,317 $ 1,534,071 $ 1,138,392 $ 231,111
Diversified Financial Partners III L.P. 2,303,858 1,482,126 64,072 64,072 --
Diversified Financial Southeast, Inc. -- 240,216 1,253,422 364,604 934,780
Metro Diversified Limited Partnership -- 165,037 249,859 205,775 128,289
Diversified Coolidge Limited Partnership -- 69,982 693,111 338,150 284,534
Diversified Performing Assets, Inc. -- -- 64,652 24,495 50,074
Diversified Financial Planners, Inc. 78,788 7,257 -- -- --
Diversified Financial Partners I 42,299 8,032 -- -- --
Diversified Financial Recovery, Inc. 623 6,737 -- -- --
------------ ------------ ------------ ------------ ------------
5,033,526 3,947,704 3,859,187 2,135,488 1,628,788
First Lake Corp. (See Note 3) 1,778,513 1,746,177 1,990,207 1,053,194 796,675
------------ ------------ ------------ ------------ ------------
$ 6,812,039 $ 5,693,881 $ 5,849,394 $ 3,188,682 $ 2,425,463
============ ============ ============ ============ ============
</TABLE>
In 1994, the Company assumed the data processing operation for all of its
related entities. Data processing revenues are primarily from those related
companies, including Business Revenue Data Systems, Inc., Medical Payment
Center, and Business Revenue Systems, Inc.
18
<PAGE>
<PAGE>
NOTE 12 - INVESTMENT IN PARTNERSHIPS
The Corporation is the 75% general partner in Diversified Financial Systems L.P.
(Partnership) (see Note 11). The Partnership acquires loan portfolios from the
FDIC, RTC and other sources. The Corporation receives a specified servicing fee
for its collection work. The Corporation's share of the Partnership's income is
reflected in the statements of income. Condensed balance sheets of the
Partnership, are presented below:
<TABLE>
<CAPTION>
June 30,
--------December 31,--------- 1995
DIVERSIFIED FINANCIAL SYSTEMS L.P. 1993 1994 (Unaudited)
---------------------------------- ---- ---- -----------
<S> <C> <C> <C>
ASSETS
Cash $ 330,872 $ 1,540 $ 133,046
Unamortized cost of loan portfolios 11,348,333 3,126,299 2,111,216
Other assets 256,226 47,469 33,404
----------- ----------- -----------
Total assets $11,935,431 $ 3,175,308 $ 2,277,666
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Collateralized bank loans $ 7,422,206 $ 608,825 $ --
Due to Diversified Financial Systems, Inc. 23,976 27,117 27,391
Accrued interest and other liabilities 38,000 -- --
Partners' capital 4,451,249 2,539,366 2,250,275
----------- ----------- -----------
Total liabilities and partners' capital $11,935,431 $ 3,175,308 $ 2,277,666
=========== =========== ===========
</TABLE>
The Corporation was a 75% general partner in Diversified Financial Partners III
L.P. (DFP III). On January 25, 1994, the Corporation and its limited partner in
DFP III entered into a termination agreement. As part of the agreement, the
Corporation purchased the limited partner's interest for $1,270,000 in cash and
repaid all outstanding loans. This transaction effectively terminated the
Partnership. The Corporation, as the 75% general partner, received all of the
assets of DFP III in liquidation of the partnership, including the NCNB4 and
NCNB6 loan portfolios which were subsequently distributed to John McArdle (see
Note 13). The carrying value of loan portfolios received by the Corporation in
liquidation approximated $6,300,000.
NOTE 13 - STOCK REPURCHASE AND CONSULTING AGREEMENT
On November 25, 1992, the Corporation and John L. McArdle (a former 25%
shareholder) entered into a stock repurchase and consulting agreement effective
January 1, 1993. The consulting agreement obligated McArdle through December 31,
1993, to provide advice and counsel from time to time, as requested, on the
valuation of prospective loan portfolios and strategies and methods for
collecting and servicing existing loan portfolios owned by the Corporation. In
addition, McArdle was to manage and service the NCNB4 and NCNB6 loan portfolios
owned by Diversified Financial Partners III LP and serviced by the Corporation.
McArdle's 1993 compensation for consulting services consisted of various
operating expense reimbursements approximating $254,000 and consulting fees of
$860,000.
The stock purchase agreement provided for the Corporation to acquire all of
McArdle's stock in 1993 for cash in the amount of $380,000. In addition, on
January 26, 1994, the Corporation sold to McArdle its interest in the NCNB4 and
NCNB6 loan portfolios for $385,000, which were acquired as a result of
terminating Diversified Financial Partners III LP (see Note 12). The fair value
of those two loan portfolios was approximately
19
<PAGE>
<PAGE>
$2,400,000, as of the date of sale, and this additional consideration was
accounted for as treasury stock cost in 1994. The difference between the fair
value of the loans sold and their carrying cost, plus the cash received for the
loan sale and forgiveness of previous debt owed McArdle resulted in a gain of
$436,521.
