UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
SECURITY CAPITAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
APRIL 6, 1999
- --------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
DELAWARE 1-7921 13-3003070
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(State or other jurisdiction of (Commission (I.R.S. Employee
Incorporation or File Identification No.)
Organization) Number)
1111 NORTH LOOP WEST, SUITE 400, HOUSTON, TEXAS 77008
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(Address of principal executive offices, including zip code)
(713) 880-7100
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(Registrant's telephone number, including area code)
Page 1 of 4
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
As previously reported in a Current Report on Form 8-K filed by Security
Capital Corporation ("Security Capital"), a Delaware corporation, on April 16,
1999, Primrose Holdings, Inc. ("Holdings"), a Delaware corporation and a
subsidiary of Security Capital, acquired on April 6, 1999 all of the outstanding
shares of Common Stock (the "Shares") of Primrose School Franchising Company, a
Georgia corporation ("Primrose"), Metrocorp Properties, Inc., a Georgia
corporation ("Metrocorp"), and The Jewel I, Inc. d/b/a Primrose Country Day
School, a Georgia corporation ("Country Day", together with Metrocorp and
Primrose, the "Companies") from Paul L. Erwin and The Paul L. Erwin Grantor
Retained Annuity Trust (together with Paul L. Erwin, the "Shareholders")
pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement"), dated
as of April 6, 1999, by and among Holdings, Security Capital and the
Shareholders (the "Acquisition").
Item 7. FINANCIAL STATEMENTS, PRO FORMA COMBINED FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Business Acquired
The following financial statements and notes thereto of the
Companies are included as Appendix I to this Form 8-K/A and are
incorporated by reference herein:
(i) Independent Auditors' Report
(ii) Balance Sheets as of December 31, 1996, 1997 and 1998 and as
of March 31, 1998 and 1999 (unaudited).
(iii) Statements of operations for the years ended December 31,
1996, 1997 and 1998 and for the three months ended March 31,
1998 and 1999 (unaudited).
(iv) Statements of changes in stockholders' equity for the years
ended December 31, 1996, 1997 and 1998 and for the three
months ended March 31, 1998 and 1999 (unaudited).
(v) Statements of cash flow for the years ended December 31, 1996,
1997 and 1998 and for the three months ended March 31, 1998
and 1999 (unaudited).
(vi) Notes to financial statements for the years ended December 31,
1996, 1997 and 1998.
Page 2 of 4
<PAGE>
(b) Pro Forma Combined Financial Information (Unaudited).
The following pro forma combined financial information and notes
thereto of Security Capital are included as Appendix II to this Form
8-K/A and are incorporated by reference herein:
(i) Introduction to pro forma combined financial information.
(ii) Pro forma combined balance sheet as of March 31, 1999
(unaudited).
(iii) Pro forma combined statement of operations for the fiscal year
ended December 31, 1998 (unaudited).
(iv) Pro forma combined statement of operations for the three
months ended March 31, 1999 (unaudited).
(v) Notes to pro forma combined financial information (unaudited).
(c) Exhibits
None
Page 3 of 4
<PAGE>
SIGNATURE
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
June 18,1999 By: A. George Gebauer
President
(Principal Executive Officer)
June 18,1999 By: Larry M. Karren
Treasurer
(Principal Financial Officer)
Page 4 of 4
<PAGE>
APPENDIX I
PRIMROSE SCHOOL FRANCHISING COMPANY
AND AFFILIATES
TABLE OF CONTENTS
- ---------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT 2
COMBINED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS
ENDED DECEMBER 31, 1998, 1997, AND 1996:
BALANCE SHEETS 3
STATEMENTS OF INCOME 4
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT) 5
STATEMENTS OF CASH FLOWS 6
NOTES TO COMBINED FINANCIAL STATEMENTS 7
I - 1
<PAGE>
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Primrose School Franchising Company and Affiliates
We have audited the accompanying combined balance sheets of Primrose School
