UNITED STATES
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 June 30, 2000.
[ ] 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)
ONE PICKWICK PLAZA, SUITE 310, GREENWICH, CT. 06830
-------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(203) 625-0770
-------------------------------------------------------------------------
(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 3 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 [ ].
As of August 14, 2000, there were 6,442,309 outstanding shares of Class A
Common Stock, par value $ .01, and 380 outstanding shares of Common Stock, par
value $ .01, of the registrant.
<PAGE>
TABLE OF CONTENTS
PAGE
Part I Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations............................. 1
Consolidated Balance Sheets....................................... 2
Consolidated Statements of Cash Flows............................. 3
Notes to the Consolidated Financial Statements.................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 9
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders............... 9
Item 5. Other Information................................................. 9
Item 6. Exhibits and Reports on Form 8-K.................................. 10
<PAGE>
Security Capital Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Net seasonal products sales ....................................... $ 7,041 $ 5,315 $ 10,111 $ 8,650
Educational services revenues ..................................... 1,676 1,141 3,354 1,141
---------- ---------- ---------- ----------
Total revenues ........................................................ 8,717 6,456 13,465 9,791
---------- ---------- ---------- ----------
Cost of revenues:
Seasonal products cost of sales ................................... 3,326 2,752 4,937 4,502
Educational services cost of revenues ............................. 358 299 727 299
---------- ---------- ---------- ----------
Total cost of revenues ................................................ 3,684 3,051 5,664 4,801
---------- ---------- ---------- ----------
Gross profit .......................................................... 5,033 3,405 7,801 4,990
---------- ---------- ---------- ----------
Selling, general and administrative ................................... 3,235 3,173 6,072 5,326
Depreciation and amortization ......................................... 596 536 1,187 814
---------- ---------- ---------- ----------
Operating income (loss) ............................................... 1,202 (304) 542 (1,150)
Interest expense ...................................................... (760) (809) (1,440) (1,148)
Other income (expense) ................................................ (171) (57) (59) 159
---------- ---------- ---------- ----------
Income (loss) before income tax (benefit) expense and minority interest 271 (1,170) (957) (2,139)
Income tax benefit (expense) .......................................... (139) 114 351 206
Minority interests in subsidiaries .................................... 9 62 143 154
---------- ---------- ---------- ----------
Net income (loss) ..................................................... 141 (994) (463) (1,779)
---------- ---------- ---------- ----------
Less preferred stock accretion ........................................ (75) (69) (149) (69)
---------- ---------- ---------- ----------
Net income (loss) available to common stockholders .................... $ 66 $ (1,063) $ (612) $ (1,848)
---------- ---------- ---------- ----------
Earnings (loss) per share:
Basic ............................................................. $ 0.01 $ (0.18) $ (0.10) $ (0.32)
Diluted ........................................................... $ 0.01 $ (0.18) $ (0.10) $ (0.32)
---------- ---------- ---------- ----------
Basic and diluted weighted average shares outstanding: ................ 6,442 5,842 6,442 5,842
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
Security Capital Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
-------- ------------
ASSETS (In thousands, except share and per share amounts)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 336 $ 1,813
Accounts receivable (net of allowance for
doubtful accounts of $182 and $213) .................... 9,274 4,982
Inventory ................................................. 8,161 4,193
Deferred tax asset ........................................ 197 287
Other current assets ...................................... 1,090 946
-------- ------------
Total current assets ...................................... 19,058 12,221
Property and equipment (net of accumulated
depreciation of $631 and $478) ......................... 1,843 1,781
Goodwill and intangible assets (net of
accumulated amortization of $4,935 and
$3,825) ................................................ 37,779 38,841
Deferred tax asset ........................................ 2,130 1,875
Other assets .............................................. 366 602
-------- ------------
Total assets .............................................. $ 61,176 $ 55,320
-------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ......................... $ 3,602 $ 3,617
Accounts payable .......................................... 1,700 891
Accrued expenses and other liabilities .................... 991 966
Unearned revenues ......................................... 2,231 1,631
Notes payable ............................................. 8,315 1,250
-------- ------------
Total current liabilities ................................. 16,839 8,355
