<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 OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
- - --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-6802
LIBERTE INVESTORS
(Exact name of Registrant as specified in its Charter)
CREATED UNDER DECLARATION OF TRUST 75-1328153
PURSUANT TO THE LAWS OF (I.R.S. Employer
THE COMMONWEALTH OF MASSACHUSETTS Identification No.)
(State or other jurisdiction
of incorporation or organization)
1420 VICEROY DRIVE 75235
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (214) 879-5497
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 Section 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
----- -----
* The registrant's confirmed plan of reorganization did not provide for a
distribution of securities; however, all required documents and reports have
been timely filed by the Registrant both prior to and after confirmation.
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the issuer's class of securities as
of May 6, 1994: Shares of Beneficial Interest, no par - 12,423,208 shares.
<PAGE> 2
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1994
LIBERTE INVESTORS
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet - March 31, 1994 Pro Forma, March 31, 1994
and June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations - Quarter and Nine Months Ended
March 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows - Nine Months Ended
March 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
LIBERTE INVESTORS AND SUBSIDIARY
(Debtor-in-possession)
<TABLE>
<CAPTION>
March 31, 1994
Pro Forma March 31, 1994 June 30, 1993
(Unaudited) (Unaudited) (See Note)
-------------- --------------- -------------
<S> <C> <C> <C>
Assets
Mortgage loans on real estate:
Earning $ 7,478,000 $ 77,557,437 $ 113,126,692
Nonearning 6,868,000 16,700,636 24,442,450
Foreclosed real estate:
Earning -- 73,417,202 73,065,058
Nonearning 23,840,000 81,465,181 91,351,468
38,186,000 249,140,456 301,985,668
Less: Allowance for possible losses 15,875,000 42,044,800 53,938,817
22,311,000 207,095,656 248,046,851
Cash and cash equivalents 6,586,000 5,457,133 2,428,902
Restricted cash investments 438,000 34,242,690 5,368,318
Note receivable 6,000,000 -- --
Accrued interest and other receivables 342,000 982,167 1,514,551
Other assets 542,000 576,803 4,216,111
------------- --------------- --------------
$ 36,219,000 $ 248,354,449 $ 261,574,733
============= =============== ==============
- - ----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities
Prepetition liabilities not subject to compromise:
Escrow deposits $ -- $ 1,553,799 $ 2,036,631
Prepetition liabilities subject to compromise:
Notes payable -- 83,127,839 87,725,250
Subordinated notes -- 100,000,000 100,000,000
Accrued management fees -- -- 216,814
Accrued interest and other liabilities -- 10,606,192 8,004,817
Postpetition liabilities:
Accrued interest and other liabilities 712,000 4,560,432 --
------------- --------------- --------------
712,000 199,848,262 197,983,512
Shareholders' Equity
Shares of Beneficial Interest, no par
value, unlimited authorization:
12,423,208 issued and outstanding at
March 31, 1994 and 11,773,208
issued and outstanding at June 30, 1993 35,507,000 48,506,187 63,591,221
------------- --------------- --------------
$ 36,219,000 $ 248,354,449 $ 261,574,733
============= =============== ==============
</TABLE>
NOTE: The balance sheet at June 30, 1993 has been derived from the audited
financial statements at that date.
See notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
(Debtor-in-Possession)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
March 31 March 31
------------------------------- ------------------------------
1994 1993 1994 1993
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Income
Mortgage loan interest $ 1,514,118 $ 2,902,212 $ 5,412,178 $ 8,760,532
Temporary investment interest 39,385 35,236 126,892 240,520
Foreclosed real estate and other 1,232,519 989,488 3,980,057 2,285,266
------------- -------------- ------------- -------------
2,786,022 3,926,936 9,519,127 11,286,318
------------- -------------- ------------- -------------
Expenses
Interest (contractual interest was
$3,768,500 and $12,150,318 for the
quarter and nine months ended
March 31, 1994, respectively) 1,143,500 4,369,407 7,600,318 11,975,553
Provision for possible losses 2,975,000 1,000,000 3,175,000 6,250,000
Management fees 544,095 718,340 1,737,524 2,267,143
Legal and audit 120,000 630,000 705,000 1,455,000
Trustees' fees and expenses 85,088 80,154 229,980 264,578
Foreclosed real estate 754,390 879,685 2,329,078 2,594,855
Debt restructure -- -- 2,132,902 1,352,545
Other 550,019 575,016 2,092,528 1,584,672
------------- -------------- ------------- -------------
6,172,092 8,252,602 20,002,330 27,744,346
------------- -------------- ------------- -------------
Net loss before reorganization
items (3,386,070) (4,325,666) (10,483,203) (16,458,028)
Reorganization items:
Professional fees (4,174,211) -- (5,483,036) --
Interest earned on accumulated
cash resulting from
Chapter 11 proceedings 225,688 -- 271,830 --
------------- -------------- ------------- -------------
(3,948,523) -- (5,211,206) --
------------- -------------- ------------- -------------
Net loss $ (7,334,593) $ (4,325,666) $ (15,694,409) $ (16,458,028)
============= ============== ============= =============
Net loss per Share of
Beneficial Interest:
Loss before reorganization items $(.27) $(.37) $ (.86) $(1.40)
Reorganization items (.32) -- (.43) --
----- ----- ------ ------
Net loss $(.59) $(.37) $(1.29) $(1.40)
===== ===== ====== ======
Weighted average number of
Shares of Beneficial Interest 12,423,208 11,773,208 12,155,142 11,793,912
Cash dividends declared per share -- -- -- --
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
(Debtor-in-Possession)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
------------------------------------------
1994 1993
-------------- ---------------
<S> <C> <C>
Operating activities:
Net loss before reorganization items $ (10,483,203) $ (16,458,028)
Noncash expenses and revenues included
in net loss:
Provision for possible losses 3,175,000 6,250,000
Net change in other receivables, assets
and liabilities 7,351,609 (3,450,465)
-------------- ---------------
Net cash provided (used) by operating
activities before reorganization items 43,406 (13,658,493)
-------------- ---------------
Interest earned on accumulated cash resulting
from Chapter 11 proceedings 271,830 --
Professional fees (894,588) --
-------------- ---------------
Net cash used by reorganization items (622,758) --
-------------- ---------------
Net cash used by operating activities (579,352) (13,658,493)
-------------- ---------------
Investing activities:
Collections on mortgage loans 26,940,224 25,476,277
Advances on mortgage loans (314,387) (1,554,705)
Expenditures on foreclosed real estate (2,012,645) (2,655,193)
Sales and basis reductions of foreclosed real estate 12,466,174 20,856,490
Net purchases of restricted cash investments (28,874,372) (6,102,142)
-------------- ---------------
Net cash provided by investing activities 8,204,994 36,020,727
-------------- ---------------
Financing activities:
Decrease in notes payable (4,597,411) (29,552,912)
-------------- ---------------
Net cash used by financing activities (4,597,411) (29,552,912)
-------------- ---------------
Net increase (decrease) in unrestricted cash
and cash equivalents 3,028,231 (7,190,678)
Unrestricted cash and cash equivalents at
beginning of period 2,428,902 11,073,535
-------------- ---------------
Unrestricted cash and cash equivalents at
end of period $ 5,457,133 $ 3,882,857
============== ===============
Schedule of noncash investing and financing activities:
Transfer of mortgage loans to foreclosed
real estate $ 13,729,234 $ 5,334,478
Charge-offs to allowance for possible losses, net $ 15,069,017 $ 16,870,073
Sale of foreclosed real estate financed by
mortgage loans $ 3,888,112 $ 14,679,561
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
MARCH 31, 1994
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and 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 have been included. Operating
results for the three and nine months ended March 31, 1994 are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 1994. For further information, refer to the financial statements and
footnotes included in the Annual Report on Form 10-K of Liberte Investors, for
the fiscal year ended June 30, 1993.
During the quarter ended March 31, 1993, Liberte Investors capitalized, for a
nominal amount, Liberte Corp., a wholly-owned subsidiary. All intercompany
balances and transactions have been eliminated. Liberte Corp. is currently
inactive. As used herein, the "Trust" refers to Liberte Investors and its
subsidiary.
On January 24, 1994, the Trust's modified plan of reorganization was confirmed.
Therefore, the prepetition liabilities subject to compromise have been
compromised because they will not be paid in accordance with their contractual
terms in effect prior to the Trust's Chapter 11 filing.
NOTE B - RECLASSIFICATIONS
Certain June 30, 1993 balances have been reclassified to conform to the March
31, 1994 presentation.
NOTE C - PRO FORMA FINANCIAL INFORMATION
On January 24, 1994, the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court") entered an order confirming a
modified plan of reorganization (the "Plan") for the Trust. Under the Plan,
most of the Trust's assets will be transferred to Resurgence Properties Inc.
