Immediately
Investor Relations
David D. Wesselink
Chief Financial Officer
(612) 525-5034
(612) 593-4733 (fax)
Metris Web Site Address
www.metriscompanies.com
METRIS ANNOUNCES IMPACT OF PREFERRED STOCK EXCHANGE
St. Louis Park, Minn. (June 22, 1999) -- Metris Companies Inc. today
announced a $152.4 million one-time, non-cash, accounting impact from the
issuance of the Series C Perpetual Convertible Preferred Stock. The Series C
Preferred Stock was issued to the Thomas H. Lee Company in exchange for its
investment of $200 million of Series B Perpetual Preferred Stock, $100 million
of Senior Notes and ten-year warrants (combined the "Initial Investment"). The
exchange was completed on June 1, 1999, and reflects valuation as of the close
of business May 28, 1999, the last business day before the exchange.
The conversion of the Initial Investment into the Series C Preferred Stock
caused a one-time, non-cash, accounting adjustment that represents the excess of
the fair value of the Series C Preferred Stock over the carrying value of the
Initial Investment. The adjustment was allocated $50.8 million to the Senior
Notes and $101.6 million to the Series B Preferred Stock based upon their
initial fair values. The amount allocated to the Senior Notes was recognized as
an extraordinary loss from the early extinguishment of debt. The amount
allocated to the Series B Preferred Stock reduced net income available to common
stockholders in the calculation of earnings per share. The one-time accounting
adjustment had no impact on the Company's total equity base, however the
Company's total equity base increased approximately $73 million due to the
conversion of the debt component of the Initial Investment to Preferred Stock.
Metris Companies Inc. is an information-based direct marketer of
consumer credit products and fee-based services, primarily to moderate income
consumers. Based in St. Louis Park, Minnesota, Metris also has operations in
Tulsa, Oklahoma; Baltimore, Maryland; Champaign, Illinois; Phoenix, Arizona and
Jacksonville, Florida and currently employs over 2,200 people.
Visit Metris on the Internet at www.metriscompanies.com
###
Certain information discussed in this press release may constitute
forward-looking statements within the meaning of the Federal Securities law.
Although the Company believes that the expectations reflected in such
forward-looking statements are based on reasonable assumptions, it can give no
assurance that its expectations will be achieved. Forward-looking information is
subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those projected. Among those factors are:
higher default and bankruptcy rates of the Company's target market of moderate
income consumers; lack of seasoning of the Company's credit card portfolio,
which creates a risk of increasing loss levels; the Company's limited history as
a stand-alone entity; risks associated with acquired portfolios; interest rate
levels; dependence on the capital markets and securitization of the Company's
credit card loans to fund operations; and the general economic climate. For
further information on factors that could impact the Company, and statements
contained herein, reference should be made to the Company's filings with the
Securities and Exchange Commission, including quarterly reports on Form 10-Q,
current reports on Form 8-K and annual reports on Form 10-K.
Welcome
Introduction:
Attendees - Dave Wesselink, Executive Vice President & CFO
Jean Benson, Sr. VP, Finance and Corporate Controller
Jeff Grosklags, Sr. Director of Financial Reporting
Jill Barclift, Executive Vice President and General Counsel
The agenda for today is to review the accounting impact of the Thomas H. Lee
conversion that occurred June 1, 1999 that was included in our press release
dated June 22, 1999. We have sent out 3 schedules that show the impact of the
THL conversion.
FORWARD LOOKING STATEMENT
Investors are cautioned that all statements in this call that are not
historical, are forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995. These statements include statements regarding
intent, belief or current expectations of the Company and its management. They
are not guarantees of future performance and involve a number of risks and
uncertainties that may cause the Company's actual results to differ materially
from those discussed in the forward-looking statements, as a result of various
factors, including those set forth under "Risk Factors" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
As you are all aware, THL invested $300 million in the Company on December 9,
1998. The initial investment was comprised of $200 million Series B Perpetual
Preferred Stock, $100 million of Senior Notes and 7.5 million warrants to
purchase the Company's common stock at a strike price of $15. The Company
received shareholder approval on March 12, 1999, and the Lee Company received
notice from the OCC on May 28, 1999, that they had no regulatory objection to
the issuance of the Series C Perpetual Convertible Preferred Stock.
