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