UNITED STATES
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: November 13, 1998
HomeGold Financial, Inc.
(Exact name of registrant as specified in its charter)
South Carolina 0-8909 57-0513287
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
3901 Pelham Road, Greenville, South Carolina 29615
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 289-5400
Item 2. Sale of the Majority of the Assets of the Small Business Lending Units
On November 13, 1998, the Company completed the sale of substantially all
of the assets of certain of its small business lending units, including the 7(a)
SBA lending unit, its 504 SBA lending unit, and its SBIC mezzanine lending unit,
to Transamerica Business Credit Corporation ("Transamerica"). Total "initial"
sales proceeds from this sale were $96 million based on the September 30 balance
sheet. After repayment of the related warehouse lines of credit, escrowing $5
million holdback in the purchase price, and paying transaction costs, the
Company received "initial" net cash proceeds of approximately $45 million. The
Company may also receive additional proceeds within 30 days to adjust the
"initial" purchase price, which was based on the September 30, 1998 balance
sheet, to the "final" purchase price, which is based on the balance sheet as of
the closing date, November 13, 1998. These additional proceeds may be
approximately $7 million. The gain from the sale to be realized in the fourth
quarter of 1998, is expected to be approximately $18 million net of related
costs.
The foregoing description of the transaction is qualified in its entirety
by reference to the definitive agreement signed with Transamerica for the sale
of the majority of the Company's small business loan division, dated October 2,
1998, previously filed with the Securities and Exchange Commission as an exhibit
to HomeGold Financial, Inc.'s current report on Form 8-K dated October 2, 1998.
<PAGE>
Item 7. Historical and Pro Forma Financial Statements and Exhibits
(a) Not applicable
(b) Historical and Pro Forma Financial Statements
Condensed statement of operations for the fiscal year ended
December 31, 1997 Condensed statement of operations for the nine
months ended September 30, 1998 Condensed balance sheets as of
September 30, 1998 Notes to condensed financial information
HomeGold Financial, Inc. Condensed Financial Information
The following unaudited condensed balance sheet presents the financial
position of HomeGold Financial, Inc. as of September 30, 1998 assuming the sale
transaction with Transamerica Business Credit Corporation had occurred on that
date. The unaudited condensed statements of operations present the results of
operations (excluding any extraordinary items) of HomeGold Financial, Inc. for
the fiscal year ended December 31, 1997 and the nine months ended September 30,
1998 after giving pro forma effect to the divestiture of the majority of the
Company's small business loan division as if it had occurred at the beginning of
the respective periods.
The following financial information should be read in conjunction with the
consolidated financial statements and related notes contained in the Company's
1997 Form 10-K and September 30, 1998, Form 10-Q.
Forward-Looking Statements
This report contains, and certain of the Company's other public documents
and statements and oral statements contain and will contain, forward-looking
statements that reflect management's current assumptions and estimates of future
performance and economic conditions using information currently available. Such
statements are made in reliance upon the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company cautions investors that
any forward-looking statements are subject to risks and uncertainties that may
cause actual results and future trends to differ materially from those
projected, stated, or implied by the forward-looking statements.
The Company's consolidated results and the forward-looking statements
could be affected by, among other things: general economic conditions in the
markets in which the Company operates; economic developments that have a
particularly adverse effect on one or more of the markets served by the Company;
the ability to execute management's internal operating plans; the timing and
magnitude of capital expenditures; economic and market conditions in the U.S.
and worldwide including inflation, recession, interest rates and other economic
factors; overall competitive activities; lower origination volume due to market
conditions; higher losses due to economic downturn or lower real estate values;
loss of key employees; adverse consequences of changes in interest rate
environment; deterioration of credit worthiness of borrowers and risk of
default; loss of funding sources; loss of ability to sell loans; lower premiums
on loan sales; general lending risks; dependence on Federal programs; regulation
of lending activities; and changes in the regulatory environment.