NOTE 14 - SUBSEQUENT EVENTS
On August 9, 1995, the Shareholders entered into a stock purchase agreement with
DFC Asset Corp. (DFC). The Shareholders agreed to sell all of their shares to
DFC for $6,360,000 in cash, promissory notes totaling $3,850,000, and certain
contingent consideration based on the excess cash flow of the various pools.
On September 15, 1995, the Corporation agreed to purchase the loan portfolios
serviced for First Lake Corp. for $565,000 in cash and the assumption of debt in
an amount approximating $10,000,000. Additionally, a fee was paid in the amount
of $1,100,000 to secure the consent of First Lake Corp. to the stock sale and
the assignment of servicing rights. Both entities simultaneously cancelled the
portion of the loan purchase, servicing and consulting agreement relating to
additional fees (see Note 2). If the assumed debt is not completely liquidated
by April 30, 1996, FLC will retain its ownership rights in the loan portfolios
and the related debt.
20
<PAGE>
<PAGE>
Item 7(a)(ii)
DIVERSIFIED PERFORMING ASSETS, INC.
Fort Wayne, Indiana
FINANCIAL STATEMENTS
December 31, 1994 and June 30, 1994 and 1995
21
<PAGE>
<PAGE>
DIVERSIFIED PERFORMING ASSETS, INC.
Fort Wayne, Indiana
FINANCIAL STATEMENTS
December 31, 1994 and June 30, 1994 and 1995
CONTENTS
REPORT OF INDEPENDENT AUDITORS..............................................23
FINANCIAL STATEMENTS
BALANCE SHEETS...............................................24
STATEMENTS OF INCOME.........................................25
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY................26
STATEMENTS OF CASH FLOWS.....................................27
NOTES TO FINANCIAL STATEMENTS................................28
22
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
Diversified Performing Assets, Inc.
Fort Wayne, Indiana
We have audited the accompanying balance sheet of Diversified Performing Assets,
Inc. as of December 31, 1994, and the related statements of income, changes in
shareholders' equity and cash flows for the period February 28, 1994 (date of
inception) through December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Diversified Performing Assets,
Inc. at December 31, 1994, and the results of its operations and its cash flows
for the period February 28, 1994 (date of inception) through December 31, 1994
in conformity with generally accepted accounting principles.
Crowe, Chizek and Company
Oak Brook, Illinois
March 10, 1995
23
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED PERFORMING ASSETS, INC.
BALANCE SHEETS
December 31, June 30,
1994 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 51,495 $ 229,642
Loans 14,260,780 19,374,988
Unearned discount (4,546,038) (6,187,428)
Accounts receivable 178,641 406,049
Due from shareholder 316,000 --
Accrued interest receivable 447,565 499,154
------------ ------------
$ 10,708,443 $ 14,322,405
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Revolving note payable (Note 3) $ 9,229,528 $ 12,788,221
Accounts payable 10,426 168,094
Accrued interest 84,798 105,804
------------ ------------
9,324,752 13,062,119
Shareholders' equity
Common stock - without par value; authorized
10,000 shares, issued, 1,000 shares 1,000 1,000
Retained earnings 1,382,691 1,259,286
------------ ------------
1,383,691 1,260,286
------------ ------------
$ 10,708,443 $ 14,322,405
============ ============
<FN>
See accompanying notes to financial statements
</TABLE>
24
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED PERFORMING ASSETS, INC.
STATEMENTS OF INCOME
Ten months Four months Six months
ended ended ended
December 31, June 30, June 30,
1994 1994 1995
---- ---- ----
.....(Unaudited).....
---------------------
<S> <C> <C> <C>
INCOME
Interest and discount on loans $2,086,439 $ 851,860 $1,494,101
EXPENSES
Interest 619,442 196,753 524,444
Servicing fees 64,652 24,513 50,074
Loan losses 19,548 37,414 23,094
Legal and professional -- -- 31,724
Finance fees -- -- 92,124
Other 106 50 46
---------- ---------- ----------
703,748 258,730 721,506
---------- ---------- ----------
NET INCOME $1,382,691 $ 593,130 $ 772,595
========== ========== ==========
<FN>
See accompanying notes to financial statements
</TABLE>
25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED PERFORMING ASSETS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Total
Common Retained Shareholders'
Stock Earnings Equity
----- -------- ------
<S> <C> <C> <C>
Balance at February 28, 1994
(date of inception) $ -- $ -- $ --
Stock issued 1,000 -- 1,000
Net income -- 1,382,691 1,382,691
---------- ---------- ----------
Balance at December 31, 1994 1,000 1,382,691 1,383,691
Net income (unaudited) -- 772,595 772,595
Dividends ($896 per share) -- (896,000) (896,000)
---------- ---------- ----------
Balance at June 30, 1995 (unaudited) $ 1,000 $1,259,286 $1,260,286
========== ========== ==========
<FN>
See accompanying notes to financial statements
</TABLE>
26
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED PERFORMING ASSETS, INC.
