-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L3rQxH9IAG02JEWFnoOsEYnbbI/WlZzdnqUt74Lfl4Q+UKllflL7uqKAzw86NO2d zP6IruXKG4sMPaX57PWjcQ== 0000950134-97-000517.txt : 19970129 0000950134-97-000517.hdr.sgml : 19970129 ACCESSION NUMBER: 0000950134-97-000517 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970128 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOMAS FINANCIAL CORP CENTRAL INDEX KEY: 0000060150 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 751043392 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06868 FILM NUMBER: 97512019 BUSINESS ADDRESS: STREET 1: 1600 VICEROY DR 8TH FLOOR CITY: DALLAS STATE: TX ZIP: 75235 BUSINESS PHONE: 2148794000 MAIL ADDRESS: STREET 1: 1600 VICEROY DR STREET 2: 8TH FLOOR CITY: DALLAS STATE: TX ZIP: 75235 FORMER COMPANY: FORMER CONFORMED NAME: LOMAS & NETTLETON FINANCIAL CORP DATE OF NAME CHANGE: 19881030 10-Q 1 FORM 10-Q FOR QUARTER ENDING DECEMBER 31, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT TO 1934 For the quarterly period ended December 31, 1996 OR 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 1-6868 LOMAS FINANCIAL CORPORATION --------------------------- (Exact name of registrant as specified in its charter) Delaware 75-1043392 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 717 North Harwood Dallas, Texas 75201 - -------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (214) 665-6301 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO ----- ----- On October 10, 1995, the Registrant and certain of its subsidiaries filed bankruptcy proceedings under Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of each of the issuer's classes of common stock as of December 31, 1996: Common Stock, $1 par value -- 20,149,231 shares. 2 LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996 INDEX PAGE ---- PART I -- FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheet -- December 31, 1996 and June 30, 1996 . 2 Statement of Consolidated Operations -- Quarter and Six Months Ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . 3 Statement of Consolidated Cash Flows -- Six Months Ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 4 Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 11 Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . 12 PART II -- OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . 14 Item 5. Special Note Regarding Forward-Looking Statements . . . . . . . . . 14 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 14 1 3 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. CONSOLIDATED BALANCE SHEETS LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) (IN THOUSANDS)
December 31, 1996 June 30, 1996 ----------------- ------------- (Unaudited) (Note) ASSETS Cash and cash equivalents . . . . . . . . . . . . .$ 7,118 $ 197,800 Investments . . . . . . . . . . . . . . . . . . . . 9,861 28,394 Receivables -- net . . . . . . . . . . . . . . . . 4,887 85,467 Fixed assets -- net . . . . . . . . . . . . . . . . -- 25,833 Foreclosed real estate -- net . . . . . . . . . . . -- 14,580 ----------- ------------ 14,748 154,274 Less allowances for losses . . . . . . . . . . . . (3,828) (24,821) ----------- ------------ 10,920 129,453 Prepaid expenses and other assets . . . . . . . . . 466 2,679 ----------- ------------ $ 18,504 $ 329,932 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Liabilities: Accounts payable and accrued expenses . . . . . . $ 9,127 $ 39,533 Liabilities subject to Chapter 11 proceedings . . 153,742 552,863 ----------- ------------ 162,869 592,396 ----------- ------------ Stockholders' equity (deficit): Common stock -- ($1 par value, 20,149 and 20,149 shares issued and outstanding, respectively) . 20,149 20,149 Other paid-in capital . . . . . . . . . . . . . . 309,763 309,763 Retained earnings (deficit) . . . . . . . . . . . (474,277) (592,376) ----------- ------------ (144,365) (262,464) ----------- ------------ $ 18,504 $ 329,932 =========== ============
Note: The balance sheet at June 30, 1996, as presented is derived from the audited financial statements at that date. See notes to consolidated financial statements. 2 4 STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED) LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Quarter Ended Six Months Ended December 31 December 31 ------------------------- ------------------------ 1996 1995 1996 1995 ----------- ---------- ---------- ----------- Revenues: Mortgage servicing . . . . . . . . . $ -- $ 21,438 $ -- $ 51,674 Commissions and fees . . . . . . . . 185 4,296 1,408 11,055 Interest . . . . . . . . . . . . . . 57 280 883 7,480 Investment . . . . . . . . . . . . . -- 2,449 16 11,342 Gain on sales . . . . . . . . . . . . 18 83 188 143 Other . . . . . . . . . . . . . . . . 78 966 381 3,247 ---------- ---------- --------- ----------- 338 29,512 2,876 84,941 ---------- ---------- --------- ----------- Expenses: Interest . . . . . . . . . . . . . . -- 2,237 -- 24,732 Personnel . . . . . . . . . . . . . . 160 9,722 1,471 27,766 Depreciation and amortization . . . . -- 781 106 15,952 Other operating . . . . . . . . . . . 267 10,814 2,714 21,349 Provision for losses . . . . . . . . -- 1,534 -- 22,788 Loss on sale or disposal of assets . -- 18,364 3,718 180,524 ---------- ---------- --------- ----------- 427 43,452 8,009 293,111 ---------- ---------- --------- ----------- Loss from continuing operations before reorganization items . . . . . . . . . . (89) (13,940) (5,133) (208,170) ---------- ---------- --------- ----------- Reorganization items: Interest earned on cash accumulated . 151 1,984 2,905 1,984 Write off unamortized debt expense . -- (6,571) -- (6,571) Write off of deferred interest swap de -- (9,115) -- (9,115) Professional fees . . . . . . . . . . (1,045) (2,519) (5,686) (2,519) Other bankruptcy expenses . . . . . . (35) (152) (88) (152) ---------- ---------- --------- ----------- (929) (16,373) (2,869) (16,373) ---------- ---------- --------- ----------- Net loss . . . . . . . . . . . . $ (1,018) $ (30,313) $ (8,002) $ (224,543) ========== ========== ========= =========== Loss per share: Net loss . . . . . . . . . . . . . . $ (.05) $ (1.50) $ (.40) $ (11.14) Average number of shares . . . . . . 20,149 20,164 20,154 20,164
