-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C+8DVWz8EXYYS9uWSr+eK95CSXaioFCkD0N6LXehExTQadLZHqEJrrt3cj1iOF+y fwOtVXZxjK2DYjj0rAj9kQ== 0000852220-01-000004.txt : 20010123 0000852220-01-000004.hdr.sgml : 20010123 ACCESSION NUMBER: 0000852220-01-000004 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001130 ITEM INFORMATION: FILED AS OF DATE: 20010118 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLSTATE FINANCIAL CORP /DE/ CENTRAL INDEX KEY: 0000852220 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 541208450 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-17832 FILM NUMBER: 1510642 BUSINESS ADDRESS: STREET 1: 8180 GREENSBORO DR CITY: MCLEAN STATE: VA ZIP: 22102 BUSINESS PHONE: 7039312274 MAIL ADDRESS: STREET 1: 2700 S QUINCY STREET STREET 2: STE 540 CITY: ARLINGTON STATE: VA ZIP: 22206 FORMER COMPANY: FORMER CONFORMED NAME: ALLSTATE FINANCIAL CORP /VA/ DATE OF NAME CHANGE: 19920703 8-K/A 1 0001.txt ACQUISITION OF HARBOURTON FINANCIAL SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K/A Current Report Pursuant to Section 13 or 15(d) of The Securities Act of 1934 Date of Report (Date of earliest event reported) November 30, 2000 Allstate Financial Corporation (Exact name of registrant as specified in its charter) Delaware 0-17832 54-1208450 -------- ------- ---------- (State or other (Commission (I.R.S. Employer jurisdiction File Number) Identification No.) of incorporation) 8180 Greensboro Drive McLean, VA 22102 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (703) 883-9757 1 Item 2. Acquisition or Disposition of Assets. On November 30, 2000, Allstate Financial Corporation ("Allstate") acquired Harbourton Financial Corp. ("Harbourton"). At October 30, 2000, Harbourton had total assets of $11.1 million, which consisted primarily ($10.6 million), of receivables from homebuilders, comprising acquisition, development and construction loans, as well as cash ($598 thousand). Allstate completed the transaction through the issuance of 7,516,160 new common shares and the payment of $ 2.1 million in cash to Harbourton's shareholders. Allstate's majority shareholder, Value Partners, Ltd., was the majority owner of Harbourton and now owns approximately 84% of Allstate's shares. Timothy G. Ewing, Managing Director of Ewing and Partners, which is the general partner of Value Partners, Ltd., is a director of Allstate. The remainder of the shares was acquired from J. Kenneth McLendon and James M. Cluett, members of Harbourton's management. Mr. McLendon and Mr. Cluett serve as Allstate's President and Senior Vice President, respectively. Item 7. Financial Information, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Businesses Acquired. 1. Audited statements of financial condition of Harbourton Financial Corp. as of December 31, 1999 and 1998, and the related statements of operations, changes in stockholders' equity and cash flows for the year ended December 31, 1999, and for the period August 28, 1998 (Inception), to December 31, 1998. 2. Statements of financial condition of Harbourton Financial Corp. as of November 30, 2000 (unaudited) and December 31, 1999 (audited) and the related statements of operations and cash flows for the eleven months ended November 30, 2000 (unaudited) and year ended December 31, 1999 (audited). (b) Pro Forma Financial Information. 1. Pro Forma balance sheet giving effect to the combination as of November 30, 2000 (unaudited) and pro forma statements of income for the years ended December 31, 1999 and 1998 (unaudited), and for the eleven months ended November 30, 2000 (unaudited) giving effect to the combination at the beginning of each of the respective periods. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: January 18, 2000 ALLSTATE FINANCIAL CORPORATION By: /s/ C. Fred Jackson -------------------- C. Fred Jackson Senior Vice President and CFO 2 Harbourton Financial Corp. Financial Statements As of December 31, 1999 and 1998, and For the Period August 28, 1998 (Inception), to December 31, 1998 Together With Auditors' Report 3 Report of Independent Public Accountants To the Board of Directors of Harbourton Financial Corp.: We have audited the accompanying statements of financial condition of Harbourton Financial Corp. (the "Company") as of December 31, 1999 and 1998, and the related statements of operations, changes in stockholders' equity and cash flows for the year ended December 31, 1999, and for the period August 28, 1998 (Inception), to December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the year ended December 31, 1999, and for the period August 28, 1998 (Inception), to December 31, 1998, in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Vienna, Virginia February 15, 2000 4 Harbourton Financial Corp. Table of Contents Statements of Financial Condition As of December 31, 1999 and 1998 -6 Statements of Operations For the Year Ended December 31, 1999, and For the Period August 28, 1998 (Inception), to December 31, 1998 -7 Statements of Changes in Stockholders' Equity For the Year Ended December 31, 1999, and For the Period August 28, 1998 (Inception), to December 31, 1998 -8 Statements of Cash Flows For the Year Ended December 31, 1999, and For the Period August 28, 1998 (Inception), to December 31, 1998 -9 Notes to Financial Statements For the Year Ended December 31, 1999, and For the Period August 28, 1998 (Inception), to December 31, 1998 -10 5 Harbourton Financial Corp. Statements of Financial Condition As of December 31, 1999 and 1998
