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): October 29, 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>
ITEM 5. OTHER EVENTS
Reference is made to the press release of Registrant issued on October
259 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 October 29, 1999.
Page 2
<PAGE>
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: November 2, 1999 By: /S/ DAVID A. SKLAR
---------------------------------
David A. Sklar
Executive Vice President-Finance,
Chief Financial Officer
Page 3
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
99 Press release issued October 29, 1999
Page 4
<PAGE>
EXHIBIT 99
FOR IMMEDIATE RELEASE
CONTACT:
AAMES FINANCIAL CORPORATION SITRICK AND COMPANY
David A. Sklar Steve Hawkins/Tom Ekman
(323) 210-5311 (310) 788-2850
AAMES FINANCIAL CORPORATION
REPORTS FIRST QUARTER NET INCOME
AND
CLOSURE OF RIGHTS OFFERING
LOS ANGELES, CALIFORNIA, OCTOBER 29, 1999 - AAMES FINANCIAL CORPORATION (NYSE:
AAM), a leader in subprime home equity lending, today announced its results of
operations for the three months ended September 30, 1999, reporting net income
of $791,000 compared to a $(2.2) million net loss in the prior year's quarter.
After the accrual for the convertible preferred stock dividend requirement of
approximately $1.5 million, net loss to the common shareholders was $(750,000),
or a net loss per common share of $(0.02) for the three months ended September
30, 1999. At September 30, 1998, there was no convertible preferred stock
dividend requirement. The net loss of $(2.2) million resulted in a loss per
common share of $(0.07) for the three months ended September 30, 1998
(restated).
"This quarter marks Aames' return to operating profitability, which is
indicative of the progress of the Company's turnaround. Additionally, the
Company successfully completed a series of capital transactions, including an
additional $25.0 million dollar investment by Capital Z in August and the
recently completed $25.0 million rights offering and related stand-by
commitment. The Company was also successful in completing a $400.0 million
securitization, the Company's first since September 1998, and continued to
execute sales in the whole loan market," said Mani A. Sadeghi, an Aames director
who served as Aames' interim Chief Executive Officer until the recently
announced appointment of A. Jay Meyerson to that position. "The securitization
also had the positive effect of increasing the total portfolio of loans serviced
to approximately $3.9 billion from $3.8 billion reported at June 30, 1999."
Total revenue for the quarter was $60.9 million, up modestly from $57.8 million
reported in the comparable quarter in 1998, which included $15.3 million of
hedge related charges. Total expenses during the September 1999 quarter were
$59.6 million as compared to $61.0 million in the comparable period a year ago.
"This decline reflects the early results of the Company's continuing cost
reduction efforts," said Mr. Sadeghi.
Mr. Sadeghi continued, "Total loan origination volume amounted to approximately
$523.5 million for the quarter, up $11.4 million, or 2.2%, from the $512.1
million in origination volume reported for the quarter ended June 30, 1999.
While down from $725.1 million in originations during the three months ended
September 30, 1998, the current quarter's origination volume reflects
management's decision to decrease its reliance on the correspondent market and
focus on profitably growing core retail and wholesale operations."
Page 1
<PAGE>
Mr. Sadeghi expressed his appreciation for the involvement of those shareholders
who participated in the Company's recently completed rights offering. The rights
offering, along with the related stand-by commitment, resulted in an additional
$25.0 million of equity (prior to expenses) for the Company. Mr. Sadeghi said,
"The Company's results demonstrate progress in implementing its turnaround
objectives, which have come in spite of continuing competitive lending markets,
unstable capital markets and a rising interest rate environment. With the
successful conclusion of the rights offering, we now have $169.0 million in
total shareholders' equity and we believe we are positioned to continue to
execute our business plan and meet these external challenges."
"Looking forward, the management team at Aames is committed to achieving the
Company's strategic objectives of enhancing operating profitability through
prudent cost management and being an innovative leader in the subprime home
equity industry," said Mr. Meyerson, Aames' new CEO, "We will focus on
cost-efficient origination of quality loans, efficient servicing, and improved
execution in securitization and whole loan markets."
FINANCIAL RESULTS
For the September 1999 quarter, the Company reported net income of $791,000.
