<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K/A
Amendment No. 4
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 March 31,
1996 (unaudited) and December 31, 1995 and 1994
a-3 Statements of Operations for the three months
ended March 31, 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 three months ended March 31, 1996 (unaudited)
a-5 Statements of Cash Flows for the three months
ended March 31, 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 three months ended March 31, 1996
2.1* Agreement for the Sale and Purchase of the Entire
Issued Share Capital of Heritable Group Limited,
dated June 14, 1996
23.1 Consent of Independent Auditors
* Filed previously in Form 8-K on June 28, 1996
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Amendment No. 4 to 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/ Tim S. Ledwick
------------------
Name: Tim S. Ledwick
Title: Chief Financial Officer
(as chief accounting
officer and on behalf
of the registrant)
Dated: January 30, 1997
<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 March 31, 1996
(unaudited) and December 31, 1995 and 1994
a-3 Statements of Operations for the three months ended
March 31, 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 three
months ended March 31, 1996 (unaudited)
a-5 Statements of Cash Flows for the three months ended
March 31, 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 three months ended March 31, 1996
2.1* Agreement for the Sale and Purchase of the Entire
Issued Share Capital of Heritable Group Limited,
dated June 14, 1996
23.1 Consent of Independent Auditors
</TABLE>
- ---------
* Filed previously in Form 8-K on June 28, 1996
<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, 1994
and 1995 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 United States 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, 1994 and 1995, 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 United States
generally accepted accounting principles.
KPMG
Chartered Accountants
Registered Auditors
London, United Kingdom
April 2, 1996
<PAGE> 1
EXHIBIT A-2
HERITABLE FINANCE LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1994 1995 1996
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash .............................................................. $ 58 $ 47 $ --
Accrued interest receivable ....................................... 1,583 1,699 1,755
Unamortized fees .................................................. 2,982 3,962 4,279
Accounts receivable ............................................... 799 379 217
Mortgage loans held for investment, net ........................... 159,806 172,702 176,001
Furniture, equipment and vehicles, net ............................ 524 588 609
Other assets ...................................................... 2,142 2,125 1,916
-------- -------- --------
Total assets ................................................ $167,894 $181,502 $184,777
======== ======== ========
LIABILITIES
Accounts payable and other liabilities ............................ $ 1,588 $ 1,678 $ 2,383
Income taxes payable .............................................. 1,095 2,127 3,045
Due to The Heritable and General Investment Bank Limited .......... 163,037 171,028 171,415
Due to City Mortgage Corporation .................................. -- -- --
Negative goodwill ................................................. 2,116 1,882 1,797
-------- -------- --------
Total liabilities ........................................... 167,836 176,715 178,640
-------- -------- --------
STOCKHOLDERS' EQUITY
Common stock 1,000 (pound) 1.00 par value "A" ordinary shares
authorized, issued and outstanding in 1994, 1995 and 1996 ....... 2 2 2
Common Stock, 9,000 (pound) 1.00 par value "B" ordinary shares
authorized, issued and outstanding in 1994, 1995 and 1996 ....... 14 14 14
Foreign currency translation adjustment ........................... 86 7 (78)
Retained earnings (deficit)........................................ (44) 4,764 6,199
-------- -------- --------
Total stockholders' equity ........................................ 58 4,787 6,137
-------- -------- --------
Total liabilities and stockholders' equity .................. $167,894 $181,502 $184,777
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<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 Three Months Ended
------------------------------------------- ---------------------------
December 31, December 31, December 31, March 31, March 31,
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES
Interest income........................... $16,608 $17,978 $25,842 $6,014 $6,256
Fee and commission income................. 2,355 3,846 4,530 1,133 1,506
-------- -------- ------- ------- ------
Total revenues 18,963 21,824 30,372 7,147 7,762
-------- -------- ------- ------- ------
EXPENSES
Salaries and employee benefits............ 1,903 2,980 4,017 1,155 1,193
Interest expense.......................... 11,339 7,644 12,278 2,843 2,859
Fee and commission expenses............... 1,209 2,776 4,456 950 1,306
Other operating expenses.................. 4,881 4,071 2,455 788 294
Release of general provisions on sale
of loans................................. -- -- -- --
------- ------- -------- ------- ------
Total expenses......................... 19,332 17,471 23,206 5,736 5,652
------- ------- -------- ------- ------
