SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from October 1, 1996
to December 31, 1996.
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 March 31, 1997 there
were 4,059,766 outstanding shares of Class A Common Stock, par value $ .01, and
392 outstanding shares of Common Stock, par value $ .01, of the registrant.
<PAGE>
Security Capital Corporation and Subsidiaries
Consolidated Statements of Income
For the Three Months
Ended
December 31,
- --------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------
(Dollars in thousands,
except per share amounts)
Product sales $ 5,073 $ -
Cost of goods sold 2,476 -
- --------------------------------------------------------------------
Gross profit $ 2,597 $
- --------------------------------------------------------------------
Selling, general and administrative 1,710 72
- --------------------------------------------------------------------
Operating income(loss) $ 887 $ (72)
- --------------------------------------------------------------------
OTHER INCOME(EXPENSE)
Income from joint enterprise $ (211) $ (90)
Interest income 98 158
Interest expense (507) -
Other income 16 16
- --------------------------------------------------------------------
Total other income(expense) $ (604) $ 84
- --------------------------------------------------------------------
Minority interest share of net income (55) -
- --------------------------------------------------------------------
Income before provision for
Federal income tax $ 228 $ 12
Provision for Federal income taxes 103 -
- --------------------------------------------------------------------
Net income $ 125 $ 12
Less preferred stock dividends (113) (113)
- --------------------------------------------------------------------
Net income(loss) applicable to common
stockholders $ 12 $ (101)
- --------------------------------------------------------------------
Net income(loss) per common share: $ (.00) $ (.02)*
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Weighted average shares outstanding 4,060 4,060*
- --------------------------------------------------------------------
* Restated for one-for-eight reverse stock split.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
<PAGE>
Security Capital Corporation and Subsidiaries
Consolidated Balance Sheets
- --------------------------------------------------------------------------
December 31, September 30,
1996 1996
- --------------------------------------------------------------------------
(Unaudited) (Audited)
- --------------------------------------------------------------------------
ASSETS
( In thousands, except par value and shares)
Current assets:
Cash and cash equivalents $ 8,010 $ 8,706
Account receivable (net of
allowance for doubtful
accounts of $250 and $412) 3,063 9,793
Inventory 3,612 5,010
Other current assets 628 278
--------------- ---------------
Total current assets 15,313 23,787
Property and equipment (net of
accumulated depreciation of
$211 and $200) 1,095 1,105
Intangible assets (net of
accumulated amortization of
$353 and $215) 8,984 9,122
Investment in and advances to
joint enterprise - 87
Licenses and other assets 405 401
- --------------------------------------------------------------------------
Total Assets $ 25,797 $ 34,502
- --------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Note payable - Bank $ 1,000 $ 8,884
Current portion of long-term debt 950 1,010
Accounts payable 1,047 1,646
Accrued expenses and other
liabilities 407 466
--------------- ---------------
Total current liabilities 3,404 12,006
Long-term debt, less current
portion 10,047 10,329
Minority interest 913 858
- --------------------------------------------------------------------------
Total Liabilities $ 14,364 $ 23,193
- --------------------------------------------------------------------------
Commitments and Contingencies $ - $ -
- --------------------------------------------------------------------------
Class A preferred stock
(redeemable), $.01
par value, 50,000 shares
authorized, 30,000
shares issued (including
dividends in arrears
of $1,537 and $1,425) $ 4,537 $ 4,425
- --------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
7,500 shares authorized; 551
shares issued $ - $ -
Class A common stock, $.01 par
value, 10,000,000 shares
authorized; 4,378,183 shares
issued 44 44
Preferred stock, $.01 par value,
2,500,000 shares
authorized; none issued - -
Additional paid-in capital 62,544 62,544
Accumulated deficit (50,477) (50,489)
Less: Treasury stock, at cost,
318,576 shares (5,215) (5,215)
- --------------------------------------------------------------------------
Total Stockholders' Equity $ 6,896 $ 6,884
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 25,797 $ 34,502
- --------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
Consolidated Statements of Cash Flows
Security Capital Corporation and Subsidiaries
(Unaudited)
- -------------------------------------------------------------------
For the Three Months Ended
December 31,