After the accrual for the convertible preferred stock dividend requirement of
approximately $1.5 million, the Company reported a $(0.02) loss per common share
compared to a net loss of $(2.2) million, or a $(0.07) loss per common share for
the three months ended September 30, 1998 (restated). (Results for the three
months ended September 30, 1998 have been restated to reflect the Company's
retroactive change in measuring and accounting for its interest-only strips
adopted in December 1998). Total revenue for the three months ended September
30, 1999 was $60.9 million, as compared to $57.8 million during the three months
ended September 30, 1998. Total expenses during the three months ended September
30, 1999 were $59.6 million compared to $61.0 million in the comparable three
month period in 1998.
During the three months ended September 30, 1999, the Company sold $692.6
million of loans compared to $695.8 million of loans in 1998's comparable
quarter. Of the total loans sold during the three months ended September 30,
1999, $400.0 million and $292.6 million were in the form of securitizations and
whole loan sales for cash, respectively, compared to $650.0 million and $45.8
million in securitizations and whole loans sales, respectively, in the
comparable period a year ago.
Gain on sales of loans during the September 1999 quarter was $21.8 million.
During the three months ended September 30, 1998, gain on sale was $24.9
million, which included a hedge loss of $15.3 million representing a $10.7
million realized loss and a $4.6 million valuation charge on open contracts that
subsequently expired in December 1998. During the quarter ended September 30,
1999, the Company had no hedge positions in place. "As the Company has
previously reported, its loan sale strategies include executing a mix of
securitized and whole loan sale transactions. The relative mix in our loan
disposition efforts with this quarter's securitization and whole loan sales were
very close to this targeted level," said David A. Sklar, Chief Financial
Officer. Mr. Sklar went on to say, "Gain on sale for the securitization reflects
the Company's more conservative prepayment, discount rate and loss assumptions
adopted in December 1998."
Total loan production for the three months ended September 30, 1999 was $523.5
million, up $11.4 million, or 2.2%, from the $512.1 million reported for the
quarter ended June 30, 1999. Loan origination from the Company's core retail and
broker channels increased to $510.8 million during the September 1999 quarter,
up $12.5 million, or 2.5%, from the $498.3 million reported in the comparable
1998 quarter.
Page 2
<PAGE>
Correspondent production during the three months ended September 30, 1999 was
approximately $12.8 million as compared to $13.9 million during the quarter
ended June 30, 1999.
Total origination for the three months ended September 30, 1999 of $523.5
million was down $201.6 million from production levels reported for the three
months ended September 30, 1998. Of the $201.6 million decline, $133.3 million
resulted from the decrease in correspondent production to $12.8 million during
the September 1999 quarter from $146.1 million in the comparable quarter a year
ago. This decline reflects the Company's previously reported decision to
decrease its reliance on this channel for loan production. The remaining $68.2
million decline in loan production was in the Company's core retail and broker
channels which reported loan origination of $510.8 million for the September
1999 quarter compared to $579.0 million in the comparable quarter a year ago.
This decline in production volume is due to a number of factors including the
closure of unprofitable branches and increased pricing and other underwriting
changes in response to adverse conditions in the mortgage refinance market.
Compensation expense for the three months ended September 30, 1999 decreased 3%
to $23.1 million from the levels reported in the three months ended September
30, 1998. Included in compensation expense for the three months ended September
30, 1999 is approximately $1 million of non-recurring contractual severance
costs. Production expense, which is directly related the Company's loan
origination levels, was down $2.3 million, or 21%, from the $10.9 million
reported a year ago. This decline is primarily attributable to decreased
marketing costs due to the Company's retail channel's focus on larger market
areas and, to a lesser extent, a decline in the number of branch offices.
General and administrative expenses increased $700,000 to $14.3 million during
the September 1999 quarter from $13.6 million reported for the three months
ended September 30, 1998. The increase is attributable to the Company's
previously reported decision to use outside advisors on specific technical
projects which is expected to decline in the future.
Aames Financial Corporation is a leading subprime home equity lender that
currently operates 102 retail branches and 35 broker offices serving customers
across the country.
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.
