CORRESP 1 filename1.htm

November 10, 2005

 

 

Via EDGAR and Fax (202) 772-9205

 

Mr. Larry Spirgel

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, DC 20549-3561

 

Re:                               FirstCity Financial Corporation
Form 10-K for the year ended December 31, 2004
Filed March 21, 2005
Form 10-Q for the quarter ended June 30, 2005
Filed on August 12, 2005
File No.: 033-19694

 

Dear Mr. Spirgel:

 

On behalf of FirstCity Financial Corporation (the “Company” or “FirstCity”), I submit the following responses to your comments received on November 4, 2005 concerning your review of our response letter dated October 13, 2005.  The Company’s responses to your comment letter are outlined below in the sequential order in which the comments appear in the comment letter.

 

Financial Statements

 

Consolidated Statements of Operations, page 41

 

1.              Refer to your response to comment 1.  We continue to believe that you should revise your statement of operations to present “equity in earnings of investments” in accordance with Rule 5-03 of Regulation S-X.

In future filings, we will revise our statement of operations to present “equity in earnings of investments” outside of revenues in accordance with Rule 5-03 of Regulation S-X.

2.              Refer to your response to comment 3 and your supporting calculation.  Your calculation of average income does not appear correct.  Tell us how you calculated the average income amount for each of the three years ended December 31, 2004.

 

For the 2004 average income amount, we used restated financial statements for the years 2000 through 2003 because the Company’s operations from Drive Financial Services, LP were discontinued in 2004.  Losses reflected in years 2000 and 2001 were omitted for purposes of computing average income.  Following is the average income calculation for 2004:

 


 

 

2004

 

2003*

 

2002*

 

2001*

 

2000*

 

Earnings (loss) from continuing operations

 

$

5,011

 

$

4,358

 

$

2,399

 

$

(2,277

)

$

(11,795

)

Add:

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

75

 

185

 

153

 

(1

)

7,406

 

Extraordinary items

 

—

 

—

 

—

 

—

 

—

 

Cumulative effect of a change in accounting principle

 

—

 

—

 

—

 

—

 

—

 

Income (loss) from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle

 

$

5,086

 

$

4,543

 

$

2,552

 

$

(2,278

)

$

(4,389

)

 

 

 

 

 

 

 

 

 

 

 

 

Income used for average calculation

 

$

5,086

 

$

4,543

 

$

2,552

 

$

—

 

$

—

 

 

 

 

2004

 

 

 

 

 

 

 

 

 

Average Calculation

 

 

 

 

 

 

 

 

 

 

 

2004

 

$

5,086

 

 

 

 

 

 

 

 

 

2003

 

4,543

 

 

 

 

 

 

 

 

 

2002

 

2,552

 

 

 

 

 

 

 

 

 

2001

 

—

 

 

 

 

 

 

 

 

 

2000

 

—

 

 

 

 

 

 

 

 

 

Total

 

$

12,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average (5 years)

 

$

2,436

 

 

 

 

 

 

 

 

 

* The years 2000 through 2003 were restated to reflect operations related to the Company’s investment in Drive Financial Services, LP as discontinued operations.

 

Following is the average income calculations used for 2003 and 2002, which were based on income from continuing operations as originally reported on the annual reports for those years.

 

 

 

2003

 

2002

 

2001

 

2000

 

1999

 

1998

 

Earnings (loss) from continuing operations

 

$

9,707

 

$

5,943

 

$

2,171

 

$

(10,900

)

$

(5,819

)

$

785

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

240

 

153

 

15

 

7,414

 

5,051

 

(1,132

)

Extraordinary items

 

—

 

—

 

—

 

—

 

—

 

—

 

Cumulative effect of a change in accounting principle

 

—

 

—

 

304

 

—

 

765

 

—

 

Income (loss) from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle

 

$

9,947

 

$

6,096

 

$

2,490

 

$

(3,486

)

$

(3

)

$

(347

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income used for average calculation

 

$

9,947

 

$

6,096

 

$

2,490

 

$

—

 

$

—

 

$

—

 

 

 

 

2003

 

2002

 

 

 

 

 

 

 

 

 

Average Calculation

 

 

 

 

 

 

 

 

 

 

 

 

 

2003

 

$

9,947

 

$

—

 

 

 

 

 

 

 

 

 

2002

 

6,096

 

6,096

 

 

 

 

 

 

 

 

 

2001

 

2,490

 

2,490

 

 

 

 

 

 

 

 

 

2000

 

—

 

—

 

 

 

 

 

 

 

 

 

1999

 

—

 

—

 

 

 

 

 

 

 

 

 

1998

 

—

 

—

 

 

 

 

 

 

 

 

 

Total

 

$

18,533

 

$

8,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average (5 years)

 

$

3,707

 

$

1,717

 

 

 

 

 

 

 

 

 

 

2


 

3.              It is not appropriate to use the higher of the actual or average income to determine significance.  For your guidance if income of the registrant and its subsidiaries consolidated for the most recent fiscal year is at least 10 percent lower than the average of the income for the last five fiscal years, such average income should be substituted for purposes of the computation.  Any loss years should be omitted for purposes of computing average income.  Further when calculating the average income for years when the operations have been discontinued you need to use the restated financial information in the denominator.  Revise or advise.