("RPI") and RPI's common stock will be distributed to the holders of the
Trust's outstanding subordinated indebtedness in full satisfaction of such
holders' claims against the Trust. RPI will assume all of the Trust's
obligations to its senior lenders on restructured terms. The restructured
company (the "Reorganized Trust") will emerge as an essentially debt-free
entity, the shares of which will continue to be owned by the existing holders
of the Shares of Beneficial Interest. See "Part II - ITEM 1. LEGAL
PROCEEDINGS."
On April 7, 1994, the Trust emerged from bankruptcy. The preceding unaudited
pro forma balance sheet illustrates the pro forma effects of the transactions
contemplated by the Plan on the financial condition of the Trust as of March
31, 1994 (assuming consummation of the Plan and payment of accrued
reorganization expenses and claims had occurred on that date).
As part of this process, mortgage loans of $79.9 million, the related accrued
interest receivable of $.6 million and foreclosed real estate of $131.0 million
were transferred to RPI. An allowance for possible losses of $6.5 million on
mortgage loans and $19.7 million on foreclosed real estate also were
transferred.
6
<PAGE> 7
The Trust paid closing costs, made debt payments and transferred cash to RPI
totaling $29.3 million. After assuming payment of $3.4 million of accrued
reorganization expenses and claims, the Trust was left with unrestricted cash
and cash equivalents of $6.6 million and restricted cash and cash equivalents
of $.4 million.
The Trust received a $6.0 million note receivable from RPI and $.3 million of
preferred stock in RPI. The Trust transferred additional assets totaling $.3
million and liabilities for escrow deposits totaling $1.6 million to RPI and
adjusted its accrued liabilities by $.2 million.
In accordance with the terms of the Plan of Reorganization, the Trust was
relieved of its liability on the $83.1 million of senior debt, the $100.0
million of subordinated debt and the related $9.5 million of accrued interest
on the subordinated debt. The recording of the above transactions resulted in
a charge to equity of $13.0 million.
Fresh-start reporting, in which the emerging entities' assets and liabilities
would have been adjusted to their fair value, was considered but deemed
inappropriate since the reorganization value of the Trust's assets immediately
before the confirmation of the Plan was not less than the total of all
post-petition liabilities and allowed claims. Also, there was no change in
control of the Trust's ownership. Thus the assets and liabilities of the
emerging entities have not been adjusted to fair value.
In the opinion of management, the unaudited pro forma balance sheet reflects
all adjustments necessary to present fairly such pro forma data; however, such
a balance sheet is not necessarily indicative of what the actual financial
position would have been on March 31, 1994 had the Plan been consummated and
accrued reorganization expenses and claims paid on that date and is not
necessarily indicative of future statements of financial position.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On October 25, 1993 the Trust filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code. Until emergence from
bankruptcy, the Trust managed its business as a debtor-in-possession subject to
Bankruptcy Court approval of any actions outside the ordinary course of
business. On January 24, 1994, the Bankruptcy Court entered an order
confirming a modified plan of reorganization for the Trust (the "Plan"). The
Plan was consummated on April 7, 1994.
Operations resulted in a loss of $7,334,593 for the quarter ended March 31,
1994, compared to a loss of $4,325,666 for the same period in fiscal 1993.
Contributing to the larger loss were the following factors: an increase in the
provision for possible losses and reorganization expense and a decrease in
mortgage loan income. These factors were partially offset by: an increase in
foreclosed real estate income and interest earned on accumulated cash resulting
from Chapter 11 proceedings and a decrease in interest expense, legal and audit
expense and management fees. The Trust cannot predict the size of the
provision for possible losses in fiscal 1994, but will continue to monitor the
status of each of its assets in light of current market conditions and to
provide for possible losses in its mortgage loan portfolio and its foreclosed
real estate portfolio as necessary.
Income on mortgage loans decreased from $2.9 million in the third quarter of
fiscal 1993 to $1.5 million in the third quarter of fiscal 1994. The majority
of the $1.4 million decrease was the result of a decrease in average earning
loans. Average earning loans decreased from $148.7 million with a yield of
7.91% in the third quarter of fiscal 1993 to $79.5 million with a yield of
7.72% in the third quarter of fiscal 1994. The decrease in yield included
amortization of deferred financing fees in the third quarter of fiscal 1993
which were fully amortized in the second quarter of fiscal 1994.
Income on mortgage loans decreased from $8.8 million for the first nine months
of fiscal 1993 to $5.4 million for the first nine months of fiscal 1994. The
$3.4 million decrease was the result of a decrease in the average earning
loans, which more than offset a small increase in yield. Average earning loans
decreased from $152.4 million with a yield of 7.66% for the first nine months
of fiscal 1993 to $92.3 million with a yield of 7.81% for the first nine months
of fiscal 1994.