Franchising Company and Affiliates (the "Company") as of December 31, 1998,
1997, and 1996 and the related combined statements of income, shareholder's
equity (deficit), and cash flows for the years then ended. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Primrose School
Franchising Company and Affiliates as of December 31, 1998, 1997, and 1996 and
the results of its operations and cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
June 4, 1999
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<PAGE>
PRIMROSE SCHOOL FRANCHISING COMPANY
AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 286,042 $ 771,159 $ 739,956
Accounts receivable 359,670 262,161 202,347
Note receivable, current portion (Note 3) 44,814 1,735
Schools under construction for franchisees 1,329,699 1,554,204 79,345
Prepaid expenses 56,457 41,740 24,878
Due from an officer 14,712
----------- ----------- ----------
Total current assets 2,076,682 2,630,999 1,061,238
PROPERTY AND EQUIPMENT, net (Note 5) 321,074 623,940 580,905
NOTES RECEIVABLE, net of current portion (Note 3) 312,388 110,515
INTANGIBLES, net of amortization (Note 4) 148,280 46,367 34,249
----------- ----------- ----------
TOTAL ASSETS $ 2,858,424 $ 3,411,821 $1,676,392
=========== =========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 475,016 $ 608,256 $ 108,499
Accrued expenses 92,064 111,694 166,183
Deferred revenue 1,635,600 1,130,500 683,000
Lines of credit (Note 6) 995,043 1,177,065 50,000
Long-term debt-current portion (Note 6) 2,509 417,431 91,006
----------- ----------- ----------
Total current liabilities 3,200,232 3,444,946 1,098,688
LONG-TERM DEBT (Note 6) 2,509 419,940
----------- ----------- ----------
Total liabilities 3,200,232 3,447,455 1,518,628
----------- ----------- ----------
SHAREHOLDER'S EQUITY (DEFICIT)
Capital stock, $1 par value,
authorized 1,000,000 shares, issued 2,000 shares 2,000 2,000 2,000
Additional paid-in capital 10,000 10,000 10,000
Retained earnings (deficit) (353,808) (47,634) 145,764
----------- ----------- ----------
TOTAL SHAREHOLDER'S EQUITY (DEFICIT) (341,808) (35,634) 157,764
----------- ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 2,858,424 $ 3,411,821 $1,676,392
=========== =========== ==========
</TABLE>
See notes to combined financial statements
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<PAGE>
PRIMROSE SCHOOL FRANCHISING COMPANY
AND AFFILIATES
COMBINED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES (Note 8) $7,787,635 $5,168,838 $2,899,469
EXPENSES:
Cost of schools sold 2,491,987 1,255,822 --
Operating expenses 2,677,400 2,475,639 2,184,137
---------- ---------- ----------
Total expenses 5,169,387 3,731,461 2,184,137
---------- ---------- ----------
Income from operations 2,618,248 1,437,377 715,332
OTHER EXPENSES:
Loss on disposition of property (Note 4) 145,982
Depreciation and amortization 113,355 53,270 59,750
Interest 15,085 27,505 28,017
---------- ---------- ----------
Total other expenses 274,422 80,775 87,767
---------- ---------- ----------
Net income $2,343,826 $1,356,602 $ 627,565
========== ========== ==========
</TABLE>
See notes to combined financial statements.
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<PAGE>
PRIMROSE SCHOOL FRANCHISING COMPANY
AND AFFILIATES
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL RETAINED
--------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
BALANCE - January 1, 1996 (unaudited) 2,000 $ 2,000 $ 10,000 $ 171,199 $ 183,199
Net income 627,565 627,565
Distributions to shareholder (653,000) (653,000)
------ ------ ------- ------------ -----------
BALANCE - December 31, 1996 2,000 2,000 10,000 145,764 157,764
------ ------ ------- ------------ -----------
Net income 1,356,602 1,356,602
Distributions to shareholder (1,550,000) (1,550,000)
------ ------ ------- ------------ -----------
BALANCE - December 31, 1997 2,000 2,000 10,000 (47,634) (35,634)
------ ------ ------- ------------ -----------
Net income 2,343,826 2,343,826
Distributions to shareholder (2,650,000) (2,650,000)
------ ------ ------- ------------ -----------
BALANCE - December 31, 1998 2,000 $ 2,000 $ 10,000 $ (353,808) $ (341,808)
====== ======== ========= ============ ===========
</TABLE>
See notes to combined financial statements.