Assets 1999 1998 Cash and cash equivalents ............................. $ 971,317 $1,871,130 Restricted cash ....................................... 45,341 10,750 Loans held for investment, net of deferred income of $548,530 and $292,099, respectively ................... 7,183,291 2,249,969 Interest receivable ................................... 118,261 37,177 Other receivables ..................................... 76,298 99,125 Property and equipment, net of accumulated depreciation of $18,661 and $32,060, respectively .................. 19,243 19,784 Income taxes receivable ............................... 32,267 -- Total assets .......................................... $8,446,018 $4,287,935
Liabilities and Stockholders' Equity ===============================================================================
Liabilities: Accrued liabilities and accounts payable ........ $ 209,039 $ 58,157 Income taxes payable ............................ -- 77,733 Total liabilities .................................. 209,039 135,890 Stockholders' equity: Preferred stock, $.01 par value, 500,000 shares authorized, no shares issued or outstanding ..... -- -- Common stock, $.01 par value, 1,000,000 shares authorized, 745,428 and 405,762 shares issued and outstanding, respectively ....................... 7,454 4,057 Additional paid-in capital ...................... 7,675,546 3,995,943 Retained earnings ............................... 553,979 152,045 Total stockholders' equity ......................... 8,236,979 4,152,045 Total liabilities and stockholders' equity ......... $8,446,018 $4,287,935
=============================================================================== The accompanying notes are an integral part of these statements. 6 Harbourton Financial Corp. Statements of Operations For the Year Ended December 31, 1999, and For the Period August 28, 1998 (Inception), to December 31, 1998 1999 1998 Revenues: Loan income ............................. $1,331,992 $ 463,711 Other income ............................ 85,358 11,971 Total revenues ............................. 1,417,350 475,682 Expenses: Salaries and benefits ................... 452,648 117,781 Depreciation and amortization ........... 13,330 5,345 General and administrative .............. 297,765 122,778 Total expenses ............................. 763,743 245,904 Net income before provision for income taxes 653,607 229,778 Provision for income taxes ................. 251,673 77,733 Net income ................................. $ 401,934 $ 152,045 ================================================================================ The accompanying notes are an integral part of these statements. 7 Harbourton Financial Corp. Statements of Changes in Stockholders' Equity For the Year Ended December 31, 1999, and For the Period August 28, 1998 (Inception), to December 31, 1998
Additional Common Stock Paid-In Retained Capital Earnings Total Balance, August 28, 1998 (Inception) .............................................................. $ $ $ $ -------- ---------- ---------- ---------- Issuance of shares .................................................... 4,057 3,995,943 -- 4,000,000 Net income ............................................................ -- -- 152,045 152,045 Balance, December 31, 1998 ............................................... 4,057 3,995,943 152,045 4,152,045 Issuance of shares .................................................... 3,397 3,679,603 -- 3,683,000 Net income ............................................................ -- -- 401,934 401,934 Balance, December 31, 1999 ............................................... $ 7,454 $7,675,546 $ 553,979 $8,236,979
=============================================================================== The accompanying notes are an integral part of these statements. of these statements. 8 Harbourton Financial Corp. Statements of Cash Flows For the Year Ended December 31, 1999, and For the Period August 28, 1998 (Inception), to December 31, 1998
