SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 1996.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ________ to ________.
1-7921
(Commission file number)
SECURITY CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3003070
(State or other jurisdiction of (I.R.S. Employee Identification No.)
incorporation or organization)
1111 NORTH LOOP WEST, SUITE 400, HOUSTON, TEXAS 77008
(Address of principal executive offices, including zip code)
(713) 880-7100
(Registrant's telephone number, including area code)
N.A.
(Former address, 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 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 [ ].
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: as of May 7, 1996,
there were 4,060,254 outstanding shares of Class A Common Stock, par value $
.01, and 404 outstanding shares of Common Stock, par value $ .01, of the
registrant.
Page 1 of 2
Security Capital Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
March 31, March 31,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------- ------------
(Dollars in Thousands, except per
share amounts)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Other $ - $ 1 $ - $ 1
Total operating revenues $ - $ 1 $ - $ 1
------------ ------------ ------------- ------------
OPERATING EXPENSES
Compensation $ 53 $ 41 $ 53 $ 41
Other general and administrative 157 134 229 211
------------ ------------ ------------- ------------
Total operating expenses $ 210 $ 175 $ 282 $ 252
------------ ------------ ------------- ------------
Operating loss $ (210) $ (174) $ (282) $ (251)
------------ ------------ ------------- ------------
OTHER INCOME(EXPENSES)
Income from joint enterprise $ 329 $ 319 $ 239 $ 181
Interest income 126 132 284 246
Other income 4 - 20 -
------------ ------------ ------------- ------------
Total other income $ 459 $ 451 $ 543 $ 427
------------ ------------ ------------- ------------
Income before provision for Federal income
taxes and extraordinary item $ 249 $ 277 $ 261 $ 176
Provision for Federal income taxes - - - -
------------ ------------ ------------- ------------
Net income $ 249 $ 277 $ 261 $ 176
Less preferred stock dividends (112) (112) (225) (225)
------------ ------------ ------------- ------------
Net income (loss) applicable to common
stockholders $ 137 $ 165 $ 36 $ (49)
------------ ------------ ------------- ------------
Net income (loss) per common share: $ .03 $ .04* $ .01 $ (.01)*
------------ ------------ ------------- ------------
Weighted average shares outstanding 4,061 4,061* 4,061 4,061*
------------ ------------ ------------- ------------
</TABLE>
- ------------
*Restated for one-for-eight reverse stock split. The accompanying Notes to
Consolidated Financial Statements are an integral part of these financial
statements.
Page 2 of 10
Security Capital Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
-------------------- --------------------
(Unaudited) (Audited)
(Dollars in Thousands, except par value)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,949 $ 9,794
Account receivable - joint enterprise 13 63
Other current assets 66 117
-------------------- --------------------
Total current assets 10,028 9,974
Property and equipment (net of accumulated
depreciation of $180 and $353) 11 14
Licenses and other assets (net of accumulated
amortization of $289 and $289) 285 285
Investment in and advances to joint enterprise 762 653
Total Assets $ 11,086 $ 10,926
-------------------- --------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued interest payable and other liabilities $ 363 $ 464
Accounts payable - FGS 166 166
-------------------- --------------------
Total current liabilities 529 630
-------------------- --------------------
Total Liabilities $ 529 $ 630
Commitments and Contingencies $ - $ -
-------------------- --------------------
Class A preferred stock (redeemable), $.01
par value, 50,000 shares authorized, 30,000
shares issued (including dividends in arrears
of $1,200 and $975) $ 4,200 $ 3,975
-------------------- --------------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 7,500 shares
authorized; 564* shares issued $ - $ -
Class A common stock, $.01 par value,
10,000,000 shares authorized; 4,378,671*
shares issued 350 350
Preferred stock, $.01 par value, 2,500,000
shares authorized, none issued - -
Additional paid-in capital 62,238 62,238
Accumulated deficit (51,016) (51,052)
Less: Treasury stock, at cost, 318,576* shares (5,215) (5,215)
Total Stockholders' Equity $ 6,357 $ 6,321
-------------------- --------------------
Total Liabilities and Stockholders' Equity $ 11,086 $ 10,926
-------------------- --------------------
</TABLE>
- ------------
*Restated for one-for-eight reverse stock split.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 3 of 10
Security Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended
March 31
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
(Dollars in Thousands) Cash flows from operating activities:
Net income (loss) $ 261 $ 176
Adjustments to reconcile income (loss) to net
cash used by operating activities:
Depreciation and amortization of property and
equipment, and amortization of
deferred items 3 13
Net change in receivables and other assets (8) (141)
Net change in payables (101) 42
Net cash provided (used) by operating activities 155 90
Cash flows from financing activities - -
Net cash provided (used) by financing activities - -
Net increase in cash and cash equivalents 155 90
Cash and cash equivalents, beginning of period 9,794 9,381
Cash and cash equivalents, end of period $ 9,949 $ 9,471
------------ ------------
</TABLE>
- ------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 4 of 10
Security Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(1) Accounting and Financial Reporting Policies
The accompanying consolidated financial statements include the accounts of
Security Capital Corporation and all of its subsidiaries engaged in continuing
operations ("Security Capital" or the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation . The condensed
consolidated financial statements included herein have been prepared by Security
Capital, in accordance with the rules and regulations of the Securities and
Exchange Commission, without audit.
