<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 June 30, 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 0-6877
SANTA FE FINANCIAL CORPORATION
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 95-2452529
----------------------------- ------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
Mailing Address: P.O. Box 80037
San Diego, CA 92138
Street Address: 2251 San Diego Avenue, Suite A-151
San Diego, CA 92110
(619) 298-7201
-------------
(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, and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X No 2) Yes X No
--- --- --- ---
The number of shares outstanding of the issuer's common stock as of
August 13, 1996: Common Stock, $.10 par value - 638,019 shares
Page 1 of 10
<PAGE> 2
INDEX
SANTA FE FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
Consolidated balance sheets--June 30, 1996 (Unaudited)
and December 31, 1995 3
Consolidated Statements of Income (Unaudited)--Quarters
ended June 30, 1996 and 1995 and for Six Months ended
June 30, 1996 and 1995 4
Consolidated statements of cash flow (Unaudited)--Six
Months ended June 30, 1996 and 1995 5
Notes to consolidated financial statements--June 30, 1996 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
SANTA FE FINANCIAL CORPORATION & SUBSIDARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION> June 30, December 31,
1996 1995
(Unaudited)
-------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 8,481,825 $ 7,016,804
Marketable securities 874,515 --
Other current assets 35,878 23,245
Deferred income taxes 45,480 45,480
Income tax receivable 30,800 --
Current portion of notes receivable, net 11,423 15,119
---------- ----------
Total currents assets 9,479,922 7,100,648
---------- ----------
Investments
Investment in Justice Investors 4,548,270 4,457,850
Other investments 2,431 2,431
---------- ----------
4,550,701 4,460,281
---------- ----------
Property, furniture and fixtures
Furniture and fixtures 97,649 94,257
Less allowances for depreciation (79,211) (75,287)
---------- ----------
18,438 18,970
---------- ----------
Other assets
Notes receivable 130,636 130,636
Deferred income taxes 1,207 1,207
---------- ----------
Total assets $ 14,180,904 $ 11,711,742
=========== ===========
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued expenses $ 121,765 $ 68,163
Income taxes payable -- 81,203
---------- ----------
Total current liabilities 121,765 149,366
Minority interest 3,062,575 3,045,360
Shareholders' equity
Common stock - par value $.10 per share;
Authorized 1,500,000 issued & outstanding
548,019 at Dec. 31, 1995, and 638,019 at
June 30, 1996 63,802 54,802
Additional paid-in capital 8,277,137 5,856,137
Retained earnings 2,655,625 2,606,077
---------- ----------
Total shareholders' equity 10,996,564 8,517,016
----------- -----------
Total liabilities & shareholders' equity $ 14,180,904 $ 11,711,742
=========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE> 4
SANTA FE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION> Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenue
Partnership income $ 340,929 $ 304,928 $ 673,548 $ 609,587
Interest income 121,427 110,063 220,721 212,576
Dividends 4,000 -- 4,000 --
Other income 28,176 26,091 57,224 147,942
-------- -------- -------- --------
494,532 441,082 955,493 970,105
-------- -------- -------- --------
Cost and expenses
General and administrative 121,842 112,131 222,849 208,255
Audit and legal 18,142 19,500 45,392 39,000
Litigation - GPG 96,334 76,845 164,865 120,176
Depreciation 1,962 915 3,924 2,687
-------- -------- -------- --------
238,280 209,391 437,030 370,118
-------- -------- -------- --------
Income before income taxes
and minority interest 256,252 231,691 518,463 599,987
Income taxes 105,000 94,000 207,000 198,920
-------- -------- -------- --------
Income before minority interest 151,252 137,691 311,463 401,067
Minority interest 60,855 59,602 124,912 115,349
-------- -------- -------- --------
Net income $ 90,397 $ 78,089 $ 186,551 $ 285,718
======== ======== ======== ========
Net income per share $ 0.14 $ 0.14 $ 0.31 $ 0.53
======== ======== ======== ========
Weighted average shares
outstanding 638,019 538,019 603,014 543,047
======== ======== ======== ========
Dividends per share $ 0.25 $ 0.50 $ 0.25 $ 0.50
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 5
SANTA FE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION> Six Months Ended June 30,
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 186,551 $ 285,718
Adjustments to reconcile net income
to net cash used in
operating activities:
Equity in net income of limited (673,548) (609,587)
partnership
Minority interest 17,215 21,114
Amortization (44,352) (44,352)
Depreciation 3,924 2,687
(Increase) decrease in other assets (12,634) 46,265
Increase (decrease) in accounts payable
and expenses 53,602 (12,225)
Change in deferred income taxes and income
and income taxes payable and receivable (112,003) (17,190)
---------- ----------
Net cash (used in) operating activities (581,245) (327,570)
INVESTING ACTIVITIES
Cash distributions from limited partnership 627,480 627,480
Purchase of other assets (3,392) -
Purchase of securities (874,515) -
---------- ---------
Net cash provided by (used in) financing
activities (250,427) 627,480
----------- ----------
FINANCING ACTIVITIES
Sale of stock 2,430,000 2,295,834
Dividends paid (137,003) (274,010)
Proceeds from receivable 3,696 4,548
----------- -----------
Net cash provided by financing
activities 2,296,693 2,026,373
----------- -----------
Increase in cash & cash equivalents 1,465,021 2,326,283
Cash & cash equivalents at beginning
of period 7,016,804 4,795,954
----------- -----------
Cash & cash equivalents at end of period $ 8,481,825 $ 7,122,237
=========== ===========
See accompanying notes.
