FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): May 15, 2003
Friedman, Billings, Ramsey Group, Inc.
(Exact name of Registrant as specified in its charter)
Virginia 32-0045263 0-50230
(State or other (I.R.S. Employer incorporation or (Commission File Number)
jurisdiction of organization)
Identification No.)
1001 Nineteenth Street
North Arlington, VA 22209
(Address of principal executive offices) (Zip code)
(703) 312-9500
(Registrant's telephone number including area code)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this Report to be signed on its behalf by the undersigned
hereunto duly authorized.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
By: /s/ Kurt R. Harrington
----------------------
Kurt R. Harrington
Chief Financial Officer
Date: May 15, 2003
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
This Form 8-K/A amends the current report on Form 8-K dated March 31, 2003
to include Item 7, Financial Statements, Pro Forma Financial Information, and
Exhibits.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
A. Unaudited Condensed Pro Forma Consolidated Statements of Operations for the
three months ended March 31, 2003;
B. Unaudited Condensed Pro Forma Consolidated Statements of Operations for the
year ended December 31, 2002; and
C. Notes to Unaudited Condensed Pro Forma Consolidated Financial Statements.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
On March 31, 2003, Friedman, Billings, Ramsey Group, Inc. ("FBR Group") and
FBR Asset Investment Corporation ("FBR Asset"), completed their previously
announced merger pursuant to the Agreement and Plan of Merger among the
companies and certain of their subsidiaries dated as of November 14, 2002 (the
"merger"). The combined company assumed the name Friedman, Billings, Ramsey
Group, Inc.
The following unaudited condensed pro forma consolidated financial
statements are prepared in accordance with SEC Regulation S-X - Article 11, "Pro
Forma Financial Information," and are presented to illustrate the effects of the
merger on the historical operating results of FBR Group and FBR Asset. The
unaudited pro forma statements of operations are presented for the three months
ended March 31, 2003 and the year ended December 31, 2002, assuming the
acquisition had occurred on January 1, 2002. The pro forma statements of
operations for the three months ended March 31, 2003 and year ended December 31,
2002 combine the historical statements of earnings of FBR Group and FBR Asset
for the three months ended March 31, 2003 and the year ended December 31, 2002,
respectively, on a consolidated basis.
The unaudited condensed pro forma consolidated financial statements have
been derived from, and should be read in conjunction with, the historical
consolidated financial statements, including the notes thereto, of each of FBR
Group and FBR Asset. FBR Group's Annual Report on Form 10-K for the year ended
December 31, 2002 includes the December 31, 2002 financial statements of both
FBR Group and FBR Asset.
The unaudited condensed pro forma consolidated financial statements are
presented for informational purposes only and are not necessarily indicative of
the results of operations of FBR Group that would have occurred had the merger
been consummated as of January 1, 2002. In addition, the unaudited condensed pro
forma consolidated financial statements are not necessarily indicative of the
future operating results of FBR Group.
A.
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(Dollars in thousands, except per share amounts)
Historical Pro Forma
FBR Group FBR Asset Adjustments Consolidated
Revenues: ----------- ----------- --------------- --------------
Investment banking:
Underwriting (Note 1a) $ 8,788 $ - $ 353 $ 9,141
Corporate finance 5,719 - - 5,719
Investment gains 3,232 - - 3,232
Institutional brokerage:
Principal transactions 3,751 - - 3,751
Agency commissions 7,537 - - 7,537
Asset management:
Base management fees (Note 1d) 7,691 - (2,762) 4,929
Incentive allocations and fees (Note 1d) 5,579 - (5,617) (38)
Net investment income (loss) (Note 1e) 2,685 9,599 (2,860) 9,424
Technology sector net investment and incentive loss (437) - - (437)
Dividends and other (Note 1f) 1,507 388 (353) 1,542
Interest (Note 1g) 3,487 51,913 (3,417) 51,983
----------- ----------- ------------- -------------
Total revenues 49,539 61,900 (14,656) 96,783
Interest expense (Note 1h) 1,646 21,355 (429) 22,572
----------- ----------- ------------- -------------
Net revenues 47,893 40,545 (14,227) 74,211
Expenses:
Compensation and benefits 24,804 - - 24,804
Business development and professional services 5,879 3,335 - 9,214
Clearing and brokerage fees 1,232 - - 1,232
Occupancy and equipment 2,199 - - 2,199
Communications 2,209 - - 2,209
Other operating expenses (Note 1j) 3,004 8,379 (8,379) 3,004
------------ ------------ ------------- -------------
Total expenses 39,327 11,714 (8,379) 42,662
------------ ------------ ------------- -------------
Net income (loss) before taxes and extraordinary gain 8,566 28,831 (5,848) 31,549
Income tax provision (Note 1k) 2,843 146 (2,989) -
------------ ------------- ------------- -------------
Net income (loss) before extraordinary gain $ 5,723 $ 28,685 $ (2,859) $ 31,549
============ ============= ============= =============
============ ============= ============= =============
Basic earnings per share before extraordinary gain $ 0.12 $ 1.10 $ 0.24
============ ============= =============
============ ============= =============
Diluted earnings per share before extraordinary gain $ 0.12 $ 1.10 $ 0.23
============ ============= =============
============ ============= =============
Weighted average shares outstanding:
Basic (Note 1l) 47,047 26,154 85,972 133,019
============ ============= ============= =============
============ ============= ============= =============
Diluted (Note 1l) 48,547 26,179 86,063 134,610
============ ============= ============= =============
============ ============= ============= =============
B.