1999 1998 Cash flows from operating activities: Net income .......................................... $ 401,934 $ 152,045 Adjustments to reconcile net income to net cash flows provided by operating activities- Depreciation and amortization ..................... 13,330 5,345 Changes in operating assets and liabilities: Interest receivable ............................. (81,084) (2,489) Other receivables ............................... 22,827 (75,413) Accrued liabilities and accounts payable ........ 150,882 23,705 Income taxes, net ............................... (110,000) 77,733 Net cash provided by operating activities .............. 397,889 180,926 Cash flows from investing activities: Increase in loans held for investment, net .......... (4,933,322) (485,267) Purchase of property and equipment, net ............. (12,789) (11,201) Payment for purchase of assets of Harbourton Residential Capital Corporation, net of cash acquired -- (1,802,578) Net cash used in investing activities .................. (4,946,111) (2,299,046) Cash flows from financing activities: Proceeds from issuance of shares .................... 3,683,000 4,000,000 Net cash provided by financing activities .............. 3,683,000 4,000,000 Net (decrease) increase in cash and cash equivalents ... (865,222) 1,881,880 Cash and cash equivalents, beginning of period ......... 1,881,880 -- Cash and cash equivalents, end of period ............... $ 1,016,658 $ 1,881,880 Supplemental disclosure of cash flow information: Cash paid during the year for income taxes .......... $ 361,673
================================================================================ The accompanying notes are an integral part of these statements. 9 Harbourton Financial Corp. Notes to Financial Statements For the Year Ended December 31, 1999, and For the Period August 28, 1998 (Inception), to December 31, 1998 1. Summary of Significant Accounting Policies: General Harbourton Financial Corp. (the "Company") incorporated and began operations on August 28, 1998. The Company's operations began with the acquisition of the assets and liabilities of Harbourton Residential Capital Corporation ("HRCC") on August 28, 1998 (see Note 2). The Company provides a broad range of services to the residential building community. Its primary business is providing development and construction financing to building companies in the Mid-Atlantic region in Maryland, Virginia, North Carolina and the Southeast region in Florida. The Company operates as a standalone entity with full capabilities of administering both debt and equity investments in real estate development and construction. The accounting and reporting policies of the Company conform to generally accepted accounting principles ("GAAP") and prevailing practices within the mortgage banking industry. Use of Estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Loans Held for Investment Loans held for investment consist of the retained interest in loans originated by the Company, net of deferred income. Loan Income Loan fees and certain direct loan origination costs related to retained interests are deferred and recognized over the life of the loan on a straight-line basis. Loan fees received and certain direct loan origination costs allocated to the participation interest sold are recognized as advances are made and funded by the participants. The Company receives two forms of interest income. The current portion is accrued into income monthly based on the outstanding amount of the investment in the loan at a market rate of interest. In addition, on certain loans, the Company is entitled to an 10 additional preferred return based on the outstanding amount of the investment in the loan times the rate of preferred return. The preferred return is recognized in income as the borrower conveys title to third-party purchasers. At December 31, 1999, the Company had lending arrangements with the following returns: Current portion 10% to 12% Deferred portion 3% to 13% In certain lending arrangements, the Company is entitled to a percentage share of underlying project profit in addition to loan fees and interest. The Company recognizes this income as the borrower conveys title to third-party purchasers. Property and Equipment Property and equipment includes furniture, fixtures, and equipment recorded at cost. Major additions are capitalized while routine replacements, maintenance and repairs are charged to expense. Depreciation is computed using the straight-line method over estimated useful lives ranging from 3 to 5 years. The cost and accumulated depreciation for property and equipment retired, sold, or otherwise disposed of are removed from the accounts, and any resulting gains or losses are reflected in income. