-----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, GdXt9Bb6mHLWqOPSidMgfgC47uSXwbSJ6BUmdtP2g1h8lAresYhEyxgcyK0cphDk /CuktkX77iQGT/XW1SnXNw== 0001011438-99-000526.txt : 19990920 0001011438-99-000526.hdr.sgml : 19990920 ACCESSION NUMBER: 0001011438-99-000526 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990903 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990917 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AAMES FINANCIAL CORP/DE CENTRAL INDEX KEY: 0000879957 STANDARD INDUSTRIAL CLASSIFICATION: LOAN BROKERS [6163] IRS NUMBER: 954340340 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13660 FILM NUMBER: 99713123 BUSINESS ADDRESS: STREET 1: 350 SOUTH GRAND AVE STREET 2: 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2132105000 MAIL ADDRESS: STREET 1: 3731 WILSHIRE BLVD 10TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90010 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- Form 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): September 3, 1999 AAMES FINANCIAL CORPORATION (Exact name of Registrant as Specified in Its Charter) DELAWARE 0-19604 95-340340 (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 350 South Grand Avenue, 52nd Floor Los Angeles, California 90071 (Address of Principal Executive Offices) (323) 210-5000 (Registrant's Telephone Number, Including Area Code) NA (Former Name or Former Address, if Changed Since Last Report) Page 1 ITEM 5. OTHER EVENTS Reference is made to the press release of Registrant issued on September 3, 1999 which contains information meeting the requirements of this Item 5 and is incorporated herein by this reference. A copy of the press release is attached to this Form 8-K as Exhibit 99. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) EXHIBITS 99 Press release issued September 3, 1999. Page 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized. AAMES FINANCIAL CORPORATION Dated: September 10, 1999 By: /s/ BARBARA S. POLSKY ----------------------------------- Barbara S. Polsky Executive Vice President, General Counsel and Secretary Page 3 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ----------------------- 99 Press release issued September 3, 1999 Page 4 EXHIBIT 99 Contact: David Sklar Aames Financial Corporation (323) 210-5311 or Steve Hawkins/Tom Ekman Sitrick And Company (310) 788-2850 FOR IMMEDIATE RELEASE AAMES FINANCIAL CORPORATION REPORTS YEAR-END RESULTS PAST FISCAL YEAR DEDICATED TO REPOSITIONING THE COMPANY, ENTERING THE FISCAL YEAR WITH STRENGTHENED BALANCE SHEET AND STRONGER CAPITAL BASE Completes $400 Million Mortgage Loan Securitization in August LOS ANGELES, CALIFORNIA, SEPTEMBER 3, 1999 - AAMES FINANCIAL CORPORATION (NYSE: AAM), a leader in subprime home equity lending, today reported the results from operations for the fiscal year ended June 30, 1999, reporting as expected, a net loss of $(248) million, or $(8.00) per share (diluted) including the effects of a $194 million write down in the second quarter to reflect revaluation of residual assets on its balance sheet. The Company also announced that as part of its new loan disposition strategy, it successfully completed a $400 million mortgage loan securitization in August, which represents its first securitization since the quarter ended September 30, 1998. Mani Sadeghi, Aames' Chief Executive Officer, stated, "Last year was a very challenging year for the Company. The specialty finance industry faced extraordinarily difficult operating and capital markets conditions which prompted Aames to take difficult, but necessary, actions to position the Company for long-term growth and profitability. "From an operational standpoint we took decisive action to streamline operations, reduce costs and strengthen the balance sheet. As a result, we enter the new fiscal year with a more efficient organizational structure and a strengthened capital base. Most importantly the Company obtained an equity investment commitment from Capital Z Financial Services Fund, II, L.P. ("Capital Z") to invest up to $126.5 million in the Company, of which $101.5 million has already been received. This equity investment paved the way to recapitalizing theCompany and making necessary adjustments to our balance sheet. Page 5 "In addition to the operational actions taken, management adjusted the assumptions used to value its residual assets during the second fiscal quarter ended December 31, 1998, reflecting negative market conditions, as well as new FASB guidelines, recording a $194 million write down on these assets. "Finally, the results for the year include a prolonged period during which the Company was effectively precluded from its traditional financing source, the