STATEMENTS OF CASH FLOWS
Ten months Four months Six months
ended ended ended
December 31, June 30, June 30,
1994 1994 1995
---- ---- ----
...........(Unaudited).........
-----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 1,169,471 $ 460,022 $ 910,326
Interest paid (534,644) (146,463) (503,438)
Cash paid for collection and other
expenses (73,880) (56,559) (39,394)
----------- ----------- ----------
Net cash provided by operating
activities 560,947 257,000 367,494
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of loans and accrued interest (11,770,081) (7,399,834) (5,136,217)
Collections on loans 2,346,102 801,416 1,968,177
Advances to shareholder (316,000) (171,000) --
----------- ----------- ----------
Net cash used in investing activities (9,739,979) (6,769,418) (3,168,040)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving notes 12,403,874 7,399,834 5,116,854
Principal payments on revolving notes (3,174,347) (871,937) (1,558,161)
Dividends paid -- -- (580,000)
Common stock issued 1,000 1,000 --
----------- ----------- ----------
Net cash provided by financing
activities 9,230,527 6,528,897 2,978,693
----------- ----------- ----------
Net increase in cash 51,495 16,479 178,147
Cash at beginning of period -- -- 51,495
----------- ----------- ----------
CASH AT END OF PERIOD $ 51,495 $ 16,479 $ 229,642
=========== =========== ==========
Reconciliation of net income to net cash
provided by operating activities
Net income $ 1,382,691 $ 593,130 $ 772,595
Unearned discount (942,580) (388,387) (641,016)
Accrued interest receivable 84,798 50,290 57,241
Accounts payable 10,426 5,418 157,668
Accrued interest payable 25,612 (3,451) 21,006
----------- ----------- ----------
Net cash provided by operating
activities $ 560,947 $ 257,000 $ 367,494
=========== =========== ==========
<FN>
See accompanying notes to financial statements
</TABLE>
27
<PAGE>
<PAGE>
DIVERSIFIED PERFORMING ASSETS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 1 - NATURE OF BUSINESS
Diversified Performing Assets, Inc. was incorporated on November 29, 1993 and
began its operating activities on February 28, 1994. The Corporation acquires,
through related party intermediaries, performing loans that were originally held
by the FDIC or RTC as the result of foreclosure proceedings on Banks and Savings
and Loan Associations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation of Unaudited Interim Financial Information: Financial
- ----------------------------------------------------------------
information for the four months ended June 30, 1994 and the six months ended
June 30, 1995 has been derived from the Corporation's unaudited financial
statements and, in the opinion of management, reflect all adjustments of a
normal occurring nature necessary for a fair presentation of financial position
and results of operations.
Loans: Loans are stated at the principal amount outstanding, net of unearned
- -----
discount. Interest income and unearned discount are reported on the accrual
basis over the term of the loan based on the amount of principal outstanding.
The Corporation does not provide for loan losses because all loans, with
principal payments 60 days past due, are replaced by the seller.
Income Taxes: The Corporation's shareholders elected S corporation status under
- ------------
Section 1362 of the Internal Revenue Code and a similar section of state income
tax law. These statutes provide that, in lieu of corporate income taxes, the
shareholders are taxed on their proportionate shares of the Corporation's
taxable income or loss.
NOTE 3 - REVOLVING NOTE PAYABLE
The Corporation has entered into a $25,000,000 revolving loan and security
agreement with Transamerica Business Credit Corporation. Borrowings under the
agreement are collateralized by all of the Corporation's assets, including the
collateral securing the loans. Interest is payable monthly, generally at prime
plus 2%. The agreement contains various financial covenants relating to
limitations on the payment of dividends, tangible net worth, and minimum
acceptable debt to net worth and interest coverage ratios. As part of the
agreement, the Company's bank accounts are restricted.
NOTE 4 - RELATED PARTY TRANSACTIONS
The loans receivable were acquired from affiliated companies owned by Randall R.
Geist and J. Michael Hester. A servicing fee of 2% is paid to Diversified
Financial Systems, Inc., owned by Geist and Hester, for portfolio collection
fees and administrative expenses.
28
<PAGE>
<PAGE>
NOTE 5 - STOCK PURCHASE AGREEMENT
On August 9, 1995, Randall R. Geist and J. Michael Hester agreed to sell all of
the outstanding capital stock of the Corporation to DFC Asset Corp. for $640,000
in cash and certain contingent consideration based on excess cash flow.