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Statements of Cash Flow For purposes of the Statement of Cash Flows, the Company considers cash and overnight investments with original maturities of 90 days or less as cash and cash equivalents. Reclassification Certain 1998 amounts have been reclassified to conform with the 1999 financial statement presentation. 2. Loans Held for Investment: The Company's main line of business is originating acquisition, development and construction loans and, in certain instances, selling a participation interest (typically between 80 percent and 95 percent) in those loans. The participant is required to fund advances on these loans based upon their participation interest and the Company funds the remainder. The interest retained by the Company is subordinate to that of the participant such 11 that the Company assumes the risk for any losses up to the amount of retained interest in the loan. Currently, the Company has participation agreements with three entities. Pursuant to the current participation arrangements, the Company passes through interest to the participants based on their participation interest amounts. At December 31, 1999 and 1998, loans held for investment, net is comprised of the following: 1999 1998 Loans receivable - gross ..... $ 19,629,239 $ 14,892,879 Portion sold to participants . (11,897,418) (12,350,811) Deferred loan fees ........... (326,067) (292,099) Deferred interest income ..... (222,463) -- Loans held for investment, net $ 7,183,291 $ 2,249,969 ============================================================================== The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The statement significantly changed the accounting treatment for transfers of financial assets requiring financial assets to be accounted for on a financial-component basis. After a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. The transferor has surrendered control over transferred assets if and only if the transferred assets have been isolated from the transferor, the transferee obtains the right to pledge or exchange the transferred assets, and the transferor does not maintain effective control over the transferred assets. 3. Commitments and Contingencies: The Company leases office space and equipment under noncancelable operating leases. Future minimum rental commitments under existing operating leases having an initial or remaining noncancelable lease terms in excess of one year at December 31, 1999, are as follows: Year Ended December 31 2000 $109,449 2001 113,268 2002 116,621 2003 48,137 Total $387,475 ================================================================================ Rent expense totaled $59,947 for 1999 and $12,914 for the period August 28, 1998 (Inception), to December 31, 1998. The Company originates construction and land development loans primarily in its market area of the Mid-Atlantic and Southeastern states including Maryland, Virginia, District of Columbia, Delaware, Pennsylvania, North Carolina and Florida. These loans are collateralized by deeds of trust on the underlying real property. The Company uses standard underwriting practices, which are generally accepted in the mortgage banking industry. These underwriting practices are designed to meet the requirements of the various mortgage agencies and attract the best investment opportunities. 12 The Company also sells participation interests in certain of its loans as discussed in Note 2 above. The Company is exposed to credit risk under these participation agreements to the extent that the participant fails to perform under the participation agreement. Currently, the Company has three participants, all of which meet the credit requirements of the Company. Any future participants will be reviewed closely by the Company to ensure they meet credit requirements. The Company is required to fund advances under its loan agreements. At December 31, 1999, the Company is committed to fund advances up to a maximum amount of $33,164,224 under all loan agreements for the life of the agreements. Participation interests in these commitments totaled $22,997,000 at December 31, 1999. The aggregate balance of custodial escrow funds maintained in connection with the loans serviced as of December 31, 1999 and 1998, was $0 and $90,000, respectively. These balances are not included in the accompanying statement of financial condition. However, the Company receives income reflected as other income on the accompanying statement of operations. 4.Estimated Fair Value of Financial Instruments: The following estimated fair values of the Company's financial instruments as of December 31, 1999 and 1998, are presented in accordance with generally accepted accounting principles, which define fair value as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than a forced or liquidation sale. These estimated fair values, however, may not represent the liquidation value or the market value of the Company.
