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CONTACT: Robert C. Patent, EVP
Tim S. Ledwick, CFO
Cityscape Financial Corp.
(914) 592-6677
FOR IMMEDIATE RELEASE
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Michele Katz/Jason Langer
Press: Stan Froelich
Morgen-Walke Associates
(212) 850-5600
CITYSCAPE TO RECORD ADJUSTMENT FOR CHANGE IN
ACCOUNTING TREATMENT IN CONNECTION WITH RECENT ACQUISITIONS
ELMSFORD, NY, September 26, 1996 -- Cityscape Financial Corp.
(Nasdaq:CTYS) said today that it will revise its previously issued financial
statements for the period ended June 30, 1996 to reflect a change in the
accounting treatment with respect to the valuation of assets acquired as a
result of its recent acquisitions of Heritable Finance Group ("Heritable") and
J&J Securities Limited ("J&J"). The effect of this accounting change results in
the Company reducing the goodwill initially recorded on the acquisitions and
eliminating the revenue recognized during the second quarter of 1996 on the
sale of the loan portfolios acquired as a result of the acquisitions.
Cityscape noted that the accounting treatment previously used in
connection with the acquisitions had been discussed with the Company's outside
auditors prior to and after the acquisitions. Based on these discussions and a
review of accounting literature, it was felt that the previous accounting
treatment reflected the proper method of accounting for the acquisitions.
Subsequent to the Company's reporting of the second quarter results, upon
further review and analysis of relevant accounting literature and discussions
with its outside auditors, the Company determined that it would be appropriate
to adopt the change in accounting treatment.
As a result of this change, the reported earnings for the second
quarter will be reduced by $26.5 million, or $0.78 per fully diluted share from
$34.8 million, or $1.05 per fully diluted share to $8.3 million, or $0.27 per
fully diluted share. Included in the second quarter results, as revised, are
$5.8 million of non-recurring charges related to the acquisitions. Excluding
the impact of these non-recurring charges, the Company earned $0.37 per fully
diluted share. After giving effect to the change in accounting treatment,
Cityscape's net earnings for the quarter ended June 30, 1996 represented an
increase of $5.9 million, or 246% over the net earnings reported for the same
period in 1995.
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CITYSCAPE ACCOUNTING ADJUSTMENT PAGE 2
Additionally, as a result of this change, the Company will reduce the
amount of goodwill recorded in connection with the acquisitions from $60.5
million to $10.6 million. This reduction in goodwill resulted in a decrease
of amortization expense as previously reported in the second quarter of
$496,000 and will result in a $1.3 million per quarter reduction in
amortization expense through the first quarter of 2006.
"This accounting adjustment has no impact on the strength of our
day-to-day operations and in no way lessens our enthusiasm about the
acquisitions of J&J and Heritable," commented Rob Grosser, Cityscape's
President and Chief Executive Officer. "We have successfully integrated the
experienced management teams of J&J and Heritable into City Mortgage
Corporation; the broadened range of loan products and diversified broker
relationships resulted in the marketing synergies and operating efficiencies
which we anticipated at the time of the acquisitions. We are well on our way to
solidifying our position as the leading provider of non-conforming loan
products in the United Kingdom."
Cityscape Financial Corp. is a consumer finance company which, through
its wholly-owned subsidiaries, Cityscape Corp. and City Mortgage Corporation
Limited, is engaged in the business of originating, purchasing, selling and
servicing home equity mortgage loans, secured primarily by one-to-four-family
residences, in the United States and the United Kingdom. Cityscape was founded
in 1985 and is headquartered in Elmsford, New York, with regional processing
offices in California, Georgia, Illinois and Virginia.
(Amended financial tables attached)
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CITYSCAPE FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (AS REVISED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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1996 1995 1996 1995
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REVENUES:
Gain on sale of loans......................... $29,217 $ 8,592 $53,310 $12,471
Mortgage origination income................... 1,356 785 2,192 1,405
Interest...................................... 6,461 1,068 9,478 2,134
Servicing income.............................. 795 74 1,356 99
Earnings from partnership..................... 110 197 260 431
Other......................................... 514 31 636 43
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Total revenues........................... 38,453 10,747 67,232 16,583
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EXPENSES:
Salaries and benefits......................... 9,170 2,282 14,553 4,084
Interest expense.............................. 4,684 1,393 6,382 2,333
Selling expenses.............................. 3,012 607 4,375 918
Other operating expenses...................... 6,927 1,656 10,971 2,690
Amortization of goodwill...................... 538 -- 1,032 --
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Total expenses........................... 24,331 5,938 37,313 10,025
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Earnings before minority interest and income
taxes....................................... 14,122 4,809 29,919 6,558
Minority interests............................ -- 846 -- 846
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Earning before income taxes................... 14,122 3,963 29,919 5,712
Provision for income taxes.................... 5,790 1,585 12,314 2,285
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Net earnings.................................. $ 8,332 $ 2,378 $17,605 $ 3,427
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Earnings per share(1)
Primary.................................. $ 0.27 $ 0.11 $ 0.58 $ 0.16
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Fully diluted............................ $ 0.27 N/A $ 0.58 N/A
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Weighted average number of shares and common
stock equivalents outstanding(1)
Primary.................................. 30,452 22,082 30,152 22,082
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Fully diluted............................ 33,842 N/A 31,941 N/A
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(1) All share results give effect to 2-for-1 stock splits effected September 29,
1995, and July 1, 1996.