29
<PAGE>
<PAGE>
Item 7(a)(iii)
DIVERSIFIED FINANCIAL SYSTEMS, L.P.
Fort Wayne, Indiana
FINANCIAL STATEMENTS
December 31, 1992, 1993 and 1994
and June 30, 1994 and 1995
30
<PAGE>
<PAGE>
DIVERSIFIED FINANCIAL SYSTEMS, L.P.
Fort Wayne, Indiana
FINANCIAL STATEMENTS
December 31, 1992, 1993 and 1994
and June 30, 1994 and 1995
CONTENTS
REPORT OF INDEPENDENT AUDITORS................................................32
FINANCIAL STATEMENTS
BALANCE SHEETS......................................................33
STATEMENTS OF INCOME................................................34
STATEMENTS OF PARTNERS' CAPITAL.....................................35
STATEMENTS OF CASH FLOWS............................................36
NOTES TO FINANCIAL STATEMENTS.......................................37
31
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Diversified Financial Systems, L.P.
Fort Wayne, Indiana
We have audited the accompanying balance sheets of Diversified Financial
Systems, L.P., as of December 31, 1994 and 1993, and the related statements of
income, partners' capital and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of Diversified Financial Systems,
L.P. at December 31, 1994 and 1993, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company
Oak Brook, Illinois
March 10, 1995
32
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED FINANCIAL SYSTEMS, L.P.
BALANCE SHEETS
June 30,
---December 31,--- 1995
1993 1994 (Unaudited)
---- ---- -----------
<S> <C> <C> <C>
ASSETS
Cash $ 330,872 $ 1,540 $ 133,046
Unamortized cost of acquired loan
portfolios (Note 3) 11,348,333 3,126,299 2,111,216
Other assets 256,226 47,469 33,404
----------- ---------- ----------
$11,935,431 $3,175,308 $2,277,666
=========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Collateralized loans (Note 4) $ 7,422,206 $ 608,825 $ --
Due to Diversified Financial
Systems, Inc. (Note 5) 23,976 27,117 27,391
Accrued interest and other
liabilities 38,000 -- --
----------- ---------- ----------
7,484,182 635,942 27,391
Partners' capital 4,451,249 2,539,366 2,250,275
----------- ---------- ----------
$11,935,431 $3,175,308 $2,277,666
=========== ========== ==========
<FN>
See accompanying notes to financial statements
</TABLE>
33
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED FINANCIAL SYSTEMS, L.P.
STATEMENTS OF INCOME
Six Months Ended
Years Ended ------------June 30,-----------
---------------December 31,----------------- 1994 1995
1992 1993 1994 --------(Unaudited)---------
---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
INCOME
Receipts from loan
portfolios $ 20,845,130 $ 15,746,551 $ 12,272,649 $ 9,107,133 $ 1,775,666
Amortization of loan
portfolio cost (14,696,758) (10,795,753) (8,222,034) (5,398,628) (1,015,083)
------------ ------------ ------------ ------------ ------------
6,148,372 4,950,798 4,050,615 3,708,505 760,583
Interest -- 1,263 -- -- --
------------ ------------ ------------ ------------ ------------
6,148,372 4,952,061 4,050,615 3,708,505 760,583
OPERATING EXPENSES
Portfolio servicing fees
(Note 5) 2,607,458 1,968,317 1,534,081 1,138,392 231,111
Interest 817,025 774,426 250,548 180,903 11,529
Other 74,655 134,964 124,989 63,052 14,064
------------ ------------ ------------ ------------ ------------
3,499,138 2,877,707 1,909,618 1,382,347 256,704
------------ ------------ ------------ ------------ ------------
NET INCOME $ 2,649,234 $ 2,074,354 $ 2,140,997 $ 2,326,158 $ 503,879
============ ============ ============ ============ ============
<FN>
See accompanying notes to financial statements
</TABLE>
34
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED FINANCIAL SYSTEMS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
Total
Partners' General Limited
Capital Partner Partners
------- ------- --------
<S> <C> <C> <C>
Balance at January 1, 1992 $ 7,044,313 $ 5,283,235 $ 1,761,078
Net income 2,649,234 1,755,925 893,309
Distributions to partners (2,746,000) (1,828,500) (917,500)
----------- ----------- -----------
Balance at December 31, 1992 6,947,547 5,210,660 1,736,887
Net income 2,074,354 1,353,641 720,713
Distributions to partners (4,570,652) (3,784,631) (786,021)
----------- ----------- -----------
Balance at December 31, 1993 4,451,249 2,779,670 1,671,579
Net income 2,140,997 1,605,748 535,249
Distributions to partners (4,052,880) (3,052,880) (1,000,000)
----------- ----------- -----------
Balance at December 31, 1994 2,539,366 1,332,538 1,206,828
Net income (unaudited) 503,879 377,909 125,970
Distributions to partners (792,970) (442,970) (350,000)
----------- ----------- -----------
Balance at June 30, 1995 (unaudited) $ 2,250,275 $ 1,267,477 $ 982,798
=========== =========== ===========
<FN>
See accompanying notes to financial statements
</TABLE>
35
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED FINANCIAL SYSTEMS, L.P.