I - 5
<PAGE>
PRIMROSE SCHOOL FRANCHISING COMPANY AND AFFILIATES
COMBINED SCHOOL STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 2,343,826 $ 1,356,602 $ 627,565
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 113,355 53,270 59,750
Loss (gain) on disposal of property, net (13,693)
Changes in assets and liabilities:
Increase in accounts receivable (97,509) (59,814) (45,979)
Increase in prepaid expenses (14,717) (16,862) (17,031)
Increase (decrease) in accounts payable (133,240) 499,757 (92,124)
Increase (decrease) in accrued liabilities (19,630) (54,489) 129,474
Increase in deferred revenue 505,100 447,500 100,000
Decrease in due from an officer 14,712
Increase (decrease) in schools under construction for franchisees 224,505 (1,474,859) (79,345)
----------- ----------- ---------
Net cash provided by operating activities 2,907,997 765,817 682,310
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment $ 255,092 $ (96,667) $ (79,519)
Increase in notes receivable (244,952) (112,250)
Increase in intangibles (153,801) (11,756) (38,896)
----------- ----------- ---------
Net cash required by investing activities (143,661) (220,673) (118,415)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under lines of credit 995,043 1,177,065 50,000
Repayment under lines of credit (1,177,065) (50,000)
Borrowings under long-term debt 150,000
Principal repayments on long-term debt (417,431) (91,006) (20,493)
Distributions to shareholder (2,650,000) (1,550,000) (653,000)
----------- ----------- ---------
Net cash required by financing activities (3,249,453) (513,941) (473,493)
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH (485,117) 31,203 90,402
CASH
Beginning of year 771,159 739,956 649,554
----------- ----------- ---------
End of year $ 286,042 $ 771,159 $ 739,956
=========== =========== =========
INTEREST PAID $ 15,085 $ 27,505 $ 28,017
=========== =========== =========
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1998, buildings and land, with a net book value of $334,671, were
transferred to an affiliated company of the former shareholder in exchange
for the assumption of notes payable of the Company amount to $340,000.
A gain of $5,328 resulted from the transaction.
</TABLE>
See notes to combined financial statements.
I - 6
<PAGE>
PRIMROSE SCHOOL FRANCHISING COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION
On April 6, 1999, Security Capital Corporation, through a newly formed
subsidiary, Primrose Holdings, Inc. acquired Primrose School Franchising
Company and Affiliates (the "Company"). The acquired entities consist of
three affiliated companies, Primrose School Franchising Company ("PSFC"),
Metrocorp Inc. ("Metrocorp"), and Primrose Country Day School ("PCDS").
PSFC provides materials, management services, curriculum guidelines, and
marketing services for its franchisees which operate educational-based
child care centers. PCDS operates as a Primrose School educational-based
child care center in Marietta, Georgia. Metrocorp provides real estate
site and development support for various Primrose School franchisees
around the country.
PSFC, Metrocorp, and PCDS were all controlled by the majority shareholder
prior to the acquisition. Accordingly, the financial statements of the
Company have been prepared on a combined basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies that were consistently
applied in the preparation of the accompanying combined financial
statements is as follows:
a. PRINCIPLES OF COMBINATION - The financial statements of Metrocorp,
PSFC, and PCDS were combined and all significant accounts and
transactions among the companies have been eliminated.
b. USE OF ESTIMATES - The preparation of combined financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results may differ from those estimates.
c. RECOGNITION OF REVENUE - Royalties are recognized as revenue based on
the monthly revenues of the franchissees. Franchise fees are
collected at various intervals prior to the opening of a school and
are deferred until the franchised school has commenced operations.
Real estate service fees are recognized as earned. Assignment fee
revenue is recognized in two intervals. A portion of the revenue is
recognized at the date of contract. The other portion is deferred
until the franchised school has commenced operations.
School tuition revenue is recognized as earned over the school year.
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<PAGE>
d. SCHOOLS UNDER CONSTRUCTION FOR FRANCHISEES - Schools under
construction for franchisees are composed of building and development
costs for the construction of schools that will be sold to
franchisees during the following year.
e. IMPAIRMENT OF LONG-LIVED ASSETS - Management reviews the net carrying
value of the long-lived assets if any facts and circumstances suggest
that their recoverability may have been impaired. Management believes
that no such impairment exists at December 31, 1998, 1997, and 1996.
f. PROPERTY, EQUIPMENT, AND DEPRECIATION - Property and equipment are
carried at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets.
g. INTANGIBLES - Costs of patents and noncompete agreements are being
amortized using the straight-line method over three to fifteen years.
h. ADVERTISING/DEVELOPMENT FUND - Advertising and development fees are
deposited in a restricted account when received from the franchisees.
PSFC is obligated to spend these funds as specified in the franchise
agreements.
i. INCOME TAXES - Prior to the acquisition, each entity elected to be
taxed under the provisions of Subchapter S of the Internal Revenue
Code. Accordingly, the accompanying combined financial statements do
not include a provision nor a liability for income taxes. Each
entities' earnings and losses were included in the shareholder's
personal income tax returns.
