<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1996
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or
[ ] TRANSITION REPORT UNDER 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 0-4584
THE UNITED GROUP, INC.
--------------------------------------------------------
(Name of small business issuer specified in its charter)
56-0931793
-------------------------
(I.R.S. Employer Id. No.)
Suite 203, 5960 Fairview Road
Charlotte, NC
----------------------------------------
(address of principal executive offices)
NORTH CAROLINA
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(state or other jurisdiction of incorporation or organization)
28210 (704) 554-9280
---------- ------------------------------------------------
(Zip code) (Issuer's telephone number, including area code)
Not applicable
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(Former name, address and fiscal year, if changed since last report)
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 periods 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common stock, No Par Value - 1,044,962 shares as of March 31, 1996
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<PAGE> 2
INDEX
THE UNITED GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 1996 and September 30,1995.
Consolidated Statements of Income for the three months ended March 31,
1996 and 1995.
Consolidated Statements of Income for the six months ended March 31,
1996 and 1995.
Consolidated Statements of Cash Flows for the six months ended
March 31, 1996 and 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
============================================================================================
ASSETS MARCH 31, SEPTEMBER 30,
1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 1,252,175 $ 1,646,501
----------- -----------
Marketable securities 1,863,942 1,843,814
----------- -----------
Finance receivables:
Cash loans and other contracts 36,148,766 36,589,554
Less:
Unearned insurance commissions 1,770,714 1,886,645
Allowance for credit losses 650,451 606,346
----------- -----------
2,421,165 2,492,991
----------- -----------
Net finance receivables 33,727,601 34,096,563
----------- -----------
Notes and finance receivables:
Due from affiliates 920,685 976,666
Other 785,958 637,389
----------- -----------
1,706,643 1,614,055
----------- -----------
Property and equipment at cost, less accumulated
depreciation and amortization 731,391 691,634
----------- -----------
Deferred loan costs and other intangible assets at cost,
less accumulated amortization 46,169 62,048
----------- -----------
Deferred income taxes 12,000 12,000
----------- -----------
Other assets 104,270 91,121
----------- -----------
$39,444,191 $40,057,736
=========== ===========
</TABLE>
3
<PAGE> 4
THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
=========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY MARCH 31, SEPTEMBER 30,
1995 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Notes payable:
Notes payable to banks $28,541,607 $30,346,607
Mortgage loans payable 217,055 224,282
Other notes payable 3,160,037 3,008,216
Senior subordinated notes payable 300,000 300,000
Accounts payable and accrued expenses 2,559,781 2,051,702
----------- -----------
34,778,480 35,930,807
----------- -----------
Stockholders' equity:
Preferred stock, no par value, stated
value of $2 per share; 500,000 shares
authorized; no shares issued and
outstanding - -
Common stock, no par value, total
stated value of $100,000; 25,000,000
shares authorized; 1,067,993 issued
and outstanding 100,000 100,000
Additional paid-in capital 41,468 127,623
Retained earnings 4,821,905 4,211,129
----------- -----------
4,963,373 4,438,752
Less:
Cost of common stock held by subsidiary 297,662 311,823
----------- -----------
4,665,711 4,126,929
----------- -----------
$39,444,191 $40,057,736
=========== ===========
</TABLE>
4
<PAGE> 5
THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
========================================================================
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Credit income:
Interest and fees on loans $2,310,046 $2,134,457
Investment income and other interest 12,982 76,274
---------- ----------
2,323,028 2,210,731
Less:
Interest expense 765,709 842,149
Provision for credit losses 260,593 141,464
---------- ----------
Net credit income 1,296,726 1,227,118
---------- ----------
Insurance income:
Insurance commissions and premiums 481,309 486,994
Less, insurance losses and loss expenses 98,909 78,015
---------- ----------
Net insurance income 382,400 408,979
---------- ----------
Operating expenses:
Salaries and benefits 932,129 887,383
Other operating expenses 393,247 376,365
---------- ----------
Total operating expenses 1,325,376 1,263,748
---------- ----------
Income before provision for income taxes 353,750 372,349
Provision for income taxes 105,000 120,000
---------- ----------
Net income $ 248,750 $ 252,349
========== ==========
Net income per common share $ 0.23 $ 0.24
========== ==========
Weighted average shares outstanding 1,059,326 1,053,218
========== ==========
</TABLE>
5
<PAGE> 6
THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
======================================================================