See notes to consolidated financial statements. 3 5 STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED) LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) (IN THOUSANDS)
Six Months Ended December 31 --------------------------------- 1996 1995 -------------- -------------- Operating activities: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (8,002) $ (224,543) Adjustments to reconcile net loss to net cash provided by operating activities before working capital changes: Loss on sale or disposal of assets . . . . . . . . . . . . . . . 3,718 180,524 Depreciation and amortization . . . . . . . . . . . . . . . . . 106 15,952 Provision for losses . . . . . . . . . . . . . . . . . . . . . -- 22,788 Write off of net deferred debits on reverse interest rate swaps -- 9,115 Write off of unamortized debt issuance costs . . . . . . . . . -- 6,571 -------------- -------------- Cash (used) provided by operations before working capital changes . (4,178) 10,407 Net change in first mortgage loans held for sale . . . . . . . . . -- 345,278 Net change in sundry receivables, payables, and other assets . . . (2,742) (39,747) -------------- -------------- Net cash (used) provided by operating activities . . . . (6,920) 315,938 -------------- -------------- Investing activities: Net maturities/sales (purchases of) investments . . . . . . . . . . (12,383) 269,682 Purchases of loans from pools . . . . . . . . . . . . . . . . . . . -- (2,015) Net collections of mortgage notes receivable . . . . . . . . . . . -- 1,767 Net sales of foreclosed real estate . . . . . . . . . . . . . . . . 276 9,560 Net sales of fixed assets . . . . . . . . . . . . . . . . . . . . . 25,374 1,708 Net purchases of future mortgage servicing income rights . . . . . -- (2,264) Proceeds from assets sold to First Nationwide Mortgage Corp. . . . 6,160 32,756 Distribution of LMUSA pursuant to reorganization plan . . . . . . . (191,557) -- -------------- -------------- Net cash (used) provided by investing activities . . . . (172,130) 311,194 -------------- -------------- Financing activities: Net repayments of notes payable . . . . . . . . . . . . . . . . . . -- (591,089) Term debt repayments . . . . . . . . . . . . . . . . . . . . . . . (11,632) (334) -------------- -------------- Net cash used by financing activities . . . . . . . . . . (11,632) (591,423) -------------- -------------- Net (decrease) increase in cash and cash equivalents . . . . . . . . . (190,682) 35,709 Cash and cash equivalents at beginning of period . . . . . . . . . . . 197,800 21,510 -------------- -------------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . $ 7,118 $ 57,219 ============== ============== Cash payments for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 13,048 Federal income tax . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
See notes to consolidated financial statements. 4 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES DECEMBER 31, 1996 NOTE A -- BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated financial statements include the accounts of Lomas Financial Corporation ("LFC") and its subsidiaries (collectively, the "Company"). LFC's wholly-owned principal subsidiary was Lomas Mortgage USA, Inc. ("LMUSA"). As a result of the Chapter 11 proceedings discussed in Note B, LFC's interest in LMUSA was extinguished effective October 1, 1996. See "Note C - Assets Disposed of and Liabilities Assumed" for the impact of the distribution of LMUSA on the Company's Consolidated Balance Sheet. The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation at December 31, 1996 have been included. Operating results for the quarter and six months ending December 31, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report on Form 10-K of the Company for the fiscal year ended June 30, 1996. On October 10, 1995, LFC, LMUSA and two other subsidiaries filed petitions for reorganization under Chapter 11. In the previous year, the Company's short term lending subsidiary and other real estate operations segment were classified as discontinued operations. However, due to the Chapter 11 filings, management decided to retain the operations during fiscal 1996. Consistent with Emerging Issues Task Force No. 90-16 "Accounting for Discontinued Operations Subsequently Retained" the results of operations of the segment in the prior periods were reclassified from discontinued operations to continuing operations. The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a "going concern" which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. Because of the Chapter 11 filings described below, such realization of assets and the liquidation of liabilities is subject to significant uncertainties. Claims which were contingent at the commencement of