STATEMENTS OF CASH FLOWS
Six Months Ended
Years Ended ----------June 30,------------
---------------December 31,-------------- 1994 1995
1992 1993 1994 --------(Unaudited)--------
---- ---- ---- ---------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from acquired loan
portfolios $ 20,845,130 $ 15,746,551 $ 12,272,649 $ 9,351,101 $ 1,789,733
Interest received -- 1,263 -- -- --
Interest paid (830,525) (774,426) (250,548) (180,903) (11,529)
Payments for collection and
other expenses (2,624,008) (2,137,591) (1,662,208) (1,256,363) (244,903)
Cash (paid) received to protect
interest in collateral -- (250,036) 250,036 -- --
Deposits -- -- (40,000) -- --
Purchase of loan portfolios (7,022,397) (10,469,807) -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities 10,368,200 2,115,954 10,569,929 7,913,835 1,533,301
CASH FLOWS FROM FINANCING ACTIVITIES
Bank borrowings 7,022,397 11,180,261 -- -- --
Principal payments on borrowings (14,959,179) (10,007,560) (6,813,381) (5,167,164) (608,825)
Distributions to partners (2,746,000) (4,570,652) (4,085,880) (2,700,278) (792,970)
------------ ------------ ------------ ------------ ------------
Net cash used in financing
activities (10,682,782) (3,397,951) (10,899,261) (7,867,442) (1,401,795)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash (314,582) (1,281,997) (329,332) 46,393 131,506
Cash at beginning of period 1,927,451 1,612,869 330,872 330,872 1,540
------------ ------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ 1,612,869 $ 330,872 $ 1,540 $ 377,265 $ 133,046
============ ============ ============ ============ ============
Reconciliation of net income to net
cash provided by operating activities
Net income 2,649,234 $ 2,074,354 $ 2,140,997 $ 2,326,158 $ 503,879
Adjustments to reconcile net
income to net cash provided by
operating activities
Amortization of portfolio cost 14,696,758 10,795,753 8,222,034 5,398,628 1,015,083
Purchase of loan portfolios (7,022,397) (10,469,807) -- -- --
Decrease (increase) in other assets (2,714) (253,512) 208,757 243,968 14,065
Increase (decrease) in accrued
interest and other liabilities 25,028 (528) (5,000) (33,000) --
Increase (decrease) in due to
related company 22,291 (30,306) 3,141 (21,919) 274
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities $ 10,368,200 $ 2,115,954 $ 10,569,929 $ 7,913,835 $ 1,533,301
============ ============ ============ ============ ============
<FN>
See accompanying notes to financial statements
</TABLE>
36
<PAGE>
<PAGE>
DIVERSIFIED FINANCIAL SYSTEMS, L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1994 AND 1995 IS UNAUDITED)
NOTE 1 - NATURE OF BUSINESS
Diversified Financial Systems, L.P. (the Partnership) is an Indiana limited
partnership engaged in the business of acquiring loan portfolios from the
Federal Deposit Insurance Corporation (FDIC), Resolution Trust Corp. (RTC) and
other sources, at substantial discounts from principal amounts outstanding, and
liquidating the portfolios through collection efforts or through bulk sales to
financial institutions. The portfolios owned at December 31, 1994, consist of
loan concentrations in Louisiana, Oklahoma, Texas, Massachusetts and Illinois.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation of Unaudited Interim Financial Information: Financial
- ----------------------------------------------------------------
information for the six months ended June 30, 1994 and 1995 has been derived
from the Partnership's unaudited financial statements and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair presentation of financial position, results of operation and cash flows.
Income Recognition: For financial statement purposes income is recognized as
- ------------------
collections are received. Portfolio cost is amortized over periods ranging from
three to five years, based upon the ratio of the portfolio's original cost over
the undiscounted initial estimated total cash collections times the amount of
cash received during the period. Amortization of portfolio cost is accelerated
if estimated cash collections are subsequently revised downward.
Income Taxes: The Partnership does not provide for income taxes in the financial
- ------------
statements. Instead, the Partnership's taxable income or loss will be included
in the individual income tax returns of the partners.
For income tax purposes, the Partnership uses the cost recovery method of
reporting taxable income.
