<PAGE> 1
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 SEPTEMBER 30, 1995
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)
600 N. PEARL ST., SUITE 420, LB 168 75201
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (214) 720-8950
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 November 10, 1995: Shares of Beneficial Interest, no par value - 12,153,658
shares.
<PAGE> 2
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
LIBERTE INVESTORS
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet - September 30, 1995 and June 30, 1995 . . 3
Consolidated Statement of Operations - Three Months Ended
September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows - Three Months Ended
September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
LIBERTE INVESTORS AND SUBSIDIARY
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
(Unaudited) (See Note)
----------- ----------
<S> <C> <C>
Assets
Notes Receivable:
RPI $ 5,287,359 $ 5,406,132
Mortgage loans 221,124 401,240
Foreclosed real estate:
Nonearning - NOTE B 4,991,918 15,385,214
------------ ------------
10,500,401 21,192,586
Less: Allowance for possible losses 106,405 10,498,922
------------ ------------
10,393,996 10,693,664
Unrestricted cash and cash equivalents 20,857,266 20,576,517
Restricted cash and cash equivalents 58,870 59,245
Accrued interest and other receivables 127,523 103,888
Other assets 604,826 602,664
------------ ------------
$ 32,042,481 $ 32,035,978
============ ============
- -------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities
Accrued and other liabilities $ 457,253 $ 416,164
Shareholders' Equity
Shares of Beneficial Interest, no par value,
unlimited authorization:
12,423,208 issued and 12,153,658 outstanding,
net of 269,550 shares held in Treasury, at
September 30, 1995 and June 30, 1995 31,585,228 31,619,814
------------ ------------
$ 32,042,481 $ 32,035,978
============ ============
</TABLE>
NOTE: The balance sheet at June 30, 1995, 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
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------------
1995 1994
----------- ------------
<S> <C> <C>
Income
Notes receivable interest $ 120,420 $ 244,328
Investment interest 304,482 115,180
Gain on disposition of real estate 6,840 --
Consulting and other 68,130 101,210
----------- ------------
499,872 460,718
----------- ------------
Expenses
Provision for possible losses -- 510,000
Salaries and related costs 100,100 182,791
General and administrative 95,144 91,876
Legal, audit and advisory 255,958 21,754
Foreclosed real estate 61,234 98,010
Management fees -- 70,621
Trustees' fees and expenses 17,100 13,800
----------- ------------
529,536 988,852
----------- ------------
Net loss $ (29,664) $ (528,134)
============ ============
Net loss per Share of Beneficial Interest $ (.00) $ (.04)
Weighted average number of
Shares of Beneficial Interest 12,153,658 12,423,208
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
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------------
1995 1994
-------------- -------------
<S> <C> <C>
Operating activities:
Net loss $ (29,664) $ (528,134)
Noncash expenses and revenues included in net loss:
Provision for possible losses -- 510,000
Net change in other receivables, assets and liabilities 1,287 708,379
Gains from disposition of foreclosed real estate (6,840) --
-------------- -------------
Net cash provided (used) by operating activities (35,217) 690,245
-------------- -------------
Investing activities:
Collections on mortgage loans 128,415 24,285
Collections on RPI note receivable 118,773 237,547
Advances on mortgage loans -- (38,536)
Expenditures on foreclosed real estate -- (60,502)
Proceeds from the disposition of foreclosed real estate 68,403 307,492
Net sales (purchases) of restricted cash investments 375 (141,193)
-------------- -------------
Net cash provided by investing activities 315,966 329,093
-------------- -------------
Net increase in unrestricted cash and cash equivalents 280,749 1,019,338
Unrestricted cash and cash equivalents at beginning of period 20,576,517 9,157,640
-------------- -------------
Unrestricted cash and cash equivalents at end of period $ 20,857,266 $ 10,176,978
============== =============
Schedule of noncash investing and financing activities:
Charge-offs to allowance for possible losses, net - NOTE B $ 10,392,517 $ 1,460,743
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
SEPTEMBER 30, 1995
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 months ended September 30, 1995, are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 1996. 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, 1995, as amended, and "Item 5. Other
Information" included herein.