EARNINGS (LOSS) BEFORE INCOME TAXES........ (369) 4,353 7,166 1,411 2,110
Provision (credit) for income taxes (84) 1,191 2,358 448 675
------- ------- -------- ------- ------
NET EARNINGS (LOSS)........................ $ (285) $3,162 $4,808 $ 963 $1,435
======= ======= ======== ======= ======
Earnings (loss) per share $(28.50) $316.20 $480.80 $96.30 $143.50
======= ======= ======== ======= ======
Weighted average number of shares
outstanding 10,000 10,000 10,000 10,000 10,000
======= ======= ======== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
<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).............................. -- 1,435 -- 1,435
Foreign currency translation adjustment (unaudited)... -- -- (85) (85)
---- ------ ---- ------
BALANCE AT MARCH 31, 1996 (unaudited)................. $16 $6,199 $(78) $6,137
==== ====== ==== ======
</TABLE>
<PAGE> 1
Exhibit A-5
HERITABLE FINANCE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE
------------------------------------------ THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------
1993 1994 1995 MARCH 31, MARCH 31,
------------ ------------ ------------ 1995 1996
---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)......................... $ (285) $ 3,162 $ 4,808 $ 963 $ 1,435
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization....... 324 262 59 (14) (12)
Income taxes payable................ 27 301 1,071 242 918
Provision for losses................ (1,141) 2,236 797 1,483 548
(Gain) loss on disposal of fixed
assets............................ 49 (20) 13 (4) --
Net changes in operating assets and
liabilities:
Other............................... 328 (2,683) (566) 9,238 (234)
(Increase) decrease in accrued
interest receivable............... 193 (952) (115) (179) (57)
----------- ----------- ------------ --------- ---------
Net cash provided by (used in)
operating activities........... (505) 2,306 6,067 11,729 2,598
----------- ----------- ------------ --------- ---------
Cash flows from investing activities:
Payment for acquisition of former
associate................................ -- (912) -- -- --
Mortgage originations....................... -- (31,995) (47,145) (17,945) (13,277)
Mortgage repayments......................... 24,038 23,636 33,452 1,942 9,430
Net purchases of equipment.................. (249) (224) (376) (102) (95)
----------- ----------- ------------ --------- ---------
Net cash (used in) provided by investing
activities............................... 23,789 (9,495) (14,069) (16,105) (3,942)
----------- ----------- ------------ --------- ---------
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 3,663 387
----------- ----------- ------------ --------- ---------
Net cash provided by (used in) financing
activities.................................. (23,265) 6,809 7,991 3,663 387
----------- ----------- ------------ --------- ---------
Net increase (decrease) in cash............... 19 (380) (11) (713) (957)
Cash at the beginning of the period........... 419 438 58 58 47
----------- ----------- ------------ --------- ---------
Cash at the end of the period................. $ 438 $ 58 $ 47 $ (655) $ (910)
=========== =========== ============ =========== ============
Supplemental disclosure of cash flow
information:
Income taxes paid (recovered)............... $ (951) $ 342 $ 1,479 -- --
=========== =========== ============ =========== ============
Interest paid............................... $ 11,339 $ 7,644 $ 12,278 $ 2,843 $ 2,859
=========== =========== ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 1
Exhibit A-6
HERITABLE FINANCE LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
AND MARCH 31, 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.
Unaudited information
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments consisting of normal recurring accruals, considered necessary for a
fair presentation of the results for the interim period have been included.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. The interim period financial statements for the three months ended March
31, 1995 and 1996 have been presented to provide the latest comparative
financials available prior to the June 14, 1996 acquisition as described in Note
11, "Subsequent Events."
Combination
The Group financial statements consolidate those of the Company and its
subsidiary companies as at December 31, 1993, 1994 and 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
<PAGE> 2
HERITABLE FINANCE LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
consideration over the fair value of the tangible net assets at the date of
acquisition is capitalised 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.
Non-origination fees and commission income
Non-origination fees and commission income are recognized when earned and
have either been paid or are considered to be recoverable with reasonable
certainty.
Origination fees and costs
Origination fees and costs are recognized over the life of the loan to
yield a result which is not materially different from that arising from the
application of SFAS No. 91. 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
An allowance for bad and doubtful debts is recorded on loans which fall
more than four installments in arrears. Specific provisions are also provided 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 No.