Security Capital's accounting and financial reporting policies conform with
generally accepted accounting principles and include adjustments in interim
periods, consisting only of normal recurring items, considered necessary for a
fair presentation of the financial statements. 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 Security Capital believes that
the accompanying disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the latest Annual Report of Security Capital on
Form 10-K.
Prior period financial statements are presented for comparative purposes.
(2) Federal Income Taxes
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes" during fiscal year 1994. SFAS No. 109
requires the Company to compute deferred income taxes based on the difference
between the financial statement basis and tax basis of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse. The adoption had no effect on financial position or results
of operations because of a 100% valuation allowance applied against the deferred
tax assets.
The tax effects of the items comprising the Company's net deferred tax asset at
September 30, 1995 in the Company's statement of financial position are as
follows:
September 30, 1995
Deferred tax assets: (In thousands)
Operating loss carryforwards $ 12,635
Partnership income (139)
----------------------
12,496
100% Valuation allowance (12,496)
Net deferred tax asset $ -0-
======================
The Company continued to provide a 100% valuation allowance on all net deferred
tax assets at September 30, 1995. In addition, the net deferred tax asset at
March 31, 1996 has not changed materially since September 30, 1995.
Page 5 of 10
Security Capital files a consolidated Federal income tax return with its
subsidiaries. At September 30, 1995, the Company had net operating loss
carryforwards for Federal income tax purposes of approximately $18.6 million,
the expiration dates of which are as follows:
September 30, Amount
------------- ------
(In thousands)
1997 $ 1,776
2000 2,304
2001 1,330
2002 3,555
2003 1,052
2004 4,974
2005 2,430
2007 398
2008 162
2009 581
------
$ 18,562
In addition, in connection with the disposition of a former subsidiary of the
Company, the Company incurred a tax loss amounting to approximately $26 million.
The Company believes that a substantial portion of this loss is an ordinary loss
for Federal income tax purposes which may be carried forward to 2004, although
there can be no assurance that this position would prevail, if challenged. The
Company's Federal income tax returns have been examined by the Internal Revenue
Service (the "IRS") through fiscal year 1986 and the above loss carryforwards,
including the loss on disposition of the aforementioned subsidiary, remain
subject to review by the IRS.
(3) Earnings Per Share Fiscal Year 1996 and Fiscal Year 1995
Earnings per common and common equivalent share amounts are based on the
weighted average number of shares of Common Stock and Class A Common Stock
outstanding and the dilutive effect, if any, of outstanding stock options. The
sum of Common Stock and Class A Common Stock is used because the two classes are
identical except for certain transfer restrictions imposed on the Class A Common
Stock. The assumed conversion of these options was anti-dilutive for all periods
presented, and are thus excluded from the primary and fully diluted earnings per
share calculations.
On March 20, 1996, the stockholders of the Company approved a proposal to amend
the Restated Certificate of Incorporation of the Company to effect a
one-for-eight reverse split of the Class A Common Stock and of the Common Stock.
All references to the number of Common and Class A Common shares and per share
data in the financial statements have been restated to reflect the reverse stock
split.