Average nonearning loans for the third quarter of fiscal 1994 totaled $18.3
million compared to $17.6 million for the comparable period in fiscal 1993.
Assuming that the yield on these loans would have been the same as the yield on
earning loans had they been on earning status, income on mortgage loans would
have been $.3 million higher in both the third quarter of fiscal 1994 and 1993.
Average nonearning loans for the first nine months of fiscal 1994 totaled $25.1
million compared to $20.0 million for the comparable period of fiscal 1993.
Assuming that the yield on these loans would have been the same as the yield on
earning loans had they been on earning status, income on mortgage loans would
have been $1.5 million higher for the first nine months of fiscal 1994 and $1.1
million higher for the first nine months of fiscal 1993. The Trust's efforts
to reduce nonearning assets and improve the operating performance of real
estate assets continues. These efforts include: monthly analysis of project
revenues and expenses and the leasing activity of the project manager; regular
visits to each project to review projections, operating budgets, maintenance,
capital expenditures and performance of the project manager; listing of
projects for sale and active monitoring of the activities of the listing
broker; advertising and mail contact with national and regional sales prospects
known to the Trust; auctions of certain selected properties; replacement of the
project manager and/or listing agent if performance is unsatisfactory; and
employing consultants to assist the Trust in developing strategies for leasing
and selling certain
8
<PAGE> 9
assets, such as retail properties. Although the Trust has seen some general
improvement in occupancy levels and some isolated improvement in rental rates,
continuing problems in the real estate industry, including the lack of
traditional bank financing for real estate transactions and generally depressed
rents, the Trust could have increases in nonearning loans. The size of any
increases in nonearning loans will be a function of the foregoing variables,
and consequently cannot be quantified at this time.
There was no new loan production during the quarters ended March 31, 1994 and
1993. The Trust has not sought any new business in recent years and continues
to limit new loan originations in accordance with its current policy of
reducing its indebtedness and the size of its loan and foreclosed real estate
portfolio.
Income on foreclosed real estate increased from $1.0 million in the third
quarter of fiscal 1993 to $1.2 million in the third quarter of fiscal 1994, and
from $2.3 million for the first nine months of fiscal 1993 to $4.0 million for
the same period in fiscal 1994. This increase resulted from a change in the
status of several projects from nonearning to earning status during the third
quarter of fiscal 1993. This change in status was made due to improved
occupancy levels.
Interest expense decreased from $4.4 million in the third quarter of fiscal
1993 to $1.1 million in the third quarter of fiscal 1994. Of the $3.3 million
decrease, $2.7 million was the result of a decrease in the average cost of debt
and $.6 million was the result of a decrease in the average debt outstanding.
Average debt outstanding declined from $209.0 million with an average cost of
8.48% in the third quarter of fiscal 1993 to $183.1 million with an average
cost of 2.53% for the same period in fiscal 1994. The decrease in average cost
of debt includes the impact of ceasing to accrue interest on the Trust's $100.0
million principal amount 10 1/2% Subordinated Notes due June 1, 1993 (the
"Subordinated Notes") when the Trust filed its Chapter 11 petition on October
25, 1993. Interest expense decreased from $12.0 million for the first nine
months of fiscal 1993 to $7.6 million for the first nine months of fiscal 1994.
Of the $4.4 million decrease, $2.0 million was the result of a decrease in
average debt outstanding and $2.4 million was the result of a decrease in the
average cost of debt. Average debt outstanding declined from $220.5 million
with an average cost of 7.24% for the first nine months of fiscal 1993 to
$183.5 million with an average cost of 5.52% for the same period in fiscal
1994. The average cost of debt decreased in fiscal 1994 as a result of the
Trust ceasing to accrue interest on the Subordinated Notes. This was partially
offset by the expiration of an interest rate swap, which had resulted in a
reduction of interest expense, and the increase in the rate on the Trust's
senior debt to the default rate of prime or the corporate base rate plus 200
basis points for the period beginning May 16, 1993, until the Trust filed its
Chapter 11 petition on October 25, 1993. Average cost of debt for these
purposes includes bank fees and other rate adjustments such as the net effect
of the interest rate swap referred to above. This swap produced a reduction of
interest costs of $184,000 in the third quarter of fiscal 1993 and $1,253,000
for the first nine months of fiscal 1993.