114) as amended by SFAS No. 118 "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures"
<PAGE> 3
HERITABLE FINANCE LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(SFAS No. 118) is effective for accounting periods beginning after December 15,
1994. SFAS No. 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. The adoption of these standards had no material impact
on the financial statements.
At December 31, 1995, the Group's net investment in impaired 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. Each investment in impaired loans is
provided an allowance for loan losses. These disclosures are based on the
Group's provisioning policy as described above.
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
No. 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 realised
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 US dollars at 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 reported as a component of
shareholders' equity.
<PAGE> 4
HERITABLE FINANCE LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
<PAGE> 5
HERITABLE FINANCE LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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 $1,620,863, $2,562,669 and $3,649,561 for the years ended December 31, 1993,
1994 and 1995, respectively. However, except to the extent that each is
received, 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.
<PAGE> 6
HERITABLE FINANCE LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 years ended December 31, 1993, 1994 and 1995, respectively,
$394,242, $436,578 and $507,578 were 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
<PAGE> 7
HERITABLE FINANCE LIMITED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 and 1995, 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.
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 $316,962, $265,188 and $333,070
for the years ended December 31, 1993, 1994 and 1995, 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, 1994 and 1995 there were no material undrawn loan
commitments.
<PAGE> 1
Exhibit B-1
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial data set forth below for the
Registrant (the "Company") for the year ended December 31, 1995 illustrate the
estimated effects of (i) the Company'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 Company (the "UK Acquisition"), as if such
acquisition had occurred on May 2, 1995, the date CSC-UK commenced operations,
(ii) CSC-UK's acquisition of all of the outstanding stock of J&J Securities
Limited ("J&J") for L15.3 million ($23.3 million) and 548,000 shares of the
Company's Common Stock valued at $9.8 million (the "J&J Acquisition"),
(including the sale of $47.5 million of loans acquired as a result of such
acquisition and the corresponding reduction of debt of $32.4 million from the
proceeds of such sale) as if such acquisition had occurred as of January 1, 1995
and (iii) CSC-UK's acquisition of all of the outstanding stock of Heritable
Group Limited ("Heritable") for L41.8 million ($64.1 million) and 99,362 shares
of the Company's Common Stock valued at $2.5 million (the "Heritable
Acquisition") (including the sale of $153.7 million of loans acquired as a
result of such acquisition and the corresponding reduction of debt of $153.7
million from the proceeds of such sale) as if such acquisition 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.
The historical financial data set forth below for the Company and Heritable for
the year ended December 31, 1995 have been derived from the audited consolidated
financial statements of the Company and of Heritable. The historical financial
data set forth below for J&J for the 12 months ended December 31, 1995 have been
derived from the unaudited financial statements of J&J and have been prepared on
the same basis as J&J's audited financial statements and include all
adjustments, consisting of normal recurring accruals, that the Company considers
necessary for a fair presentation of the results of operations for such period.
