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.
HISTORICAL
----------------------------------------
ACQUISITIONS
COMPANY ------------------------ PRO FORMA
AS REPORTED J&J(1) HERITABLE(2) ADJUSTMENTS PRO FORMA
----------- ------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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
=======
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:
HISTORICAL ACCRETED
INTEREST DISCOUNT ADJUSTMENT
---------- -------- ----------
(IN THOUSANDS)
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)
========
"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:
J&J HERITABLE TOTAL
------- --------- --------
(IN THOUSANDS)
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
======= ======== ========
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:
(IN THOUSANDS)
CSC-UK......................................... $ 820
J&J............................................ 520
Heritable...................................... 2,540
------
Total................................ $3,880
======
(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.
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.
HISTORICAL
------------------------------------
ACQUISITIONS
COMPANY AS ---------------------- PRO FORMA
REPORTED J&J(1) HERITABLE(2) ADJUSTMENTS PRO FORMA
---------- -------- --------- ----------- ---------
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
======== ======== ======== ======== ========
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:
HISTORICAL ACCRETED
INTEREST DISCOUNT ADJUSTMENTS
---------- -------- ----------
(IN THOUSANDS)
J&J.................................................. $ 2,556 $ 540 $ (2,016)
Heritable............................................ 6,256 784 (5,472)
Heritable interest on unsold loans................... 435
--------
Adjustment........................................... $ (7,054)
========
"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:
J&J HERITABLE TOTAL
------- --------- --------
(IN THOUSANDS)
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
======= ======== ========
(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:
(IN THOUSANDS)
J&J............................................ $ 128
Heritable...................................... 626
------
Total.......................................... $ 755
======
(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.