The conversion occurred on June 1, 1999.
The conversion from the initial investment to the Series C Preferred Stock
caused a one-time, non-cash accounting adjustment. This adjustment represents
the excess of the fair value of the Series C Preferred Stock at the time of
issuance over the carrying value of the initial securities. In accordance with
the Emerging Issues Task Force Topic D-42 "The Effect on the calculation of
Earnings per Share for the Redemption or Induced Conversion of Preferred Stock,"
this excess represents a return to the preferred stockholder and, therefore,
should be treated in a manner similar to the treatment of dividends paid to the
holders of the preferred stock in the calculation of earnings per share. The
schedule titled "One-time adjustment" sets forth the calculation of the $152.4
million one-time adjustment. The closing price of our common stock on May 28 was
$29.16. The common stock price at the time the significant terms of the initial
investment were finalized was $15.50. The conversion change factor represents
the rate the Series C Preferred value moves with every dollar movement of the
Company's common stock. This factor was determined using a convertible security
model to estimate the rate of change of the convertible preferred value based
upon movements in the underlying common stock price. The adjustment is allocated
between the Series B Preferred and the Senior Notes based upon their initial
fair values. The total $152.4 million adjustment is allocated $50.8 million to
the early extinguishment of the Senior Notes and $101.6 million to the early
retirement of Series B Preferred Stock.
The schedule titled "Capitalization table" sets forth the Lee Senior Notes and
the capitalization of the Company at March 31, 1999, on a pro forma basis to
reflect the conversion of the Thomas H. Lee investment. As you can see, Total
Stockholders' Equity increased by $72.8 million. This amount represents the $100
million Senior Notes that converted to the Series C Preferred Stock, net of $30
million in transaction costs associated with the Lee investment and the
difference between 9% dividends accrued on the $200 million Series B Preferred
Stock and 9% dividends accrued on the $300 million Series C Preferred Stock. The
Series B Preferred Stock is retired and the Lee Senior Notes are extinguished.
The Series C Preferred Stock is recorded at the initial $300 million plus
dividends accrued as if the Series C Preferred Stock had been outstanding since
December 9, 1998. The $50.8 million adjustment related to the Senior Notes is
reflected through the reclassification of retained earnings to paid-in-capital.
The $20.8 million increase in the Paid-in Capital represents the
reclassification of the early extinguishment related to the Senior Notes offset
by the $30 million of transaction costs.
The schedule titled "EPS impact" sets forth the impact of the conversion on the
Company's net income and earnings per share as of March 31, 1999, assuming the
THL conversion occurred on February 28, 1999. The adjustment related to the
Senior Notes is recognized as an extraordinary loss and is not recorded net of
tax. The adjustment related to the Series B Preferred is recognized as a
reduction of net income available to common stockholders. In calculating the
basic net loss per share before extraordinary loss, the numerator is net income
before extraordinary loss less the Preferred B and C dividends less the
adjustment for the retirement of the Series B Preferred Stock. The denominator
for basic is just common shares outstanding and does not include any shares
associated with the dilutive impact of options or any preferred shares. In
calculating the diluted net loss per share before extraordinary loss, the
numerator is net income before extraordinary loss less the Preferred B dividends
less the adjustment for the retirement of the Series B Preferred Stock. The
denominator for diluted is common shares outstanding including the dilutive
impact of options and the shares outstanding on an as converted basis for the
Series C Preferred for the period from February 28, 1999, through March 31,
1999. Under generally accepted accounting principles, the Company is required to
report diluted earnings per share at the lower of basic or diluted.
Metris Companies Inc.
Capitalization Table
Unaudited
The following table sets forth the Thomas H. Lee Senior Notes and the
capitalization of the Company at March 31, 1999, on a pro forma basis to reflect
the conversion of the Thomas H. Lee investment.