1999 1998 Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash and cash equivalents ............... $1,016,658 $1,016,658 $1,881,880 $1,881,880 Loans held for investment, net ..................................... 7,183,291 7,183,291 2,249,969 2,249,969
- -------------------------------------------------------------------------------- The following methods and assumptions were used to estimate the fair values at December 31, 1999 and 1998: Cash and Cash Equivalents Carrying amount approximates fair value. Loans held for investment, net Carrying amount approximates fair value as all loans are at rates that approximate current lending rates. 13 5. Income Taxes: The provision for income taxes for the year ended December 31, 1999 and for the period August 28, 1998 (Inception), to December 31, 1998, is summarized as follows:
1999 1998 Current Deferred Total Current Deferred Total Federal .............. $ 149,669 $ 62,194 $ 211,863 $ 129,147 $ (65,335) $ 63,812 State ................ 28,835 10,975 39,810 25,451 (11,530) 13,921 $ 178,504 $ 73,169 $ 251,673 $ 154,598 $ (76,865) $ 77,733
================================================================================ A reconciliation of the statutory Federal income tax rate to the Company's effective income tax rate for the year ended December 31, 1999, and for the period August 28, 1998 (Inception), to December 31, 1998 is as follows: 1999 1998 Statutory Federal income tax rate ........ 32.4% 27.8% State taxes, net of federal benefit ...... 5.2% 5.1% Disallowed meal and entertainment expenses .9% .9% Effective income tax rate ................ 38.5% 33.8% ================================================================================ Deferred income taxes result from temporary differences in the recognition of income and expense for tax versus financial reporting purposes. The sources of these temporary differences and the related tax effects at December 31, 1999 and 1998 are as follows: 1999 1998 Deferred tax assets: Loan fees .......... $ -- $70,972 Organizational costs 3,516 5,893 $ 3,516 $76,865 ================================================================================ 14 Harbourton Financial Corp. Table of Contents Statements of Financial Condition As of November 30, 2000 (unaudited) and December 31, 1999 -16 Statements of Operations For the Eleven Months Ended November 30, 2000 and 1999 (unaudited)- 17 Statements of Cash Flows For the Eleven Months Ended November 30, 2000 and 1999 (unaudited)-18 Notes to Financial Statements -19 For the Eleven Months Ended November 30, 2000 15 Harbourton Financial Corp. Statements of Financial Condition As of November 30, 2000 and December 31,1999 Assets
November 30, December 31, 2000 1999 (Unaudited) Cash and cash equivalents ................................................... $ 249,945 $ 971,317 Restricted cash ................................................................ -- 45,341 Loans held for investment, net ................................................. 11,253,730 7,183,291 Interest and other receivables ................................................. 451,691 118,261 Property and equipment, net .................................................... 10,727 19,243 Income taxes receivable ........................................................ -- 32,267 - -------------------------------------------------------------------------------- ----------- ----------- Total assets ................................................................... $11,966,093 $ 8,446,018 =========== ============
Liabilities and Stockholders' Equity - -------------------------------------------------------------------------------- Liabilities: Loan Payable ............................................................... $ 2,145,000 -- Accrued liabilities and accounts payable ................................... 478,777 209,039 Income taxes payable ....................................................... 83,074 -- - ------------------------------------------------------------------------------- ----------- ----------- Total liabilities ............................................................. 2,706,851 209,039 - ------------------------------------------------------------------------------- ----------- ----------- Stockholders' equity: Preferred stock, $.01 par value, 500,000 shares authorized, no shares issued or outstanding ...................................................... -- -- Common stock, $.01 par value, 1,000,000 shares authorized, 778,582 and 745,428 shares issued and outstanding, respectively ........................ 7,876 7,454 Additional paid-in capital ................................................. 8,146,624 7,675,546 Retained earnings .......................................................... 1,104,742 553,979 - ------------------------------------------------------------------------------- ----------- ----------- Total stockholders' equity .................................................... 9,259,242 8,236,979 - ------------------------------------------------------------------------------- ----------- ----------- Total liabilities and stockholders' equity .................................... $11,966,093 $ 8,446,018 =========== =========