- -------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net income $ 125 $ 12
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization of
property
and equipment, and amortization
of
deferred items 182 1
Minority interest (41) -
Changes in operating assets and
liabilities, net of effects
from acquisition of business
Decrease in accounts receivable 6,731 -
Decrease in inventories 1,398 -
(Increase)decrease in other
assets (268) 291
Decrease in accounts payables (598) -
Increase(decrease) in
accrued
expenses and other liabilities 37 (271)
- -------------------------------------------------------------------
Net cash provided (used) by
operating activities 7,566 33
- -------------------------------------------------------------------
Cash flows from investing
activities: -
Purchase of property and
equipment (3) -
- -------------------------------------------------------------------
Net cash provided (used) by
investing activities (3) -
- -------------------------------------------------------------------
Cash flows from financing
activities: -
Repayment of notes payable - bank (7,884) -
Repayment of term loans (375) -
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Net cash provided (used) by
financing activities (8,259) -
- -------------------------------------------------------------------
Increase in cash and cash
equivalents (696) 33
Cash and cash equivalents,
beginning of year 8,706 9,794
- -------------------------------------------------------------------
Cash and cash equivalents, end of
year $ 8,010 $ 9,827
- -------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
<PAGE>
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"). The Company's subsidiaries
include Possible Dreams, Ltd., a Delaware corporation, which acquired
substantially all the assets and assumed certain liabilities of Possible Dreams,
Ltd. and Columbia National Corporation, both Massachusetts corporations, on May
17, 1996. 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. Prior period financial statements are presented for comparative
purposes. 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.
This report is a transitional report, due to the Company's Board of Directors,
on February 13, 1997, approving the change in fiscal years from September 30 to
December 31. This change to a calendar year will more accurately reflect the
business cycle of the collectibles industry. This report is being filed pursuant
to Rule 240.13a-10(c) under the Securites Exchange Act of 1934, as amended, for
the period October 1, 1996 through December 31, 1996.
- -------------------------------------------------------------------------
(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 assets at
September 30, 1996 in the Company's statement of financial position are as
follows:
September 30, 1996
Deferred tax assets: (In thousands)
Allowance for doubtful
accounts $ 39
Operating loss
carryforwards 12,122
Accelerated
depreciation (17)
----------------
12,144
100% Valuation
allowance (12,144)
Net deferred tax asset $ -0-
================
<PAGE>
The Company continued to provide a 100% valuation allowance on all net deferred
tax assets at September 30, 1996. In addition, the net deferred tax assets at
December 31, 1996 have not changed materially since September 30, 1996.
Security Capital files a consolidated Federal income tax return with its
subsidiaries. At September 30, 1996, the Company had net operating loss
carryforwards for Federal income tax purposes of approximately $17.0 million,
the expiration dates of which are as follows:
- ---------------------------------------------------------------------
September 30, Amount
- ---------------------------------------------------------------------
(In thousands)
1998 $ 200
1999 2,500
2000 1,300
2001 3,600
2002 1,800
2003 4,000
2004 2,400
2006 400
2007 200
2008 600
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
$ 17,000
- ---------------------------------------------------------------------
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 stock 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 for periods ending December 31, 1995 or prior.
The weighted average number of shares outstanding after the one-for-eight
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
3 MONTHS 3 MONTHS
-------- --------
Primary 4,060 4,060*
Fully diluted 4,060 4,060*
* Restated for one-for-eight reverse stock split.
<PAGE>
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
reverse stock split.
Security Capital had net income of $125,000 for the three month period ended
December 31, 1996. This compares to net income of $12,000 for the same three
month period of the prior fiscal year. The Company reported no net income per
common share (after accrual for Class A Preferred Stock dividends) for the three
month period ended December 31, 1996 as compared to a net loss per share (after
accrual for Class A Preferred Stock Dividends) of $.02 for the same three month
period of the prior fiscal year.