<TABLE>
March 31, 1999
----------------------------
(dollars in thousands) Actual Proforma
----------------------------
Debt:
<S> <C> <C>
Lee Senior Notes ............................... $100,000 $ --
Stockholders' equity:
Preferred stock - Series B - $.01 per share:
authorized 10,000,000 shares; issued and
outstanding 552,013 .......................... 205,625 --
Preferred stock - Series C - $.01 per share:
authorized 10,000,000 shares; issued and
outstanding 828,019 .......................... -- 308,437
Common stock - $.01 per share:
authorized 100,000,000 shares; issued and
outstanding 38,523,890 shares ................ 193 193
Paid-in capital ................................ 107,847 128,643
Retained earnings .............................. 140,997 90,189
------- ------
Total stockholders' equity .............. $454,662 $527,462
======== ========
</TABLE>
Metris Companies Inc.
EPS Impact from THL Conversion
Unaudited
The following table sets forth the earnings per share calculations of the
Company as of March 31, 1999 on a pro forma basis to reflect the conversion of
the Lee Company investment as if the conversion had occurred on February 28,
1999 (however utilizing the Company's common share price on May 28, 1999 to
calculate the one-time accounting adjustment).
1st Qtr
(in thousands, except per share amounts) 1999
Income Before Income Taxes and Extraordinary Loss ................ $ 35,360
Income Taxes ................................................. 13,720
---------
Income Before Extraordinary Loss ................................. 21,640
Extraordinary Loss From Early Extinguishment of Debt ............. 50,808
---------
Net Loss ......................................................... (29,168)
Preferred Stock Dividends- Series B .............................. 2,916
Preferred Stock Dividends- Series C .............................. 2,413
Adjustment for the Retirement of Series B Preferred Stock ........ 101,615
=========
Net Loss Applicable to Common Stockholders ....................... $(136,112)
=========
Per Share:
Basic-Loss before extraordinary loss ........................... $ (2.21)
Basic-Extraordinary loss ....................................... $ (1.32)
=========
Basic-Net loss ................................................. $ (3.53)
=========
As Calculated:
Diluted-Loss before extraordinary loss ......................... $ (1.80)
Diluted-Extraordinary loss ..................................... $ (1.10)
=========
Diluted-Net loss ............................................... $ (2.90)
=========
As Presented (must present the lower of basic or diluted):
Diluted-Loss before extraordinary loss ......................... $ (2.21)
Diluted-Extraordinary loss ..................................... $ (1.32)
=========
Diluted-Net loss ............................................... $ (3.53)
=========
Weighted Average Shares:
Basic ............................................................ 38,518
Diluted (as calculated) .......................................... 46,131
Diluted (as presented) ........................................... 38,518
Note: All share and per share information in this schedule has been adjusted to
reflect a two-for-one split of our common stock effected on June 15, 1999.
Metris Companies Inc
One-time accounting adjustment
Unaudited
The following table sets forth the calculation of the one-time, non-cash
accounting adjustment caused by the conversion of the THL investment. On May 28,
1999, the Thomas H. Lee Company ("THL") received notification
from the Office of the Comptroller of Currency ("OCC") that the OCC did not
have any regulatory issues with THL's investment in Metris. Therefore, based on
a closing stock price of $29.157 on May 28, 1999, the following adjustment will
be booked in the second quarter of 1999. May 28, 1999 is used for the valuation
date because according to EITF Topic D-42 we are required to use the stock price
from the date the stock certificates are issued. The THL contract required the
Series C certificates to be issued one day after formal notification. Therefore,
we used the closing price of the day before issuance.
(in thousands, except per share amounts)
Closing Stock Price on 5/28/99 ................................ $ 29.157
Stock price when significant terms finalized (base price) ..... 15.50
------------
Difference .................................................... 13.66
Divided by base price ......................................... 15.50
------------
Percentage of Appreciation .................................... 88.106%
Conversion Change Rate ........................................ 62.530%
------------
Ultimate Appreciation Factor .................................. 55.093%
Original Dollars Invested ..................................... $ 300,000
Total Value of Appreciation ................................... 165,279
------------
Fair Value of the Series C Preferred Stock ................. 465,279
Carrying value of the initial investment ................... 312,856
============
Total one-time, non-cash, accounting adjustment ............... $ 152,423
============
Amount allocated to early extinguishment of debt .............. $ 50,808
Amount allocated to early retirement of Series B Preferred .... 101,615
Note: All share and per share information in this schedule has been adjusted to
reflect a two-for-one split of our common stock effected on June 15, 1999.