Chapter 11 proceedings are generally allowable against debtor corporations. These claims, including those which arise in connection with rejection of unfavorable executory contracts and leases are not determinable. As a result of the reorganization proceedings, the Company may sell assets or otherwise realize assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements or related notes. The LFC plan of reorganization as described in "Note B - Chapter 11 Proceedings", provides for the Company to continue as a "going concern" subject to the evaluation by the new Board of Directors of Reorganized LFC. The LFC Committee has elected to require that the effective date of the Joint Plan (see Note B - Chapter 11 Proceedings) be deferred until the occurrence of certain events. Therefore the Company has not implemented fresh start accounting (see "Note D - Pro Forma Financial Information"). NOTE B -- CHAPTER 11 PROCEEDINGS On October 10, 1995, LFC, two other insignificant subsidiaries of LFC and LMUSA (collectively the "Debtor Corporations") filed separate voluntary petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. The petitioning subsidiaries are Lomas Information Systems, Inc. ("LIS") and Lomas Administrative Services, Inc., ("LAS") both of which are inactive and have relatively minor amounts of assets and liabilities. The Chapter 11 cases are being jointly administered with the Debtor Corporations managing their businesses 5 7 in the ordinary course as debtors-in-possession subject to the control and supervision of the Federal Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Debtor Corporations filed two separate plans of reorganization with the Bankruptcy Court. LFC, LIS and LAS (the "Joint Debtors") filed their second amended joint plan of reorganization on July 3, 1996 (the "Joint Plan"). LMUSA filed its own second amended plan of reorganization on July 3, 1996 (the "LMUSA Plan" and together with the Joint Plan, the "Plans"). For additional detailed information, see the Company's Form 10-K for the year ended June 30, 1996. The LMUSA Plan was confirmed by the Bankruptcy Court on October 1, 1996 and it emerged from Chapter 11 with a new name, Nomas Corp. As a result of the LMUSA Plan, LFC no longer retains an interest in LMUSA. At the confirmation hearing on October 1, 1996, the LMUSA statutory creditors' committee (the "LMUSA Committee") stated that they had reached an oral agreement in principle with the LFC statutory creditors' committee (the "LFC Committee") settling the intercompany disputes, subject to final documentation and court approval. The main terms of the final settlement are (i) the transfer by LMUSA to LFC of $3.2 million of cash, (ii) retention by or transfer to LFC of other assets, including cash, having an aggregate book value of approximately $13 million, (iii) release by LMUSA of certain administrative and other claims it has asserted against LFC which amounts to approximately $3.3 million and are recorded in the December 31, 1996 Consolidated Balance Sheet, (iv) the granting of mutual releases and (v) an agreed sharing percentage for proceeds of litigation against third parties. On January 23, 1997 the LFC Committee and the LMUSA Committee signed an agreement substantially as described above. This agreement is subject to Bankruptcy Court approval. The Joint Plan was confirmed on October 4, 1996 by the Bankruptcy Court. The Joint Plan's effectiveness is conditioned on the satisfaction, or waiver by its statutory creditors' committee, of certain conditions, including (i) LFC's having $3 million working capital and $3 million to fund a litigation trust to pursue third-party claims and (ii) the turnover to LFC of the assets held in a "rabbi trust" originally created to fund LFC's Management Security Plan. There can be no assurance that these conditions will be met. The Joint Plan provides for the Company to establish a trust for the benefit of creditors entitled to receive a cash distribution. The Joint Plan requires the transfer of Non-Reorganization Assets of the Company into the LFC Creditors Trust. As of December 31, 1996 management has categorized assets with a book value of $20.9 million as Non-Reorganization Assets. The ultimate transfer of assets is subject to the approval of the LFC Committee. As such, the amounts stated above are subject to change. As debtors-in-possession, the Debtor Corporations have the right, subject to Bankruptcy Court approval and certain other limitations, to assume or reject certain executory contracts and unexpired leases. In this context, "assumption" means that the Debtor Corporations agree to perform their obligations under the contract or lease, and "rejection" means that the Debtor Corporations are relieved of their obligations to perform further under the contract or lease and are subject only to a claim for damages resulting from the breach thereof. Any such damage claims are treated as general unsecured claims in the reorganization proceedings. The potential damage claims for rejected executory contracts and leases could be substantial. As the ultimate settlement of these claims, if any, is very uncertain, no accrual has been made as of December 31, 1996. A proposed settlement "release" agreement between Residential Information Services Limited Partnership ("RIS") and LMUSA, regarding a penalty for the deconversion of LMUSA's servicing portfolio from RIS's system, was discussed in the Company's annual Form 10-K for the year ended June 30, 1996 and in the Company's quarterly Form 10-Q for the quarter ended September 30, 1996. At June 30, 1996, an accrual for this penalty existed in the amount of $6.5 million which represented the minimum accrual necessary as required by FASB Statement No. 5, "Accounting for Contingencies," and was reflected in accounts payable and accrued expenses in the Consolidated Balance Sheet. As of October 1, 1996, the accrual and any related liability is solely the responsibility of Nomas Corp. and is not recognized in the December 31, 1996 Consolidated Balance Sheet. 