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(Dollars in thousands, except per share amounts)
Historical Pro Forma
FBR FB Adjustments Consolidated
Revenues:
------------ ------------- ------------- --------------
Investment banking:
Underwriting (Note 1a) $ 76,556 $ - $ (8,089) $ 68,467
Corporate finance (Note 1b) 58,595 - 3,550 62,145
Investment gains 8,725 - - 8,725
Institutional brokerage:
Principal transactions (Note 1c) 27,512 - (949) 26,563
Agency commissions 35,672 - - 35,672
Asset management:
Base management fees (Note 1d) 28,956 - (8,642) 20,314
Incentive allocations and fees (Note 1d) 14,258 - (13,769) 489
Net investment income (loss) (Note 1e) 16,276 28,423 (20,913) 23,786
Technology sector net investment and incentive loss (5,622) - - (5,622)
Dividends and other (Note 1f) 1,921 9,758 (6,742) 4,937
Interest (Note 1g) 5,354 176,205 (19,220) 162,339
------------ ------------- ------------- --------------
Total revenues 268,203 214,386 (74,774) 407,815
Interest expense (Note 1h) 2,073 67,558 (9,899) 59,732
------------ ------------- ------------- --------------
Net revenues 266,130 146,828 (64,875) 348,083
Expenses:
Compensation and benefits (Note 1i) 147,072 - (2,174) 144,898
Business development and professional services (Note 1i) 30,589 4,858 (906) 34,541
Clearing and brokerage fees 5,353 - - 5,353
Occupancy and equipment 8,838 - - 8,838
Communications 8,185 - - 8,185
Other operating expenses (Note 1j) 10,652 22,411 (22,411) 10,652
------------ ------------- ------------- -------------
Total expenses 210,689 27,269 (25,491) 212,467
------------ ------------- ------------- -------------
Net income (loss) before taxes and extraordinary gain 55,441 119,559 (39,384) 135,616
Income tax provision (Note 1k) 3,035 2,489 (5,524) -
------------ ------------- ------------- -------------
Net income (loss) before extraordinary gain $ 52,406 $ 117,070 $ (33,860) $ 135,616
============ ============= ============= =============
============ ============= ============= =============
Basic earnings per share before extraordinary gain $ 1.14 $ 5.73 $ 1.21
============ ============= =============
============ ============= =============
Diluted earnings per share before extraordinary gain $ 1.08 $ 5.72 $ 1.19
============ ============= =============
============ ============= =============
Weighted average shares outstanding:
Basic (Note 1l) 46,098 20,432 65,783 111,881
============ ============= ============= =============
============ ============= ============= =============
Diluted (Note 1l) 48,442 20,455 65,867 114,309
============ ============= ============= =============
============ ============= ============= =============
C.
Notes to Unaudited Condensed Pro Forma Consolidated Financial Statements
(Dollars in thousands)
(1) The following is a summary of the unaudited condensed pro forma
consolidated statements of operations adjustments to effect the merger.
(a) Underwriting -- These balances in the unaudited condensed pro forma
consolidated statements of operations reflect adjustments to (1) eliminate
FBR Group's revenue generated from FBR Asset's secondary offerings of
$10,930 for the year ended December 31, 2002, and (2) reclassify to
underwriting revenue amounts paid by FBR Group to FBR Asset in connection
with investment banking transactions pursuant to a fee sharing agreement
between the companies of $353 and $2,841, respectively, for the three months
ended March 31, 2003 and year ended December 31, 2002. See Note 1(f)(2).
(b) Corporate finance -- These balances in the unaudited condensed pro
forma consolidated statements of operations reflect adjustments to
reclassify to corporate finance revenue amounts paid by FBR Group to FBR
Asset in connection with investment banking transactions pursuant to a fee
sharing agreement between the companies of $3,550 for the year ended
December 31, 2002. See Note 1(f)(2).
(c) Principal transactions -- These balances in the unaudited condensed
pro forma consolidated statements of operations reflect adjustments to
eliminate FBR Group's broker-dealer trading gains generated
from transactions involving FBR Asset common stock of $949 for the year
ended December 31, 2002.