The weighted average number of shares outstanding after the reverse stock split
used in the computation of primary and fully diluted earnings per share is as
follows (in thousands):
Fiscal Year 1996 Fiscal Year 1995
6 MONTHS 3 MONTHS 6 MONTHS 3 MONTHS
-------- -------- -------- --------
Primary 4,061 4,061 4,061* 4,061*
Fully diluted 4,061 4,061 4,061* 4,061*
- ------------
*Restated for one-for-eight reverse stock split.
Page 6 of 10
(4) Subsequent Event
On April 23, 1996, the Company announced that it had received a commitment from
a bank to finance the purchase of a private company with revenues of
approximately $20,000,000. The closing is expected to occur during May 1996, but
is subject to a number of conditions, including the completion and execution of
a definitive purchase agreement.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS- All reference to earnings per common share for periods
ending on December 31, 1995 or prior have been restated for the one-for-eight
stock split.
Security Capital reported net income of $249,000 and $261,000 for the three and
six month periods ended March 31, 1996. This compares to net income of $277,000
and $176,000 for the same three and six month periods of the prior fiscal year.
The Company reported earnings per common share (after accrual for Class A
Preferred Stock dividends) of $.03 and $.01 for the three and six month periods
ended March 31, 1996 as compared to net income per share of $.04 and a net loss
per share of $.01 for the three and six month periods of the prior fiscal year.
The Company had no significant operating revenues for the current or
prior fiscal periods, due to the formation, effective as of January 1, 1993, of
Bowen, Miclette, Descant & Britt, ("BMD&B"), an independent insurance agency.
BMD&B is a partnership consisting of Foster Insurance Services, Inc., the
Company's insurance agency affiliate, and Bowen, Miclette & Descant, Inc., an
unaffiliated independent insurance agency. The Company's percentage of BMD&B's
net revenues and expenses is included under the caption "Income from Joint
Enterprise". The income amounted to $329,000 and $239,000 for the three and six
month periods ended March 31, 1996. This compares to income of $319,000 and
$181,000 for the same periods of the prior fiscal year. The Company's share of
partnership income and losses was 50% during calendar year 1995. The Company's
share of such income or losses will remain at 50% for every year thereafter.
Interest income increased by $38,000 to $284,000 for the six month period ended
March 31, 1996 as compared to $246,000 for the same period of the prior fiscal
year. This increase in interest income was primarily due to the receipt of a
deposit, with accrued interest, of $42,986 from the County of San Diego, which
included interest of $26,666 and principal of $16,320.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $155,000 to $9,949,000 at March 31, 1996
as compared to $9,794,000 at September 30, 1995. The increase in cash and cash
equivalents was attributable to (1) the receipt of a deposit and interest
thereon for a real estate project for the county of San Diego in the amount of
$42,986, and (2) interest income received from the investment of the Company's
funds. The Company's consolidated working capital at March 31, 1996 increased by
$155,000 to $9,499,000 from $9,344,000 at September 30, 1995. This increase in
working capital was primarily due to the receipt of funds due the Company from
its partnership interest in BMDB.
On March 20, 1996, the stockholders of the Company authorized a one-for-eight
reverse split of the Company's Common and Class A Common Stock which had the
effect of decreasing the number of issued shares from 35,033,880 to
approximately 4,379,235. The Company's Class A Common Stock, which is traded on
the Pacific Stock Exchange, Inc. (the "PSE"), was trading below the minimum Tier
II requirement of $1.00 per share for the continued listing of the Class A
Common Stock on the PSE. The PSE had given the Company until April 2, 1996 to
meet such $1.00 per share requirement or else the Class A Common Stock would be
delisted from the PSE. The principal purpose of the reverse split was to bring
the Company and the Class A Common Stock into compliance with their
requirements.
Page 7 of 10
On April 23, 1996, the Company announced that it had received a commitment from
a bank to finance the purchase of a private company with revenues of
approximately $20,000,000. The closing is expected to occur during May 1996, but
is subject to a number of conditions, including the completion and execution of
a definitive purchase agreement.