The Company disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
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<TABLE>
<CAPTION>
HomeGold Financial, Inc. and Subsidiaries
Condensed Statement of Operations
For The Fiscal Year Ended December 31, 1997
Historical Adjustments (1) Pro Forma
---------- --------------- ---------
Revenues:
<S> <C> <C> <C>
Interest income $ 34,008 $ (2,349) $ 31,659
Servicing income 8,514 (2,281) 6,233
Gain on sale of loans:
Cash gain on sale of loans 14,153 (3,091) 11,062
Non-cash gain on sale of loans 38,675 (6,035) 32,640
Loan costs -- -- --
Loan fee income 30,207 (409) 29,798
----------- ----------- -----------
Total gain on sale of loans 83,035 (9,535) 73,500
Other revenues 1,399 (822) 577
----------- ----------- -----------
Total revenues 126,956 (14,987) 111,969
Expenses:
Interest 25,133 (4,698)(4) 20,435
Provision for credit losses 10,030 (759) 9,271
Fair value write-down of residual receivables -- -- --
Salaries, wages and employee benefits 48,044 (3,371) 44,673
Business development costs 7,486 (200) 7,286
Other general and administrative expense 28,754 (2,086) 26,668
----------- ----------- -----------
Total expenses 119,447 (11,114) 108,333
Income (loss) before income taxes and
minority interest 7,509 (3,873) 3,636
Provision (benefit) for income taxes (3,900) 2,039 (1,861)
----------- ----------- -----------
Income (loss) before minority interest 11,409 (5,912) 5,497
Minority interest in loss of a subsidiary (156) -- (156)
----------- ----------- -----------
Net Income (loss) $ 11,253 $ (5,912) $ 5,341
=========== =========== ===========
Earnings Per Share:
Historical:
Basic $ 1.20
Diluted $ 1.17
Pro Forma:
Basic $ .57
Diluted $ .56
Weighted Average Shares Outstanding:
Basic 9,406,221 9,406,221
Diluted 9,598,811 9,598,811
</TABLE>
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<TABLE>
<CAPTION>
HomeGold Financial, Inc. and Subsidiaries
Condensed Statement of Operations
For The Nine Months Ended September 30, 1998
Historical Adjustments (1) Pro Forma
------------ --------------- -----------
Revenues:
<S> <C> <C> <C>
Interest income $ 29,552 $ (2,571) $ 26,981
Servicing income 10,198 (2,462) 7,736
Gain on sale of loans:
Cash gain on sale of loans 13,036 (3,420) 9,616
Non-cash gain on sale of loans 2,785 (248) 2,537
Loan costs (5,197) -- (5,197)
Loan fee income 15,288 (288) 15,000
----------- ----------- -----------
Total gain on sale of loans 25,912 (3,956) 21,956
Other revenues 3,510 (986) 2,524
----------- ----------- -----------
Total revenues 69,172 (9,975) 59,197
Expenses:
Interest 28,335 (3,993)(4) 24,342
Provision for credit losses 10,579 (1,324) 9,255
Fair value write-down of residual receivables 14,230 (1,802) 12,428
Salaries, wages and employee benefits 46,864 (5,273) 41,591
Business development costs 8,488 (296) 8,192
Other general and administrative expense 22,204 (2,548) 19,656
----------- ----------- -----------
Total expenses 130,700 (15,236) 115,464
Income (loss) before income taxes and
minority interest (61,528) 5,261 (56,267)
Provision (benefit) for income taxes 4,109 111 4,220
----------- ----------- -----------
Income (loss) before minority interest (65,637) 5,150 (60,487)
Minority interest in earnings of a subsidiary 13 -- 13
----------- ----------- -----------
Net Income (loss) (9) $ (65,624) $ 5,150 $ (60,474)
=========== =========== ===========
Loss Per Share: (9)
Historical:
Basic $ (6.76)
Diluted $ (6.76)
Pro Forma:
Basic $ (6.23)
Diluted $ (6.23)
Weighted Average Shares Outstanding 9,714,506 9,714,506
</TABLE>
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<TABLE>
<CAPTION>
HomeGold Financial, Inc. and Subsidiaries
Condensed Balance Sheets
September 30, 1998
Historical Adjustments (2) Pro Forma
------------ --------------- -----------
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 25,833 $ -- $ 25,833
Loans receivable
Loans receivable held for investment 91,647 (10,350) 81,297
Loans receivable held for sale 197,890 (48,859) 149,031
--------- --------- ---------
Total loans receivable 289,537 (59,209) 230,328
Less allowance for credit losses on loans (9,799) 1,443 (8,356)
Less allowance for mark-to-market on loans (5,300) -- (5,300)
Less deferred loan fees (6,215) 1,879 (4,336)
Plus deferred loan costs 1,791 (137) 1,654
