<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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 92138-0037
Street Address: 2251 San Diego Avenue, Suite A-151
San Diego, CA 92110-2926
(619) 298-7201
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(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
October 13, 1996: Common Stock, $.10 par value - 638,019 shares
Page 1 of 10
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INDEX
SANTA FE FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets--September 30, 1996 (Unaudited)
and December 31, 1995 3
Consolidated Statements of Income (Unaudited)--Quarters
ended September 30, 1996 and 1995 and for the Nine Months
ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flow (Unaudited)--Nine
Months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements--September 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> September 30, December 31,
1996 1995
(Unaudited)
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,776,957 $ 7,016,804
Marketable securities 6,563,983 --
Other current assets 5,438 23,245
Deferred income taxes 45,480 45,480
Current portion of notes receivable, net 3,874 15,119
---------- ----------
Total currents assets 9,395,732 7,100,648
---------- ----------
Investments
Investment in Justice Investors 4,887,259 4,457,850
Other investments 2,431 2,431
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4,889,690 4,460,281
---------- ----------
Property, furniture and fixtures
Furniture and fixtures 97,649 94,257
Less allowances for depreciation (81,173) (75,287)
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16,476 18,970
---------- ----------
Other assets
Notes receivable 230,683 130,636
Deferred income taxes 1,207 1,207
----------- -----------
Total assets $ 14,533,788 $ 11,711,742
=========== ===========
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued expenses $ 113,290 $ 68,163
Income taxes payable 110,200 81,203
----------- -----------
Total current liabilities 223,490 149,366
Minority interest 3,124,945 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
September 30, 1996 63,802 54,802
Additional paid-in capital 8,277,137 5,856,137
Retained earnings 2,844,414 2,606,077
----------- -----------
Total shareholders' equity 11,185,353 8,517,016
----------- -----------
Total liabilities & shareholders' equity $ 14,533,788 $ 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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- --------- -------- -----------
<S> <C> <C> <C> <C>
Revenues
Partnership income $ 630,553 $ 424,913 $1,304,101 $1,034,500
Interest income 167,204 107,813 393,125 320,388
Dividends 5,200 -- 4,000 --
Other income 28,176 23,676 85,400 171,618
-------- -------- --------- ---------
831,133 556,402 1,786,626 1,526,506
-------- -------- --------- ---------
Costs and expenses
General and administrative 87,912 72,561 310,762 226,010
Audit and legal 16,730 14,700 62,122 83,305
Litigation - GPG 157,060 78,024 321,925 223,400
Depreciation 1,962 1,254 5,885 3,941
-------- -------- --------- ---------
263,664 166,539 700,694 536,656
-------- -------- --------- ---------
Income before income taxes
and minority interest 567,469 389,863 1,085,932 989,850
Income taxes 249,000 162,000 456,000 360,920
-------- -------- --------- ---------
Income before minority interest 318,469 227,863 629,932 628,930
Minority interest 129,681 85,570 254,593 200,919
-------- -------- --------- ---------
Net income $ 188,788 $ 142,293 $ 375,339 $ 428,011
======== ======== ========= =========
Net income per share $ 0.30 $ 0.26 $ 0.61 $ 0.79
======== ======== ========= =========
Weighted average shares
outstanding 638,019 548,019 614,698 544,722
======== ======== ========= =========
Dividends per share $ -- $ 0.40 $ 0.25 $ 0.90
======== ======== ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 5
SANTA FE FINANCIAL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION> Nine Months Ended September 30,
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 375,339 $ 428,011
Adjustments to reconcile net income to
net cash used in operating activities:
Equity in net income of limited (1,304,101) (1,034,500)
partnership
Minority interest 79,585 12,448
Amortization (66,528) (66,528)
Depreciation 5,886 3,947
Decrease in other assets 17,761 46,837
Increase in accounts payable and expenses 45,127 9,771
Change in deferred income taxes and income
and income taxes payable and receivable 28,997 31,810
---------- ---------
Net cash used in operating activities (817,934) (568,210)
INVESTING ACTIVITIES
Cash distributions from limited partnership 941,220 941,220
Purchase of other assets (3,392) (9,146)
Purchase of securities (6,563,983) -
---------- ---------
Net cash provided by (used in) financing
activities (5,626,155) 932,074
----------- ----------
FINANCING ACTIVITIES
Sale of stock 2,430,000 2,295,835
Increase notes receivable (100,000) -
Dividends paid (137,003) (274,010)
Proceeds from receivable 11,245 11,579
----------- -----------
Net cash provided by financing
activities 2,204,242 2,033,404
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Decrease (increase) in cash & cash equivalents (4,239,847) 2,397,268
Cash & cash equivalents at beginning
of period 7,016,804 4,795,954
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Cash & cash equivalents at end of period $ 2,776,957 $ 7,193,222
=========== ===========
See accompanying notes to consolidated financial statements.