</TABLE>
<PAGE> 6
SANTA FE FINANCIAL CORPORATION AND SUSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Significant Accounting Policies
---------------------------------------------------------
The financial statements included herein have been prepared by Santa Fe
Financial Corporation. (the "Company"), without audit, according to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the disclosures that are made are
adequate to make the information presented not misleading. Further, the
financial statements reflect, in the opinion of management, all adjustments
(which included only normal recurring adjustments) necessary to state fairly
the financial position and results of operations as of and for the periods
indicated.
It is suggested that these financial statements be read in conjunction with
the audited financial statements and the notes therein included in the
Company's Form 10-K.
The results of operations for the three and six months ended June 30, 1996
are not necessarily indicative of results to be expected for the full fiscal
year ending December 31, 1996.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard No. 121, (Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of). The adoption of the
new standard had no effect on the financial statements.
2. Sale of Stock
-------------
On March 11, 1996, the InterGroup Corporation exercised the outstanding
warrants to purchase 90,000 shares of the Company's common stock at $27.00
per share for proceeds of $2,430,000.
<PAGE> 7
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Foward-Looking Statements and Projections
The Company may from time to time make forward-looking statements and
projections concerning future expectations. When used in this discussion,
the words "estimate," "project," "anticipate" and similar expressions, are
intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties, including those discussed below and in
the Company's Form 10-K for the year ended December 31, 1995, that could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as to the date hereof. The portions of the Form 10-K
referred to in this paragraph are expressly incorporated herein by reference.
The Company undertakes no obligation to publicly release the results of any
revisions to those forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
The Company's principal sources of revenue continue to be derived from the
investment of its 64.10%-ownwed subsidiary, Portsmouth Square, Inc., in the
Justice Investors limited partnership and income received from investment of
its cash and securities assets. The partnership derives most of its income
from its lease with Holiday Inn and from a lease with Evon Garage Corporation.
Quarter Ended June 30, 1996 Compared to Quarter Ended June 30, 1995
Comparison of the second quarter operating results of 1996 to the second
quarter of 1995 shows that total revenues increased 12.1%, costs and expenses
increased 13.8%, income before tax and minority interest increased 10.6%, and
net income increased 15.8%.
The increase in total revenues reflects a decline in expenses at the
partnership level, primarily attributable to the refinanciang of the hotel
asset in 1995, an increase in garage revenues and an increase in investment
income. The increase in expenses is primarily attributable to rising costs
associated with the litigation filed by Guinness Peat Group plc ("GPG"),
which is discussed in "Legal Proceedings" in Part II of this report. The
modest increase in general and administrative expenses was due to higher costs
associated with the annual meetings of the Company and its subsidiary and the
payment of director's fees to both incoming and outgoing directors.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--CONTINUED
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Comparison of the results of operations for the first six months of 1996 to
the first six months of 1995 reveals that total revenues decreased 1.5%,
expenses increased approximately 18.1%, income before taxes and minority
interest decreased 13.6% and net income decreased 34.7%
The decline in total revenues for the Company of 1.5% for the first six months
of 1996 as compared to the first six months of 1995 is primarily due to a
nonrecurring recovery on a bankruptcy claim in the amount of $95,083 during the
first quarter of 1995. If that nonrecurring item of income was eliminated,
total revenues would have increased 9.2% and income before taxes and minority
interest would have increased 2.7%.
