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)
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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.
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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
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- -----------------------
99 Press release issued September 3, 1999
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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.
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"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
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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.
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AAMES FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
JUNE JUNE
---------------------------- ----------------------------------
1999 1998 1999 1998
ORIGINATION VOLUME
<S> <C> <C> <C> <C>
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
=================================================================
<FN>
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. </FN>
</TABLE>
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AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30,1998
--------------------- -----------------
ASSETS
<S> <C> <C>
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
===================== =================
</TABLE>
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AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Audited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
--------------------------------- ------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
----------------- --------------- --------------- --------------
(Restated)
Revenue:
<S> <C> <C> <C> <C>
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
============== =============== =============== ==============
</TABLE>