</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 nine months ended September 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.
3. Additional Rent
---------------
Partnership income for the third quarter ended September 30, 1996 includes an
estimated $262,000 relating to additional rents due, as determined on an annual
basis, in accordance with the partnership's lease with Holiday Inn.
<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 estimated additional rents due
as discussed below, uncertainties such as general economic conditions,
securities markets, litigation and other factors discussed 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 September 30, 1996 Compared to the Quarter Ended
September 30, 1995
Comparison of the third quarter operating results of 1996 to the third quarter
of 1995 shows that total revenues increased 49.4%, costs and expenses increased
58.3%, income before tax and minority interest increased 45.6%, and net income
increased 32.7%.
The increase in total revenues is primarily attributable to the inclusion of
an estimated $262,000 in partnership income for the third quarter of 1996
relating to additional rents due in accordance with the partnership's lease
with Holiday Inn which became effective on January 1, 1995. Additional rent
is determined on an annual basis and, if applicable, paid once a year. In the
prior year, additional rents due of approximately $159,000 were recorded in
partnership income for the fourth quarter at which time they became estimatable.
The increase in total revenues also 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 of 59.9%. 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.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--CONTINUED
Nine Months Ended September 30, 1996 Compared to the Nine Months
Ended September 30, 1995
Comparison of the results of operations for the first nine months of 1996 to
the first nine months of 1995 reveals that total revenues increased 17.0%,
expenses increased approximately 30.6%, income before taxes and minority
interest increased 9.7% and net income decreased 12.3%
The increase in total revenues is primarily attributable to the inclusion of
an estimated $262,000 in partnership income during the third quarter of 1996
relating to additional rents due in accordance with the partnership's lease
with Holiday Inn which became effective on January 1, 1995. Additional rent
is determined on an annual basis and, if applicable, paid once a year. In the
prior year, additional rents due of approximately $159,000 were recorded in
partnership income for the fourth quarter at which time they became estimatable.
A comparison of total revenues for the two nine month periods is also impacted
by a nonrecurring recovery on a bankruptcy claim in the amount of $95,083
during the first quarter of 1995.
The increase in costs and expenses is primarily attributable to the rising
costs of the litigation filed by GPG. The increase in general and
administrative expenses is due to higher costs associated with the annual
meetings of the Company and its subsidiary this year, the payment of director's
fees during the second quarter to both incoming and outgoing directors, fees
paid to a consultant of the subsidiary and increases in the salary of the
Company's Chief Executive Officer.
FINANCIAL CONDITION AND LIQUIDITY
At September 30, 1996, the Company had cash, cash equivalents and marketable
securities of $9,340,940, 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 approximately 42 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 September 30, 1996, those expenses now
total $644,084. 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.
Discovery and motions in this action are still continuing and the trial date
of November 15, 1996 has been vacated by the court with no new date having been
set. Motions for summary judgment brought by the director defendants were
denied by the court; however, InterGroup received a tentative ruling granting
its motion for summary judgment which is awaiting final determination by the
court.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
period covered by this report.
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 did not file any reports on Form 8-K during the
period covered by this report:
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: October 14, 1996
by /s/ John V. Winfield
- ------------------------------
John V. Winfield, President
and Chairman of the Board
Date: October 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 SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 2776957
<SECURITIES> 6563983
<RECEIVABLES> 230683
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9395732
<PP&E> 97649
<DEPRECIATION> 81173
<TOTAL-ASSETS> 14533788
<CURRENT-LIABILITIES> 223490
<BONDS> 0
0
0
<COMMON> 63802
<OTHER-SE> 14469986
<TOTAL-LIABILITY-AND-EQUITY> 14533788
<SALES> 1304101
<TOTAL-REVENUES> 1786626
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 700694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1085932
<INCOME-TAX> 456000
<INCOME-CONTINUING> 375339
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 375339
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