6 8 NOTE C -- ASSETS DISPOSED OF AND LIABILITIES ASSUMED LMUSA Plan was confirmed by the Bankruptcy Court on October 1, 1996 and it emerged with a new name, Nomas Corp. As a result of LMUSA's reorganization plan, LFC distributed its interest in LMUSA to LMUSA's creditors as of October 1, 1996. This distribution (decreased) increased the Company's assets, liabilities and stockholders' equity by ($293.3) million, ($419.4) million and $126.1 million, respectively. The Statements of Consolidated Operations include LMUSA for the quarters ended September 30, 1996 and 1995 and the six months ended December 31, 1995. On October 2, 1995, the Company closed the sale to First Nationwide Mortgage Corporation ("First Nationwide") of LMUSA's GNMA servicing portfolio (approximately $7.9 billion in unpaid principal balance of mortgage loans), its investment in LMUSA Partnership and its loan production business including its mortgage loans held for sale and the payment of the related warehouse lines of credit (the "GNMA Sale"). On January 31, 1996, LMUSA closed the sale to First Nationwide of its remaining mortgage servicing portfolio (approximately $12 billion in unpaid principal balance of mortgage loans) and certain other assets pursuant to Section 363 of the Bankruptcy Code. The above transactions resulted in a loss on sale or disposal of assets in the Company's Statement of Consolidated Operations of $0 and $3.7 million and $18.4 million and $180.5 million for the quarter and six months ended December 31, 1996 and 1995, respectively. These transactions are subject to additional adjustments which are the responsibility of Nomas Corp. as a result of the distribution of LMUSA by LFC. On July 16, 1996, the former Lomas headquarters and all other campus buildings were sold through the Bankruptcy Court process for $23.5 million. Pursuant to a stipulation and order among Travelers Insurance Company ("Travelers"), the Debtors', and the LMUSA Committee, Travelers received approximately $11.4 million of the proceeds. The net cash received by the Company was deposited into a joint account for LFC and LMUSA. Distribution of the proceeds between LFC and LMUSA is part of the intercompany claims settlement process (see "Note B -- Chapter 11 Proceedings"). Additionally, during the first quarter of fiscal 1997, substantially all of the remaining furniture, fixtures and equipment were sold by a liquidator. Proceeds of approximately $1.9 million were received, of which $973,000 was deposited into a joint account for LFC and LMUSA. An allocation of the proceeds was made based upon the recorded values of fixed assets in the financial statements of LFC and LMUSA and a $323,000 receivable from LMUSA is recorded in LFC's consolidated balance sheets. The pro forma financial statements in "Note D - Proforma Financial Information" reflects this receivable being settled in conjunction with the intercompany settlement process as described in "Note B - Chapter 11 Proceedings". 7 9 NOTE D -- PRO FORMA FINANCIAL INFORMATION The following pro forma financial statement of Reorganized LFC is for informational purposes and is based on the unaudited financial statements as of December 31, 1996. Reorganized LFC is required to adopt fresh start reporting as of the effective date of the Joint Plan. The Joint Plan was confirmed on October 4, 1996, but it is not effective until certain conditions are met (see "Note B - Chapter 11 Proceedings"). Fresh start reporting does not reflect historical values as previously reflected on LFC's books. Pursuant to fresh start reporting, the reorganization value of Reorganized LFC is allocated to its assets at fair value. In addition, liabilities are stated at present value determined at appropriate interest rates and any goodwill and the retained earnings deficit are eliminated. Statement of Position 90-7 of the American Institute of Certified Public Accountants, "Financial Reporting by Entities in Reorganization Under the Code," defines reorganization value as the amount of resources available for the satisfaction of postpetition liabilities and allowed claims and interests, as negotiated between the debtors, the creditors and the holders of equity interests. Distributions to creditors have not been made as of this date and the amounts reflected as "Intercompany Claims Settlement" and "Transfer Non- reorganization Assets/Liabilites to Trust" are estimates only and events or circumstances may arise which could significantly change these amounts. The ultimate transfer of assets is subject to the approval of the LFC Committee. As such the assets and amounts are subject to change. The intercompany claims settlement agreement is pending approval by the Bankruptcy Court. The Joint Plan provides that the "Reorganized Debtors" shall continue to provide all retiree benefits as that is defined by the Bankruptcy Code at the level established by the code for the duration of the period that