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Credit income:
Interest and fees on loans $4,721,206 $4,221,790
Investment income and other interest 58,812 110,438
---------- ----------
4,780,018 4,332,228
Less:
Interest expense 1,577,210 1,584,847
Provision for credit losses 392,354 249,016
---------- ----------
Net credit income 2,810,454 2,498,365
---------- ----------
Insurance income:
Insurance commissions and premiums 1,025,069 996,781
Less, insurance losses and loss expenses 230,711 171,278
---------- ----------
Net insurance income 794,358 825,503
---------- ----------
Operating expenses:
Salaries and benefits 1,819,344 1,725,998
Other operating expenses 765,315 770,766
---------- ----------
Total operating expenses 2,584,659 2,496,764
---------- ----------
Income before provision for income taxes 1,020,153 827,104
Provision for income taxes 326,000 240,000
---------- ----------
Net income $ 694,153 $ 587,104
========== ==========
Net income per common share $ 0.65 $ 0.56
========== ==========
Weighted average shares outstanding 1,061,546 1,054,942
========== ==========
</TABLE>
6
<PAGE> 7
THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
=============================================================================================
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Interest and fees on loans collected $4,821,675 $ 4,539,228
Investment income and other interest income received 67,721 101,546
Insurance commissions and premiums collected 723,818 779,025
Interest paid (1,210,729) (1,425,872)
Insurance expenses and losses paid (230,711) (171,278)
Cash paid to suppliers and employees (2,454,211) (2,309,409)
Income taxes paid (48,532) (335,637)
---------- -----------
1,669,031 1,177,603
---------- -----------
Cash flows from investing activities:
Cash proceeds of loans made (9,136,133) (11,687,743)
Cash received as repayment of loans 9,128,203 9,098,700
Purchase of marketable securities (115,421) (397,175)
Proceeds from sale or maturity of marketable securities 95,293 322,171
Cash paid to purchase property and equipment (104,132) (98,233)
Proceeds from sale of equipment 3,166 5,187
---------- -----------
(129,024) (2,757,093)
---------- -----------
Cash flow from financing activities:
Notes payable to banks:
Borrowings 845,000 2,395,000
Repayments (2,650,000) (950,000)
Repayment of mortgage loans (7,227) (6,264)
Other notes:
Borrowings 324,479 611,450
Repayments (172,658) (463,391)
Common stock activity:
Proceeds from issuance of stock 1,876 -
Payments to acquire outstanding stock (248,215) (120,802)
Cash dividends to shareholders (27,588) (28,238)
---------- -----------
(1,934,333) 1,437,755
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Net increase (decrease) in cash (394,326) (141,735)
Cash at beginning of period 1,646,501 1,507,360
---------- -----------
Cash at end of period $1,252,175 $ 1,365,625
========== ===========
</TABLE>
7
<PAGE> 8
THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE SIX MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
===========================================================================================
1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income $ 694,153 $ 587,104
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization 77,088 93,741
Provision for credit losses 392,354 249,016
Provision for stock bonus plan 174,538 104,325
Provision for deferred income taxes - 9,000
Change in unearned interest charges 100,469 317,438
Change in accrued investment income 8,909 (8,892)
Change in unearned insurance commissions and premiums (115,931) 6,554
Change in accounts receivable (157,478) (301,904)
Change in accounts payable (135,871) 70,562
Change in income taxes payable 277,468 (104,637)
Change in interest payable 366,481 158,975
Change in other assets (13,149) (3,679)
---------- ----------
Total adjustments 974,878 590,499
---------- ----------
Net cash provided by operating activities $1,669,031 $1,177,603
========== ==========
</TABLE>
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Net income for the six months ended March 31, 1996 was $248,750 compared to
$252,349 for the same period ending March 31, 1995. Interest income is up by
8.2% for the three months due to an increase in average finance receivables as
shown in the table below. Net insurance income declined by 6.5% for the three
months. Insurance commissions and premiums decreased by 1.1%. However, an
increase in losses of $20,894 over the 1995 period generated the remainder of
the decrease. Interest expense actually declined for the three month period by
$76,440. This is primarily due to the fact that the weighted average interest
rate paid on bank debt declined from 9.72% in 1995 to 9.02% in 1996. The
provision for credit losses increased from $141,264 in 1995 to $260,593 in 1996
due to the effects of cases of consumer debt overload including an increase in
bankruptcies. During this quarter the Company completed its scheduled
adjustment of charge-off policies so that accounts are now charged-off when
they become six months contractually delinquent. The policy during fiscal 1995
required seven months contractual delinquency. In fiscal 1993, the policy was
nine months and has been reduced by one month each year since that time.