The accompanying notes are an integral part of these statements. 16 Harbourton Financial Corp. Statements of Operations For the eleven month periods ended November 30, 2000 and 1999 (unaudited) 2000 1999 Revenues: Loan income ............................. $1,411,960 $1,208,445 Other income ............................ 1,157,036 60,631 Total revenues ............................. 2,568,996 1,269,076 Expenses: Salaries and benefits ................... 752,759 377,833 Depreciation and amortization ........... 836,539 254,772 General and administrative .............. 11,039 12,277 Interest ............................... 76,158 0 Total expenses ............................. 1,676,495 644,882 Net income before provision for income taxes 892,500 624,194 Provision for income taxes ................. 341,739 236,944 Net income ................................. $ 550,762 $ 387,250 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. 17
Harbourton Financial Corp. Statement Of Cash Flows For the eleven month periods ended November 30, 2000 1999 Cash flows from operating activities: Net income .......................................... $ 550,763 $ 387,250 Adjustments to reconcile net income to net cash flows provided by operating activities- Depreciation and amortization ..................... 11,039 12,277 Changes in operating assets and liabilities: Interest receivable ............................. (192,538) (63,184) Other receivables ............................... (64,594) 70,941 Accrued liabilities and accounts payable ........ 269,738 84,879 Income taxes, net ............................... 115,342 4,878 Net cash provided by operating activities .............. 689,750 497,041 Cash flows from investing activities: Increase in loans held for investment, net .......... (4,070,439) (4,885,235) Purchase of property and equipment, net ............. (2,524) (12,789) Net cash used in investing activities .................. (4,072,963) (4,898,024) Cash flows from financing activities: Increase from issuance of shares .................... 471,500 2,600,000 Proceeds from bank loan ............................. 2,145,000 0 Net cash provided by financing activities .............. 2,616,500 2,600,000 Net (decrease) increase in cash and cash equivalents ... (766,713) (1,800,983) Cash and cash equivalents, beginning of period ......... 1,016,658 1,881,880 Cash and cash equivalents, end of period ............... $ 249,945 $ 80,897 Supplemental disclosure of cash flow information: Cash paid during the year for income taxes .......... $ 226,283 $ 232,066
================================================================================ The accompanying notes are an integral part of these statements. 18 Harbourton Financial Corp. Notes to Financial Statements For the Eleven Months Ended November 30, 2000 1. General. The consolidated financial statements of Harbourton Financial Corporation ("Harbourton") included herein are unaudited for the periods ended November 30, 2000 and 1999; however, they reflect all adjustments which, in the opinion of management, are necessary to present fairly the results for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Harbourton believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the eleven months ended November 30, 2000 are not necessarily indicative of the results of operations to be expected for the remainder of the year. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in Harbourton's audited financial statements for the year ended December 31, 1999 and for the Period August 28, 1998 (inception) to December 31, 1998. 2. Line of Credit. On May 11, 2000, Harbourton obtained a senior secured credit facility in the amount of $2,000,000 from a local FDIC-insured financial institution,. The facility is a revolving line of credit, carries an interest rate of the prime rate plus a premium, and expires May 11, 2001. The lender has been granted a collateral security interest in two of Harbourton's loans having a combined original principal indebtedness of $4,320,000, and a general assignment of Harbourton's right to all collections from notes. The loan contains financial covenants of the type generally found in this type of facility. On November 10, 2000 the facility was increased to $2,500,000. 3. Merger Agreement. On October 25, 2000, Harbourton entered into a definitive merger agreement with Allstate Financial Corporation ("Allstate"), a company controlled by Harbourton's majority shareholder. The agreement calls for Allstate to issue approximately 7,516,162 shares of common stock, plus make a cash payment of approximately $1,900,000, to purchase all of the outstanding common stock of Harbourton. 4. Subsequent Event. On November 30, 2000 Allstate Financial Corporation purchased 100% of the issued and outstanding common stock of Harbourton Financial Corporation, for 7,516,160 shares of Allstate common stock plus a cash payment of $2,115,630. The transaction was accounted for as a combination of a pooling of interests and a purchase. Harbourton was merged into Allstate with Allstate being the surviving company. 