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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
AUGUST 25, 1997
AAMES CAPITAL CORPORATION
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(Exact name of Registrant as specified in its charter)
CALIFORNIA 333-10185 AND 333-21219 95-4438859
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(State or other jurisdiction (Commission (I.R.S. employer
of incorporation) file numbers) identification no.)
350 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
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(Address of principal executive offices) (ZIP Code)
(213) 640-5000
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Registrant's telephone number, including area code
NA
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(Former name or former address, if changed since last report)
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<PAGE>
Item 5. OTHER EVENTS
On August 25, 1997, Aames Financial Corporation ("AFC"), the parent of
Aames Capital Corporation, issued a press release, which contains information
meeting the requirements of this Item 5. The press release announced AFC's
financial results for the quarter and fiscal year ended June 30, 1997 and
certain other corporate developments. A copy of the press release is attached
hereto as Exhibit 99 and is incorporated herein by reference.
<PAGE 2>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
AAMES CAPITAL CORPORATION
By:/S/ MARK E. ELBAUM
===========================
Mark E. Elbaum
Senior Vice President - Finance and
Chief Accounting Officer
Dated: September 17, 1997
<PAGE 3>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
=========== ======================
99 Press release issued August 25, 1997
<PAGE 4>
EXHIBIT 99
<PAGE 5>
Contact: Greg Witherspoon
Chief Financial Officer
Aames Financial Corporation
(213) 210-5243
or
Jeffrey Lloyd
(310) 788-2850
FOR IMMEDIATE RELEASE
=====================
AAMES FINANCIAL CORPORATION REPORTS
RECORD QUARTERLY LOAN PRODUCTION;
TAKES ACTIONS TO REDUCE EXPENSES
AND ENHANCE PROFITABILITY AND CASH FLOW
RETAINS FINANCIAL ADVISOR AND IS IN
DISCUSSIONS ON POSSIBLE BUSINESS COMBINATION
REPORTS YEAR-END RESULTS
LOS ANGELES, CALIF. AUGUST 25, 1997 _ AAMES FINANCIAL CORPORATION (NYSE:
AAM) announced today record fourth quarter loan production and that it has
taken steps to enhance profitability and to ensure its leadership position in
the subprime home equity lending industry. While the Company is in discussions
concerning a possible business combination, it also believes that the profit
enhancing steps taken in the fourth quarter create a strong foundation upon
which to remain independent and continue to grow its production channels and
servicing platform. "As a result of our assessment of industry trends, we
believe that there will be major changes in the subprime home equity lending
industry. Recognizing this, in June we retained Donaldson, Lufkin & Jenrette
Securities Corporation to work with us in developing a means to maximize
opportunities for our Company and shareholders, whether by remaining
independent and continuing to grow internally and through acquisition, or
selling the Company or entering into a business combination transaction. Over
the past several months, we have explored these various options and have met
and spoken with a number of institutions, with one objective in mind, and that
was to maximize shareholder value," said Cary H. Thompson, Aames' chief
executive officer.
Concurrently, the Company today announced a series of actions to reduce
expenses and enhance profitability and cash flow. In the fourth quarter, Aames
incurred severance costs primarily related to the efficiencies achieved in
connection with its acquisition of One Stop Mortgage, Inc. In addition, Aames
securitized only $500 million of its record $644 million of loan production in
the fourth quarter, increasing the amount of loans carried over to the first
quarter of fiscal 1998 to $243 million. This represents an increase in Aames'
loan carryover of approximately $136 million, or 127 percent over the third
quarter's carryover amount.
Aames President, Neil B. Kornswiet stated, "While these moves had a
negative impact on our profitability in the fourth quarter, they provide Aames
with additional cash flows, efficiencies and flexibility in the future."
<PAGE 6>
Kornswiet continued, "We are especially pleased with the strong loan
production during the fourth fiscal quarter in light of our decision in May to
de-emphasize our bulk correspondent production. The decision to refocus our
attention on our core retail and One Stop mortgage production paid off
handsomely as these units had record originations."
The Company also reported net income of $17.1 million, or $0.60 per share
(fully diluted), for the fiscal year ended June 30, 1997, as compared with net
income of $29.8 million, or $1.14 per share (fully diluted), for fiscal 1996.
The results for fiscal 1997 include a pre-tax $28.0 million ($16.2 million
after tax) unrealized loss on the valuation of its interest-only strip and
$32.0 million ($20.9 million after tax) of nonrecurring charges, of which
$28.1 million ($18.6 million after tax) was related to the One Stop acquisition
recorded in the first quarter. The unrealized loss on the valuation of the
interest-only strip represents less than a 10 percent reduction in the carrying
value of that asset. Without these items, the Company would have had net
income of $54.2 million or $1.68 per share, for the year. Revenues for fiscal
1997 rose 82.0 percent to $273 million from $150 million a year ago. Net
income per share for fiscal 1997 was based upon 26.7 percent more weighted
shares outstanding reflecting the effect of a public offering of common stock
in October 1996.