--------- --------- ---------
Net loans receivable 270,014 (56,024) 213,990
Other receivables:
Accrued interest receivable 4,358 (916) 3,442
Other receivables 7,622 10,403 18,025
--------- --------- ---------
Total other receivables 11,980 9,487 21,467
Residual receivables, net 63,175 (17,846) 45,329
Property & equipment, net 22,999 (1,219) 21,780
Real estate and personal property held acquired
through foreclosure 5,194 (819) 4,375
Excess of cost over net assets of acquired businesses 2,250 (1,500) 750
Debt origination costs 5,839 (132) 5,707
Deferred income tax assets, net 4,151 -- 4,151
Servicing asset 1,021 -- 1,021
Other assets 4,728 (778) 3,950
--------- --------- ---------
Total assets $ 417,184 $ (68,831) $ 348,353
========= ========= =========
LIABILITIES
Revolving warehouse lines of credit $ 147,990 $ (82,754)(3) $ 65,236
Investor Savings:
Notes payable to investors 120,246 -- 120,246
Subordinated debentures 17,810 -- 17,810
--------- --------- ---------
Total investor savings 138,056 -- 138,056
Senior unsecured debt 108,250 -- 108,250
Accounts payable and accrued liabilities 9,970 (1,395) 8,575
Remittances payable 5,421 (2,994) 2,427
Accrued interest payable 1,757 -- 1,757
--------- --------- ---------
Total other liabilities 17,148 (4,389) 12,759
Total liabilities 411,444 (87,143) 324,301
Minority interest 57 -- 57
Commitments and contingencies -- -- --
Shareholder's equity:
Common stock 487 -- 487
Capital in excess of par 38,821 -- 38,821
Retained earnings (deficit) (33,625) 18,312 (15,313)
--------- --------- ---------
Total shareholder's equity 5,683 18,312 23,995
--------- --------- ---------
Total liabilities and shareholder's equity $ 417,184 $ (68,831) $ 348,353
========= ========= =========
</TABLE>
<PAGE>
Notes to Condensed Financial Information
(1) To eliminate the results of operations from the small business
lending units, including the 7(a) SBA lending unit, its 504
SBA lending unit and its SBIC mezzanine lending unit sold to
Transamerica for the respective period reflected in the
condensed financial statement of operation.
(2) To record the divestiture of assets and liabilities (2) being
purchased by Transamerica.
(3) To reflect the repayment of related small business lending
unit revolving lines of credit and to reduce the mortgage
division revolving warehouse line of credit by $43 million net
proceeds ($45 million gross proceeds less $2 million in
transaction costs) received from the sale.
(4) To reduce interest expense associated with lower debt levels,
assuming the average borrowing rate on the Company's revolving
warehouse lines of credit.
(5) To record the income tax provision on the adjustment in note
(4), calculated using a combined Federal and State rate of
38.9% for the fiscal year ended December 31, 1997.
(6) No adjustment for income tax provision on the adjustment in
note (4) was required for the nine months ended September 30,
1998 since the Company realized a loss and did not recognize
any benefits related to utilization of net operating losses.
(7) To record a $12 million receivable related to the $5 million
holdback in the purchase price and an additional $7 million in
cash proceeds that may be received. The $7 million cash
proceeds are calculated by comparing the "initial" purchase
price, which was based on the September 30, 1998 balance
sheet, to the "final" purchase price, which is based on the
balance sheet as of the closing date, November 13, 1998.
(8) To record an $18 million adjustment to retained earnings that
resulted from the gain on sale of assets to Transamerica.
(9) The Company's loss from operations and loss per share amounts
are shown prior to the extraordinary gain of $7.7 million in
1998, and does not include the gain attributed to the sale of
assets to Transamerica.
<PAGE>
(c) Exhibits
2.1 Definitive sale agreement dated October 2, 1998, between
Transamerica Business Credit Corporation and HomeGold Financial,
Inc. and certain subsidiaries thereof, incorporated by reference
to 8-K dated October 2, 1998
<PAGE>
SIGNATURES
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 hereunto duly authorized.
HOMEGOLD FINANCIAL, INC.
By: /s/ Kevin J. Mast
-----------------------------
Kevin J. Mast
Vice President, Chief Financial
Officer, and Treasurer