NOTE 3 - UNAMORTIZED COST OF ACQUIRED LOAN PORTFOLIOS
The unamortized cost of acquired loan portfolios as of December 31, 1993 and
1994, and June 30, 1995, is as follows:
<TABLE>
<CAPTION>
June 30,
------December 31,------ 1995
------------------------ ----
1993 1994 (Unaudited)
---- ---- -----------
<S> <C> <C> <C>
Principal amount of loans
outstanding, at date of purchase $252,449,725 $252,449,725 $252,449,725
Discount (198,963,203) (198,963,203) (198,963,203)
----------- ----------- -----------
Original cost 53,486,522 53,486,522 53,486,522
Accumulated amortization (42,138,189) (50,360,223) (51,375,306)
----------- ----------- -----------
Unamortized cost $ 11,348,333 $ 3,126,299 $ 2,111,216
=========== =========== ===========
Principal balance and accrued
interest on loans outstanding
(unaudited) $135,146,000 $120,098,000 $117,813,000
=========== =========== ===========
Estimated future cash collections
(unaudited) $ 27,298,000 $ 8,697,000 $ 6,951,000
=========== =========== ===========
</TABLE>
37
<PAGE>
<PAGE>
NOTE 4 - COLLATERALIZED BANK LOANS
On June 13, 1994, the Partnership entered into a $2,399,700 term loan and
security agreement with Transamerica Lender Finance (Transamerica). Proceeds of
the loan were used to refinance the remaining debt associated with loan
portfolios originally purchased with borrowings under a $20,000,000 line of
credit with American National Bank and Trust Company of Chicago (American
National Bank). All borrowings under the Transamerica agreement are
collateralized by the Partnership's assets, including but not limited to the
underlying collateral. The loan was due on March 1, 1995. Interest is payable
monthly at 3% over the prime rate.
Principal reductions and interest are serviced through cash receipts from the
Partnership's loan portfolio. The agreement provides for minimum principal
payments and interest equal to the greater of:
1) 87.5% of the collections on loan portfolios with no remaining
debt; or
2) an amount equal to the outstanding principal as of the monthly
payment date divided by the remaining months to maturity.
Distributions to partners are limited to the lesser of:
1) Monthly collections on loan portfolios with no remaining debt; or
2) The difference between the total collections for the month less
the minimum required principal payment.
All loans associated with a loan portfolio must be paid off within 21 months of
the original purchase date.
NOTE 5 - RELATED PARTY TRANSACTIONS
Diversified Financial Systems, Inc. (DFSI), which is 60% owned by Randall R.
Geist, is the 75% general partner. The remaining 25% is divided among 8 limited
partners. DFSI manages and administers the acquired loan portfolios and receives
a percentage of loan collections as a fee for these services.
During 1994, the Partnership sold performing loans for cash in the amount of
$8,523,000 to Diversified Performing Assets, Inc. (DPAI), a corporation formed
by the shareholders of DFSI (Note 5). Bank loans were reduced by $3,894,000. The
remaining proceeds, net of $1,065,000 in servicing fees, was used for general
partnership purposes. As part of their agreement with DPAI, the Partnership is
required to replace any of the loans sold to DPAI that subsequently become
nonperforming. Nonperforming loans are defined as loans that have not made a
payment within 61 days.
NOTE 6 - PARTNERS' CAPITAL
Prior to October 15, 1993, the general partner and each of the limited partners
either provided American National Bank with an irrevocable letter of credit or
pledged a certificate of deposit to secure partnership borrowings. The total of
all such letters of credit and certificates of deposit was $3,300,000 at
December 31, 1992. As of October 15, 1993, the letter of credit or pledged
certificate of deposit requirement was released by American National Bank.
Prior to October 15, 1993, income, losses and net cash flow were allocated 75%
to the general partner and 25% to the limited partners, after first allocating
to each partner an amount equal to 12% per annum on each partner's letter of
credit or pledged certificate of deposit through the date of any cash flow
distribution. Subsequent to October 15, 1993, income, losses and cash flow are
allocated 75% to the general partner and 25% to the limited partners without an
interest allocation.
38
<PAGE>
<PAGE>
Item 7(b)(i)
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Financial
Statements of FirstCity Financial Corporation present the pro forma statements
of FirstCity Financial Corporation and Subsidiaries from the July 3, 1995 Form
8-K/A together with pro forma adjustments to reflect the acquisition of
Diversified Financial Systems, Inc. and Diversified Performing Assets, Inc.
described elsewhere herein. These pro forma financial statements should be read
in conjunction with the consolidated financial statements of J-Hawk Corporation
included in the July 3, 1995 Form 8-K/A and the consolidated financial
statements of FirstCity Financial Corporation in the September 30, 1995 Form
10-Q.
On September 21, 1995, FirstCity acquired the capital stock of
Diversified Financial Systems, Inc. and Diversified Performing Assets, Inc.