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------
ACQUISITIONS
COMPANY ------------------------ PRO FORMA
AS REPORTED J&J(1) HERITABLE(2) ADJUSTMENTS PRO FORMA
----------- ------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES
Gain on sale of loans.................. $38,198 $ -- $ -- $ -- $38,198
Mortgage origination income............ 2,963 -- -- -- 2,963
Interest income........................ 6,706 13,344 25,842 (32,055)(3) 13,837
Servicing income....................... 777 -- -- -- 777
Earnings from partnership interest..... 482 -- -- -- 482
Other.................................. 385 279 4,530 -- 5,194
------- ------- ------- -------- -------
Total revenues.................. 49,511 13,623 30,372 (32,055) 61,451
------- ------- ------- -------- -------
EXPENSES
Salaries and employee benefits......... 12,165 1,801 4,017 -- 17,983
Interest expense....................... 4,610 3,790 12,278 (13,513)(4) 7,165
Selling expenses....................... 2,895 -- 4,456 -- 7,351
Other operating expenses............... 6,581 4,678 2,455 -- 13,714
Amortization of goodwill............... 494 -- -- 3,880(5) 4,374
------- ------- ------- -------- -------
Total expenses.................. 26,745 10,269 23,206 (9,633) 50,587
------- ------- ------- -------- -------
Earnings before minority interest,
income taxes and extraordinary
item................................. 22,766 3,354 7,166 (22,422) 10,864
Minority interest...................... 2,379 -- -- (2,379)(6) --
------- ------- ------- -------- -------
Earnings before income taxes and
extraordinary item................... 20,387 3,354 7,166 (20,043) 10,864
Provision for income taxes............. 8,515 454 2,358 (8,318)(7) 3,009
------- ------- ------- -------- -------
Earnings before extraordinary item..... 11,872 2,900 4,808 (11,725) 7,855
Extraordinary item..................... (296) -- -- -- (296)
------- ------- ------- -------- -------
Net earnings............................. $11,576 $ 2,900 $ 4,808 $(11,725) $ 7,559
======= ======= ======= ======== =======
Earnings per share before extraordinary
item................................... $ 0.50 N/A N/A N/A $ 0.30
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 $ 0.29
======= ======= ======= ======== =======
Weighted average shares outstanding...... 23,838 N/A N/A 2,147(8) 25,985
======= ======= ======= ======== =======
Supplemental earnings per share(9)....... $ 0.29
=======
Supplemental weighted average shares
outstanding(10)........................ 27,396
=======
</TABLE>
<PAGE> 2
Notes to Unaudited Pro Forma Financial Statements for the year ended December
31, 1995
(1) Reflects J&J historical operating results for the 12 months ended December
31, 1995 excluding a $19.4 million extraordinary gain related to the early
extinguishment of debt in November 1995. In April 1996, the Company
acquired all of the outstanding stock of J&J in exchange for L15.3 million
($23.3 million based on the Noon Buying Rate on the date of such
acquisition) in cash and 548,000 shares of the Company's Common Stock
valued at $9.8 million based on the closing price of the Common Stock on
the date of such acquisition less a discount for restriction on the resale
of such stock. The J&J Acquisition was accounted for as a purchase
transaction. The Company acquired assets with a fair value of $52.6 million
consisting primarily of mortgage loans held for sale of $51.9 million and
assumed liabilities with a fair value of $46.5 million. Additional fair
market value of $21.8 million, representing the value of the mortgage
servicing receivables, was assigned to the net assets acquired. The J&J
Acquisition resulted in the recognition of $5.2 million of goodwill which
is being amortized using the straight-line method over a life of ten years.
(2) Reflects Heritable historical operating results for the 12 months ended
December 31, 1995. In June 1996, the Company acquired all of the
outstanding stock of Heritable in exchange for L41.8 million ($64.1 million
based on the Noon Buying Rate on the date of such acquisition) in cash and
99,362 shares of the Company's Common Stock valued at $2.5 million based on
the closing price of the Common Stock on the date of such acquisition. The
Heritable Acquisition was accounted for as a purchase transaction. The
Company acquired assets with a fair value of $194.8 million consisting
primarily of mortgage loans held for sale of $190.5 million and assumed
liabilities with a fair value of $182.8 million. Additional fair market
value of $29.2 million, representing the value of the mortgage servicing
receivables, was assigned to the net assets acquired. The Heritable
Acquisition resulted in the recognition of $25.4 million of goodwill which
is being amortized using the straight-line method over a life of ten years.
(3) Represents the reduction of interest income resulting from the sale of
mortgage loans held for sale of $47.5 million for J&J and $153.7 million
for Heritable on January 1, 1995 as follows:
<TABLE>
<CAPTION>
HISTORICAL ACCRETED
INTEREST DISCOUNT ADJUSTMENT
---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
J&J.......................................... $ 13,344 $2,189 $(11,155)
Heritable.................................... 25,842 3,179 (22,663)
Heritable interest on unsold loans........... 1,763
--------
Adjustment................................... $(32,055)
========
</TABLE>
"Accreted Discount" represents the increase in value for the period of the
mortgage servicing receivables which were recorded as a result of such
acquisitions at a discounted present value.