Thompson added, "The $28.0 million unrealized loss on the valuation of
the Company's interest-only strip resulted from our quarterly review of that
asset and reflects management's current assessment of future pool performance
in view of the acceleration of prepayment rates in some of the Company's
earlier pools. We believe this adjustment accurately reflects economic reality
and appropriately values our interest-only strips."
Aames reported for the three months ended June 30, 1997, a net loss of
$14.1 million, or $0.37 per share (fully diluted), compared to net income of
$8.3 million, or $0.29 per share (fully diluted), for the three months ended
June 30, 1996. The primary reason for the loss was the $28.0 million ($16.2
million after tax) valuation adjustment of the interest-only strip and, to a
lesser extent, the increase in the carryover amount, the severance costs and a
reduction in the gain on sale percentage recorded by the Company as a result of
more conservative prepayment assumptions. The Company said that fourth quarter
results were also affected by the impact of higher prices paid for bulk product
prior to the implementation of the previously announced change in its bulk
pricing methodology.
Total loan originations and purchases in fiscal 1997 reached a record $2.3
billion, the majority of which were sold through five Aames-sponsored mortgage
loan securitizations aggregating $2.3 billion in the year, nearly triple the
volume of a year ago. The previously announced change in bulk pricing
methodology did not have a materially adverse impact on fourth quarter loan
production, which increased to a record $644 million, or 7.9 percent, over the
third quarter's production. The Company recognized an 88.7 percent increase in
its gain on sale of loans net of the unrealized loss on the valuation of the
interest-only strip.
Aames' loan servicing portfolio surpassed the three billion-dollar mark at
fiscal year end 1997, reaching $3.2 billion, which is more than double that of
year end 1996. Thompson added, "We are beginning to realize efficiencies and
increased income as the percentage of our servicing portfolio serviced in-house
continues to grow."
<PAGE 7>
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, risks of
contracted servicing, dependence on funding sources, capitalized excess
servicing receivables, prepayment and credit risk, recent addition of
wholesale correspondent program, recent acquisition of One Stop, concentration
of wholesale correspondent program, competition, concentration of operations,
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, 1996, and form 10-Q for the quarter ended March 31, 1997.
Aames Financial Corporation is a leading home equity lender and currently
operates 58 Aames Home Loan offices in 25 states throughout the United States.
Its wholly-owned subsidiary, One Stop Mortgage, Inc. operates in 35 states out
of 41 offices.
# # #
[Financial Tables Follow]
<PAGE 8>
<TABLE>
<CAPTION>
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Twelve Months Ended
June 30 June 30
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Revenue:
Gain on sale of loans $34,771,000 $32,525,000 $95,299,000 $198,736,000
Net unrealized loss on valuation
of interest-only strip - (24,053,000) - (18,950,000)
Commissions 5,895,000 6,077,000 21,564,000 29,250,000
Loan service 5,014,000 6,973,000 18,186,000 25,804,000
Fees and other 5,981,000 11,250,000 15,215,000 37,679,000
----------- ----------- ----------- -----------
Total revenue 51,661,000 32,772,000 150,264,000 272,519,000
----------- ----------- ----------- -----------
Expenses:
Compensation and related expenses 13,504,000 19,738,000 40,758,000 81,021,000
Sales and advertising costs 6,247,000 6,430,000 19,036,000 27,229.000
General and administrative expenses 6,845,000 8,917,000 17,377,000 31,716,000
Interest expense 6,072,000 9,553,000 12,370,000 33,105,000
Provision for loan losses 3,465,000 8,500,000 8,424,000 33,941,000
Nonrecurring charges 3,892,000 - 32,000,000
----------- ------------ ---------- -----------
Total expenses 36,133,000 57,030,000 97,965,000 239,012,000
----------- ------------ ---------- -----------
Income before income taxes 15,528,000 (24,258,000) 52,299,000 33,507,000
Provision for income taxes 7,249,000 (10,143,000) 22,508,000 16,398,000
----------- ------------ ---------- -----------
Net income $8,279,000 ($14,115,000) $29,791,000 $17,109,000
=========== ============ ========== ===========
Net income per share