As previously reported, Possible Dreams, Ltd., a Delaware corporation and a
subsidiary of the Company, acquired substantially all of the assets and assumed
certain liabilities of Possible Dreams, Ltd., and Columbia National
Corporation("Sellers"), both Massachusetts corporations, on May 17, 1996. The
Sellers were engaged in the business of designing, importing, warehousing and
distributing collectible Christmas figurines and ornaments and, to a lesser
extent, religious statues. Product sales of the Company increased to $5,073,000
and gross profit increased to $2,597,000 for the quarter, due to the addition of
Possible Dreams to the Company's consolidated financial statements. Selling,
general and administrative expense, which increased by $1,638,000 for the
quarter to $1,710,000, was also impacted by this event. The Company reported
operating income for the current quarter of $887,000 as compared to an operating
loss of $72,000 for the same prior fiscal year quarter. The current quarter
results reflect the seasonal nature of Possible Dreams business, which is
typically strongest in the third and fourth calendar year quarters. The Company
incurred interest expense of $507,000 for the current quarter as compared to no
interest cost for the same prior year fiscal quarter. This increase in interest
cost during the current quarter was attributable to debt incurred to acquire
Possible Dreams as well as borrowing incurred by Possible Dreams for working
capital during its busiest seasonal period.
The Company's percentage of the net revenues and expenses of Bowen, Miclette,
Descant & Britt ("BMD&B") is included under the caption "Income(loss) from Joint
Enterprise". The loss amounted to $211,000 for the three month period ended
December 31, 1996. This compares to a loss of $90,000 for the same period of the
prior fiscal year. BMD&B's income was down due to reduced commercial commissions
primarily due to the soft insurance market in the state of Texas.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $696,000 to $8,010,000 at December 31,
1996 as compared to $8,706,000 at September 30, 1996. The decrease in cash and
cash equivalents was primarily attributable to the payment by Possible Dreams to
the bank pursuant to its credit agreement with the bank. The Company's
consolidated working capital at December 31, 1996, however, increased by
$128,000 to $11,909,000 from $11,781,000 at September 30, 1996. This slight
increase in working capital was attributable to the seasonal nature of the
business of Possible Dreams.
Possible Dreams' lender has provided various credit facilities to Possible
Dreams, which includes funds to partially finance the acquisition of Possible
Dreams, refinance existing bank debt of the Sellers, provide for seasonal
working capital and letter of credit requirements and to pay transaction
expenses. These facilities consist of a revolving credit facility and $9,250,000
in amortizing term debt maturing from five to seven years from the closing date.
The Company, due to certain covenants in the credit agreement, is required to
pay down its revolving line of credit to $1,000,000 for a 15 consecutive day
period during the first quarter of each fiscal year after December 31, 1996.
Possible Dreams paid to the lender $7,884,000 in working capital loan payments
to comply with this covenant and $375,000 in term debt pursuant to its credit
agreement with the lender during the quarter.
<PAGE>
The Company had no major capital expenditures during the quarter and expects no
major capital expenditures during calendar 1997. The Company is in the process
of completing the sale of its insurance brokerage business which is expected to
close during calendar year 1997. The Company believes that with the addition of
Possible Dreams, the cash flow of the Company's insurance agency affiliate,
Foster Insurance Services, Inc., proceeds from the sale of such business and
cash and cash equivalents at December 31, 1996, there will be sufficient cash on
hand to meet the Company's working capital and operating expenditure
requirements during calendar year 1997 and to compete for other 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 approximately $331,000,
preferred stock dividends of $1,537,500 accrued from July 30, 1993 to
December 31, 1996 were in arrears at December 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS: None
(b)
DATE OF FILING DATE OF EVENT REPORTED ITEMS
10-17-96 8-29-96 Item 5
Other events
<PAGE>
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: March 31, 1997 By: A. George Gebauer
A. George Gebauer, President
Date: March 31, 1997 By: Larry M. Karren
Larry M. Karren, Treasurer
(Principal Financial and
Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SECURITY CAPITAL CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,010
<SECURITIES> 0
<RECEIVABLES> 3,063
<ALLOWANCES> 250
<INVENTORY> 3,612
<CURRENT-ASSETS> 15,313
<PP&E> 1,095
<DEPRECIATION> 12
<TOTAL-ASSETS> 25,797
<CURRENT-LIABILITIES> 3,404
<BONDS> 0
4,537
0
<COMMON> 44
<OTHER-SE> 6,852
<TOTAL-LIABILITY-AND-EQUITY> 25,797
<SALES> 5,073
<TOTAL-REVENUES> 5,073
<CGS> 2,476
<TOTAL-COSTS> 2,476
<OTHER-EXPENSES> 1,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 507
<INCOME-PRETAX> 228
<INCOME-TAX> 103
<INCOME-CONTINUING> 125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