I - 8
<PAGE>
3. NOTES RECEIVABLE
<TABLE>
<CAPTION>
1998 1997
<S> <C>
Notes receivable, principal due May 1, 2001, principal and interest payments
begin May 1, 1999. Interest accrues at prime plus 1.5% (9.75% at December
31, 1998); secured by certain real estate $ 50,000
Note receivable; principal due in full June 12, 1999; interest payable 20,000 $ 20,000
quarterly at a rate of 10%
Note receivable; due in varying monthly payments of principal and interest
beginning October 1998 for 9 years; interest begins at 1.5% over prime
(effective rate of 9.75% at December 31, 1998) and
increases to 4% over prime during the term 99,000 92,250
Note receivable; due in varying monthly payments of principal and interest
beginning January 1999 for 9 years; interest begins at 1.5% over prime
(effective rate of 9.75% at December 31, 1998) and increases to 4% over
prime during the term 86,460
Note receivable; due in varying monthly payments of principal and interest
beginning August 1999 for 9 years; interest begins at 1.5% over prime
(effective rate of 9.75% at December 31, 1998) and increases to 4% over
prime during the term 101,742
-------- --------
357,202 112,250
Less current portion 44,814 1,735
-------- --------
$312,388 $110,515
======== ========
</TABLE>
There were no notes receivable at December 31, 1996.
4. FRANCHISE PROPERTY SETTLEMENT
PSFC was a party to litigation involving the developer under an awarded
area development agreement which involved two legal actions, one
instituted by the developer against the PSFC and the second initiated by
PSFC against the developer. In 1998, such litigation was dismissed
pursuant to agreement of the parties ("Agreement"). Such Agreement
provided that PSFC purchase the real estate, improvements, equipment,
furniture, and fixtures of the two Primrose Schools owned by the Developer
for $3,500,000. The purchase price included two three-year noncompete
agreements totaling $145,000.
Subsequent to the purchase, PSFC sold these two schools to a franchisee in
1998 and recognized a loss. In connection with the sale, PSFC received a
note receivable for $50,000, secured by certain real estate (see Note 3).
I - 9
<PAGE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
1998 1997 1996
Land $ 20,000 $ 20,000
Buildings 381,092 381,092
Vehicles $291,753 248,040 193,351
Furniture and fixtures 291,380 251,871 214,451
Leasehold improvements 31,973 30,667 30,668
-------- -------- --------
Property and equipment, at cost 615,106 931,670 839,562
Less accumulated depreciation 294,032 307,730 258,657
-------- -------- --------
Property and equipment, net $321,074 $623,940 $580,905
======== ======== ========
During 1998, the land and buildings were transferred to an affiliated
company of the former owner at a net book value of $334,671. The former
owner also assumed notes payable of the Company of $340,000 (see Note 6).
The transaction resulted in a gain of $5,328.
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<PAGE>
6. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C>
LINES OF CREDIT
$1,150,000, guaranteed by the
former owner, interest at prime rate
plus .5%, due in 1999 $ 323,478
$1,575,000, guaranteed by the
former owner, interest at prime rate
plus .5%, due in 1999 671,565
$1,350,000, guaranteed by the
former owner, interest at prime rate
plus .5%, due in 1998 $ 787,460
$1,350,000, guaranteed by the
former owner, interest at prime rate
plus .5%, due in 1998 389,605
$50,000, guaranteed by the
former owner, interest at prime rate
plus .5%, due in 1997 $ 50,000
--------- ----------- --------
Total $ 995,043 $ 1,177,065 $ 50,000
========= =========== ========
LONG-TERM DEBT
8% interest demand note payable,
balance transferred to former
owner in 1998 (see Note 5) $ 80,000 $ 150,000
8.5% mortgage note payable, payable in
monthly installments of $1,519, balance
transferred to former
owner in 1998 (see Note 5) 154,674 159,459
7% mortgage note payable, payable in monthly
installments of $2,025, balance
transferred to former
owner in 1998 (see Note 5) 177,271 188,485
Other $ 2,509 7,995 13,002
--------- ----------- --------
Total 2,509 419,940 510,946
Less current portion 2,509 417,431 91,006
--------- ----------- --------
Long-term debt $ 0 $ 2,509 $ 419,940
========= =========== =========
</TABLE>
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<PAGE>
7. RELATED PARTY TRANSACTIONS
Rental expense to related parties amounted to $135,000 in 1998, $96,000 in
1997 and 1996. The minimum commitments on these noncancelable leases are
as follows for years ending December 31:
1999 $ 174,000
2000 174,000
2001 108,000
---------
$ 456,000
=========
Metrocorp had a demand note payable to the former owner. At December 31,
1997 and 1996, the balance of the notes were $150,000 and $80,000,
respectively. Interest on the note payable was 8%; however, no interest
was paid to the former owner. The balance of the note was transferred to
the former owner in 1998 (see Note 5).
