UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
| (Mark One) | ||
| ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For
the quarterly period ended December 31, 2003 | ||
|
or | ||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For
the transition period from
to | ||
|
COMMISSION FILE NUMBER 0-13660 | ||
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| ||
DELAWARE |
95-4340340 |
|
(State or Other Jurisdiction
of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
|
350 SOUTH
GRAND AVE, LOS ANGELES, CA 90071-3459 |
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(Address of principal executive offices) |
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323-210-5000 |
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(Issuer's
telephone number) |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
At February 10, 2004, Registrant had 7,156,775 shares of common stock outstanding.
| Item No. | Page Number |
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
| December 31, 2003 (Unaudited) |
June 30, 2003 (Audited) | ||||
|---|---|---|---|---|---|
|
ASSETS |
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| Cash and cash equivalents | $ 11,611,000 | $ 23,860,000 | |||
| Loans held for sale, at lower of cost or market | 690,868,000 | 401,001,000 | |||
| Advances and other receivables | 21,183,000 | 41,315,000 | |||
| Residual interests, at estimated fair value | 51,979,000 | 129,232,000 | |||
| Deferred income taxes | 16,206,000 | -- | |||
| Equipment and improvements, net | 9,063,000 | 8,928,000 | |||
| Prepaid and other | 15,274,000 | 17,676,000 | |||
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| Total assets | $ 816,184,000 | $ 622,012,000 | |||
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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| Borrowings | $ 87,217,000 | $ 138,512,000 | |||
| Revolving warehouse and repurchase facilities | 603,051,000 | 343,675,000 | |||
| Accounts payable and accrued expenses | 34,553,000 | 32,544,000 | |||
| Accrued dividends on convertible preferred stock | -- | 51,232,000 | |||
| Income taxes payable | -- | 3,075,000 | |||
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| Total liabilities | 724,821,000 | 569,038,000 | |||
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| Commitments and contingencies | |||||
| Stockholders' equity: | |||||
| Series A Preferred Stock, par value $0.001 per share; 500,000 shares | |||||
| authorized; none outstanding | -- | -- | |||
| Series B Convertible Preferred Stock, par value $0.001 per share; | |||||
| 29,704,000 shares authorized; 26,704,000 shares outstanding | 27,000 | 27,000 | |||
| Series C Convertible Preferred Stock, par value $0.001 per share; | |||||
| 34,500,000 and 61,230,000 shares authorized; 19,800,000 shares and | |||||
| 20,175,000 shares outstanding | 20,000 | 20,000 | |||
| Series D Convertible Preferred Stock; par value $0.001 per share; | |||||
| 108,566,000 shares authorized; 59,920,000 shares and 59,923,000 shares | |||||
| outstanding | 60,000 | 60,000 | |||
| Series E Preferred Stock; par value $0.001 per share; 26,700,000 shares | |||||
| authorized; none outstanding | -- | -- | |||
| Common Stock, par value $0.001 per share; 400,000,000 shares authorized; | |||||
| 7,057,000 shares and 6,699,000 shares outstanding | 7,000 | 7,000 | |||
| Additional paid-in capital | 417,980,000 | 418,118,000 | |||
| Retained deficit | (326,731,000 | ) | (365,258,000 | ) | |
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| Total stockholders' equity | 91,363,000 | 52,974,000 | |||
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| Total liabilities and stockholders' equity | $ 816,184,000 | $ 622,012,000 | |||
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See accompanying notes to condensed consolidated financial statements.