the Company has obligated itself to provide such benefits subject to any right to amend modify or terminate such benefits under the applicable plan or law. The projected liability is reflected in the pro forma financial statement of Reorganized LFC. Included in the investments transferred to the trust is a $15 million principal amount note receivable due November 27, 2000 incurred in connection with the 1990 sale of Lomas Life Group to JNL Acquisition Corporation an affiliate of Conesco Capital Partners, L.P. which is reflected in the pro forma financial statement of the reorganized LFC at $3.4 million based on alleged claims asserted by Conesco and its successor in interest to the note. The reduced value of the note is subject to additional alleged claims by the various parties which may be material. The reorganization values are estimates based on information by independent advisors, reliance on various valuation methods including discounted cash flows and utilization of independent appraisals. 8 10 LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (EXCLUDING LOMAS MORTGAGE USA AND SUBSIDIARIES) (UNAUDITED) PRO FORMA REORGANIZED BALANCE SHEET -- DECEMBER 31, 1996 (IN THOUSANDS)
Transfer Non-Reorgani- Estimated zation Book Preliminary Estimated Reorganiza Assets/ Balance as Intercompany Payment of -tion Value Liabilities of Dec. Claims Administra- Adjustment to 31,1996 Settlement tive Claims s Trust ---------- ----------- ----------- ----------- ----------- ASSETS (a) (b) (c) (d) Cash and cash equivalent . . . . . . . . $ 7,118 $ 3,496 $ (1,275) $ -- $ (6,339) Investments . . . . . . . . . . . . . . . 9,861 3,373 -- 1,200 (14,434) Receivables -- net . . . . . . . . . . . 4,887 (323) -- -- (4,000) Foreclosed real estate -- net . . . . . . -- 2,143 -- 1,857 -- ----------- ----------- ----------- ----------- ----------- 14,748 5,193 -- 3,057 (18,434) Allowance for losses . . . . . . . . . . (3,828) -- -- -- (3,828) ----------- ----------- ----------- ----------- ----------- 10,920 5,193 -- 3,057 (14,606) Prepaid expenses and other assets . . . . 466 -- -- -- -- ----------- ----------- ----------- ----------- ----------- $ 18,504 $ 8,689 $ (1,275) $ 3,057 $ (20,945) =========== =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Liabilities: Accounts payable and accrued expenses . . $ 9,127 $ (7,614) $ (1,275) $ 2,869 $ (2,000) Liabilities subject to Chapter 11 proceedings 153,742 (186) -- (869) (18,945) ----------- ----------- ----------- ----------- ----------- 162,869 (7,800) (1,275) 2,000 (20,945) ----------- ----------- ----------- ----------- ----------- Stockholders' equity (deficit): Common stock . . . . . . . . . . . . . . 20,149 -- -- -- -- Paid-in capital . . . . . . . . . . . . . 309,763 -- -- -- -- Retained earnings (deficit) . . . . . . . (474,277) 16,489 -- 1,057 -- ----------- ----------- ----------- ----------- ----------- (144,365) 16,489 -- 1,057 -- ----------- ----------- ----------- ----------- ----------- $ 18,504 $ 8,689 $ (1,275) $ 3,057 $ (20,945) =========== =========== =========== =========== =========== Cancel Old Discharge Stock & Estimated of Debt & Eliminate Reorganized Issue Retained Balance Securities Earnings Sheet ---------- ---------- ----------- ASSETS (e) Cash and cash equivalent . . . . . . . . $ -- $ -- $ 3,000 Investments . . . . . . . . . . . . . . . -- -- -- Receivables -- net . . . . . . . . . . . -- -- 564 Foreclosed real estate -- net . . . . . . -- -- 4,000 ----------- ----------- ----------- -- -- 4,564 Allowance for losses . . . . . . . . . . -- -- ----------- ----------- ----------- -- -- 4,564 Prepaid expenses and other assets . . . . -- -- 466 ----------- ----------- ----------- $ -- $ -- $ 8,030 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Liabilities: Accounts payable and accrued expenses . . $ $ -- $ 1,107 Liabilities subject to Chapter 11 proceedings (133,742) -- -- ----------- ----------- ----------- (133,742) -- 1,107 ----------- ----------- ----------- Stockholders' equity (deficit): Common stock . . . . . . . . . . . . . . 100 (20,149) 100 Paid-in capital . . . . . . . . . . . . . 6,823 (309,763) 6,823 Retained earnings (deficit) . . . . . . . 126,819 329,912 -- ----------- ----------- ----------- 133,742 -- 6,923 ----------- ----------- ----------- $ -- $ -- $ 8,030 =========== ----------- -----------
9 11 LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (EXCLUDING LOMAS MORTGAGE USA AND SUBSIDIARIES) (UNAUDITED) PRO FORMA REORGANIZED BALANCE SHEET -- DECEMBER 31, 1996 (a) To record preliminary settlement of the intercompany disputes per an agreement in principle between the LMUSA Committee and the LFC Committee, subject to court approval. The final settlement provides for the funding of a $4 million joint litigation trust plus a $1 million reserve. The LFC beneficiaries will receive 60% and LMUSA beneficiaries will receive 40% of net proceeds from the join litigation trust. The $3 million required to fund the LFC share has been deducted from the Company's assets. See "Note B -- Chapter 11 Proceedings". (b) To pay estimated administrative claims, primarily professional fees, incurred through December 31, 1996. (c) To adjust assets and liabilities to estimated net realizable value as of December 31, 1996. This does not reflect adjustments for fresh start reporting. See "Note D - Pro Forma Financial Information". (d) To transfer Non-Reorganization Assets to the LFC Creditors Trust pursuant to and in compliance with provisions of the Joint