(collectively, "Diversified") for $12.9 million in cash and notes. A portion
($2.7 million) of the notes is contingent upon the future performance of the
Diversified portfolios. Diversified also specializes in the acquisition and
disposition of distressed loans and loan-related assets. The acquisition,
accounted for as a purchase, increased FirstCity's assets by approximately $79
million, including $4.7 million attributable to servicing rights held by
Diversified and $4.3 million of goodwill. Diversified's assets secure $62
million of non-recourse debt reflected in the accompanying consolidated pro
forma balance sheet.
The accompanying Pro Forma Condensed Consolidated Financial Statements
of FirstCity reflect the estimated pro forma effects of the acquisition of
Diversified. The consolidated pro forma balance sheet assumes the transactions
were consummated on June 30, 1995, and the consolidated pro forma income
statements assume consummation on January 1, 1994.
Subsequent to the implementation of the Plan of Reorganization and
Merger discussed in the July 3, 1995 Form 8-K/A, FirstCity will provide services
to the FirstCity Liquidating Trust under the terms of an Investment Management
Agreement. In that the Trust has no historical operations, no pro forma
adjustment was made to reflect servicing fee income and related expenses
attributed to the services to be provided by FirstCity to the Trust or interest
income on the "A" Certificate and related interest expense on the senior
subordinated debt. Consequently, these pro forma income statements are not
necessarily indicative of future results to be achieved and should not be relied
upon as an indicator of future performance of FirstCity.
39
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FirstCity Financial Corporation and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
June 30, 1995
(unaudited)
Pro Forma Pro Forma
FirstCity as adjustments to
Presented in the reflect the
July 3, 1995 acquisition of
(Dollars in thousands, Form 8-K/A Diversified
except per share data) (Note A) (Note B) Pro Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
------
Cash and equivalents .................................................................... $ 24,027 $ (7,746) $ 16,281
Purchased loan pools, net ............................................................... -- 68,704 68,704
Equity investments in acquisition partnerships .......................................... 13,717 -- 13,717
Class "A" Certificate of FirstCity Liquidating Trust .................................... 158,369 -- 158,369
Other assets ............................................................................ 5,669 9,965 15,634
-------- -------- --------
Total Assets .................................................................. $201,782 $ 70,923 $272,705
======== ======== ========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Notes payable to banks ............................................................. $ -- $ 61,660 $ 61,660
Senior subordinated notes payable .................................................. 106,690 -- 106,690
Notes payable to others ............................................................ -- 7,063 7,063
Other liabilities .................................................................. 3,413 2,200 5,613
-------- -------- --------
Total Liabilities .................................................................. 110,103 70,923 181,026
-------- -------- --------
Commitments and contingencies ........................................................... -- -- --
Special preferred stock (nominal stated value of $21.00
per share; 2,500,000 shares authorized; 2,460,911
issued and outstanding) ............................................................ 51,679 -- 51,679
Shareholders' equity:
Optional preferred stock (par value $.01 per share; 100,000,000 shares
authorized; no shares issued or
outstanding) .................................................................. -- -- --
Common stock (par value $.01per share; 100,000,000
shares authorized; issued and outstanding:
4,921,422 shares) ............................................................. 49 -- 49
Paid in capital .................................................................... 22,916 -- 22,916
Retained earnings .................................................................. 17,035 -- 17,035
-------- -------- --------
Total Shareholders' Equity .................................................... 40,000 -- 40,000
-------- -------- --------
Total Liabilities and Shareholders' Equity .................................... $201,782 $ 70,923 $272,705
======== ======== ========
<FN>
See accompanying notes to pro forma condensed consolidated balance sheet.
</TABLE>
40
<PAGE>
<PAGE>
FirstCity Financial Corporation and Subsidiaries
Notes to Pro Forma Condensed Consolidated Balance Sheet
June 30, 1995
(unaudited)
A. The condensed balance sheet as presented in the July 3, 1995 Form
8-K/A reflects the merger of J-Hawk Corporation and First City
Bancorporation of Texas, Inc. to form FirstCity Financial
Corporation as if it occurred June 30, 1995.
B. Assets acquired and liabilities assumed in the Diversified
acquisition are reflected at estimated fair values. A reduction in
cash reflects a portion of the purchase price paid. The cost of
purchased loan pools is determined by discounting, at appropriate
discount rates, the currently estimated cash flows projected to be
realized from the collection, liquidation and disposition of these
assets. Such assets consist principally of performing and
non-performing loans, income producing real estate and interests in
real estate, and miscellaneous other assets and receivables.
Servicing rights from loan pools (included in other assets) are
recorded at the net present value of estimated servicing fees, net
of related costs, on certain loan pools. Notes payable to banks are
secured by the purchased loan pools. Notes payable to others (former
Diversified shareholders) include $2.7 million in contingent notes
payable based on the future performance of Diversified's asset
portfolios. Since the acquisition is accounted for as a purchase,
the excess of the fair value of the consideration given over the
fair value of the tangible net assets of Diversified acquired is
recorded as goodwill (included in other assets).