8. REVENUE SCHEDULE
Revenue is composed of the following:
1998 1997 1996
Royalties $3,034,925 $2,330,012 $1,661,622
Franchise fees 800,750 520,750 382,500
Tuition, net of refunds 704,764 752,257 758,111
Sales of schools to franchisees 2,821,799 1,385,931 --
Real estate service and
assignment fees 274,500 106,000 19,500
Rental and miscellaneous 150,897 73,888 77,736
---------- ---------- ----------
TOTAL $7,787,635 $5,168,838 $2,899,469
========== ========== ==========
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<PAGE>
9. INTERIM FINANCIAL INFORMATION (UNAUDITED)
The following unaudited combined financial statements are presented for the
three months ended March 31, 1999 and 1998.
COMBINED BALANCE SHEETS, MARCH 31, 1999 AND 1998
MARCH 31,
1999 1998
CURRENT ASSETS:
Cash $ 851,337 $ 829,290
Accounts receivable 409,347 317,067
Note receivable, current portion 45,000
Schools under construction for franchisees 354,046 763,501
Prepaid expenses 130,282 59,427
---------- ----------
Total current assets 1,790,012 1,969,285
PROPERTY AND EQUIPMENT - Net 309,302 649,399
NOTE RECEIVABLE, net of current portion 406,132 176,209
INTANGIBLES, net of amortization 137,112 236,931
---------- ----------
TOTAL ASSETS $2,642,558 $3,031,824
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 319,784 $ 266,043
Accrued expenses 80,577 97,599
Deferred revenue 1,600,600 1,120,500
Lines of credit 331,419 785,303
Long-term debt, current portion 15,094
---------- ----------
Total current liabilities 2,332,380 2,284,539
LONG-TERM DEBT 1,059 604,578
---------- ----------
Total liabilities 2,333,439 2,889,117
SHAREHOLDER'S EQUITY
Capital stock, $1 par value, authorized 1,000,000
shares, issued 2,000 shares $ 1,546 $ 2,000
Additional paid-in capital 10,454 10,000
Retained earnings 297,119 130,707
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 309,119 142,707
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $2,642,558 $3,031,824
========== ==========
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<PAGE>
9. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
COMBINED STATEMENTS OF INCOME AND CHANGES IN SHAREHOLDER'S EQUITY
(DEFICIT) FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
MARCH 31,
1999 1998
REVENUES $ 3,036,599 $ 2,573,981
EXPENSES:
Operating expenses 794,004 677,483
Costs of schools sold 1,509,079 1,193,821
----------- -----------
Total expenses 2,303,083 1,871,304
----------- -----------
INCOME FROM OPERATIONS 733,516 702,677
OTHER EXPENSES:
Depreciation and amortization 22,589 17,092
Interest 7,244
----------- -----------
Total other expenses 22,589 24,336
----------- -----------
Net income 710,927 678,341
Shareholder's deficit, beginning balance (341,808) (35,634)
Distributions to shareholder (60,000) (500,000)
----------- -----------
Shareholder's equity, ending balance $ 309,119 $ 142,707
=========== ===========
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<PAGE>
9. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
COMBINED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
1998
1999 1998
OPERATING ACTIVITIES:
Net Income $ 710,927 $ 678,341
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 22,589 16,092
Changes in assets and liabilities:
Increase in accounts receivable (49,677) (54,906)
Increase in prepaid expenses (73,822) (17,687)
Decrease in accounts payable (155,232) (342,213)
Decrease in accrued liabilities (11,487) (14,095)
Increase in deferred revenue (35,000) (10,000)
Decrease) in schools under
construction for franchisees 978,680 790,703
----------- -----------
Net cash provided by operating activities $ 1,386,978 $ 1,046,235
=========== ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment $ (700) $ (43,142)
Increase in notes receivable (93,930) (63,959)
Increase in intangibles (1,979) (188,973)
----------- -----------
Net cash required by investing activities (96,609) (296,074)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment under lines of credit (663,624) (391,762)
Borrowings of long-term debt 602,069
Repayment of long-term debt (1,450) (402,337)
Distributions to shareholder (60,000) (500,000)
----------- -----------
Net cash required by financing activities (725,074) (692,030)
----------- -----------
NET INCREASE (DECREASE) IN CASH 565,295 58,131
CASH
Beginning of year 286,042 771,159
----------- -----------
End of year $ 851,337 $ 829,290
=========== ===========
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<PAGE>
APPENDIX II
SECURTIY CAPITAL CORPORATION
PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
INTRODUCTION:
The pro forma combined financial information presented herein gives pro forma
effects to the acquisition of Primrose School Franchising Company and its
Affiliates.