2
AAMES FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
Three Months Ended December 31, |
Six Months Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
|
2003 |
|
2002 |
|
2003 |
|
2002 |
| ||
| Revenue: | |||||||||
| Gain on sale of loans | $ 50,624,000 | $ 32,527,000 | $ 90,145,000 | $ 64,059,000 | |||||
| Write-down of residual interests | -- | (31,923,000 | ) | -- | (31,923,000 | ) | |||
| Origination fees | 15,996,000 | 14,315,000 | 32,436,000 | 27,690,000 | |||||
| Loan servicing | 2,177,000 | 2,329,000 | 4,177,000 | 5,084,000 | |||||
| Debt extinguishment income | -- | 26,005,000 | -- | 27,092,000 | |||||
| Interest | 17,317,000 | 20,743,000 | 32,596,000 | 39,357,000 | |||||
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|
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| Total revenue, including | |||||||||
| write-downs of residual | |||||||||
| interests | 86,114,000 | 63,996,000 | 159,354,000 | 131,359,000 | |||||
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| Expenses: | |||||||||
| Personnel | 42,864,000 | 35,655,000 | 80,893,000 | 66,877,000 | |||||
| Production | 8,347,000 | 5,652,000 | 15,774,000 | 11,815,000 | |||||
| General and administrative | 12,322,000 | 10,919,000 | 24,974,000 | 21,596,000 | |||||
| Interest | 5,184,000 | 8,122,000 | 9,846,000 | 16,891,000 | |||||
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| Total expenses | 68,717,000 | 60,348,000 | 131,487,000 | 117,179,000 | |||||
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| Income before income taxes | 17,397,000 | 3,648,000 | 27,867,000 | 14,180,000 | |||||
| Provision (benefit) for income taxes | 217,000 | 1,568,000 | (17,976,000 | ) | 2,186,000 | ||||
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| Net income | $ 17,180,000 | $ 2,080,000 | $ 45,843,000 | $ 11,994,000 | |||||
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| Net income to common stockholders: | |||||||||
| Basic | $ 13,342,000 | $ 47,000 | $ 38,527,000 | $ 6,138,000 | |||||
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| Diluted | $ 17,702,000 | $ 47,000 | $ 46,888,000 | $ 11,994,000 | |||||
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| Net income per common share: | |||||||||
| Basic | $ 1.90 | $ 0.01 | $ 5.54 | $ 0.94 | |||||
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| Diluted | $ 0.17 | $ 0.01 | $ 0.45 | $ 0.13 | |||||
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| Weighted average number of common | |||||||||
| shares outstanding: | |||||||||
| Basic | 7,030,000 | 6,513,000 | 6,954,000 | 6,498,000 | |||||
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| Diluted | 104,642,000 | 6,513,000 | 104,387,000 | 92,045,000 | |||||
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See accompanying notes to condensed consolidated financial statements
3
AAMES FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended December 31, | |||||
|---|---|---|---|---|---|
|
2003 |
|
2002 |
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| Operating activities: | |||||
| Net income | $ 45,843,000 | $ 11,994,000 | |||
| Adjustments to reconcile net income to net cash used in operating activities: | |||||
| Depreciation and amortization | 2,024,000 | 2,080,000 | |||
| Write-down of residual interests | -- | 31,923,000 | |||
| Accretion of residual interests | (3,385,000 | ) | (9,664,000 | ) | |
| Deferred income taxes | (19,272,000 | ) | -- | ||
| Debt extinguishment income | -- | (27,092,000 | ) | ||
| Changes in assets and liabilities: | |||||
| Loans held for sale originated | (3,156,897,000 | ) | (2,275,893,000 | ) | |
| Proceeds from sale of loans held for sale | 2,867,030,000 | 2,109,642,000 | |||
| Decrease in: | |||||
| Advances and other receivables | 19,982,000 | 4,868,000 | |||
| Residual interests | 80,638,000 | 23,282,000 | |||
| Prepaid and other | 2,402,000 | 1,394,000 | |||
| Increase (decrease) in: | |||||
| Accounts payable and accrued expenses | 2,009,000 | 962,000 | |||
| Income taxes payable | (9,000 | ) | 15,000 | ||
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| Net cash used in operating activities | (159,635,000 | ) | (126,489,000 | ) | |
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| Investing activities: | |||||
| Purchases of equipment and improvements | (2,159,000 | ) | (972,000 | ) | |
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| Net cash used in investing activities | (2,159,000 | ) | (972,000 | ) | |
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| Financing activities: | |||||
| Reduction in borrowings | (51,295,000 | ) | (36,767,000 | ) | |
| Net proceeds from revolving warehouse and repurchase facilities | 259,376,000 | 160,438,000 | |||
| Payment of preferred stock dividends | (58,548,000 | ) | -- | ||
| Proceeds from exercise of common stock options | 12,000 | 85,000 | |||
| Net cash provided by financing activities | 149,545,000 | 123,756,000 | |||
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| Net decrease in cash and cash equivalents | (12,249,000 | ) | (3,705,000 | ) | |
| Cash and cash equivalents at beginning of period | 23,860,000 | 17,391,000 | |||
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| Cash and cash equivalents at end of period | $ 11,611,000 | $ 13,686,000 | |||
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See accompanying notes to condensed consolidated financial statements.
