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SEC Filings

424B1
DITECH HOLDING CORP filed this Form 424B1 on 09/16/1997
Entire Document
 
<PAGE>   115
 
                 HANOVER CAPITAL PARTNERS LTD. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND
          FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
 
     g.  Deferred Revenue -- Cash advances received for certain service
contracts are recorded in the accompanying consolidated balance sheets as
deferred revenue and are recognized during the period the services are provided
and the related revenue is earned.
 
     h.  Income Taxes -- The Company records deferred taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109"). Under SFAS 109 a current or deferred tax liability or asset is
recognized for the current or deferred tax effects of all events recognized in
the financial statements. Those effects are measured based on provisions of
current tax law to determine the amount of taxes payable or refundable currently
or in future years. The tax effects of earning income or incurring expenses in
future years or the future enactment of a change in tax laws or rates are not
anticipated in determining deferred tax assets or liabilities.
 
     The Company files a consolidated Federal income tax return. The Company has
not been subject to an examination of their income tax returns by the Internal
Revenue Service.
 
     i.  Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation. Depreciation is computed on the straight-line method
over the estimated useful lives of the assets, generally three to seven years.
Leasehold improvements are depreciated over the terms of the respective leases
or their estimated useful lives, whichever is shorter.
 
     j.  Investment in Marketable Securities -- Investment in marketable
securities which the Company has classified as trading securities, pursuant to
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("SFAS 115"), are reported in the
accompanying consolidated balance sheets at market value at December 31, 1996
and 1995.
 
     k.  Cash and Cash Equivalents -- For cash flow purposes, the Company
considers highly liquid investments, purchased with an original maturity of
three months or less, to be cash equivalents. There were no cash equivalents at
June 30, 1997, December 31, 1996 and 1995.
 
     l.  Mortgage Servicing Rights -- The Company adopted Statement of Financial
Accounting Standards No. 122, Accounting for Mortgage Servicing Rights, an
amendment of FASB Statement No. 65, ("SFAS 122"), effective January 1, 1995. The
effect of adopting SFAS 122 was to increase income before income taxes for the
year ended December 31, 1995, by $46,904. For purposes of assessing impairment,
the lower of carrying value or fair value of servicing rights is determined on
an individual loan basis. Capitalized servicing rights are amortized in
proportion to projected net servicing revenue. The fair value of the Company's
capitalized servicing rights as of December 31, 1996 and 1995 was $46,606 and
$54,029, respectively. The fair value of servicing rights is determined using a
discounted cash flow method utilizing current market assumptions.
 
     m.  Earnings Per Share -- Earnings per share are based on the weighted
average shares of Class A common stock outstanding after giving retroactive
effect to the shareholder exchange agreement (see Note 9).
 
     n.  Reclassifications -- Certain 1995 and 1994 amounts have been
reclassified to conform with the 1996 presentation.
 
     o.  Accounting Standards -- In June 1996, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. The statement modifies SFAS 122 to eliminate the concept of
"normal" service fee rates and provides guidance on the appropriate accounting
for contractual service fee rates and those rates which exceed the contractual
level. Specifically, contractual service fee rates will continue to be accounted
for under SFAS 122 and the portion of service fee rates which exceed the
contractual level will be accounted for under SFAS 115. The Company has analyzed
the impact of adopting this statement and determined that it
 
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