On April 6, 1999, Security Capital Corporation (the "Company") acquired an
effective 89.7% interest (after consideration of the warrants issued in
conjunction with new borrowings to consummate the acquisition) in Primrose
School Franchising Company and its Affiliates. The acquisition was accounted for
as a purchase in accordance with the provisions of Accounting Principles Board
Opinion No. 16, BUSINESS COMBINATIONS. The allocation of purchase price to the
tangible and intangible assets acquired, as reflected in the Pro Forma Combined
Balance Sheet as of March 31, 1999, was based upon preliminary determination of
the fair value of the tangible and intangible assets. As such, the final
allocation of purchase price may vary from that presented herein.
The accompanying Pro Forma Combined Balance Sheet as of March 31, 1999 is
intended to reflect the acquisition of Primrose School Franchising Company and
its Affiliates as if it had been consummated on March 31, 1999.
The accompanying Pro Forma Combined Statements of Operations for the year ended
December 31, 1998 and for the three months ended March 31, 1999 are intended to
reflect the acquisition of Primrose School Franchising Company and its
Affiliates as if it had been consummated on January 1, 1998. It should be noted,
however, that if the acquisition had actually occurred on January 1, 1998, the
purchase price would have been substantialy less than that which was paid on
April 6, 1999 due to the lower level (approximately 40%) of earnings for the
trailing twelve months as of January 1, 1998 as compared with April 6, 1999.
Consequently the pro forma interest expense and amortization for the year ended
December 31, 1998 and for the three months ended March 31, 1999 would have been
substantially less than indicated in the Pro Forma Combined Statement of
Operations.
The accompanying Pro Forma Combined Financial Information does not purport to be
indicative of the results of operations and financial condition that would have
been achieved had the acquisition and disposition actually been consummated at
the beginning of the respective fiscal periods presented. In addition, the
accompanying Pro Forma Combined Financial Information does not purport to be
indicative of the results of operations which may be achieved in the future.
The accompanying Pro Forma Combined Financial Information has been prepared
using the assumptions set forth in the accompanying Notes to the Pro Forma
Combined Financial Information and should be read in conjunction with the
audited Consolidated Financial Statements and Notes thereto contained in the
Registrant's Annual Report on Form 10-K, which are incorporated by reference
herein, the unaudited Consolidated Financial Statements and Notes thereto
contained in the Registrant's Quarterly Reports on Form 10-Q, which are
incorporated by reference herein, and the Combined Financial Statements of
Primrose School Franchising Company and its Affiliates, which are included
elsewhere in this Current Report on 8-K/A.
II - 1
<PAGE>
SECURITY CAPITAL CORPORATION
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
PRIMROSE
SECURITY SCHOOL FRANCHISING PRO FORMA
CAPITAL COMPANY AND --------------------
CORPORATION AFFILIATES (10) ADJUSTMENTS REF # COMBINED
----------- --------------- ----------- ----- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash & cash equivalents $ 8,343 $ 838 $ 5,000 (1)
1,000 (2)
13,400 (3)
(25,872) (4) $ 2,709
Notes receivable - current - 45 45
Investment in Primrose Holdings, Inc. - - 27,541 (4)
772 (5)
(591) (6)
632 (7)
(28,354) (8) -
Accounts receivable - trade (net of allowance
for doubtful accounts of $125) 2,717 479 3,196
Inventory 6,445 - 6,445
Construction in progress - 354 354
Deferred tax asset 1,175 - 1,175
Other current assets 1,272 130 250 (4) 1,652
-------- ------- -------- --------
Total current assets 19,952 1,846 (6,222) 15,576
Property and equipment (net of accumulated
depreciation of $355) 1,537 309 1,846
Notes receivable - non current - 407 407
Intangible assets (net of accumulated
amortization of $2,174) 11,836 137 28,354 (8) 40,327
Licenses and other assets 202 - 202
-------- ------- -------- --------
Total Assets $ 33,527 $ 2,699 $ 22,132 $ 58,358