19 Pro Forma Financial Information. The pro forma condensed consolidated financial statements of Allstate Financial Corporation ("Allstate") and Harbourton Financial Corporation ("Harbourton") included herein are unaudited, and are not prepared in accordance with generally accepted accounting principles. They reflect the combined operations of Allstate and Harbourton giving effect to the combination at the beginning of each of the periods presented. Information and note disclosures normally included in financial statements have been condensed or omitted. Allstate believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the eleven months ended November 30, 2000 are not necessarily indicative of the results of operations to be expected for the remainder of the year or in future years. It is suggested that these pro forma condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in Allstate's audited financial statements for the years ended December 31, 1999 and 1998 and Harbourton's audited financial statements for the year ended December 31, 1999 and for the Period August 28, 1998 (inception) to December 31, 1998. Unaudited Pro Forma Condensed Consolidated Balance Sheet giving effect to the merger of Harbourton Financial Corp. into of Allstate Financial Corporation as of November 30, 2000
................................................ Pro Forma ................................................ Merger Pro Forma ................................................ Allstate Harbourton Combined Adjustments Consolidated .............................................. Cash and cash equivalents ........................ $ 2,446 $ 250 $ 2,696 ($ 2,116) (a) $ 580 Total receivables, net ........................... 2,745 11,705 14,450 (106) (b) 14,345 Securities held for sale ......................... 52 -- 52 -- -- 52 Other assets ..................................... 137 11 148 -- -- 148 Deferred Taxes ................................... -- -- -- 3,033 (c) 3,033 -------- -------- -------- ----------- -------- Total assets ..................................... $ 5,380 $ 11,966 $ 17,347 $ 811 $ 18,159 ======== ======== ======== ======== =========== ======== Loan payable ..................................... -- $ 2,145 $ 2,145 -- -- $ 2,145 Convertible subordinated notes .................. 266 -- 266 -- -- 266 Other liabilities ................................ 347 562 909 -- -- 909 -------- -------- -------- -------- ----------- -------- Total liabilities ................................ 613 2,707 3,320 -- -- 3,320 -------- -------- -------- -------- ----------- -------- Common stock, $.01 par value ..................... 84 8 92 66 (d) 160 Additional paid-in capital ....................... 23,679 8,147 31,826 (2,240) (d) 29,586 Treasury stock ................................... (4,962) -- (4,962) -- -- (4,962) Retained earnings (deficit) ...................... (14,090) 1,105 (12,985) 2,985 (e) (10,000) Unrealized gains on investment securities ....................... 48 -- 48 -- -- 48 -------- -------- -------- -------- ----------- -------- Total stockholders' equity ....................... 4,768 9,259 14,027 (2,018) -- 14,839 -------- -------- -------- -------- ----------- -------- Total liabilities and stockholders' equity ........................ $ 5,380 $ 11,966 $ 17,347 (2,025) -- $ 18,159 ======== ======== ======== ======== =========== ========
Notes to unaudited pro forma condensed combined balance sheet as of November 30, 2000 (a) ($2,115,630) is the cash portion of the acquisition price ( Harbourton book value less 7,516,160 shares times notional value of $0.95 per share) (b) ($105,684) is negative goodwill generated by the excess of the fair value of the net assets acquired over the cost of the portion (4.32%) of the common stock of Harbourton being acquired from minority shareholders. The acquisition of these shares is treated as a purchase. This amount is allocated to the non-current portion of notes receivable as a valuation allowance. The amount is equal to the book value of Harbourton, $9,259,242, times the percentage owned by the minority holders, 4.32%, or $400,060, less the book acquisition price, 324,746 shares times $0.625 market price per share (=$202,966) plus $91,410, or $294,376. The market price is the closing trading price of Allstate on 20 November 30, 2000. (c) Tax benefit arising from the decrease in the valuation allowance recognized as a result of the merged companies' improved prospects of utilizing Allstate's net operating loss carryforwards, $3,033,334 (d) Stock issuance adjustments include: o $75,162 in new par value of shares issued, less $7,786 in Harbourton par value cancelled. o $5,905,756 in additional paid in capital of new shares issued, less $8,146,624 in additional paid in capital of Harbourton shares cancelled. (e) Retained earnings adjustments include $1,057,010 in Harbourton retained earnings acquired, plus $3,033,334 credit for income taxes arising from the decrease in the valuation allowance recognized as a result of the merger company's prospects of utilizing Allstate's net operating loss carryforwards. Unaudited Pro Forma Condensed Combined Income Statement for the eleven months ended November 30, 2000.