The accompanying financial statements include the accounts of Liberte Investors
and Liberte Corp., a wholly-owned subsidiary which is currently inactive. All
intercompany balances and transactions have been eliminated. As used herein,
the "Trust" refers to Liberte Investors and its subsidiary.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Adoption of Authoritative Statements: Effective July 1, 1995, the Trust
adopted Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." SFAS No. 114 requires that the impaired value of a loan be based
on either (i) the present value of expected future cash flows discounted at the
loan's effective interest rate, or (ii) the fair value of the collateral if the
repayment of the loan is expected to be provided solely by the collateral. The
adoption of the new statement did not have a material effect on the Trust's
financial condition, results of operations, or cash flows.
At September 30, 1995, the Trust had one impaired loan with a carrying value of
$212,579 and thirteen impaired loans, from prior foreclosure related
deficiency judgments, with no carrying value. There is no allowance allocated
to these assets. Income from impaired loans is recorded on a cash basis, and
during the quarter ended September 30, 1995, totaled $68,130. During the
quarter ended September 30, 1995, the average month-end recorded investment in
impaired loans was $212,579.
Effective July 1, 1995, the Trust adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The statement requires that assets held for disposal be carried at the lower of
their carrying amount or fair value less cost to sell. The adoption of the new
statement did not have a material effect on the Trust's financial condition,
results of operations, or cash flows, as foreclosed real estate was previously
carried at fair value less estimated cost to sell. The balance sheet effect of
adopting SFAS No. 121 was the netting of allocated reserves against the related
foreclosed real estate. Restatement of previously issued financial statements
is not permitted.
At September 30, 1995, the Trust held assets to be disposed of consisting of
foreclosed real estate, in the form of land and developed single family lots.
The September 30, 1995, carrying amount of these assets was $4,991,918.
The single family lots are being sold on a quarterly basis and are expected to
be completely liquidated by the end of fiscal 1997. The carrying amount of
these lots was $2,136,544 at September 30, 1995.
6
<PAGE> 7
The balance of the Trust's foreclosed real estate consists of 14 parcels of
land totaling approximately 608 acres in San Antonio, Texas. Certain parcels
are under contract for sale and the balance are being marketed for sale at
prices comparable to similar assets in the San Antonio area. The Trust expects
to liquidate these parcels on a quarterly basis over the next two fiscal years.
Reclassifications: Certain amounts in previously issued financial statements
have been reclassified to conform to the September 30, 1995, presentation.
NOTE C - COMMITMENTS AND CONTINGENCIES
At September 30, 1995, the Trust had commitments for indemnification of
development bond issuers and other guarantees totaling $211,445.
Cash and cash equivalents at September 30, 1995, included restricted cash of
$58,870 for claims due to bankruptcy. At June 30, 1995, restricted cash
included $59,245 for claims due to bankruptcy.
The Trust is involved in routine litigation incidental to its business, which,
in the opinion of management, will not result in a material adverse impact on
the Trust's financial condition, results of operations, or cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Operations resulted in a loss of $29,664 for the quarter ended September 30,
1995, compared to a loss of $528,134 for the same period in fiscal 1995. The
substantial reduction in operating losses is due to various factors discussed
below, the largest factor being no provision for possible losses was taken in
the quarter ended September 30, 1995.
Notes receivable interest income decreased to $120,000 in the first quarter of
fiscal 1996 from $244,000 in the first quarter of fiscal 1995. The decrease
was the result of a lower average outstanding balance of earning notes,
partially offset by a nominal increase in yield. Average earning notes
decreased to $5.4 million with a yield of 8.52% in the first quarter of fiscal
1996 from $11.7 million with a yield of 8.23% in the first quarter of fiscal
1995. This reduction is primarily a result of the foreclosure of a $4.8
million note receivable (the underlying collateral has since been disposed of
for cash), and repayments of indebtedness by borrowers.
Average nonearning notes for the first quarter of fiscal 1996 totaled $286,000
compared to $268,000 for the comparable period in fiscal 1995. Assuming the
yield on these notes would have been the same as the yield on earning notes had
they been on earning status, interest income would have been $6,000 higher in
the first quarter of fiscal 1996 and $5,500 higher in the first quarter of
fiscal 1995.
Investment interest income increased to $304,000 in the first quarter of fiscal
1996 from $115,000 in the first quarter of fiscal 1995. This is primarily due
to an increase in unrestricted cash and cash equivalents to $20.9 million on
September 30, 1995, from $10.2 million on September 30, 1994.
Gain on disposition of real estate represents proceeds received from the sale
of foreclosed real estate in excess of its carrying value.