The provision for possible losses was $3.0 in the third quarter of fiscal 1994
compared to $1.0 million in the third quarter of fiscal 1993. The allowance
for possible losses was $42.0 million at March 31, 1994, compared to $53.9
million at June 30, 1993 and $48.4 million at March 31, 1993. While the Trust
believes the allowance for possible losses is adequate at March 31, 1994,
management will continue to periodically review the portfolio using then
current information to make the estimates and assumptions that are used to
determine the allowance for loan losses and the valuation of the real estate
acquired in connection with foreclosures or in satisfaction of loans. These
estimates and assumptions are susceptible to significant changes due to changes
in the market conditions upon which they are based.
9
<PAGE> 10
The provision for possible losses on mortgage loans was a reversal of $1.4
million in the third quarter of fiscal 1994 compared to no provision for
possible losses on mortgage loans in the third quarter of fiscal 1993. The
$1.4 million reversal of unallocated reserves on mortgage loans was in
anticipation of the transfer of 85% of the Trust's mortgage loans to RPI. Upon
emergence from bankruptcy, the Trust's mortgage loans decreased from $94.3
million at March 31, 1994, to $14.3 million.
The provision for possible losses on foreclosed real estate was $4.4 million in
the third quarter of fiscal 1994 compared to $1.0 million in the third quarter
of fiscal 1993. The provision for possible losses on foreclosed real estate in
the third quarter of fiscal 1994 includes (i) a provision for condominium lots
that were sold for less than book value in an all cash sale, (ii) provisions on
two properties that are secured by development rights that expire in the near
future and the extensions on those rights have become somewhat questionable and
(iii) increases in estimates of future losses on disposition of foreclosed real
estate. The allowance for losses on foreclosed real estate was $32.0 million
at March 31, 1994, compared to $28.8 million at March 31, 1993. At March 31,
1994, foreclosed real estate totaled $154.9 million compared to $160.2 million
at March 31, 1993. Any loss incurred upon foreclosure of collateral underlying
a loan is charged to the allowance for possible losses on mortgage loans.
The following is a summary of transactions affecting the Trust's allowance for
possible losses for the nine months ended March 31, 1994, compared to the nine
months ended March 31, 1993:
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1994
-------------------------------------------------
Mortgage Foreclosed
Loans Real Estate Total
------------- ------------- -------------
<S> <C> <C> <C>
Balance July 1, 1993 $ 17,728,367 $ 36,210,450 $ 53,938,817
Provision for possible losses 200,000 -- 200,000
Amounts charged off, net of recoveries (509,622) (461,960) (971,582)
------------- ------------- -------------
Balance September 30, 1993 17,418,745 35,748,490 53,167,235
Provision for possible losses -- -- --
Amounts charged off, net of recoveries (970,398) (5,370,596) (6,340,994)
------------- ------------- -------------
Balance December 31, 1993 16,448,347 30,377,894 46,826,241
Provision for possible losses (1,408,000) 4,383,000 2,975,000
Amounts charged off, net of recoveries (5,040,794) (2,715,647) (7,756,441)
------------- ------------- -------------
Balance March 31, 1994 $ 9,999,553 $ 32,045,247 $ 42,044,800
============= ============= =============
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1993
-------------------------------------------------
Mortgage Foreclosed
Loans Real Estate Total
------------- ------------- -------------
<S> <C> <C> <C>
Balance July 1, 1992 $ 23,275,974 $ 35,765,577 $ 59,041,551
Provision for possible losses 702,000 1,448,000 2,150,000
Amounts charged off, net of recoveries (543,765) (3,156,665) (3,700,430)
------------- ------------- -------------
Balance September 30, 1992 23,434,209 34,056,912 57,491,121
Provision for possible losses -- 3,100,000 3,100,000
Amounts charged off, net of recoveries (2,007,728) (2,418,941) (4,426,669)
------------- ------------- -------------
Balance December 31, 1992 21,426,481 34,737,971 56,164,452
Provision for possible losses -- 1,000,000 1,000,000
Amounts charged off, net of recoveries (1,817,240) (6,925,734) (8,742,974)
------------- ------------- -------------
Balance March 31, 1993 $ 19,609,241 $ 28,812,237 $ 48,421,478
============= ============= =============
</TABLE>
Management fees were lower in the third quarter of fiscal 1994 than in the
comparable period in fiscal 1993 because invested assets, upon which the
management fees are based, were lower in the third quarter of fiscal 1994
compared to the third quarter of fiscal 1993. Debt restructure expense
includes expenses incurred prior to October 25, 1993 (when the Trust filed its
Chapter 11 petition) for legal and financial advisors and consultants' fees for
the Trust and certain representatives of the Trust's subordinated noteholders
and shareholders. Reorganization expense includes accrued amounts incurred
since the filing of the Chapter 11 petition for legal and financial advisors
and consulting fees for the Trust and certain representatives of the Trust's
subordinated noteholders, senior debt holders and shareholders. The Trust has
accumulated cash during the Chapter 11 proceedings because during such
proceedings it has not been permitted to pay interest on the subordinated debt.