Long-term debt ............................................ 15,281 17,304
Other long-term obligations ............................... 2,569 2,566
-------- ------------
Total liabilities ......................................... 34,689 28,225
-------- ------------
Minority interest ......................................... 1,073 1,217
-------- ------------
Redeemable preferred stock (liquidation
value - $5,000) ........................................... 2,355 2,206
-------- ------------
Common stock, $.01 par value, 7,500 shares authorized, 539
shares issued; 380 shares outstanding .................. -- --
Class A common stock, $.01 par value, 10,000,000 shares
authorized; 6,760,725 shares issued; 6,442,309 shares
outstanding ............................................ 68 68
Additional paid-in capital ................................ 72,152 72,302
Accumulated deficit ....................................... (43,946) (43,483)
Less: treasury stock, at cost, 318,575 shares ............. (5,215) (5,215)
-------- ------------
Total stockholders' equity ................................ 23,059 23,672
-------- ------------
Total liabilities and stockholders' equity ................ $ 61,176 $ 55,320
-------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
Security Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months
Ended
June 30,
--------------------
2000 1999
-------- --------
(In thousands)
Cash flows from operating activities:
Net loss .............................................. $ (463) $ (1,779)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Deferred taxes ..................................... (223) --
Warrant obligation adjustment ...................... 61 (180)
Depreciation and amortization ...................... 1,376 871
Minority interests in subsidiaries ................. (143) (154)
Changes in operating assets and liabilities,
net of effects from acquired business:
(Increase) decrease in accounts receivable ..... (4,271) (3,001)
(Increase) decrease in inventories ............. (3,968) (4,078)
(Increase) decrease in other current assets .... 74 (284)
Increase (decrease) in accounts payable, accrued
expenses, and unearned revenues ........... 1,432 613
-------- --------
Net cash used in operating activities ................. (6,125) (7,992)
-------- --------
Cash flows from investing activities:
Capital expenditures .............................. (266) (130)
Acquisition of subsidiaries, net of cash acquired . -- (25,033)
-------- --------
Net cash used in investing activities ................. (266) (25,163)
-------- --------
Cash flows from financing activities:
Proceeds from long-term borrowings ................. -- 13,150
Repayments of long-term borrowings ................. (2,151) (1,188)
Proceeds from line of credit ....................... 7,935 7,865
Repayments of line of credit ....................... (870) (173)
Issuance of stock .................................. -- 5,000
-------- --------
Net cash provided by financing activities ............. 4,914 24,654
-------- --------
Decrease in cash and cash equivalents ................. (1,477) (8,501)
Cash and cash equivalents, beginning of period ........ 1,813 9,133
-------- --------
Cash and cash equivalents, end of period .............. $ 336 $ 632
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
Security Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
-----------------------------------------------------------------------------
(1) Financial Statements
-----------------------------------------------------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and the instructions for Form 10-Q. The interim financial statements are
unaudited. In the opinion of management, all adjustments (which consist only of
normal recurring adjustments) necessary to present fairly the financial position
and results of operations for the interim periods presented have been made. 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 Corporation on Form
10-K. Certain prior amounts have been classified to conform with current period
classifications.
-----------------------------------------------------------------------------
(2) Organization And Description of Business
-----------------------------------------------------------------------------
Security Capital Corporation ("Security Capital") operates as a holding company
that participates in the management of its subsidiaries while encouraging
operating autonomy and preservation of entrepreneurial environments. Currently,
Security Capital has three portfolio operating subsidiaries (together with
Security Capital, referred to as the "Company"), known as Primrose, Pumpkin and
Possible Dreams. Primrose is a 98%-owned subsidiary involved in the franchising
of educational child care centers, with related activities in real estate
consulting and site selection services. Primrose also operates one child care
center. Primrose is primarily based in the southern, central and western
sections of the United States. Pumpkin is an 80%-owned subsidiary in the
business of manufacturing and distributing pumpkin and watermelon carving kits
and related accessories, as well as sidewalk chalk. Pumpkin's activities are
centered in the United States. Possible Dreams is a 90%-owned subsidiary that
operates as an importer, designer and distributor of collectible Christmas
figurines and ornaments and, to a lesser extent, religious articles, primarily
in the United States.
On June 9, 2000, Security Capital signed a definitive agreement, subject to
acceptable financing, to acquire Health Power, Inc. ("HPI") (OTC: HPWR).