7
<PAGE> 8
Consulting fees and other income decreased in the quarter ended September 30,
1995, primarily due to the early buyout of the consulting agreement between the
Trust and Resurgence Properties Inc. in December 1994. This decrease was
partially offset by cash collections on impaired loans which had no carrying
value.
There was no new loan production during the quarter ended September 30, 1995.
The Trust committed to fund one new investment origination totaling $686,000
during the quarter ended September 30, 1994.
No provision for possible losses was made in the first quarter of fiscal 1996
compared to a provision of $510,000 in the first quarter of fiscal 1995. The
allowance for possible losses was $106,000 at September 30, 1995, compared to
$10.5 million at June 30, 1995, and $10.8 million at September 30, 1994. The
substantial reduction in the allowance is a result of applying such allowance
to the carrying value of foreclosed real estate upon the adoption of SFAS No.
121. The Trust believes the allowance for possible losses is adequate at
September 30, 1995. See NOTE B - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
The following is a summary of transactions affecting the Trust's allowance for
possible losses for the three months ended September 30, 1995, compared to the
three months ended September 30, 1994.
<TABLE>
<CAPTION>
Quarter Ended September 30, 1995
----------------------------------------------------
Mortgage Foreclosed
Loans Real Estate Total
-------------- -------------- -------------
<S> <C> <C> <C>
Balance at July 1, 1995 $ 129,901 $ 10,369,021 $ 10,498,922
Reclassifications - SFAS No. 121 -- (10,331,733) (10,331,733)
Amounts charged off, net of recoveries (23,496) (37,288) (60,784)
-------------- -------------- -------------
Balance at September 30, 1995 $ 106,405 $ -- $ 106,405
============== ============== =============
<CAPTION>
Quarter Ended September 30, 1994
----------------------------------------------------
Mortgage Foreclosed
Loans Real Estate Total
-------------- -------------- -------------
<S> <C> <C> <C>
Balance at July 1, 1994 $ 1,562,921 $ 10,146,474 $ 11,709,395
Provision for possible losses -- 510,000 510,000
Amounts charged off, net of recoveries 45,573 (1,506,316) (1,460,743)
-------------- -------------- -------------
Balance at September 30, 1994 $ 1,608,494 $ 9,150,158 $ 10,758,652
============== ============== =============
</TABLE>
Salaries and related costs were substantially reduced for the quarter ended
September 30, 1995, as compared to the same period in the prior year.
Reductions during fiscal 1996 were primarily a result of a reduced compensation
package for the Chief Executive Officer as compared to fiscal 1995.
Legal, audit and advisory expenses increased mainly due to expenses incurred in
connection with activities related to potential acquisition candidates. During
September 1995, however, the Trust's discussions with these candidates
terminated without reaching an agreement.
Management fees were eliminated in the first quarter of fiscal 1996 due to the
termination of the Management Agreement with Lomas Management in February 1995.
The Trust is currently self managed.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The Trust is currently debt free. Its principal funding requirements are
operating expenses, including legal, audit, and advisory expenses expected to
be incurred in connection with evaluating potential acquisition candidates.
The Trust's primary sources of funding operating expenses are collections on
notes receivable, proceeds from the sale of foreclosed real estate, and
investment interest.
MATERIAL CHANGES IN FINANCIAL CONDITION
The adoption of certain authoritative accounting statements resulted in a
netting of substantially all of the Trust's allowance for possible losses on
its foreclosed real estate against the previously reported gross carrying
value. See NOTE B - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedules (submitted to the SEC for its
information).
(b) Reports on Form 8-K:
None.
10
<PAGE> 11
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: November 10, 1995 By: /s/ TED ENLOE
------------------------------------------
Ted Enloe
President and Chief Executive Officer
Date: November 10, 1995 By: /s/ BRADLEY S. BUTTERMORE
-----------------------------------------
Bradley S. Buttermore
Principal Accounting and Financial Officer
11
<PAGE> 12
LIBERTE INVESTORS
INDEX TO EXHIBITS
Exhibit No.
(27) Financial Data Schedules (submitted to the SEC for
its information)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 20,916,136
<SECURITIES> 0
<RECEIVABLES> 6,240,832
<ALLOWANCES> 106,405
<INVENTORY> 4,991,918
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,042,481
<CURRENT-LIABILITIES> 457,253
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 31,585,228
<TOTAL-LIABILITY-AND-EQUITY> 32,042,481
<SALES> 0
<TOTAL-REVENUES> 499,872
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 529,536
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (29,664)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,664)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