The increase in costs and expenses of approximately 18% is primarily
attributable to the rising costs of the litigation filed by GPG. The modest
increase in general and administrative expenses was due to higher costs
associated with the annual meetings of the Company and its subsidiary this
year and the payment of director's fees during the second quarter to both
incoming and outgoing directors.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 1996, the Company had cash, cash equivalents and marketable
securities of $9,356,340, after the payment of a cash dividend equal to $.25
per common share during the second quarter. The increase in the Company's
cash position from year end December 31, 1995, is primarily attributable to
The InterGroup Corporation's exercise of its warrants whereby it purchased
90,000 shares of the Company's common stock at $27.00 per share on March 11,
1996. The exercise of those warrants resulted in the investment of $2,430,000
in the Company, which enhanced its liquidity and book value.
The Company remains liquid with a current ratio of 78.5 to 1 and management
believes that its capital resources are currently adequate to meet its short
and long term obligations. The Company is diversifying its investment of its
cash assets in an effort to obtain an overall higher yield while seeking to
minimize the associated increased degree of risk. The Company may also make
limited investments in equities when deemed appropriate.
Expenses incurred by the Company as a result of the litigation filed by GPG
will continue to impact operating results and the Company's cash resources.
From the initiation of the lawsuit to June 30, 1996, those expenses now total
$487,025. As a result of the high costs associated with that litigation, the
Company believed it prudent to suspend payment of any dividends pending
resolution of that action, at which time its Board of Directors will
reexamine its dividend policy.
<PAGE> 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, Guinness Peat Group plc ("GPG") and its subsidiary,
Allied Mutual Insurance Services Limited ("AMI") had filed a shareholders
derivative suit against certain directors of the Company, The InterGroup
Corporation ("InterGroup") and the Company as a nominal defendant.
On May 3, 1996, the Superior Court affirmed its prior telephonic ruling of
April 5, 1996 granting InterGroup's motion for summary judgment, in its
entirety, on the grounds that none of the causes of action asserted against
InterGroup in the first amended complaint had any merit. Subsequently, on
May 24, 1996, the Superior Court granted GPG and AMI's motion to again amend
their complaint to add a new cause of action alleging fraud against InterGroup.
On July 2, 1996, GPG and AMI filed a third amended complaint. Discovery in
this action is still continuing and the trial date has now been set for
November 15, 1996.
Item 4. Submission of Matters to a Vote of Security Holders.
The information called for by this item relating the Company's Annual Meeting
of Shareholder held on May 7, 1996, was previously reported in the Company's
Form 10-Q Report for the quarterly period ended March 31, 1996 and is
incorporated herein by this reference.
Item 5. Other Information
At a special meeting of the Board of Directors held on July 25, 1996, the
Board elected to suspend the payment of all regular and special dividends
pending resolution of the derivative suit filed by GPG and AMI. The Board
is expected to reexamine the Company's dividend policy following the
termination of that litigation.
<PAGE> 10
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - the Financial Data Schedule is filed as an exhibit
to this report.
(b) Registrant filed the following reports on Form 8-K during the
period covered by this report:
DATE OF REPORT ITEM(S) REPORTED
April 9, 1996 Resignation of R.N. Gould as President,
Chairman of the Board and a Director;
Appointments of William J. Nance as a
Director and John V. Winfield as
President and Chairmen of the Board.
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.
SANTA FE FINANCIAL CORPORATION
(Registrant)
Date: August 14, 1996
by /s/ John V. Winfield
- - - ------------------------------
John V. Winfield, President
and chairman of the Board
Date: August 14, 1996
by /s/ L. Scott Sheilds
- - - -----------------------------
L. Scott Shields, Treasurer
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF INCOME
OF SANTA FE FINANCIAL CORPORATION AND SUBSIDIARY SET FORTH IN ITS
FORM 10-Q REPORT FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q REPORT.
</LEGEND>
<CIK> 0000086759
<NAME> SANTA FE FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 8481825
<SECURITIES> 874515
<RECEIVABLES> 172859
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9479922
<PP&E> 97649
<DEPRECIATION> 79211
<TOTAL-ASSETS> 14180904
<CURRENT-LIABILITIES> 121765
<BONDS> 0
0
0
<COMMON> 63802
<OTHER-SE> 13995337
<TOTAL-LIABILITY-AND-EQUITY> 14180904
<SALES> 673548
<TOTAL-REVENUES> 955493
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 437030
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 518463
<INCOME-TAX> 207000
<INCOME-CONTINUING> 186551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 186551
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
