<PAGE>
FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 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 33-02105
----------
Newman Financial Corporation
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1007510
(State or other Jurisdiction (IRS Employer
of Incorporation) Identification Number)
1801 CALIFORNIA STREET, SUITE 3700; DENVER, COLORADO
(Address of principal executive offices)
80202-2637
(Zip Code)
(303) 293-8500
(Registrant's telephone number, including area code)
Indicate by checkmark 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 of time that
the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
(1) Yes XX No
---- ----
(2) Yes XX No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock: 1,000 shares
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached as Exhibit A.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto.
BACKGROUND AND LIQUIDITY
The Registrant had issued two series of its Collateralized Multifamily
Housing Bonds ("Bonds") pursuant to an Indenture ("Indenture"), dated as of
July 1, 1986, between the Registrant and First Interstate Bank of Denver,
National Association, as trustee ("Trustee"). On July 25, 1986, the
Registrant issued $6,128,400 principal amount of its Bonds, Series 1986-A
(GNMA security) (the "Series 1986-A Bonds") pursuant to the Indenture and a
Series 1986-A Supplement. On August 26, 1986, the Registrant issued
$7,380,000 principal amount of its Collateralized Multifamily Housing Bonds,
Series 1986-B (GNMA Security) (the "Series 1986-B Bonds") pursuant to the
Indenture and a Series 1986-B Supplement. The proceeds of the offerings were
used to acquire certificates ("GNMA Certificates") in the principal amount of
$6,128,400 and $7,365,000 guaranteed by the Government National Mortgage
Association. The Series 1986-A Bonds were redeemed in full on August 3,
1990. On February 23, 1996, the Registrant defeased its Series 1986-B bonds
by depositing into escrow with the bond trustee two United States Government
Treasury Bills and a minor amount of cash, together sufficient to pay bond
debt service on March 20, 1996, and to redeem all remaining bonds at a price
of 100% of par value (accreted value in the case of compound interest bonds),
plus accrued interest on August 20, 1996. Accordingly, the Series 1986-B
bonds are now considered extinguished. All Series 1986-B bonds will be
called for redemption on August 20, 1996, and will cease to accrue interest
(or compound) thereafter. The GNMA mortgage-backed security underlying the
Series 1986-B bonds was released to the Registrant upon defeasance of the
Series 1986-B bonds, and the GNMA mortgage-backed security was sold by the
Registrant. As a result of the above actions, the Registrant has effectively
disposed of its only significant asset and extinguished its only significant
liability.
BUSINESS ENVIRONMENT AND EVENTS
The Registrant competed with the GNMA whole loan market to provide
funding for FHA insured multifamily housing project loans. During periods
when interest rate yield curves are relatively steep, the Registrant has a
competitive advantage over the GNMA whole loan market because it can
structure debt as a combination of serial bonds, term bonds, and deferred
interest bonds, thereby taking advantage of lower interest rates on the "low
end" of the yield curve. Conversely, during periods when interest rate yield
curves are relatively flat, the Registrant has no advantage over the GNMA
whole loan market and is actually at a disadvantage because of legal and
underwriting costs associated with issuing a series of bonds under the
Indenture.
For the past several years, the interest rate yield curve has been
relatively flat and the Registrant has been unable to compete efficiently
with the GNMA whole loan market. As a consequence, the Registrant has not
issued Bonds since the initial two series of Bonds in 1986.
<PAGE>
RESULTS OF OPERATIONS AND TRENDS
Generally, revenues and expenses are relatively constant as a result of
fixed rate GNMA securities producing revenue to pay fixed rate bond interest.
Revenue for GNMA securities represents virtually 100 percent (100%) of all
revenues. Bond interest and the amortization of organization costs represent
97 percent (97%) of all expenses.
During the three months ended March 31, 1996 and 1995, the revenues for
the Registrant were $58,932 and $170,026, respectively, which consisted
primarily of interest received from the GNMA Certificates, amortization of
discounts on the GNMA Certificates, and interest earned on temporary cash
investments. Revenues decreased because of the sale of the GNMA security
during the three month period ended March 31, 1996. Payment of interest on
the outstanding Bonds and the amortization of organization costs were the
major sources of costs and expenses. Interest expense decreased from
$161,321 to $53,825 for the three month periods ending March 31, 1995 and
1996, respectively, due to the defeasance of the Series 1986-B bonds during
the quarter. Expenses incurred in disposing the GNMA security, including
legal expenses, were approximately $113,000 for the three month period
ending March 31, 1996. Thus, total costs and expenses increased three
percent (3%) during the three months ended March 31, 1996 and 1995, primarily
due to the disposition of the GNMA security.