Plan. The Non- Reorganization Assets shall be deemed to have been transferred on the effective date of the plan to the creditors entitled to cash distributions under the plan. As of December 31, 1996, the book value of assets transferred to the Trust includes $10.6 million of investments, including $8.4 million of cash held in a "rabbi trust" which is subject to litigation (see Part II - Other Information, Item 1. Legal Proceedings), net proceeds of $4.0 million of receivable net of allowance which is held by a subsidiary, and $6.3 million of cash, of which $2 million is provided for projected expenses to liquidate these assets. The ultimate transfer of assets is subject to the approval of the LFC Committee. As such the amounts stated above are subject to change. (e) Discharge of debt is calculated as follows: Estimated reorganized balance sheet $ 8,030 Total reorganization asset value 16,527 Less: Post petition liabilities (1,107) ----------- Available to unsecured and under $ 6,923 secured =========== Total prepetition liabilities $ 133,742 =========== Gain on discharge 126,819 =========== Estimated recovery based on 12/31/96 Pro Forma Reorganized Balance Sheet: Creditors Trust: Cash (net of $2 million expense $ 4,339 reserve) Assets 14,606 Securities to be issued 6,923 ----------- $ 25,868 ===========
10 12 NOTE E -- EARNINGS (LOSS) PER SHARE Primary earnings (loss) per share data for the quarter and six months ended December 31, 1996 and 1995, are computed using the weighted average number of shares of common stock and, when dilutive, common stock equivalents outstanding during the period. Common stock equivalents include units and shares granted under the Lomas Financial Corporation 1991 Long Term Incentive Plan for Non-Employee Directors, the 1991 Stock Incentive Program and the 1993 Intermediate and Long Term Incentive Plan. Common stock equivalents also include the assumed exercise of dilutive stock options. Fully diluted per share data is computed on the same basis as primary, but it also assumes (if dilutive) the conversion of senior convertible notes with the related adjustments for interest and federal income tax expenses. For the quarter and six months ended December 31, 1996 and 1995, the fully diluted per share data is antidilutive. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The Company's operations resulted in a net loss of $1.0 million and $8 million and $30.3 million and $224.5 million for the quarter and six months ended December 31, 1996 and 1995, respectively. These losses were primarily attributable to the loss on the sale of assets to First Nationwide and expenses associated with the reorganization. The operating results of the Company during the quarter and six months ended December 31, 1996 and 1995, were as follows (in thousands):
Quarter Ended Six Months Ended December 31 December 31 -------------------------- ------------------------- 1996 1995 1996 1995 ----------- ----------- ---------- ---------- Operating income (loss): Mortgage banking . . . . . . . . . . . . $ -- $ 5,261 $ (1,340) $ (25,725) Housing management . . . . . . . . . . . 138 (1) 265 134 Other . . . . . . . . . . . . . . . . . 127 56 384 2,517 ----------- ----------- ---------- ---------- 265 5,316 (691) (23,074) Corporate Expenses: General & administrative . . . . . . . . (354) (577) (724) (1,109) Corporate interest . . . . . . . . . . . -- (315) -- (3,463) Loss on sale or disposal of assets . . . -- (18,364) (3,718) (180,524) ----------- ----------- ---------- ---------- (354) (19,256) (4,442) (185,096) ----------- ----------- ---------- ---------- Loss from operations before reorganization items (89) (13,940) (5,133) (208,170) Reorganization items -- net . . . . . . . . . . . (929) (16,373) (2,869) (16,373) ----------- ----------- ---------- ---------- $ (1,018) $ (30,313) $ (8,002) $ (224,543) =========== =========== ========== ==========
As a result of the distribution of LMUSA from LFC, there are no results for the mortgage banking operations for the quarter ended December 31, 1996. The mortgage banking results for the six months ended December 31, 1996 are not comparable to the same period in fiscal 1996 as the Company completed the sale of substantially all the assets of LMUSA during fiscal 1996. The increased profitability of Housing Management operations is primarily attributable to the termination of a non-profitable management contract in October 1996. The Company's other operating income for the quarter and six months ended December 31, 1996, consisted of investment and dividend income. 11 13 LIQUIDITY AND CAPITAL RESOURCES Liabilities subject to Chapter 11 proceedings were as follows (in thousands):
December 31, 1996 June 30, 1996 --------------------- -------------------- Term debt of LMUSA o Notes due in 1997 . . . . . . . . . . . . . . . $ -- $ 150,000 o Notes due in 2002 . . . . . . . . . . . . . . . -- 190,000 o Mortgage note due in 1996 . . . . . . . . . . . -- 37,759 --------------------- -------------------- -- 377,759 Convertible notes of LFC due in 2003 . . . . . . 139,918 139,918 Accrued interest on term notes . . . . . . . . . 5,562 23,786 Other payables . . . . . . . . . . . . . . . . . 8,262 11,400 --------------------- -------------------- $ 153,742 $ 552,863 ===================== ====================