asset backed securities market. From September, 1998 through the end of the past fiscal year, the Company relied on whole loan sales. Gains recorded from whole loan sales are generally lower than the gains recorded for securitizations. "Our goal going forward is to focus origination activities in our core franchises while implementing a balanced funding strategy using securitization and whole loan sales. The successful completion last month of our first securitization in three quarters represents a significant step in that direction," Sadeghi added. FINANCIAL RESULTS The Company reported a net loss of $(248) million, or $(8.00) per share (diluted), for the fiscal year ended June 30, 1999, compared to net income of $28 million, or $0.87 per share (diluted), for the fiscal year ended June 30, 1998. Total revenue for the year, including the effects of the $194 million write down in the second quarter, was ($16.2 million), as compared to $266 million in fiscal 1998. The write down of residual assets was caused in part by negative market conditions which adversely affected the prepayment, loss and discount rate assumptions historically applied by the Company in estimating the value of its residual assets. The Company also changed to the "cash-out" method from the "cash-in" method for the treatment of credit enhancements relating to securitizations in accordance with new FASB guidelines. While the total amount of the revenue recognized over the term of the securitization is the same under either method, the cash-out method results in lower initial gains and higher subsequent loan service revenues. Revenue for the year excluding the write-down was $170 million, down 36% from 1998, reflecting the Company's reliance on whole-loan sales for cash during the last three fiscal quarters of 1999. The decrease in total revenue also reflects the lower gains on sale resulting from the $13.5 million hedge losses on the Company's $650 million securitization closed in the quarter ended September 30, 1998. The Company sold $1.89 billion of loans in the fiscal year ended June 30, 1999, compared to $2.45 billion in the prior year. Of the total amount of loans sold during the year, $650 million were sold in securitizations and $1.24 billion in whole loan sales for cash, compared to $2.03 billion in securitizations and $416 million in whole loan sales in the prior year. The Company did not complete a securitization during the quarters ended December 31, 1998, March 31, 1999, and June 30, 1999. In August 1999, the Company completed a securitization of $400 million of mortgage loans. A significant amount of the loans sold in the August securitization were comprised of loans held for sale as of June 30, 1999. Total loan production for the year in the Company's core retail and broker production channels increased by $215 million over 1998's totals. Neil Kornswiet, Aames President, noted, "Loan production growth was hindered by the Company's restricted warehouse capacity during the middle part of the year. Our retail production increased from $636 million in 1998 to $770 million in 1999. The Company's decentralized retail network, which commenced operations in March 1998 contributed to this growth. Broker production increased from $1.1 billion in Page 6 1998 to $1.2 billion in 1999. Correspondent production decreased from $646 million in 1998 to $241 million in 1999 reflecting our decision to eliminate bulk purchases because such loans have performed more poorly than loans originated from our core operations and because we have considered the asking prices for these loans to be unattractive." Compensation expense for the fiscal year ended June 30, 1999, decreased 15.5% to $80.2 million, due primarily to personal reductions on a Company-wide basis. General and administrative costs increased $19.9 million, reflecting increased operating costs resulting from expansion of the company's branch network (some of which was later cut back) and a number of non-recurring increases in legal and other professional costs related primarily to the negotiation and closing of the Company's equity and debt agreements. The Company also recorded a one-time, nonrecurring charge of $37 million during the year related to servicing advances which are recorded as accounts receivable on the Company's balance sheet. The charge relates to payments made by the Company to the securitization trusts for which it acts as servicer, in accordance with its obligation to advance or loan to the trusts the delinquent interest. The Company, as servicer, is entitled to recover these advances from regular monthly cash flows into the trusts. During the year, the Company determined that a