(In thousands, except per share data) ................................................ ................................................Allstate Harbourton Merger ................................................Historical Historical Adjustments Pro Forma .............................................. Total revenue .................................... $ 708 $ 2,569 $(26)(a) $ 3,251 ------- -------- ------- ------- Expenses: Compensation and fringe benefits ............ 479 753 -- 1,232 General and administrative .................. 933 836 (26)(a) 1,742 Interest expense ............................ 562 76 -- 639 Provision for credit losses (recovery) ...... (839) -- -- (839) Depreciation and amortization ............... 60 11 -- 71 ------- ------- ------- ------ Total expenses .............................. 1,194 1,676 (26) 2,844 ------- ------- ------- ------ Income (loss) before income tax expense .......... (benefit) ........................................ (486) 893 -- 407 Income tax expense (benefit) ..................... -- 342 (3,375)(b) (3,034) ------- -------- ------ Net income (loss) ................................ $ (486) $ 551 -- $ 3,440 ======== ======== ======== ======= Net income (loss) per share: Basic and diluted ........................... $ (0.16) $ 0.71 -- $ 0.33(c)
Notes to unaudited pro forma condensed combined income statement for the eleven months ended November 30, 2000 (a) Intercompany loan participation fees paid during period. (b) Consists of credit for current period taxes due by Harbourton, $342,000, and tax benefit arising from the decrease in the valuation allowance recognized as a result of the combined companies' prospects of utilizing Allstate's net operating loss carryforwards, $3,033,334. Assumes a combined income tax return is filed for the period. (c) Pro forma basic and diluted earnings per share is calculated utilizing Allstate's weighted-average shares outstanding for the period 2,969,353 combined with Harbourton's weighted-average shares outstanding for the period, 772,053, times the exchange rate used in the November 30, 2000 merger transaction (9.54), for a total pro forma weighted average of 10,485,513. 21 Unaudited Pro Forma Condensed Combined Income Statement for 1999 (In thousands, except per share data)
Pro Forma Allstate Harbourton Merger Pro Forma Historical Historical Adjustments Combined .............................................. Total revenue .................................... $ 3,621 $ 1,417 -- $ 5,038 ------ -------- Expenses: Compensation and fringe benefits ............ 2,059 453 -- 2,512 General and administrative .................. 3,001 298 -- 3,299 Interest expense ............................ 1,293 -- -- 1,293 Provision for credit losses ................. 10,178 -- -- 10,178 Other expense ............................... 339 13 -- 352 -------- -------- ------ -------- Total expenses .............................. 16,869 764 -- 17,634 -------- -------- ------ -------- Income (loss) before income tax expense .......... (13,248) 654 -- (12,596) Income tax expense ............................... 4,003 252 (4,255)(a) -- -------- ------ -------- Net income (loss) ................................ $(17,251) $ 402 -- ($12,596) ======== ======== ====== ======== Net income (loss) per share: Basic and diluted ........................... $ (7.42) $ 0.76 -- (1.52)(b)
Notes to unaudited pro forma condensed combined income statement for 1999 (a) Consists of credit for current period taxes due by Harbourton, $252,000, and tax benefit arising from the decrease in the income tax expense (valuation allowance) recognized as a result of the combined companies' prospects of utilizing Allstate's net operating loss carryforwards, $4,003,000. Assumes a combined income tax return is filed for the period. (b) Pro forma basic and diluted earnings per share is calculated utilizing Allstate's weighted-average shares outstanding for the year ended December 31,1999 of 2,324,616 combined with Harbourton's weighted-average shares outstanding for the year ended December 31,1999, 527,096, times the exchange rate used in the November 30, 2000 merger transaction (9.54), for a total pro forma weighted average of 8,263,111.
Unaudited Pro Forma Condensed Combined Income Statement for 1998 (In thousands, except per share data) Pro Forma Allstate Harbourton Merger Pro Forma Historical Historical Adjustments Combined ............................................. Total revenue ................................... $ 10,301 $ 476 -- $ 10,777 -------- -------- Expenses: Compensation and fringe benefits ........... 3,448 118 -- 3,566 General and administrative ................. 4,964 123 -- 5,087 Interest expense ........................... 1,903 -- -- 1,903 Provision for credit losses (recovery) ..... 9,599 -- -- 9,599 Depreciation and amortization .............. -- 5 -- 5 -------- -------- -------- Total expenses ............................. 19,913 246 -- 20,160 -------- -------- -------- Income (loss) before income tax expense (benefit) (9,612) 230 -- (9,383) Income tax expense (benefit) .................... (3,556) 78 (78) (b) (3,478) -------- -------- -------- Net income (loss) ............................... $ (6,056) $ 152 -- $ (5,905) ======== ======== ======== ======== Net income (loss) per share: Basic and diluted .......................... $ (2.61) $ 0.55 -- ($1.20)(c)
22 Notes to unaudited pro forma condensed combined income statement for 1998 (c) For the period since inception on August 28, 1998 to December 31, 1998 (d) Credit for income taxes paid by Harbourton. Assumes a combined income tax return is filed for the period. (c) Pro forma basic and diluted earnings per share is calculated utilizing Allstate's weighted-average shares outstanding for the year ended December 31,1998 of 2,322,222 combined with Harbourton's weighted-average shares outstanding for the year ended December 31,1998, 274,526, times the exchange rate used in the November 30, 2000 merger transaction (9.54), for a total pro forma weighted average of 4,941,200. -----END PRIVACY-ENHANCED MESSAGE-----