For a more detailed description of the Debtors Corporations' Chapter 11 proceeding and related distributions to creditors, reference is made to "Note B - -- Chapter 11 Proceedings", "Part II -- Item 1. Legal Proceedings" of this report, the Company's annual Form 10-K for the year ended June 30, 1996, and "III. Background and General Information -- E. The Chapter 11 Filings" in the Joint Disclosure Statement, a copy of which is filed as an exhibit to the Company's annual report on Form 10-K for the year ended June 30, 1996. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. On October 10, 1995, LFC, two other insignificant subsidiaries of LFC and LMUSA filed separate voluntary petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. On April 8, 1996, the Debtor Corporations filed with the Bankruptcy Court two separate proposed plans of reorganization. On July 3, 1996, the Debtor Corporations subsequently filed with the Bankruptcy Court two separate proposed amended plans of reorganization. The Joint Debtors filed the Joint Plan, and LMUSA filed the LMUSA Plan. The LMUSA Committee is a co-proponent of the LMUSA Plan. LMUSA's Chapter 11 Plan was confirmed by the Bankruptcy Court on October 1, 1996 and it emerged from Chapter 11 with a new name, Nomas Corp. As a result of the LMUSA Plan, LFC no longer retains an interest in LMUSA. At the confirmation hearing on October 1, 1996, the LMUSA Committee stated that they had reached an oral agreement in principle with the LFC Committee settling the intercompany disputes, subject to final documentation and court approval. The main terms of the reported final settlement are (i) the transfer by LMUSA to LFC of $3.2 million of cash, (ii) retention by or transfer to LFC other assets, including cash, having an aggregate book value of approximately $13 million, (iii) release by LMUSA of certain administrative and other claims it has asserted against LFC which amounts to approximately $3.3 million and are recorded in the December 31, 1996 Consolidated Balance Sheet, (iv) the granting of mutual releases and (v) an agreed sharing percentage for proceeds of litigation against third parties. On January 23, 1997 the LFC Committee and the LMUSA Committee signed an agreement substantially as described above. This agreement is subject to Bankruptcy Court approval. The LFC Chapter 11 Plan was confirmed on October 4, 1996 by the Bankruptcy Court. The LFC Plan's effectiveness is conditioned on the satisfaction, or waiver by its statutory creditors' committee, of certain conditions, including (i) LFC's having $3 million working capital and $3 million to fund a litigation trust to pursue third-party claims and (ii) the turnover to LFC of the assets held in a "rabbi trust" originally created to fund LFC's Management Security Plan. There can be no assurance that these conditions will be met. 12 14 The Company had a Management Security Plan ("MSP") for certain of its employees. According to the MSP key employees of the Company who participated in the MSP are to be paid, in the event of retirement or death, a portion of the employee's salary which such employee chose as the basis for computation of retirement or death benefits. The Company ceased new enrollments in 1985. The LFC Committee has agreed that the funds contributed to the MSP are held in a trust (the "MSP Trust") subject to the claims of creditors in the event of insolvency. The assets of the MSP Trust were included in investments on the Consolidated Balance Sheet and totaled $7.7 million at December 31, 1996. At December 31, 1996, the assets consisted solely of cash. Income and expenses of the MSP Trust are included in the Company's Statement of Consolidated Operations. Because of the bankruptcy filings by LFC and LMUSA, no contributions, payments or actuarial evaluation have been made to the MSP since the petition date. On June 11, 1996, the Bankruptcy Court authorized the LFC Committee to commence and prosecute an action against the trustee seeking the return of funds held in such MSP Trust. The LFC Committee contends that the funds in the MSP Trust constitute property of the Company's estate. However, the trustee, Bankers Trust, has asserted that the trustee is obligated to hold the assets for the sole benefit of the MSP participants. In addition, during the course of litigation, the Unofficial Committee of MSP Beneficiaries filed a motion to intervene in the adversary proceeding which the Bankruptcy Court granted, and filed an action against Bankers Trust to turn over to the MSP beneficiaries the assets held in the MSP Trust. The probability of an outcome favorable to LFC is unknown at this time. The LFC Committee also commenced an adversary proceeding to recover the funds in the rabbi trust for the Company's Excess Benefit Plan (the "EBP Trust") on September 20, 1996, having obtained the Bankruptcy Courts approval for such action on September 9, 1996. Bankers Trust, the trustee of the EBP Trust, has agreed in principle that LFC is entitled to the funds held in the EBP Trust. To effectuate the transfer of the funds to LFC, the LFC Committee and Bankers Trust have agreed to the form of a Consented - to Motion for Summary Judgement and entry of a Final Judgement and Order by the Bankruptcy Court, pursuant to which the assets of the EBP Trust would be turned over to LFC. The Bankruptcy Court has not yet signed the Final Judgement and Order. As debtors-in-possession, the Debtor Corporations have the right, subject to Bankruptcy Court approval and certain other limitations, to assume or reject certain executory contracts and unexpired leases. In this context, "assumption" means that the Debtor Corporations