<PAGE> 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, $1 par value -- 20,149,231
shares.
<PAGE> 2
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996
INDEX
PAGE
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet -- December 31, 1996 and June 30, 1996 . 2
Statement of Consolidated Operations -- Quarter and Six Months Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . 3
Statement of Consolidated Cash Flows -- Six Months Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 11
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . 12
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . 14
Item 5. Special Note Regarding Forward-Looking Statements . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 14
1
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEETS
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
----------------- -------------
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . .$ 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
=========== ============
</TABLE>
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
<PAGE> 4
STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED)
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31 December 31
------------------------- ------------------------
1996 1995 1996 1995
----------- ---------- ---------- -----------
<S> <C> <C> <C>
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
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended December 31
---------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
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 . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 10
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(EXCLUDING LOMAS MORTGAGE USA AND SUBSIDIARIES)
(UNAUDITED)
PRO FORMA REORGANIZED BALANCE SHEET -- DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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)
=========== =========== =========== =========== ===========
<CAPTION>
Cancel Old
Discharge Stock & Estimated
of Debt & Eliminate Reorganized
Issue Retained Balance
Securities Earnings Sheet
---------- ---------- -----------
ASSETS (e)
<S> <C> <C> <C>
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
=========== ----------- -----------
</TABLE>
9
<PAGE> 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.
<TABLE>
<S> <C>
(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
===========
</TABLE>
10
<PAGE> 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):
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31 December 31
-------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
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)
=========== =========== ========== ==========
</TABLE>
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
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Liabilities subject to Chapter 11 proceedings were as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
--------------------- --------------------
<S> <C> <C> <C> <C>
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
===================== ====================
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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).
<PAGE> 1
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31 December 31
------------------------- -------------------------
1996 1995 1996 1995
----------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
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)
=========== ============ ========== =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,118
<SECURITIES> 9,861
<RECEIVABLES> 4,887
<ALLOWANCES> (3,828)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,504
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,149
<OTHER-SE> (164,514)
<TOTAL-LIABILITY-AND-EQUITY> 18,504
<SALES> 0
<TOTAL-REVENUES> 338
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (427)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,018)
<INCOME-TAX> 0
<INCOME-CONTINUING> (89)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,018)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