Interest earned on this accumulation of cash totaled $226,000 and was earned on
an average balance of $28.0 million for the third quarter at a yield of 3.22%.
LIQUIDITY AND CAPITAL RESOURCES
For the last five fiscal years, the Trust has faced substantial liquidity
problems due to reduced cash flows from operating and investing activities, the
required substitution of bank financing for commercial paper financing and its
inability to borrow additional funds under its bank credit facilities. The
Trust expects its liquidity and earnings to continue to be adversely affected
by the weakened real estate market, which has resulted in, among other things,
substantial nonearning assets and a significant reduction in the availability
of real estate financing. The Trust has ceased investing in new mortgage
loans, except for minor investments in properties currently financed or owned,
concentrating its efforts on liquidating its mortgage loan and real estate
investments for cash and notes, and on retiring its senior indebtedness.
Prior to its emergence from bankruptcy, the Trust's principal funding
requirements were operating expenses, interest expense and the repayment of its
indebtedness. (Since emergence from bankruptcy, the Trust is debt-free.)
Subsequent to emergence, the Trust anticipates that its primary sources of
funding operating expenses will be its collections on mortgage loans and
proceeds from the sale of foreclosed property.
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<PAGE> 12
Operating activities for the first nine months of fiscal 1994 used $579,000
compared to $13,658,000 used in the first nine months of fiscal 1993. The
table below reflects cash flow from operating activities (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
March 31
-----------------------------
1994 1993
-------- ----------
<S> <C> <C>
Total income $ 9,519 $ 11,286
Interest expense (7,600) (11,975)
-------- ----------
Net interest margin 1,919 (689)
Operating expenses (9,227) (9,519)
Net change in other receivables, assets
and liabilities 7,352 (3,450)
Reorganization items (623) --
-------- ----------
Net cash used by
operating activities $ (579) $ (13,658)
======== ==========
</TABLE>
Net cash provided by investing activities for the first nine months of fiscal
1994 was $8,205,000 compared to $36,021,000 provided in the first nine months
of fiscal 1993. The table below reflects cash flow from investing activities
(in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
March 31
------------------------------
1994 1993
--------- ---------
<S> <C> <C>
Collections on mortgage loans $ 26,940 $ 25,476
Advances on mortgage loans (314) (1,555)
Sales and basis reductions of foreclosed
real estate 12,466 20,857
Expenditures on foreclosed real estate (2,013) (2,655)
Net purchases of restricted cash
investments (28,874) (6,102)
--------- ---------
Net cash provided by investing activities $ 8,205 $ 36,021
========= =========
</TABLE>
Debt was reduced by $4,597,000 in the first nine months of fiscal 1994 compared
to $29,553,000 in the first nine months of fiscal 1993. The Trust ceased
making principal payments on its senior debt in August 1993.
Amounts to be advanced under existing commitments were reduced from $903,778 at
June 30, 1993 to $479,167 at March 31, 1994. The pro forma amount to be
advanced at March 31, 1994, was $156,905.
At March 31, 1994, the Trust had $83.1 million of senior indebtedness and $100
million of 10 1/2% subordinated notes outstanding. This debt was satisfied in
full upon the Trust's emergence from bankruptcy on April 7, 1994.
On October 25, 1993, the Trust filed a voluntary petition for reorganization
under Chapter 11 of the Federal Bankruptcy Code in the Bankruptcy Court. Until
emergence from bankruptcy, the Trust managed its business as a
debtor-in-possession subject to Bankruptcy Court approval of any actions
outside the ordinary course of business. See "Part II - ITEM 1. LEGAL
PROCEEDINGS" below.
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<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 25, 1993, the Trust filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court"). On November 2, 1993, the Trust filed with the Bankruptcy Court a
disclosure statement (the "Disclosure Statement") and related Chapter 11 plan
of reorganization (the "Original Plan").