4
Note 1: Basis of Presentation
The condensed consolidated financial statements of Aames Financial Corporation, a Delaware corporation (the “Parent”), and its subsidiaries (collectively, with the Parent, the “Company”) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted.
The condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries after eliminating all significant intercompany transactions and reflect all normal, recurring adjustments which are, in the opinion of management, necessary to present a fair statement of the results of operations of the Company in conformity with accounting principles generally accepted in the United States for the interim periods reported. The results of operations for the Company for the three and six months ended December 31, 2003 are not necessarily indicative of the results expected for the full fiscal year.
At December 31, 2003, Specialty Finance Partners (“SFP”), a partnership controlled by Capital Z Financial Services Fund, II, L.P., a Bermuda partnership (together with SFP, “Capital Z”) owned preferred stock representing approximately 43.1% of the Company’s combined voting power in the election of directors and approximately 90.1% of the combined voting power in all matters other than the election of directors. Representatives or nominees of Capital Z have five of the nine seats on the Board of Directors, and as current members’ terms expire, Capital Z has the continuing right to appoint and elect four directors and nominate one additional director. As a result of its beneficial ownership and Board representation, Capital Z has, and will continue to have, sufficient power to determine the Company’s direction and policies.
Note 2: Guaranty Arrangements
The Parent has guaranteed amounts outstanding under certain revolving warehouse and repurchase agreements pursuant to which certain of its wholly-owned operating subsidiaries are the contractual borrowers. The Parent has also guaranteed amounts outstanding under a borrowing facility, secured by one of the operating subsidiary’s residual interests and certain of that subsidiary’s advance receivables (the “Financing Facility”), pursuant to which that subsidiary is the contractual borrower. The Parent’s guarantees are full, complete and unconditional. On November 17, 2003, the Company made a $33.0 million principal reduction on the Financing Facility and Capital Z was released from its role as a limited guarantor on the Financing Facility.
5
Note 3: Per Share Data
The following table sets forth information regarding basic and diluted net income per common share for the three and six months ended December 31, 2003 and 2002 (amounts in thousands, except per share data):
| Three Months Ended Decembe 31, |
Six Months Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
|
2003 |
|
2002 |
|
2003 |
|
2002 |
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| Basic net income per common share: | |||||||||
| Net income |
$ 17,180 |
|
$ 2,080 |
|
$ 45,843 |
|
$ 11,994 |
| |
| Less: Accrued dividends on Series B, C |
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| and D Convertible Preferred Stock |
(3,838 |
) |
(2,033 |
) |
(7,316 |
) |
(5,856 |
) | |
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| Basic net income to common stockholders |
$ 13,342 |
|
$ 47 |
|
$ 38,527 |
|
$ 6,138 |
| |
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| Basic weighted average number of common |
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| shares outstanding |
7,030 |
|
6,513 |
|
6,954 |
|
6,498 |
| |
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| Basic net income per common share |
$ 1.90 |
|
$ 0.01 |
|
$ 5.54 |
|
$ 0.94 |
| |
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| Diluted net income per common share: |
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| Basic net income to common |
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| stockholders |
$ 13,342 |
|
$ 47 |
|
$ 38,527 |
|
$ 6,138 |
| |
| Plus: Accrued dividends on Series B, |
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| C and D Preferred Stock |
3,838 |
|
-- |
|
7,316 |
|
5,856 |
| |
| Interest on 5.5% Convertible |
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| Subordinated Debentures |
522 |
|
-- |
|
1,045 |
|
-- |
| |
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| Diluted net income to common stockholders |
$ 17,702 |
|
$ 47 |
|
$ 46,888 |
|
$ 11,994 |
| |
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| Basic weighted average number of |
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| common shares outstanding |
7,030 |
|
6,513 |
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6,954 |
|
6,498 |
| |
| Plus incremental shares from assumed: |
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| Conversions of: | |||||||||