(4) Represents the reduction of interest expense resulting from the application
of the cash proceeds from the sale of mortgage loans held for sale of $47.5
million for J&J and $153.7 million for Heritable to pay down existing debt
on January 1, 1995 as follows:
<TABLE>
<CAPTION>
J&J HERITABLE TOTAL
------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt paid down.............................. $32,400 $153,700 $186,100
Weighted average interest rate.............. 8.5% 7.0% 7.3%
------- -------- --------
Interest reduction.......................... $ 2,754 $ 10,759 $ 13,513
======= ======== ========
</TABLE>
<PAGE> 3
(5) Reflects increased goodwill amortization related to the J&J Acquisition and
the Heritable Acquisition as if such acquisitions had occurred on January
1, 1995 and the UK Acquisition as if such acquisition had occurred on May
2, 1995. The increased goodwill amortization for each acquisition is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
CSC-UK......................................... $ 820
J&J............................................ 520
Heritable...................................... 2,540
------
Total................................ $3,880
======
</TABLE>
(6) Reflects the elimination of the 50% equity earnings from CSC-UK for the
period prior to the UK Acquisition (May 2, 1995 to September 29, 1995).
(7) Reflects the tax impact recorded at a 41.5% effective tax rate.
(8) Reflects the 3.6 million shares of Common Stock issued in the UK
Acquisition as if such shares were issued and outstanding for the entire
period from May 2, 1995 through December 31, 1995, and the 548,000 and
99,362 shares of Common Stock issued in connection with the J&J Acquisition
and the Heritable Acquisition, respectively, as if such shares were issued
and outstanding for the entire year ended December 31, 1995.
(9) 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.
(10) 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 9 above.
<PAGE> 4
The unaudited pro forma consolidated financial data set forth below for the
three months ended March 31, 1996 illustrate the estimated effects of (i) the
J&J Acquisition (including the sale of $47.5 million of loans acquired as a
result of such acquisition and the corresponding reduction of debt of $32.4
million from the proceeds of such sale) as if such acquisition had occurred as
of January 1, 1995 and (ii) the Heritable Acquisition (including the sale of
$153.7 million of loans acquired as a result of such acquisition and the
corresponding reduction of debt of $153.7 million from the proceeds of such
sale) as if such acquisition 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. The historical financial data set forth below for the
Company for the three months ended March 31, 1996 and for J&J and Heritable
for the period beginning January 1, 1996 through the respective dates of their
acquisition by the Company have been derived from the unaudited consolidated
financial statements of the Company, J&J and Heritable and have been prepared on
the same basis as the audited consolidated financial statements and include all
adjustments, consisting of normal recurring accruals, that the Company considers
necessary for a fair presentation of the results of operations for such period.
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
ACQUISITIONS
COMPANY AS ---------------------- PRO FORMA
REPORTED J&J(1) HERITABLE(2) ADJUSTMENTS PRO FORMA
---------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
Gain on sale of loans........... $ 24,093 $ -- $ -- $ -- $ 24,093
Mortgage origination income..... 836 -- -- -- 836
Interest income................. 3,017 2,556 6,256 (7,054) (3) 4,775
Servicing income................ 561 -- -- -- 561
Earnings from partnership....... 150 -- -- -- 150
Other........................... 122 108 1,506 -- 1,736
-------- -------- -------- -------- --------
Total revenues.......... 28,779 2,664 7,762 (7,054) 32,151
-------- -------- -------- -------- --------
EXPENSES
Salaries and employee
benefits..................... 5,382 516 1,193 7,091
Interest expense................ 1,698 698 2,859 (3,332) (4) 1,923
Selling expenses................ 1,363 -- 1,306 -- 2,669
Other operating expenses........ 4,044 759 294 -- 5,097
Amortization of goodwill........ 494 -- -- 755 (5) 1,249
-------- -------- -------- -------- --------
Total expenses.......... 12,981 1,973 5,652 (2,577) 18,029
-------- -------- -------- -------- --------
Earnings before income taxes.... 15,798 691 2,110 (4,476) 14,123
Provision for income taxes...... 6,524 171 675 (1,858) (6) 5,512
-------- -------- -------- -------- --------
Net earnings...................... $ 9,274 $ 520 $ 1,435 $ (2,619) $ 8,610
======== ======== ======== ======== ========
Primary earnings per share:....... $ 0.31 N/A N/A N/A $ 0.28
======== ======== ======== ======== ========
Weighted average shares
outstanding: 29,806 N/A N/A 647 (7) 30,453
======== ======== ======== ======== ========
</TABLE>
<PAGE> 5
Notes to Unaudited Pro Forma Financial Statements for the three months ended
March 31, 1996
(1) Reflects J&J historical operating results for the period ended April 23,
1996. In April 1996, the Company acquired all of the outstanding stock of
J&J in exchange for L15.3 million ($23.3 million based on the Noon Buying
Rate on the date of such acquisition) in cash and 548,000 shares of the
Company's Common Stock valued at $9.8 million based on the closing price of
the Common Stock on the date of such acquisition less a discount for
restrictions on the resale of such stock. The J&J Acquisition was accounted
for as a purchase transaction. The Company acquired assets with a fair value
of $52.6 million, consisting primarily of mortgage loans held for sale of
$51.9 million, and assumed liabilities with a fair value of $46.5 million.