portion of these advances were not recoverable from the trusts' monthly cash flows and as a result, accounts receivable were written down by $37 million. During 1999, the Company began to explore ways to reduce the cash burden of its servicing advance obligations. During April, the Company entered into a sub-servicing arrangement with a third-party servicer with respect to $388 million of loans. The third party servicer also agreed to make future advances on those loans. In June 1999, the Company entered into an arrangement with an investment bank to purchase outstanding advances against substantially all the Company's pre-1999 securitization trusts and make a significant portion of future servicing advances on those trusts. Aames Financial Corporation is a leading home equity lender, and currently operates 101 branches serving borrowers in 37 states, plus the District of Columbia. Its broker division operates 35 offices serving 28 states. SAFE HARBOR STATEMENT: FROM TIME TO TIME THE COMPANY MAY PUBLISH FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS AND SIMILAR MATTERS. THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS. IN ORDER TO COMPLY WITH THE TERMS OF THE SAFE HARBOR, THE COMPANY NOTES THAT A VARIETY OF FACTORS COULD CAUSE THE COMPANY'S ACTUAL RESULTS AND EXPERIENCE TO DIFFER MATERIALLY FROM THE ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED IN THE COMPANY'S FORWARD-LOOKING STATEMENTS. THE RISKS AND UNCERTAINTIES THAT MAY AFFECT THE OPERATIONS, PERFORMANCE AND RESULTS OF THE COMPANY'S BUSINESS INCLUDE THE FOLLOWING: NEGATIVE CASH FLOWS AND CAPITAL NEEDS; DELINQUENCIES AND LOSSES IN SECURITIZATION TRUSTS; NEGATIVE IMPACT ON CASH FLOW, RIGHT TO TERMINATE MORTGAGE SERVICING; CHANGES IN INTEREST RATE ENVIRONMENT; YEAR 2000 COMPLIANCE AND TECHNOLOGICAL ENHANCEMENT; PREPAYMENT RISK; BASIS RISK; CREDIT RISK; RISK OF ADVERSE CHANGES IN THE SECONDARY MARKET FOR MORTGAGE LOANS; DEPENDENCE ON FUNDING SOURCES; DEPENDENCE ON BROKER NETWORK; RISKS INVOLVED IN COMMERCIAL MORTGAGE LENDING; STRATEGIC ALTERNATIVES; COMPETITION; CONCENTRATION OF OPERATIONS IN CALIFORNIA; TIMING OF LOAN SALES; ECONOMIC CONDITIONS; CONTINGENT RISKS; AND GOVERNMENT REGULATION. FOR A MORE COMPLETE DISCUSSION OF THESE RISKS AND UNCERTAINTIES, SEE "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- RISK FACTORS" IN THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1999. Page 7 AAMES FINANCIAL CORPORATION QUARTERLY FINANCIAL STATISTICS
THREE MONTHS TWELVE MONTHS JUNE JUNE ---------------------------- ---------------------------------- 1999 1998 1999 1998 ORIGINATION VOLUME BROKER NETWORK (1) 315,422,000 329,776,000 1,182,135,000 1,101,154,000 RETAIL 136,076,000 178,803,000 638,686,000 634,659,000 RETAIL DIRECT 51,777,000 1,477,000 131,340,000 1,477,000 CORRESPONDENT' 13,337,000 163,884,000 241,475,000 646,348,000 ---------------------------- ---------------------------------- TOTAL 516,612,000 673,940,000 2,193,636,000 2,383,638,000 ============================ ================================== RETAIL WTD AVG. COMMISSION RATE 4.83% 4.12% 4.10% 4.28% SERVICING PORTFOLIO (2) (3) 3,841,290,000 4,147,100,000 PORTFOLIO SERVICED IN-HOUSE 3,428,291,000 3,941,100,000 LOAN SALES: WHOLE LOANS SOLD 295,012,000 305,000,000 1,236,050,000 416,390,000 SECURITIZATIONS - 299,985,000 649,999,000 2,034,300,000 TOTAL 295,012,000 604,985,000 1,886,049,000 2,450,690,000 SERVICING SPREAD ON SECURITIZATIONS - 4.12% 3.61% 4.28% COMPONENTS OF REVENUE (4) GAIN ON SALE OF LOANS 8,190,000 35,884,000 44,855,000 120,828,000 VALUATION (WRITE-DOWN) OF INTEREST-ONLY STRIPS - 5,682,000 (186,451,000) 19,495,000 COMMISSIONS RETAIL 4,343,000 6,529,000 26,437,000 24,893,000 BROKER NETWORK 1,906,000 (66,000) 5,146,000 677,000 OTHER 34,000 670,000 1,451,000 2,094,000 LOAN SERVICE SERVICING SPREAD 13,125,000 7,827,000 27,798,000 32,392,000 PREPAYMENT FEES 3,409,000 3,514,000 13,772,000 11,761,000 LATE CHARGES AND OTHER SERVICING FEES 856,000 2,209,000 8,330,000 7,489,000 INTEREST INCOME AND FEES CLOSING 26,000 714,000 1,325,000 2,668,000 APPRAISAL 583,000 778,000 2,822,000 2,617,000 UNDERWRITING 559,000 263,000 1,839,000 1,085,000 INTEREST INCOME 10,492,000 8,239,000 35,853,000 40,110,000 OTHER 172,000 (132,000) 670,000 380,000 ----------------------------------------------------------------- TOTAL REVENUE INCLUDING WRITE-DOWN 43,695,000 72,111,000 (16,153,000) 266,489,000 ================================================================= 1 Includes commercial loans 2 Includes loan serviced on an interim basis. 3 Loans serviced as of June 30, 1999 include $84.0M serviced on an interim basis. 4 Revenues for the three months ended June 30, 1998 have been restated.
