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, 1997.
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 14, 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 1 of 9
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Security Capital Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
- -----------------------------------------------------------------------
For the Three Months
Ended
March 31,
- ----------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------
(Dollars in thousands, except per
share amounts)
Product sales $ 2,542 $ -
Cost of goods sold 1,052 -
- ----------------------------------------------------------------------------
Gross profit $ 1,490 $
- ----------------------------------------------------------------------------
Selling, general and administrative 1,752 210
- ----------------------------------------------------------------------------
Operating loss $ (262) $ (210)
- ----------------------------------------------------------------------------
OTHER INCOME(EXPENSE)
Income from joint enterprise $ 212 $ 329
Interest income 89 126
Interest expense (343) -
Other income (28) 4
- ----------------------------------------------------------------------------
Total other income(expense) $ (70) $ 459
- ----------------------------------------------------------------------------
Minority interest share of net loss 100 -
- ----------------------------------------------------------------------------
Income(loss) before provision for
Federal income tax $ (232) $ 249
Provision for Federal income taxes 8 -
- ----------------------------------------------------------------------------
Net income(loss) $ (240) $ 249
Less preferred stock dividends (113) (112)
- ----------------------------------------------------------------------------
Net income(loss) applicable to common
stockholders $ (353) $ 137
- ----------------------------------------------------------------------------
Net income(loss) per common share: $ (.09) $ .03
- ----------------------------------------------------------------------------
Weighted average shares outstanding 4,060 4,060
- ----------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
Page 2 of 9
<PAGE>
Security Capital Corporation and Subsidiaries
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
March 31, December 31,
1997 1996
- -----------------------------------------------------------------------------
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------
ASSETS (In thousands, except
- ------ par value and shares)
Current assets:
Cash and cash equivalents ....................... $ 7,825 $ 8,010
Account receivable (net of allowance for
doubtful accounts of $101 and $70) ........... 2,347 3,063
Inventory ....................................... 3,725 3,612
Other current assets ............................ 1,013 628
-------- --------
Total current assets ............................ 14,910 15,313
Property and equipment (net of accumulated
depreciation of $225 and $211) ............ 1,104 1,095
Intangible assets (net of accumulated
amortization of $491 and $353) ............... 8,846 8,984
Licenses and other assets ....................... 420 405
-------- --------
Total Assets .................................... $ 25,280 $ 25,797
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - Bank ............................. $ 1,925 $ 1,000
Current portion of long-term debt ............... 688 950
Accounts payable ................................ 414 1,047
Accrued expenses and other liabilities .......... 419 407
-------- --------
Total current liabilities ....................... 3,446 3,404
Long-term debt, less current portion ............ 9,828 10,047
Minority interest ............................... 813 913
-------- --------
Total Liabilities ............................... $ 14,087 $ 14,364
-------- --------
Commitments and Contingencies ................... $- $-
-------- --------
Class A preferred stock (redeemable), $.01
par value, 50,000 shares authorized, 30,000
shares issued (including dividends in arrears
of $1,650 and $1,537) ........................ $ 4,650 $ 4,537
-------- --------
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 ............................. (50,830) (50,477)
Less: Treasury stock, at cost, 318,576 shares ... (5,215) (5,215)
-------- --------
Total Stockholders' Equity ................... $ 6,543 $ 6,896
-------- --------
Total Liabilities and Stockholders' Equity ... $ 25,280 $ 25,797
-------- --------
The accompanying notes to consolidated financial statements are an integral
part of these statements.
Page 3 of 9
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Consolidated Statements of Cash Flows
Security Capital Corporation and Subsidiaries
(Unaudited)
- --------------------------------------------------------------------------------
For the Three Months Ended
March 31,
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net income(loss) ...................................... $ (240) $ 250
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 ..................................... 151 2
Minority interest .................................. (100) --
Changes in operating assets and liabilities, net
of effects from acquisition of business
Decrease in accounts receivable .............. 484 --
Increase in inventories ...................... (114) --
Decrease in other assets ..................... (399) (300)
Increase in accounts payable ................. (401) --
Decrease in accrued expenses
and other liabilities .................. 12 170
------- -------
Net cash provided (used) by operating activities ... (607) 122
------- -------
Cash flows from investing activities: .............. --
Purchase of property and equipment .............. (22) --
------- -------
Net cash provided (used) by investing activities.... (22) --
------- -------
Cash flows from financing activities: .............. --
Net increase in bank borrowing .................. 925 --
Repayment of term loans ............................ (481) --
------- -------
Net cash provided (used) by financing activities.... 444 --
------- -------
Increase(decrease) in cash and cash equivalents..... (185) 122
Cash and cash equivalents, beginning of year ....... 8,010 9,827
------- -------
Cash and cash equivalents, end of year ............. $ 7,825 $ 9,949
------- -------
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
Page 4 of 9
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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 for the first calendar quarter of 1997, 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 in which the
Company principally operates.