41
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FirstCity Financial Corporation and Subsidiaries
Pro Forma Condensed Consolidated Statement of Income
For the Six Months Ended
June 30, 1995
(Unaudited)
Pro Forma
FirstCity as
Presented in the Other Pro
July 3, 1995 Diversified Forma
Form 8-K/A Historical Adjustments
(Amounts in thousands) (Note A) (Note B) (Note C) Pro Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Proceeds from disposition and payments
received on purchased loan pools .................... $ -- $ 14,696 $ -- $ 14,696
Cost of purchased loan pools ............................. -- 9,482 -- 9,482
-------- -------- -------- --------
Net gain on purchased loan pools .................... -- 5,214 -- 5,214
Other income:
Servicing fees ...................................... 4,508 2,425 (50) 6,883
Other ............................................... 598 1,800 -- 2,398
-------- -------- -------- --------
5,106 9,439 (50) 14,495
-------- -------- -------- --------
Expenses:
Interest on notes payable ........................... -- 2,652 -- 2,652
General and administrative .......................... 4,268 5,252 (613) 8,907
-------- -------- -------- --------
4,268 7,904 (613) 11,559
-------- -------- -------- --------
Equity in earnings of acquisition
partnerships ........................................ 1,359 378 -- 1,737
-------- -------- -------- --------
Earnings from operations before
federal income taxes ........................... 2,197 1,913 563 4,673
Provision for federal income taxes ....................... 44 -- 49 93
-------- -------- -------- --------
Net earnings ................................... $ 2,153 $ 1,913 $ 514 $ 4,580
======== ======== ======== ========
<FN>
See accompanying notes to pro forma condensed consolidated statements of income.
</TABLE>
42
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FirstCity Financial Corporation and Subsidiaries
Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31. 1994
(Unaudited)
Pro Forma
FirstCity as
Presented in the Other Pro
July 3, 1995 Diversified Forma
Form 8-K/A Historical Adjustments
(Amounts in thousands) (Note A) (Note B) (Note C) Pro Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Proceeds from disposition and payments
received on purchased loan pools .................... $ -- $ 25,704 $ -- $ 25,704
Cost of purchased loan pools ............................. -- 16,301 -- 16,301
-------- -------- -------- --------
Net gain on purchased loan pools .................... -- 9,403 -- 9,403
Other income:
Servicing fees ...................................... 8,854 5,849 (65) 14,638
Other ............................................... 761 3,651 -- 4,412
-------- -------- -------- --------
9,615 18,903 (65) 28,453
-------- -------- -------- --------
Expenses:
Interest on notes payable ........................... -- 3,143 -- 3,143
General and administrative .......................... 11,727 11,071 (896) 21,902
-------- -------- -------- --------
11,727 14,214 (896) 25,045
-------- -------- -------- --------
Equity in earnings of acquisition
partnerships.................................... 7,497 2,675 -- 10,172
-------- -------- -------- --------
Earnings from operations before
federal income taxes ........................... 5,385 7,364 831 13,580
Provision for federal income taxes ....................... 108 -- 164 272
-------- -------- -------- --------
Net earnings ................................... $ 5,277 $ 7,364 $ 667 $ 13,308
======== ======== ======== ========
<FN>
See accompanying notes to pro forma condensed consolidated statements of income.
</TABLE>
43
<PAGE>
<PAGE>
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Condensed Consolidated Income Statements
Six Months Ended June 30, 1995
and Year Ended December 31, 1994
(unaudited)
A. The consolidated income statements as presented in the July 3, 1995 Form
8-K/A reflect the operating results of J-Hawk Corporation adjusted for the
effects of the merger with First City Bancorporation of Texas, Inc. as if
the merger occurred January 1, 1994. Income taxes subsequent to the merger
are provided at a 34% rate. Net operating loss carry forwards are available
to FirstCity and are recognized as an offset to the provision. The net tax
expense reflected in the pro forma income statements represents the effect
of the alternative minimum tax of 2% of taxable income.
B. Column B is the historical operating results of Diversified.
C. Intercompany servicing fees and certain non-recurring administrative
expenses of Diversified are eliminated in Column C. An adjustment was also
made to reflect the federal income taxes on the adjusted pro forma net
taxable income.
44
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit number Description
-------------- -----------
2.1 Stock Purchase Agreement dated as of August 9,
1995 by and among DFC Asset Corp., and Randall
R. Geist and J. Michael Hester (incorporated
herein by reference to Exhibit 2.1 of the
Registrant's Form 8-K dated August 9, 1995).
*2.2 First Amendment to Stock Purchase Agreement
dated as of September 15, 1995 by and among
DFC Asset Corp., and Randall R.
Geist and J. Michael Hester.
*99.1 Press Release dated September 21, 1995.
- --------------
*Previously filed.
45