During the nine months ended March 31, 1996 and 1995, interest income
decreased to $391,982 from $503,486 due to the disposition of the GNMA
security during the period ended March 31, 1996. Interest expense decreased
from $483,814 to $376,684 for the nine month period ended March 31, 1995 and
1996, respectively, due to the defeasance of the Series 1986-B bonds.
Expenses incurred in disposing the GNMA security approximated $113,000 for
the nine months ended March 31, 1996. The disposition expense was the
primary cause of increasing total costs and expenses approximately 1.5% for
the nine month period ended March 31, 1996, as compared to the same period
ended March 31, 1995.
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company has defeased the Series 1986-B Bonds to the first
optional redemption date, August 20, 1996. When the defeasance
occurred, all bonds were secured by an escrow of U.S. Government
obligations and a minor amount of cash; and all bonds will be
redeemed on August 20, 1996, at a price of 100% of par value
(accreted value in the case of compound interest bonds), plus
accrued interest.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Indenture dated as of July 1, 1986 (the "Indenture") between the
Company and First Interstate Bank of Denver National Association,
as Trustee (the "Trustee"), previously filed as Exhibit 4.1 to
the Company's Post-Effective Amendment No. 1 to Form S-11,
Registration No. 33-02105 and incorporated by reference.
Series Supplement to the Indenture, dated as of July 1, 1986,
relating to Series 1986-A Bonds, previously field as Exhibit 4 to
the Company's Form 8-K filed on August 6, 1986 and incorporated
by reference.
<PAGE>
Series Supplement to the Indenture, dated as of August 1, 1986,
relating to Series 1986-B Bonds, previously filed as Exhibit 4 to
the Company's Form 8-K filed on September 3, 1986 and
incorporated by reference.
27 Financial Data Schedule
b. Reports on Form 8-K. The Registrant has filed a Form 8-K (Items 2
and 5) during the quarter ended March 31, 1996, dated March 6, 1996.
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.
Newman Financial Corporation
(Registrant)
Dated: May 3, 1996
By: /s/ DAVID W. CURTISS
-------------------------------------
David W. Curtiss, Treasurer
and Principal Financial Officer
<PAGE>
Exhibit A to Form 10-Q
for Quarter Ended March 31, 1996
NEWMAN FINANCIAL CORPORATION
INTERIM FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
<PAGE>
NEWMAN FINANCIAL CORPORATION
BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
<TABLE>
<CAPTION>
MARCH 1996 JUNE 1995
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $183,730 $ 4,240
Restricted assets
Cash and temporary cash investments -- 244,409
Investment in government securities, net of discount
of -0- and $123,890 at March 31, and June 30
respectively -- 6,885,247
Accrued interest receivable -- 53,734
-------- ----------
-- 7,183,390
Receivable from Parent Company 16,564 --
Organization costs, net of accumulated
amortization 3,205 3,300
-------- ----------
$203,499 $7,190,930
-------- ----------
-------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Accounts payable $ -- $ 4,144
Payable to parent company -- 16,936
Accrued interest payable -- 23,000
Bonds payable, including accrued interest of -0- and
$3,392,846 at March 31 and June 30, net of
discount of -0- and $88,238 at March 31 and
June 30, respectively -- 6,881,397
-------- ----------
Total liabilities -- 6,925,477
Stockholder's equity
Common stock-authorized, 5,000 shares of $.10 par
value, issued and outstanding, 1,000 shares 100 100
Capital in excess of par value 254,343 254,343
Retained earnings (Deficit) (34,389) 27,565
-------- ----------
220,054 282,008
Less note receivable-parent company (16,555) (16,555)
-------- ----------
203,499 265,453
-------- ----------
$203,499 $7,190,930
-------- ----------
-------- ----------
</TABLE>
The accompanying notes are an integral part of these interim statements.