- -------------------------------------------------------------------------
(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 5 of 9
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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
March 31, 1997 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 1997 and Fiscal Year 1996
- -------------------------------------------------------------------------
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.
The weighted average number of shares outstanding used in the computation of
primary and fully diluted earnings per share is as follows (in thousands):
Fiscal Year 1997 Fiscal Year 1996
3 months 3 months
-------- --------
Primary 4,060 4,060
Fully diluted 4,060 4,060
Page 6 of 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Security Capital had a net loss of $240,000 for the three month period ended
March 31, 1997. This compares to net income of $249,000 for the same three month
period of the prior fiscal year. The Company reported a net loss per common
share (after accrual for Class A Preferred Stock dividends) of $.09 for the
three month period ended March 31, 1997 as compared to net income per share
(after accrual for Class A Preferred Stock dividends) of $.03 for the same three
month period of the prior fiscal year.
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. Possible Dreams is 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 $2,542,000 and gross profit increased
to $1,490,000 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 $1,542,000 for the quarter to $1,752,000, was also
impacted by this event. The Company reported an operating loss for the current
quarter of $262,000 as compared to an operating loss of $210,000 for the same
prior fiscal year quarter. The current quarter results reflect the seasonal
nature of Possible Dreams' business, which is typically weakest in the first and
second calendar year quarters. The Company incurred interest expense of $343,000
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 borrowings
incurred by Possible Dreams for working capital during the quarter.
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 income amounted to $212,000 for the three month period ended
March 31, 1997. This compares to income of $329,000 for the same period of the
prior fiscal year. BMD&B's income was down due to reduced contingent commissions
primarily due to the soft insurance market in the state of Texas .
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $185,000 to $7,825,000 at March 31, 1997
as compared to $8,010,000 at December 31, 1996. The decrease in cash and cash
equivalents was primarily attributable to the operating losses from operations
by Possible Dreams during its weakest seasonal period. The Company's
consolidated working capital at March 31, 1997 decreased by $445,000 to
$11,464,000 from $11,909,000 at December 31, 1996. This decrease in working
capital was attributable to increased short-term bank borrowing of Possible
Dreams in the amount of $925,000, net of current term loan repayments of
$481,000.
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 borrowed an additional $925,000 after this repayment period,
from its lender, pursuant to its revolving line of credit agreement during the
current quarter. This additional borrowing increased its indebtedness under the
revolving line of credit to $1,925,000. Possible Dreams also paid $481,000 of
term debt during the quarter.
Page 7 of 9
<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 in the second calendar quarter. 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 March 31, 1997, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Pursuant to the General Instructions to Rule 305 of Regulation S-K, the
quantitative and qualitative disclosures called for by this Item 3 and by Rule
305 of Regulation S-K are inapplicable to the Company at this time.
PART II -- OTHER INFORMATION
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 $571,000,
preferred stock dividends of $1,650,000 accrued from July 30, 1993 to
March 31, 1997 were in arrears at March 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS: None
(b)
DATE OF FILING DATE OF EVENT REPORTED ITEMS
--------------------------------------------------------------------
2-20-97 2-13-97 Item 5
Other events
Page 8 of 9
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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 15, 1997 By: A. George Gebauer
A. George Gebauer, President
Date: May 15, 1997 By: Larry M. Karren
Larry M. Karren, Treasurer
(Principal Financial and Accounting Officer)
Page 9 of 9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,825
<SECURITIES> 0
<RECEIVABLES> 2,347
<ALLOWANCES> 101
<INVENTORY> 3,725
<CURRENT-ASSETS> 14,910
<PP&E> 1,104
<DEPRECIATION> 225
<TOTAL-ASSETS> 25,280
<CURRENT-LIABILITIES> 3,446
<BONDS> 0
4,650
0
<COMMON> 44
<OTHER-SE> 6,499
<TOTAL-LIABILITY-AND-EQUITY> 25,280
<SALES> 2,542
<TOTAL-REVENUES> 2,542
<CGS> 1,052
<TOTAL-COSTS> 1,052
<OTHER-EXPENSES> 1,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343
<INCOME-PRETAX> (232)
<INCOME-TAX> 8
<INCOME-CONTINUING> (240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 240
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