Primary $0.32 $ (0.48) $1.18 $0.60
=========== =========== ========== ===========
Fully diluted $0.29 $ (0.37) $1.14 $0.60
=========== =========== ========== ===========
Dividends $0.03 $0.03 $0.13 $0.13
=========== =========== ========== ===========
Weighted average number
of shares outstanding
Primary 25,543,000 29,167,000 28,371,000 25,194,000
=========== ============ ========== ==========
Fully Diluted 31,704,000 35,273,000 34,516,000 27,248,000
=========== ============ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30 June 30 September 30 June 30
1995 1996 1996 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $20,359,000 $23,941,000 $102,065,000 $26,902,000
Loans held for sale, at lower of cost or market 24,132,000 186,189,000 143,259,000 242,987,000
Accounts receivable, less allowance for
doubtful accounts of $664,000, 473,000 and $406,000 6,090,000 9,685,000 8,197,000 59,180,000
Interest-only strip, at fair market value 42,078,000 129,113,000 178,056,000 270,422,000
Mortgage servicing rights 0 10,902,000 13,560,000 21,641,000
Residual assets 14,882,000 44,676,000 54,683,000 112,827,000
Equipment and improvements, net 2,063,000 6,674,000 7,887,000 12,685,000
Prepaid and other 5,019,000 10,295,000 9,406,000 14,949,000
------------ ------------- ------------ -------------
Total assets $114,623,000 $421,475,000 $517,113,000 $761,593,000
============ ============= ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings $23,144,000 $138,045,000 $175,034,000 $286,990,000
Revolving warehouse facility 315,000 112,363,000 170,292,000 137,500,000
Accounts payable and accrued expenses 5,826,000 11,380,000 16,216,000 23,219,000
Accrued compensation and related expenses 1,703,000 4,427,000 7,456,000 6,078,000
Income taxes payable 3,588,000 21,831,000 19,892,000 39,452,000
------------ ------------- ------------ -------------
Total liabilities 34,576,000 288,046,000 388,890,000 493,239,000
------------ ------------- ------------ -------------
Stockholders' equity:
Preferred Stock, par value $.001 per
share, 1,000,000 shares authorized;
none outstanding
Common Stock, par value $.001 per share
50,000,000 shares authorized;
27,758,800, 23,845,300 and 19,831,400
shares outstanding 21,000 24,000 16,000 28,000
Additional paid-in capital 61,857,000 88,134,000 88,236,000 209,358,000
Retained earnings 18,169,000 45,271,000 39,971,000 58,968,000
------------ ------------- ------------ -------------
Total stockholders' equity 80,047,000 133,429,000 128,223,000 268,354,000
------------ ------------- ------------ -------------
Total liabilities and stockholders' equity $114,623,000 $421,475,000 $517,113,000 $761,593,000
============ ============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
AAMES FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS
<S> <C> <C> <C> <C>
QTR ENDED QTR ENDED YR TO DATE YR TO DATE
Jun-96 Jun-97 Jun-96 Jun-97
ORIGINATION VOLUME:
WHOLESALE CORRESPONDENT 237,268,000 288,779,000 628,177,000 1,169,968,000
BROKER NETWORK 118,828,000 233,037,000 319,888,000 741,067,000
RETAIL 72,194,000 121,697,000 220,880,000 436,903,000
TOTAL 428,290,000 643,513,000 1,168,945,000 2,347,938,000
----------- ----------- ------------- -------------
RETAIL WTD AVG COMM RATE 6.65% 4.70% 7.74% 4.88%
SERVICING PORTFOLIO: 1,370,000,000 3,174,000,000
LOAN SALES:
WHOLE LOANS SOLD 46,167,000 202,182,000 7,532,000
SECURITIZATIONS 303,700,000 500,000,00 791,300,000 2,262,700,000
SERVICING SPREAD 4.95% 3.91% 4.93% 4.16%
EXPENSES AS % OF REVENUE:
COMPENSATION 26% 60% 27% 30%
SALES & ADVERTISING 12% 20% 13% 10%
GENERAL & ADMINISTRATIVE 13% 27% 12% 12%
INTEREST 12% 29% 8% 12%
COMPONENTS OF REVENUE:
GAIN ON SALE OF LOANS $34,771,000 $32,525,000 $ 95,299,000 $ 198,736,000
NET UNREALIZED LOSS ON VALUATION
OF INTEREST ONLY STRIP - (24,053,000) - (18,950,000)
COMMISSIONS:
RETAIL 4,565,000 4,901,000 16,802,000 21,320,000
BROKER NETWORK 446,000 450,000 1,683,000 4,830,000
OTHER 884,000 726,000 3,079,000 3,093,000
LOAN SERVICE:
SERVICING SPREAD 3,285,000 3,820,000 12,667,000 16,265,000
PREPAYMENT FEES 1,091,000 1,917,000 3,229,000 5,815,000
LATE CHGS & OTHER SERV FEES 638,000 1,236,000 2,290,000 3,720,000
FEES & OTHER:
CLOSING 781,000 573,000 2,512,000 2,723,000
APPRAISAL 376,000 448,000 1,167,000 1,854,000
UNDERWRITING 480,000 223,000 1,600,000 1,382,000
INTEREST INCOME 4,131,000 10,011,000 9,127,000 31,160,000
OTHER 213,000 (5,000) 808,000 560,000
TOTAL REVENUE $ 51,661,000 $ 32,772,000 $ 150,264,000 $ 272,519,000
</TABLE>