======== ======= ======== ========
</TABLE>
II - 2
<PAGE>
SECURITY CAPITAL CORPORATION
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
PRIMROSE
SECURITY SCHOOL FRANCHISING PRO FORMA
CAPITAL COMPANY AND --------------------
CORPORATION AFFILIATES (10) ADJUSTMENTS REF # COMBINED
----------- --------------- ----------- ----- --------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 2,650 $ 331 $ 1,000 (2)
250 (3)
(331) (4) $ 3,900
Current Portion of long-term debt 1,694 - 1,748 (3) 3,442
Accounts payable 1,305 321 1,626
Deferred revenue - 1,601 1,601
Due to officers 656 (591) (6) 65
Accrued expenses and other liabilities 595 561 632 (7) 1,788
-------- ------- -------- --------
Total current liabilities 6,244 3,470 2,708 12,422
Long-term debt, net of current 9,635 1 11,402 (3)
(1,105) (9) 19,933
-------- ------- -------- --------
Total liabilities 15,879 3,471 13,005 32,355
-------- ------- -------- --------
Minority interest 1,489 - 250 (4) 1,739
-------- ------- -------- --------
Class A Redeemable Preferred Stock, $.01 par
value, 500,000 shares authorized and issued,
redeemable on April 6, 2006 at $10 per share - - 2,000 (4) 2,000
-------- ------- -------- --------
Stockholders' Equity
Common stock, $.01 par value, 7,500 shares
authorized; 539 shares issued; 380 shares
outstanding - - -
Class A Common Stock, $.01 pare value,
10,000,000 shares authorized; 6,761,264
shares issued; 6,442,848 shares outstanding 56 2 11 (1)
(2) (5) 67
Additional Paid in Capital 67,520 10
4,989 (1)
(10) (5)
1,105 (9) 73,614
Accumulated deficit (46,202) (784) 784 (5) (46,202)
Less: Treasury stock, at cost, 318,416 shares (5,215) - (5,215)
-------- ------- -------- --------
Total stockholders' equity 16,159 (772) 6,877 22,264
-------- ------- -------- --------
Total liabilities and
stockholders' equity $ 33,527 $ 2,699 $ 22,132 $ 58,358
======== ======= ======== ========
</TABLE>
II - 3
<PAGE>
SECURITY CAPITAL CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
PRIMROSE
SECURITY SCHOOL FRANCHISING PRO FORMA
CAPITAL COMPANY AND -------------------
CORPORATION AFFILIATES ADJUSTMENTS REF # COMBINED
----------- --------------- ----------- ----- --------
<S> <C> <C> <C> <C>
Revenues
Sales, net $ 30,018 $ 7,671 $ - $ 35,198
Cost of goods sold 14,486 2,491 - 14,486
------- ------- -------- -------
Gross profit 15,532 5,180 - 20,712
------- ------- -------- -------
Operating expenses
SG&A 10,579 2,593 250 (1) 13,422
Depreciation & amortization 888 113 1,196 (2) 2,197
------- ------- -------- -------
Total operating expense 11,467 2,706 1,446 15,619
------- ------- -------- -------
Operating income (loss) 4,065 2,474 (1,446) 5,093
------- ------- -------- -------
Other income (expense)
Interest income 347 20 (300) (3) 67
Interest expense (2,385) (15) (930) (4)
(213) (5) (3,543)
Other 32 (136) (104)
------- ------- -------- -------
Total other income (expense) (2,006) (131) (1,443) (3,580)
------- ------- -------- -------
Total minority interest (345) - 47 (6) (298)
------- ------- -------- -------
Income from continuing operations
before (benefit) provision for income taxes 1,714 2,343 (2,842) 1,215
------- ------- -------- -------
Provision for income tax
(benefit) expense (435) - (55) (7) (490)
------- ------- -------- -------
Net income $ 2,149 $ 2,343 $ (2,788) $ 1,704
======= ======= ======== =======
EARNINGS PER SHARE
Basic $ 0.41
Basic pro forma $ 0.23
Fully diluted pro forma $ 0.25
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Historical 5,306
Pro forma 6,442
Fully diluted pro forma 6,942
</TABLE>
II - 4
<PAGE>
SECURITY CAPITAL CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
PRIMROSE
SECURITY SCHOOL FRANCHISING PRO FORMA
CAPITAL COMPANY AND -------------------
CORPORATION AFFILIATES ADJUSTMENTS REF # COMBINED
----------- --------------- ----------- ----- --------
Revenues
<S> <C> <C> <C> <C>
Sales, net $ 3,335 $ 2,776 $ - $ 4,918
Cost of goods sold 1,750 1,193 - 1,750
------ ----- ------ ------
Gross profit 1,585 1,515 - 3,168
------ ----- ------ ------
Operating expenses
SG&A 2,153 794 (40) (8)
67 (1) 2,974
Depreciation & amortization 278 23 318 (2) 619
------ ----- ------ ------
Total operating expense 2,431 817 345 3,593
------ ----- ------ ------
Operating income (loss) (846) 698 (345) (493)