<PAGE>
NEWMAN FINANCIAL CORPORATION
STATEMENTS OF OPERATIONS
PERIODS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Interest income $ 58,932 $170,026 $ 391,982 $503,486
Costs and Expenses
Interest expense 53,825 161,321 376,684 483,814
Amortization of organization costs 32 32 95 95
GNMA Disposition Expense 113,320 -- 113,320 --
General and Administrative expenses 464 1,248 9,813 8,628
--------- -------- --------- --------
167,641 162,601 499,912 492,537
--------- -------- --------- --------
Earnings (Loss) before income taxes (108,709) 7,425 (107,930) 10,949
Income tax (expense) benefit 40,800 (2,700) 40,500 (4,100)
--------- -------- --------- --------
Income (Loss) before extraordinary item (67,909) 4,725 (67,430) 6,849
--------- -------- --------- --------
Gain on extinguishment of debt
(less applicable income taxes of
$3,000) (Note A3) 5,476 -- 5,476 --
--------- -------- --------- --------
Net earnings (loss) $ (62,433) $ 4,725 $ (61,954) $ 6,849
--------- -------- --------- --------
--------- -------- --------- --------
Earnings (Loss) per common before
extraordinary item $ (67.91) $ 4.73 $ (67.43) $ 6.85
--------- -------- --------- --------
--------- -------- --------- --------
Net earnings (loss) per common $ (62.43) $ 4.73 $ (61.95) $ 6.85
--------- -------- --------- --------
--------- -------- --------- --------
Weighted average number of common
shares outstanding 1,000 1,000 1,000 1,000
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NEWMAN FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (61,954) $ 6,849
Adjustments required to reconcile net earnings
(loss) to net cash provided by operating activities:
Amortization of GNMA discounts (2,762) (3,551)
Amortization of organization costs 95 95
Amortization of bond discount 1,973 2,537
Decrease (increase) in accrued interest receivable 53,656 (183)
Increase (decrease) in accounts payable (2,922) (1,257)
Increase (decrease) in accrued interest
payable (including interest on
Compound Interest Bonds) 333,218 361,057
----------- ---------
Net cash provided by operating activities 321,304 365,547
----------- ---------
Cash flows from investing activities:
Net decrease in restricted cash 244,409 172,065
Principal payments on GNMA security 40,903 42,030
Net advances from (to) parent (33,500) 10,380
----------- ---------
Net cash provided by investing activities 251,812 224,475
----------- ---------
Cash flows from financing activities:
Payment of bond principal (315,000) (590,000)
Sale of GNMA securities 7,125,979 --
Escrow deposit with trustee to defease bonds payable (7,204,605) --
----------- ---------
Net cash used in financing activities (393,626) (590,000)
----------- ---------
NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS 179,490 22
Unrestricted cash at beginning of period 4,240 710
----------- ---------
Unrestricted cash at end of period $ 183,730 $ 732
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NEWMAN FINANCIAL CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
NOTES A--GENERAL
1. ORGANIZATION
Newman Financial Corporation (the Company) was incorporated in the
State of Delaware on August 30, 1985 and is a wholly owned subsidiary
of Newman Financial Services, Inc. (NFSI). The Company was organized
for the sole purpose of issuing and selling bonds, notes, and other
obligations which would be collateralized by certain mortgage
collateral guaranteed by the Government National Mortgage Association
(GNMA) or mortgage notes that are insured by the United States
Department of Housing and Urban Development acting through the
Federal Housing Administration pursuant to the National Housing Act,
as amended, together with certain funds and other collateral. In
June 1986, a shelf registration statement filed with the Securities
and Exchange Commission became effective authorizing the Company to
issue up to $250,000,000 in Collateralized Multifamily Housing Bonds.
2. INTERIM FINANCIAL INFORMATION
The financial information contained herein is unaudited but includes
all normal and recurring adjustments which, in the opinion of
management, are necessary to present fairly the information set
forth. The financial statements should be read in conjunction with
the Notes to Financial Statements which are included in the Company's
Form 10-K dated September 9, 1995.
3. DEBT EXTINGUISHMENT
On February 23, 1996, the Registrant defeased its Series 1986-B bonds
by depositing into escrow with the bond trustee two United States
Government Treasury Bills and a minor amount of cash, together
sufficient to pay bond debt service on March 20, 1996, and to redeem
all remaining bonds at a price of 100% of par value (accreted value
in the case of compound interest bonds), plus accrued interest on
August 20, 1996. Accordingly, the Series 1986-B bonds are now
considered extinguished. All Series 1986-B bonds will be called for
redemption on August 20, 1996, and will cease to accrue interest (or
compound) thereafter.
The GNMA mortgage-backed security underlying the Series 1986-B bonds
was released to the Registrant upon defeasance of the Series 1986-B
bonds, and the GNMA mortgage-backed security was sold by the
Registrant.
As a result of the above actions, the Registrant has effectively
disposed of its only significant asset and extinguished its only
significant liability.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF MARCH 31, 1996 AND STATEMENT OF OPERATIONS FOR THE NINE-MONTHS ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 183,730
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 203,499
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 203,399
<TOTAL-LIABILITY-AND-EQUITY> 203,499
<SALES> 0
<TOTAL-REVENUES> 391,982
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 123,228
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 376,684
<INCOME-PRETAX> (107,930)
<INCOME-TAX> 40,500
<INCOME-CONTINUING> (67,430)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,476
<CHANGES> 0
<NET-INCOME> (61,954)
<EPS-PRIMARY> 61.95
<EPS-DILUTED> 0
</TABLE>