(d) Base management fees and incentive allocations and fees -- These
balances in the unaudited condensed pro forma consolidated statements of
operations reflect adjustments to eliminate FBR Group's base management and
incentive fees earned pursuant to its management agreement with FBR Asset of
$8,379 and $22,411, respectively, for the three months ended March 31, 2003
and year ended December 31, 2002.
(e) Net investment income (loss) -- These balances in the unaudited
condensed pro forma consolidated statements of operations reflect
adjustments to eliminate FBR Group's income derived from its equity
investment in FBR Asset of $2,860 and $20,913, respectively, for the three
months ended March 31, 2003 and year ended December 31, 2002.
(f) Dividends and other -- These balances in the unaudited condensed pro
forma consolidated statements of operations reflect adjustments to (1)
eliminate FBR Group's dividend income earned from its broker-dealer trading
inventory holdings of FBR Asset of $351 for the year ended December 31,
2002, and (2) reclassify to underwriting revenue and corporate finance
revenue amounts paid by FBR Group to FBR Asset in connection with investment
banking transactions pursuant to a fee sharing agreement between the
companies of $353 and $6,391, respectively, for the three months ended March
31, 2003 and year ended December 31, 2002. See Notes 1(a) and 1(b).
(g) Interest -- These balances in the unaudited condensed pro forma
consolidated statements of operations reflect adjustments to record
amortization of premiums created in purchase accounting due to the new cost
basis of FBR Asset's mortgage-backed securities at the time of the merger of
$3,417 and $19,220, respectively, for the three months ended March 31, 2003
and year ended December 31, 2002.
The adjustments discussed above to record amortization of premiums
established on FBR Asset's mortgage-backed securities have been prepared in
accordance with SEC Regulation S-X -- Article 11. These adjustments,
however, do not correspond to the mortgage-backed securities balances during
the historical periods, but are reflective of amortization that would be
recorded in the future considering the March 31, 2003 value of FBR Asset's
mortgage-backed securities portfolio. In purchase accounting, the March 31,
2003 unrealized gain on these FBR Asset securities contained in other
comprehensive income was eliminated and a new cost basis established. In
this case, the unrealized gain creates a premium that will be amortized over
the remaining lives of the applicable March 31, 2003 mortgage-backed
securities. The adjustments in the pro forma financial statements reflect
the amortization of this premium created in purchase accounting calculated
based on the application of the effective interest method for recognizing
interest income and includes management's assumptions with respect to
prepayment speeds as of March 31, 2003 as required by SFAS No. 91,
"Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases." The total additional
premium established based on the March 31, 2003 balance sheet is $46,850 and
based upon prepayment speeds as of March 31, 2003 substantially all would be
amortized over approximately three and a half years.
(h) Interest expense -- These balances in the unaudited condensed pro
forma consolidated statements of operations reflect interest adjustments
created in purchase accounting related to FBR Asset's interest rate swaps as
of March 31, 2003 of $429 and $9,889, respectively, for the three months
ended March 31, 2003 and year ended December 31, 2002.
These interest rate swaps are cash flow hedges of the debt recorded on the
balance sheet used to finance the mortgage-backed securities and convert a
portion of the variable interest rate borrowings to a fixed interest rate. In
purchase accounting, the March 31, 2003 unrealized loss on these FBR Asset
derivatives of approximately $10,481 contained in other comprehensive income was
eliminated. In this case, the unrealized loss created a credit balance (i.e., a
day-one value of the derivatives) which is recorded as a liability on the
balance sheet. The day-one value of the interest rate swaps recorded as a
liability reestablishes the market rate of interest on the derivatives and
reduces the fixed rate of interest expense over the remaining lives of the
derivatives, which range from four months to sixteen months. These adjustments
are based upon the fair value of the instruments and market rates as of March
31, 2003 using the effective interest method.
(i) Compensation and benefits and business development and professional
services -- These balances in the unaudited condensed pro forma consolidated
statements of operations reflect adjustments to eliminate FBR Group's
expenses incurred as a result of FBR Asset's secondary equity offerings.
(j) Other operating expenses -- These balances in the unaudited
condensed pro forma consolidated statements of operations reflect
adjustments to eliminate base management and incentive fees payable by FBR
Asset to FBR Group. See Note 1(d).
(k) Income tax provision (benefit) -- These balances in the unaudited
condensed pro forma consolidated statements of operations reflect
adjustments to present the tax provision of the combined entity's taxable
REIT subsidiaries based on the effective tax rate of these subsidiaries
during the period.
(l) Basic and diluted weighted average shares outstanding -- These
balances in the unaudited condensed pro forma consolidated statements of
operations reflect the conversion of historical FBR Asset shares not owned
by FBR Group based on the 3.65 exchange ratio.