------ ----- ------ ------
Other income (expense)
Interest income 18 8 (18) (3) 8
Interest expense (339) - (191) (4)
(56) (5) (586)
Other 15 7 22
------ ----- ------ ------
Total other income (expense) (306) 15 (265) (556)
------ ----- ------ ------
Total minority interest 275 - (9) (6) 266
------ ----- ------ ------
Income from continuing operations
before (benefit) provision for income taxes (877) 713 (618) (782)
------ ----- ------ ------
Provision for income tax
(benefit) expense (92) - 10 (7) (82)
------ ----- ------ ------
Net income $ (785) $ 713 $ (629) $ (701)
====== ===== ====== ======
EARNINGS (LOSS) PER SHARE
Basic $ (0.15)
Basic pro forma $ (0.12)
Fully diluted pro forma $ (0.10)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Historical 5,306
Pro forma 6,442
Fully diluted pro forma 6,942
</TABLE>
II - 5
<PAGE>
SECURITY CAPITAL CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
The following describes the pro forma adjustments made to the accompanying Pro
Forma Combined Balance Sheet and Statements of Operations.
PRO FORMA COMBINED BALANCE SHEET - MARCH 31, 1999:
(1) To record proceeds of $5,000,000 received from a private placement of
1,136,364 shares of Security Capital Corporation Class A Common Stock.
(2) To record proceeds of $1,000,000 from line of credit borrowings used to
consummate the acquisition.
(3) To record proceeds from new borrowings of $13,150,000 used to consummate
the acquisition and $250,000 contribution from management. The new
borrowings have an interest rate of 8.5% and include detachable warrants
for 2,415.3 shares of Primrose Holdings, Inc., common stock, representing
an approximate 9% equity interest and valued at $1,105,000.
(4) To record cash paid of $25,872,000, the minority interest to management of
$250,000, and the issuance of 500,000 shares of redeemable preferred stock
valued at $2,000,000, to purchase an 89.7% effective interest in Primrose
School Franchising Company and its Affiliates. Cash payments include cash
paid to the previous owner of $24,650,000, payments of a line of credit
of $332,000 and payments for closing costs and management fees of
$890,000.
(5) To eliminate the acquired companies' equity.
(6) To eliminate the portion of the liability due to officer not assumed by
Security Capital Corporation.
(7) To record liabilities incurred for acquisition costs.
(8) To eliminate the investment in Primrose Holdings, Inc. and to record the
intangible assets; loan costs - 6 years; developed curriculum - 10 years;
franchise agreements - 21 years; and goodwill - 25 years, acquired and/or
created from the acquisition.
(9) To record debt issuance costs of $1,105,000 for detachable warrants issued
in conjunction with the debt incurred in connection with the acquisition.
(10) Represents the historical balances of Primrose School Franchising Company
and its Affiliates as of April 6, 1999.
II - 6
<PAGE>
SECURITY CAPITAL CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
PRO FORMA COMBINED STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31,
1998 AND THE THREE MONTHS ENDED MARCH 31, 1999:
(1) To record pro forma management fees.
(2) To record pro forma amortization expense attributable to intangibles
acquired and created from the acquisition of: developed curriculum - 10
years; franchise agreements - 21 years; and goodwill - 25 years.
(3) To record the pro forma effects of cash used for the acquisition, which
results in reduced interest income.
(4) To record pro forma interest expense attributable to debt incurred in
connection with the acquisition
(5) To record pro forma interest expense on debt issuance costs incurred from
the acquisition over the term of the note (6 years).
(6) To allocate pro forma income or loss to minority interests.
(7) To record pro forma tax effects. The proforma provision for income taxes
reflects provisions that would have been recorded had the acquired Company
been a C Corporation for tax purposes during the periods shown using an
estimated income tax rate of 10%.
(8) To eliminate one time professional fees and other expenses associated with
services provided and expenses related to the sale of the acquired
companies incurred by the previous owners of the acquired companies.
II - 7