The Disclosure Statement was approved by the Bankruptcy Court on December 16,
1993, and was subsequently circulated to all holders of the Trust's senior
indebtedness, Subordinated Notes and Shares of Beneficial Interest, together
with ballots to accept or reject the Original Plan. The Trust obtained the
requisite consents to the Original Plan in January 1994, and on January 24,
1994, the Bankruptcy Court entered an order confirming a modified plan of
reorganization for the Trust (the "Plan"). On April 7, 1994, the Trust emerged
from bankruptcy. Pursuant to the Plan, certain assets and liabilities were
transferred to RPI and RPI's common stock was distributed to the holders of the
Trust's outstanding subordinated indebtedness in full satisfaction of such
holders' claims against the Trust. See "Part I - Note C - PRO FORMA FINANCIAL
INFORMATION.".
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<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Trust's Plan of Reorganization was approved on January 14, 1994, by the
holders of the Shares of Beneficial Interest by the following vote:
Shares Voted Shares Voted Shares
"FOR" "AGAINST" "ABSTAINING"
4,637,967 54,635 7,730,606
14
<PAGE> 15
ITEM 5. OTHER INFORMATION
REIT STATUS
The Trust believes that it has operated, and expects that it will continue to
operate, in such manner as to qualify for taxation as a real estate investment
trust (a "REIT") under the Internal Revenue Code (the "Code"), but no assurance
can be given that it will at all times so qualify. To qualify as a REIT, the
Trust must satisfy various requirements under the Code, including requirements
concerning the nature and composition of its income and assets. Generally, an
entity can qualify as a REIT only if 95 percent of its gross income constitutes
"qualifying income" as defined in Section 856 of the Code (the "95% Test").
Because more than 5% of the Trust's gross income during the taxable years
ending June 30, 1992 (the "1992 Year") and June 30, 1993 (the "1993 Year"),
consisted of income from an interest rate swap and because it is uncertain
whether income derived from such interest rate swaps constitutes qualifying
income, it is unclear whether the Trust satisfied the 95% Test for the 1992
Year and the 1993 Year. The Trust believes that such income should be treated
as qualifying income for purposes of the 95% Test and has filed a request for a
ruling from the Internal Revenue Service (the "IRS") to confirm that such
treatment is appropriate. No assurance can be given, however, that the IRS
will issue a favorable ruling.
In addition, in order to qualify as a REIT, the Trust must distribute at least
95% of its REIT taxable income. The Trust was prohibited from paying dividends
to its shareholders by its senior debt agreements and during its Chapter 11
proceedings. Absent those restrictions, no dividends would have been paid
because the Trust did not have taxable income.
So long as the Trust qualifies as a REIT and satisfies the 95% distribution
requirement, the Trust will generally be taxable only on its undistributed
taxable income. Distributions out of current or accumulated earnings and
profits will be taxed to shareholders as ordinary income or capital gain, as
the case may be. Distributions in excess of the Trust's accumulated and current
earnings and profits will constitute a nontaxable return of capital to the
shareholders (except insofar as such distributions exceed the cost basis of the
Shares of Beneficial Interest), but will result in a corresponding reduction in
the cost basis of the Shares of Beneficial Interest. The Trust will notify each
shareholder of the proportion of distributions made during the taxable year
which constitutes ordinary income, capital gain or a return of capital.
Distributions by the Trust will normally not be eligible for the dividends
received deduction for corporations. Should the Trust incur losses,
shareholders will not be entitled to include such losses in their individual
income tax returns.
If the Trust does not qualify as a REIT in any taxable year, it will be taxed
as a corporation pursuant to Subchapter C of the Code. In determining its
potential liability for tax as a corporation, the Trust believes, assuming it
does not undergo an ownership change that would limit the use of net operating
loss carryovers under Section 382 of the Code, that it would be able to utilize
its net operating loss carryovers and other tax benefits to shelter itself from
regular federal income taxation and, in substantial part, from alternative
minimum taxation. However, if the Trust were to undergo an ownership change
(other than an ownership change pursuant to a bankruptcy plan that meets the
requirements of Section 382(l)(5) of the Code), the ability of the Trust to use
its net operating loss carryforwards to offset income earned by the Trust after
the ownership change would be severely limited, as would the Trust's ability to
deduct losses recognized on certain sales of assets occurring after the
ownership change. Accordingly, the Trust believes that, if it ceased to
qualify as a REIT and became taxable as a regular corporation, it could incur
substantial liability for federal income taxes in the event of an ownership
change not meeting the requirements of Section 382(l)(5) of the Code.