Pursuant to the terms of the agreement HPI would become a subsidiary of the
Security Capital and stockholders of HPI would received approximately
$26,500,000 in exchange for their shares. Security Capital would also assume or
pay approximately $9,750,000 in liabilities and expenses of HPI, including
amounts needed to extinguish certain severance benefits.
-----------------------------------------------------------------------------
(3) Inventories
-----------------------------------------------------------------------------
June 30, December 31,
2000 1999
-------- ------------
(In thousands)
Finished goods ......... $ 6,930 $ 3,411
Raw materials .......... 1,231 782
-------- ------------
Total .................. $ 8,161 $ 4,193
-------- ------------
4
<PAGE>
------------------------------------------------------------------------------
(4) Other Income (Expense)
------------------------------------------------------------------------------
For the Three
Months For the Six Months
Ended June 30, Ended June 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands)
Interest income .................... $ 3 $ 9 $ 5 $ 27
Warrant obligation adjustment ...... (176) (12) (61) 180
Other .............................. 2 (54) (3) (48)
-------- -------- -------- --------
Total .............................. $ (171) $ (57) $ (59) $ 159
-------- -------- -------- --------
------------------------------------------------------------------------------
(5) Acquisition of Primrose
------------------------------------------------------------------------------
On April 6, 1999, the Company acquired 98% of the outstanding shares of common
stock of Primrose from Paul L. Erwin and The Paul L. Erwin Grantor Retained
Annuity Trust (the "Primrose Acquisition").
The following unaudited pro forma financial information presents the
consolidated results of the Company and Primrose as if the Primrose Acquisition
had taken place on January 1, 1999. The pro forma amounts give effect to certain
adjustments, including the amortization of goodwill and intangibles, increased
interest expense and income tax effects. This pro forma information does not
necessarily reflect the results of operations as they would have been if the
business had been managed by the Company during this period and is not
indicative of results that may be obtained in the future:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
1999 1999
-------------------- ------------------
(In thousands)
Pro-Forma:
Revenues ......................... $ 6,536 $ 12,954
Net loss
Earnings (loss) per common share.. $ (1,216) $ (1,939)
Basic ......................... $ (0.18) $ (0.32)
Diluted ....................... $ (0.18) $ (0.32)
-----------------------------------------------------------------------------
(6) Earnings Per Share
-----------------------------------------------------------------------------
At June 30, 2000, 500,000 shares of zero coupon redeemable convertible preferred
shares, which are convertible into 500,000 common shares, were excluded from the
computation of diluted earnings per share ("EPS") because their inclusion would
have had an antidilutive effect on EPS. In addition, subsidiary options and
warrants were also excluded from the computation of diluted EPS for the three
and six month periods ended June 30, 2000 and 1999, because their inclusion
would have had an antidilutive effect on consolidated EPS.
5
<PAGE>
-----------------------------------------------------------------------------
(7) Segment Disclosure
-----------------------------------------------------------------------------
The Company has an educational services segment and a seasonal products segment.