agree to perform their obligations under the contract or lease, and "rejection" means that the Debtor Corporations are relieved of their obligations to perform further under the contract or lease and are subject only to a claim for damages resulting from the breach thereof. Any such damage claims are treated as general unsecured claims in the reorganization proceedings. The potential damage claims for rejected executory contracts and leases could be substantial. As the ultimate settlement of these claims, if any, is very uncertain, no accrual has been made as of December 31, 1996. On August 28, 1996 the Bankruptcy Court authorized the LFC Committee to commence an action against Residential Information Services Limited Partnership ("RIS") and certain of its affiliates and related companies. In a complaint dated September 30, 1996, the LFC Committee commenced such an action. On January 10, 1997, the LFC Committee filed an amended complaint. The amended complaint contains inter alia, claims for breach of contract, fraud tortious interference with contract, turnover and quantum meruit against RIS and the other defendants in connection with RIS' acquisition of substantially all of the assets of Lomas Information Systems, Inc. in December 1994. The amended complaint seeks substantial damages from the defendants together with interest, costs and attorneys' fees and punitive damages. The probability of an outcome favorable to LFC is unknown at this time. Other miscellaneous legal proceedings exist which in management's opinion and on the advice of counsel, will have no material adverse effect on the financial position of the Company. 13 15 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Refer to the Company's annual Form 10-K for the year ended June 30, 1996, for information regarding defaults by the Company relating to its debt obligations. ITEM 5. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS. The foregoing "Note D -- Pro Forma Financial Information" contains forward-looking statements within the meaning of the Securities Litigation Reform Act that involve risks and uncertainties, including factors described from time to time in the Company's publicly available SEC reports, which could cause actual results to differ materially. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: Exhibit Number ------ (11) Computation of Earnings (Loss) Per Share (27) Financial Data Schedule (submitted to the Securities and Exchange Commission for its information). (b) Reports on Form 8-K: None. 14 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LOMAS FINANCIAL CORPORATION ------------------------------- (Registrant) Date: January 28, 1997 By: /S/ W. JOSEPH DRYER ------------------------------- President Date: January 28, 1997 By: /S/ W. JOSEPH DRYER ------------------------------- Principal Accounting Officer 15 17 Exhibit EXHIBIT Number INDEX - ------- ------- (11) Computation of Earnings (Loss) Per Share (27) Financial Data Schedule (submitted to the Securities and Exhange Commission for its information). EX-11 2 COMPUTATION OF EARNINGS 1 LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended Six Months Ended December 31 December 31 ------------------------- ------------------------- 1996 1995 1996 1995 ----------- ------------ ---------- -------------- PRIMARY EARNINGS (LOSS) PER SHARE Average common shares outstanding 20,149 20,149 20,149 20,149 Average common stock equivalent under non-employee Directors Long Term Incentive Plan -- 15 5 15 ----------- ------------ ---------- -------------- TOTAL SHARES 20,149 20,164 20,154 20,164 =========== ============ ========== ============= Loss before loss from discontinued operations $ (1,018) $ (30,313) $ (8,002) $ (224,543) Loss from discontinued operations -- -- -- -- ----------- ------------ ---------- -------------- Net loss $ (1,018) $ (30,313) $ (8,002) $ (224,543) =========== ============ ========== ============= Primary earnings (loss) per share: Loss before loss from discontinued operations $ (.05) $ (1.50) $ (.40) $ (11.14) Loss from discontinued operations -- -- -- -- ----------- ------------ ---------- -------------- Net Loss $ (.05) $ (1.50) $ (.40) $ (11.14) =========== ============ ========== ============= ADDITIONAL COMPUTATION OF EARNINGS (LOSS) PER SHARE: FULLY DILUTED EARNINGS (LOSS) PER SHARE: Average common shares outstanding 20,149 20,149 20,149 20,149 Average common stock equivalents under non- employee Directors Long Term Incentive Plan -- 15 5 15 ----------- ------------ ---------- -------------- TOTAL SHARES 20,149 20,164 20,154 20,164 =========== ============ ========== ============= Loss before loss from discontinued operations $ (1,018) (30,313) $ (8,002) $ (224,543) Loss from discontinued operations -- -- -- -- ----------- ------------ ---------- -------------- Net loss $ (1,018) $ (30,313) $ (8,002) $ (224,543) =========== ============ ========== ============= Primary earnings (loss) per share: Loss before loss from discontinued operations $ (.05) $ (1.50) $ (.40) $ (11.14) Loss from discontinued operations -- -- -- -- ----------- ------------ ---------- -------------- Net loss $ (.05) $ (1.50) $ (.40) $ (11.14) =========== ============ ========== =============
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS JUN-30-1997 JUL-01-1996 DEC-31-1996 7,118 9,861 4,887 (3,828) 0 0 0 0 18,504 0 0 0 0 20,149 (164,514) 18,504 0 338 0 0 (427) 0 0 (1,018) 0 (89) 0 0 0 (1,018) (.05) (.05)
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