Additional fair market value of $21.8 million, representing the value of the
mortgage servicing receivables, was assigned to the net assets acquired. The
J&J Acquisition resulted in the recognition of $5.2 million of goodwill
which is being amortized using the straight-line method over a life of ten
years.
(2) Reflects Heritable historical operating results for the period ended June
14, 1996. In June 1996, the Company acquired all of the outstanding stock of
Heritable for L41.8 million ($64.1 million based on the Noon Buying Rate on
the date of such acquisition) in cash and 99,362 shares of the Company's
Common Stock valued at $2.5 million based on the closing price of the Common
Stock on the date of such acquisition. The Heritable Acquisition was
accounted for as a purchase transaction. The Company acquired assets with a
fair value of $194.8 million, consisting primarily of mortgage loans held
for sale of $190.5 million, and assumed liabilities with a fair value of
$182.8 million. Additional fair market value of $29.2 million, representing
the value of the mortgage servicing receivables, was assigned to the net
assets acquired. The Heritable Acquisition resulted in the recognition of
$25.4 million of goodwill which is being amortized using the straight-line
method over a life of ten years.
(3) Represents the reduction of interest income resulting from the sale of
mortgage loans held for sale of $47.5 million for J&J and $153.7 million for
Heritable on January 1, 1995 as follows:
<TABLE>
<CAPTION>
HISTORICAL ACCRETED
INTEREST DISCOUNT ADJUSTMENTS
---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
J&J.................................................. $ 2,556 $ 540 $ (2,016)
Heritable............................................ 6,256 784 (5,472)
Heritable interest on unsold loans................... 435
--------
Adjustment........................................... $ (7,054)
========
</TABLE>
"Accreted Discount" represents the increase in value for the period of the
mortgage servicing receivables which were recorded as a result of such
acquisitions at a discounted present value.
(4) Represents the reduction of interest expense resulting from the application
of the cash proceeds from the sale of mortgage loans held for sale of $47.5
million for J&J and $153.7 million for Heritable to pay down existing debt
on January 1, 1995 as follows:
<TABLE>
<CAPTION>
J&J HERITABLE TOTAL
------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt paid down...................................... $32,400 $153,700 $186,100
Weighted average interest........................... 8.5% 7.0%
Number of days...................................... 90 90
------- -------- --------
Interest reduction.................................. $ 679 $ 2,653 $ 3,332
======= ======== ========
</TABLE>
(5) Reflects increased goodwill amortization related to the J&J Acquisition and
the Heritable Acquisition as if such acquisitions had occurred on January 1,
1995 as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
J&J............................................ $ 128
Heritable...................................... 626
------
Total.......................................... $ 755
======
</TABLE>
(6) Reflects the tax impact of the pro forma adjustments recorded at a 41.5%
effective tax rate.
(7) Reflects the pro forma impact of the 548,000 and 99,362 shares of Common
Stock issued in connection with the J&J Acquisition and the Heritable
Acquisition, respectively, as if such shares were issued and outstanding for
the entire period ended March 31, 1996.
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Cityscape Financial Corp.:
We consent to the incorporation by reference in the Registration Statement (No.
333-1348) on Form S-8 relating to Cityscape Financial Corp. and Subsidiary (the
"Company") of our report dated April 2, 1996 on the financial statements of
Heritable Finance Limited as of December 31, 1995 and 1994 and for each of the
years in the three year period then ended, which report appears in the Current
Report on Form 8-K/A relating to the Company.
KPMG
Chartered Accountants
Registered Auditors
London, United Kingdom
January 29, 1997