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<PAGE> 16
If the Trust ceases to qualify as a REIT, funds available for distribution to
shareholders would be reduced by the amount of any tax liability payable by the
Trust to federal tax authorities. Such distributions, if any, would not be
deductible by the Trust in computing its taxable income but would be eligible
for the dividends received deduction for corporate shareholders to the extent
paid out of the Trust's current and cumulative earnings and profits. In
addition, unless entitled to relief under specific statutory provisions, the
Trust would be ineligible for REIT status for the succeeding four taxable
years.
The foregoing description is general in character. For a complete description,
reference should be made to the pertinent Code sections and the Regulations
issued thereunder.
TRANSFER RESTRICTIONS
In order to preserve the Trust's REIT status under the Code, there are certain
restrictions on the transfer of Shares of Beneficial Interest, with such
exceptions and pursuant to such procedures as are described in the Declaration
of Trust. For the Trust to qualify as a REIT, not more than 50% in value of
its outstanding Shares of Beneficial Interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year. The Shares of
Beneficial Interest must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months or during a proportionate part of
a shorter taxable year, and certain other requirements as to assets,
distributions and percentages of the Trust's gross income from particular
activities must be met. The Declaration of Trust contains provisions
prohibiting the ownership, directly or indirectly, by five or fewer individuals
of more than 50% in value of the outstanding Shares of Beneficial Interest
during the last half of the Trust's taxable year.
In order to avoid limitations on the use of the Trust's tax attributes, the
Declaration of Trust generally prohibits the transfer of Shares of Beneficial
Interest to any Person who is a holder of 5% or more of the Shares of
Beneficial Interest or to any Person who would become a holder of 5% or more of
the Shares of Beneficial Interest after giving effect to the transfer, directly
or by attribution. "Person" for this purpose is defined broadly to mean any
individual, corporation, estate, debtor, association, company, partnership,
joint venture or similar organization.
If a transfer violates this prohibition, either (i) the Shares of Beneficial
Interest that were purported to be transferred in excess of the 5% limit will
be deemed to remain the property of the initial transferor, or (ii) upon
election by the Trust, such Shares of Beneficial Interest shall be transferred
to an agent designated by the Trust, who will sell them in an arm's-length
transaction, the proceeds of such sale to be allocated to the purported
transferee up to (x) the amount paid by such transferee for such Shares of
Beneficial Interest and (y) where the purported transfer was by gift
inheritance or any similar transfer, the fair market value of such Shares of
Beneficial Interest at the time of the purported transfer.
If the purported transferee has resold the Shares of Beneficial Interest to an
unrelated party in an arm's-length transaction, the purported transferee will
be deemed to have sold the Shares of Beneficial Interest as agent for the
initial transferor, and will be required to transfer the proceeds of such sale
to the agent designated by the Trust, except to the extent that the agent
grants written permission to the purported transferee to retain a portion of
the proceeds up to the amount that would have been payable to such transferee
had the Shares of Beneficial Interest been sold by the agent rather than by the
purported transferee.
The Declaration of Trust will further provide that the Trust may require, as a
condition to the registration of the transfer of any Shares of Beneficial
Interest, that the proposed transferee furnish
16
<PAGE> 17
to the Trust all information reasonably requested by the Trust with respect to
the proposed transferee's direct or indirect ownership interests in Shares of
Beneficial Interest.
The Board of Trustees of the Trust will have the power to preapprove transfers
that would otherwise be prohibited under the foregoing provisions.
All certificates evidencing ownership of Shares of Beneficial Interest will
bear a conspicuous legend referencing the transfer restrictions.
BOARD OF TRUSTEES
Pursuant to the Plan, immediately following consummation of the Plan, the Board
of Trustees consisted only of Robert Ted Enloe III, Gene H. Bishop and Edward
W. Rose III.
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
The Registrant filed a report on Form 8-K dated January 7, 1994, to
report that the Registrant, certain of the Registrant's senior secured
lenders, the members of the Official Unsecured Creditors and the
Official Committee of Equity Securities Holders executed a Stipulation
and Agreement Suspending Plan Litigation setting forth an agreement in
principle which would resolve certain potential disputes regarding the
treatment of the senior secured lenders under the plan or
reorganization of the Registrant.
The Registrant filed a report on Form 8-K dated February 9, 1994, to
report that on January 24, 1994, the Bankruptcy Court entered an order
confirming a plan of reorganization for the Registrant.
18
<PAGE> 19
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 thereunder duly authorized.
LIBERTE INVESTORS
Date: May 12, 1994 By: /s/ TED ENLOE
Ted Enloe
President and Chief Executive Officer
Date: May 12, 1994 By: /s/ B. A. BREEDING
B. A. Breeding
Senior Vice President - Control
19