The Company's working capital and operating expenditure requirements have been
funded by excess cash at the holding company level and from dividends from the
Company's insurance agency operations, the proceeds of a rights offering in June
1994 and the sale of $3,000,000 of Class A Preferred Stock in July 1993. The
holding company's expenses consist of management fees of $37,500 payable to CP,
Inc. and legal, accounting and other holding company expenses of approximately
$200,000. It is anticipated that the Company will receive less income from its
insurance agency operations due to an increase anticipated during fiscal year
1996 in the bonus percentage due officers from 25% to 50% pursuant to the terms
of the Agency Agreement. The Company believes that with the receipt of the
proceeds from the Rights Offering and the funds expected to be generated from
the Company's insurance agency affiliate, there will be sufficient cash on hand
to meet the Company's working capital and operating expenditure requirements
during fiscal year 1996 and to compete for acquisition opportunities.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
(a) None
(b) The Company's Class A Preferred Stock bears a dividend of 15% per
annum payable. Upon redemption or the liquidation of the Company,
dividends on Preferred Stock are payable only out of cumulative net
income since January, 1990. (At a redemption date or upon the
liquidation of the Company, accumulated but unpaid dividends are
payable in full regardless of earnings since January 1, 1990.)
Therefore, since there has been a cumulative net loss since January 1,
1990 of $1,280,000, preferred stock dividends of $1,200,000 accrued
from July 30, 1993 to March 31, 1996 were in arrears at March 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its 1994 Annual Meeting of Stockholders (the
"Annual Meeting") on March 20, 1996.
(b) The following directors were elected at the Annual Meeting and
are the only directors whose terms of office as directors
continued after the Annual Meeting: William T. Bozarth, Brian
D. Fitzgerald, A. George Gebauer and Thomas J. Gochberg.
(c) Set forth below is a description of the matters voted upon at
the Annual Meeting, including the number of votes cast for,
against or withheld, as well as the number of abstentions and
broker non-votes, as to each such matter, with a separate
tabulation as to each nominee for election as a director:
Page 8 of 10
1. Election of four directors, each to serve until the next
Annual Meeting of Stockholders and until his successor is
duly elected and qualified.
BROKER-
Nominees VOTES FOR VOTES WITHHELD NON-VOTES
-------- --------- -------------- ---------
William T. Bozarth 30,048,971 141,080 0
Brian D. Fitzgerald 30,053,079 136,972 0
A. George Gebauer 30,053,079 136,972 0
Thomas J. Gochberg 30,041,389 148,662 0
2. Proposal to amend the Restated Certificate of Incorporation
of the Company to effect a one-for-eight reverse split of
the Class A Common Stock and the Common Stock.
BROKER-
VOTES FOR VOTES AGAINST ABSTENTIONS NON-VOTES
--------- ------------- ----------- ---------
30,084,365 68,904 22,882 13,900
3. Proposal to amend the Restated Certificate of Incorporation
of the Company to decrease the number of authorized shares
of Class A Common Stock, par value $.01 per share, of the
Company from 60,000,000 shares to 10,000,000 shares.
BROKER-
VOTES FOR VOTES AGAINST ABSTENTIONS NON-VOTES
--------- ------------- ----------- ---------
30,093,418 57,557 25,176 13,900
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS: None
(b) REPORTS ON FORM 8-K: The Company did not file any reports on Form
8-K during the fiscal quarter for which this report is submitted.
Page 9 of 10
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.
SECURITY CAPITAL CORPORATION
Date: May 8, 1996 By: A. GEORGE GEBAUER
--------------------------------
A. George Gebauer, President
Date: May 8, 1996 By: LARRY M. KARREN
---------------------------------
Larry M. Karren, Treasurer
(Principal Financial Officer)
Page 10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SECURITY CAPITAL CORP. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,949
<SECURITIES> 0
<RECEIVABLES> 13
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,028
<PP&E> 11
<DEPRECIATION> 3,000
<TOTAL-ASSETS> 11,086
<CURRENT-LIABILITIES> 529
<BONDS> 0
4,200
0
<COMMON> 350
<OTHER-SE> 6,007
<TOTAL-LIABILITY-AND-EQUITY> 10,028
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 282
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 261
<INCOME-TAX> 0
<INCOME-CONTINUING> 261
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 261
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