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 JUNE 30,1998 --------------------- ----------------- ASSETS Cash and cash equivalents $ 20,764,000 12,322,000 Loans held for sale, at lower of cost or market 559,869,000 198,202,000 Accounts receivable 56,964,000 51,072,000 Interest-only strips, at estimated fair market value 332,327,000 490,542,000 Mortgage servicing rights, net 20,928,000 32,090,000 Equipment and improvements, net 13,495,000 13,939,000 Prepaid and other 15,013,000 17,020,000 Income tax refund receivable 1,737,000 - --------------------- ----------------- Total assets $ 1,021,097,000 815,187,000 ===================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY Borrowings $ 281,220,000 286,990,000 Revolving warehouse and repurchase facilities 535,997,000 141,012,000 Accounts payable and accrued expenses 50,505,000 49,964,000 Income taxes payable 7,819,000 33,170,000 --------------------- ----------------- Total liabilities 875,541,000 511,136,000 --------------------- ----------------- Stockholders' equity: Series A Preferred Stock, par value $.001 per share; 500,000 shares authorized; none outstanding - - Series B Convertible Preferred Stock, par value $.001 per share, 100,000 shares authorized ; 26,704 and -0- shares outstanding 26,704,000 - Series C Convertible Preferred Stock, par value $.001per share; 100,000 shares authorized; 75,046 and -0- shares outstanding (includes 25,000 shares issued August 3, 1999) 65,475,000 - Common Stock, par value $.001 per share 50,000,000 shares authorized; 31,016,964 and 30,962,578 shares outstanding 31,000 31,000 Additional paid-in capital 250,116,000 249,851,000 Retained earnings(deficit) (196,770,000) 54,169,000 --------------------- ----------------- Total stockholders' equity 145,556,000 304,051,000 --------------------- ----------------- Total liabilities and stockholders' equity $ 1,021,097,000 815,187,000 ===================== =================
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Audited)
THREE MONTHS ENDED TWELVE MONTHS ENDED --------------------------------- ------------------------------ JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1999 1998 1999 1998 ----------------- --------------- --------------- -------------- (Restated) Revenue: Gain on sale of loans $ 8,190,000 35,884,000 44,855,000 120,828,000 Valuation (write-down) of interest-only strips - 5,682,000 (186,451,000) 19,495,000 Commissions 6,283,000 7,133,000 33,034,000 27,664,000 Loan service 17,390,000 13,550,000 49,900,000 51,642,000 Interest income and fees 11,832,000 9,862,000 42,509,000 46,860,000 ----------------- --------------- --------------- -------------- Total revenue including write-down 43,695,000 72,111,000 (16,153,000) 266,489,000 ----------------- --------------- --------------- -------------- Expenses: Compensation 14,707,000 24,152,000 80,167,000 94,820,000 Production 9,182,000 11,565,000 40,061,000 34,195,000 General and administrative 22,163,000 12,764,000 60,635,000 40,686,000 Interest 12,330,000 11,361,000 44,089,000 43,982,000 Nonrecurring charges - - 37,044,000 - ----------------- --------------- --------------- -------------- Total expenses 58,382,000 59,842,000 261,996,000 213,683,000 ----------------- --------------- --------------- -------------- Income (loss) before income taxes (14,687,000) 12,269,000 (278,149,000) 52,806,000 Provision(benefit) for income taxes (600,000) 5,827,000 (30,182,000) 25,243,000 ----------------- --------------- --------------- -------------- Net income (loss) $ (14,087,000) 6,442,000 (247,967,000) 27,563,000 ================= =============== =============== ============== Net income(loss) per share: Basic $ (0.46) 0.21 (8.00) 0.97 Diluted (0.46) 0.20 (8.00) 0.87 Dividends per share - 0.03 0.03 0.13 Weighted average number of shares outstanding: Basic 31,007,000 30,253,000 31,000,000 28,548,000 ============== =============== =============== ============== Diluted 31,007,000 37,233,000 31,000,000 35,749,000 ============== =============== =============== ==============
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