FINANCIAL TABLES TO FOLLOW
Page 3
<PAGE>
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- --------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 5,194,000 20,764,000
Loans held for sale, at lower of cost or market 384,207,000 559,869,000
Accounts receivable 76,022,000 56,964,000
Interest-only strips, at estimated fair market value 357,636,000 332,327,000
Mortgage servicing rights, net 22,237,000 20,928,000
Equipment and improvements, net 12,297,000 13,495,000
Prepaid and other 12,347,000 15,013,000
Income tax refund receivable - 1,737,000
------------- --------------
Total assets 869,940,000 1,021,097,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings $ 281,220,000 281,220,000
Revolving warehouse facilities and repurchase facilities 359,767,000 535,997,000
Accounts payable and accrued expenses 50,742,000 50,505,000
Income taxes payable 9,411,000 7,819,000
------------- --------------
Total liabilities 701,140,000 875,541,000
------------- --------------
Commitments and Contingencies - -
Stockholders' equity:
Series A Preferred Stock, par value $.001 per share; 500,000 shares
authorized; none outstanding - -
Series B Convertible preferred Stock, par value $1.00 per share;
100,000,000 shares authorized;26,704,000 shares outstanding 26,704,000 26,704,000
Series C Convertible Preferred Stock, par value $1.00 per share;
107,123,000 shares authorized;101,106,000 and 75,046,000 shares
outstanding (includes 26,060,000 shares issued October 1999) 89,475,000 65,475,000
Common Stock, par value $0.001 per share; 400,000,000 shares
authorized; 31,016,964 shares outstanding 31,000 31,000
Additional paid-in capital 250,118,000 250,116,000
Retained deficit (197,528,000) (196,770,000)
------------- --------------
Total stockholders' equity 168,800,000 145,556,000
------------- --------------
Total liabilities and stockholders' equity $ 869,940,000 1,021,097,000
============= ==============
</TABLE>
Page 4
<PAGE>
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- ---------------
(Restated)
<S> <C> <C>
Revenue:
Gain on sale of loans $ 21,797,000 24,872,000
Commissions 10,316,000 9,988,000
Loan service 3,755,000 6,269,000
Interest income and fees 25,070,000 16,632,000
--------------- ---------------
Total revenue 60,938,000 57,761,000
--------------- ---------------
Expenses:
Compensation 23,112,000 23,794,000
Production 8,641,000 10,930,000
General and administrative 14,271,000 13,588,000
Interest 13,548,000 12,682,000
--------------- ---------------
Total expenses 59,572,000 60,994,000
--------------- ---------------
Income (loss) before income taxes 1,366,000 (3,233,000)
Provision(benefit) for income taxes 575,000 (1,077,000)
--------------- ---------------
Net income (loss) $ 791,000 (2,156,000)
=============== ===============
Net income(loss) per share
Basic $ (0.02) (0.07)
=============== ===============
Diluted $ (0.02) (0.07)
=============== ===============
Dividends per share $ - 0.03
=============== ===============
Weighted average number of shares outstanding
Basic 31,009,000 30,977,000
=============== ===============
Diluted 31,191,000 31,265,000
=============== ===============
</TABLE>
Page 5
<PAGE>
AAMES FINANCIAL CORPORATION
QUARTERLY STATISTICS
<TABLE>
<CAPTION>
Quarter Ended
September September
1999 1998
---------------- ---------------
<S> <C> <C>
ORIGINATION VOLUME:
Broker Network $ 331,546,000 350,801,000
Retail (1) 179,216,000 228,177,000
Correspondent 12,762,000 146,079,000
---------------- ---------------
$ 523,524,000 725,057,000
================ ===============
SERVICING PORTFOLIO (2) $ 3,869,471,000 4,440,573,000
SERVICED IN HOUSE $ 3,495,103,000 4,387,016,000
LOAN SALES:
Whole Loan Sales $ 292,601,000 45,766,000
Securitizations 400,065,000 649,999,000
---------------- ---------------
$ 692,666,000 695,765,000
================ ===============
<FN>
Notes:
(1) 1998 includes 125 product, private investor purchases and brokered loans.
(2) Includes loans serviced for others on an interim basis.
</FN>
</TABLE>