Charge-offs were $90,595 and $35,666 for the months of March 1996 and March
1995, respectively. Most of these charge-offs would have taken place in the
months of April 1996 and 1995 under the old policies.
Comparisons of the six month periods ending March 31, 1996 and 1995 are similar
to the comparisons of the three month periods. Interest income is up
approximately 12% while net insurance income declined by 3.7% due to an
increase of $59,363 in losses for the current period compared to the same
period in 1995. Interest expense decreased by $7,637 primarily due to the
decrease in the weighted average rate paid on bank debt from 9.54% in 1995 to
9.02% for the same six months in 1996. Substantially all of the increase in
the provision for credit losses of $143,338 took place during the three months
ended March 31 for the reasons discussed in the preceding paragraph.
Operating expenses increased by $87,895 for 1996 over 1995 with $61,628 of the
increase occurring in the last three months. This is due to the fact that the
Company makes most of its annual salary adjustments in January of each year.
The increase for the six months is at approximately 3.5% which is indicative of
the Company's efforts to control operating expenses.
Following is a table showing changes in net finance receivables during the
current year:
<TABLE>
<CAPTION>
===========================================================================
Period Ending March 31: 1996 1995 Percentage Change
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Three months average 34,204,845 31,453,240 8.74%
------------------------------------------------------
Six months average 34,224,768 30,880,579 10.83%
------------------------------------------------------
Actual at March 31 33,727,601 31,966,726 5.51%
- ---------------------------------------------------------------------------
</TABLE>
At March 31,1996, the Company had a line of credit with its banks totaling
$35,500,000 of which $28,541,607 was being used, leaving $6,958,393 available
for loan portfolio growth. In addition, the management believes that an
increase in the line of credit could be obtained. Also, internally generated
cash flow continues to be strong with total cash flow generated by operations
of $1,299,143 for the three months ended December 31,1995. These resources are
anticipated to adequately fund the cash needs of the Company. Management
strongly believes that the Company must move away from its traditional small
loan business and make more effort to seek larger secured loans involving
automobiles, mobile homes and real estate in order to reduce the effects of
bankruptcies and poor credit risks and in order to achieve its goals to
increase receivables primarily with the existing branch structure.
The Company continues to adhere to its conservative lending policies. The
benefits of these policies are demonstrated in continued low charge-off and
delinquency ratios. The provision for credit losses was 1.15% of average net
receivables for the six months ended March 31,1996 and .81% for the same period
in 1995. Total delinquency stood at 2.0% of receivables at March 31,1996 and
at 1.3% of receivables as of March 31, 1995. While these ratios have increased
they continue to be considerably better than accepted industry ratios.
Management believes that movement towards more secured, larger loans will
prevent the increase of these ratios to unacceptable levels.
9
<PAGE> 10
PART II. OTHER INFORMATION
Item 1. Legal proceedings:
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company
believes that it is not presently a party to any pending legal proceedings that
would have a material adverse effect on its financial condition.
Item 2. Changes in securities: None
Item 3. Defaults upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other information: None
Item 6. Exhibits 27 - Financial Data Schedule (for SEC use only)
and reports of Form 8-K: The Company did not file any reports
on Form 8-K during the three months ended March 31, 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.
THE UNITED GROUP, INC.
------------------------------
(Registrant)
Date May 1, 1996 /s/ Kenneth M. O'Connell
------------------------------ -------------------------------
Kenneth M. O'Connell, Treasurer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,252,175
<SECURITIES> 1,863,942
<RECEIVABLES> 36,148,766
<ALLOWANCES> 650,451
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,426,451
<DEPRECIATION> 695,060
<TOTAL-ASSETS> 39,444,191
<CURRENT-LIABILITIES> 0
<BONDS> 217,055
0
0
<COMMON> 100,000
<OTHER-SE> 4,565,711
<TOTAL-LIABILITY-AND-EQUITY> 39,444,191
<SALES> 0
<TOTAL-REVENUES> 5,805,087
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,815,370
<LOSS-PROVISION> 392,354
<INTEREST-EXPENSE> 1,577,210
<INCOME-PRETAX> 1,020,153
<INCOME-TAX> 326,000
<INCOME-CONTINUING> 694,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 694,153
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