 

The Company notes that in its previous response to Comment 3 in our letter dated October 13, 2005, we used the phrase “for 2004, 2003 and 2002, the actual income was used as it was higher than the average income.”  We note that this statement was misleading and would like to clarify to state that “for 2004, 2003 and 2002, the income of the registrant and its subsidiaries consolidated was not at least 10 percent lower than the average of the income for the last five fiscal years.  Therefore, the average income was not substituted for purposes of the computation.”

 

Please refer to the average income calculations under Comment 2 above, noting that loss years were omitted for purposes of computing average income.  Also, for 2004, we used restated financial information in the denominator as the operations from the Company’s investment in Drive Financial Services, LP were discontinued in 2004.

 

Because the Company had income from continuing operations for 2004, 2003 and 2002, each tested subsidiary where a loss was incurred in those years, the Company considered note 2 under the computational note at §210.1-02(w)(3) and excluded the equity in loss of the tested subsidiary from the income of the registrant and its subsidiaries consolidated for purposes of the computation.

 

3


 

4.              Tell us the name of each partnership included within the Mexican Acquisition Partnerships, the equity in income (loss) associated with each one of them in each of the three years ended December 31, 2004 and the relationship among them.  Provide similar information for the European partnerships.

 

Following is a list of each of the Mexican and European Acquisition Partnerships and the equity in income (loss) associated with each entity in 2004, 2003 and 2002.  These partnerships are each separate legal entities with common investors within the respective regions.   The Portfolios within the Mexican partnerships are all serviced by a wholly-owned subsidiary of FirstCity.  The Portfolios within the European partnerships are all serviced by a French entity, who is also an investor in each of the partnerships.  No Acquisition Partnerships have an ownership interest in another Acquisition Partnership.

 

 

 

 

 

 

Equity in Income (Loss)

 

Entity Name

 

2004

 

2003

 

2002

 

Mexican Acquisition Partnerships

 

 

 

 

 

 

 

BIDMEX, LLC

 

$

19,242

 

$

(619,884

)

$

(753,801

)

BIDMEX II, LLC

 

41,238

 

(869,148

)

(847,727

)

BIDMEX 3, LLC

 

(63,060

)

(812,017

)

(632,958

)

BIDMEX 4, LLC

 

(333,497

)

(875,563

)

(723,077

)

BIDMEX 5, LLC

 

(175,458

)

(542,490

)

(509,624

)

BIDMEX 6, LLC

 

(371,144

)

(157,647

)

(183,218

)

BIDMEX 7, LLC

 

20,380

 

(317,664

)

(130,443

)

BIDMEX 8, LLC

 

203,870

 

(23,060

)

—

 

BIDMEX 9, LLC

 

(305,139

)

—

 

—

 

BIDMEX 10, LLC

 

(9,005

)

—

 

—

 

Namex, LLC

 

(44,521

)

(39,298

)

1,618

 

Resmex, LLC

 

25,158

 

228,403

 

286,574

 

 

 

$

(991,936

)

$

(4,028,368

)

$

(3,492,656

) 

 

 

 

 

 

 

 

 

European Acquisition Partnerships

 

 

 

 

 

 

 

CATX Limited

 

$

—

 

$

—

 

$

23,528

 

Credit Finance Corporation Limited

 

—

 

—

 

53,227

 

CRY Limited

 

564,077

 

463,523

 

73,156

 

CTY Limited

 

233,875

 

289,766

 

—

 

FG Portfolio Limited

 

20,717

 

—

 

—

 

Flnln Limited

 

—

 

—

 

210,102

 

Mirom Limited

 

—

 

—

 

15,436

 

Miromesnil Limited

 

—

 

—

 

46,544

 

NEVVS Limited

 

220,945

 

413,990

 

571,557

 

PRL Development

 

957,320

 

873,962

 

—

 

SAISA

 

26,029

 

—

 

—

 

Societe Immobilere Lincoln S.A.

 

—

 

—

 

(3,545

)

Transalp Limited

 

—

 

—

 

9,865

 

UHR Limited

 

695,216

 

598,548

 

490,515

 

WHBE Limited

 

313,137

 

633,836

 

288,763

 

WODLT

 

773,856

 

—

 

—

 

WOL Limited

 

791,335

 

590,493

 

—

 

Wox Limited

 

460,389

 

225,396

 

148,349

 

 

 

$

5,056,896

 

$

4,089,514

 

$

1,927,497

 

 

4


 

* * * * *

 

The Company acknowledges that

 

•                  The Company is responsible for the adequacy and accuracy of the disclosure in the filings;

 

•                  Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filings; and

 

•                  The Company may not assert staff comments as a defense in any proceedings initiated by the Commission or any person under the federal securities laws of the United States.

 

If you have any questions, please do not hesitate to call me.

 

Very truly yours,

 

 

J. Bryan Baker

Senior Vice President and Chief Financial Officer

FirstCity Financial Corporation

(254) 761-2810

 

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