The educational services segment consists of Primrose, and the seasonal products
segment consists of Pumpkin and Possible Dreams. Management evaluates the
performance of its segments based upon segment income or adjusted EBITDA,
defined for the purposes of the segment disclosures as earnings before interest,
taxes, depreciation, amortization, minority interest expense, management fees
and non-recurring charges or gains.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended September 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues from external customers:
Seasonal products ................... $ 7,041 $ 5,315 $ 10,111 $ 8,650
Educational services ................ 1,676 1,141 3,354 1,141
---------- ---------- ---------- ----------
Total revenues .......................... $ 8,717 $ 6,456 $ 13,465 $ 9,791
---------- ---------- ---------- ----------
Segment income:
Seasonal products ................... $ 1,285 $ 85 $ 616 $ (307)
Educational services ................ 807 406 1,623 406
---------- ---------- ---------- ----------
Total segment income .................... 2,092 $ 491 $ 2,239 $ 99
---------- ---------- ---------- ----------
Reconciliation to net income (loss):
Depreciation and amortization expense (596) (536) (1,187) (814)
Interest expense .................... (760) (809) (1,440) (1,148)
Income tax benefit (expense) ........ (139) 114 351 206
Minority interest share of net loss . 9 62 143 154
Management fees ..................... (166) (165) (333) (272)
Other income (expenses) ............. (171) (57) (59) 159
Corporate and other expense ......... (128) (94) (177) (163)
---------- ---------- ---------- ----------
Net loss ................................ $ 141 $ (994) $ (463) $ (1,779)
---------- ---------- ---------- ----------
</TABLE>
June 30, December 31,
2000 1999
-------- ------------
(In thousands)
Segment assets:
Educational services ............................ $ 29,067 $ 29,303
Seasonal products ............................... 29,724 23,850
Corporate and other ................................ 2,385 2,167
-------- ------------
Total assets ....................................... $ 61,176 $ 55,320
-------- ------------
6
<PAGE>
-----------------------------------------------------------------------------
(8) Income Taxes
-----------------------------------------------------------------------------
The Company has recorded income tax benefits at a rate of 37% and 10% for the
six month periods ended June 30, 2000, and 1999, respectively. For the six month
period ended June 30, 1999, the Company recorded its tax benefit based upon
projected changes in its valuation allowance. The Company continues to
reevaluate its valuation allowance applied to its net operating loss
carry-forwards based upon current developments of its operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements of the Company and the related notes thereto appearing elsewhere in
this Report on Form 10-Q. Additional information concerning factors that could
cause results to differ materially from those forward-looking statements is
contained under "Part II -- Item 5. Other Information."
RESULTS OF OPERATIONS
Security Capital reported net income of $141,000 and a net loss of $463,000 for
the three and six month periods ended June 30, 2000, respectively, as compared
to net losses of $994,000 and $1,779,000 for the same periods of the prior year.
The Company reported basic and diluted net income per common share of $0.01 and
a loss per common share of $0.10 for the three and six month periods ended June
30, 2000, respectively, as compared to basic and diluted net losses per common
share of $0.18 and $0.32 for the same periods of the prior year.
Revenues increased by $2,261,000 and $3,674,000, or 35% and 38%, to $8,717,000
and $13,465,000 for the three and six month periods ended June 30, 2000, as
compared to the same periods of the prior year. The Company's seasonal products
segment revenues increased by $1,726,000 and $1,461,000, or 33% and 17%, to
$7,041,000 and $10,111,000 for the three and six month periods ended June 30,
2000, as compared to the same periods of the prior year. These increases were
attributable to increased demand and the timing of shipments in 2000.
Reported educational services segment revenues were $1,676,000 and $3,354,000
for the three and six month periods ended June 30, 2000, respectively. As a
measure of the increasing success of the educational services segment's concept,
the Company monitors the revenues generated by its franchises. Total educational
system revenues, or gross revenues of all educational based child care center
franchises, increased by $3,325,000 and $7,164,658, or 23% and 26%, to
$17,776,000 and $35,232,000 for the three and six month periods ended June 30,
2000, as compared to the historical pre-acquisition records of the predecessor
Company for the same periods of the prior year. Total royalty revenues earned
from the educational services segment system increased by $231,000 and $497,000,
or 23% and 26%, to $1,227,000 and $2,430,000 for the three and six month periods
ended June 30, 2000, as compared to the historical pre-acquisition records of
the predecessor Company for the same periods of the prior year. These increases
were generated by a 20% increase in the number of educational based childcare
centers, which was 78 and 65 as of June 30, 2000 and 1999, respectively. As of
June 30, 2000, this segment had awarded 40 franchise agreements with associated
unearned revenues of $2,231,000 recorded on the balance sheet.
Selling, general and administrative expenses increased by $62,000 and $746,000
to $3,235,400 and $6,072,000, respectively, for the three and six month periods
ended June 30, 2000, respectively, as compared to the same periods of the prior
year. The $746,000 increase was primarily due to the selling, general and
administrative expenses of the Company's educational segment being included in
the entire six month period ended June 30, 2000, as compared to only three
months in the prior six month period ended June 30, 1999.
Depreciation and amortization increased by $60,000 and $373,000 to $596,000 and
$1,187,000 for the three and six month periods ended June 30, 2000,
respectively, as compared to the same periods of the prior year. These increases
were attributable to normal and expected depreciation and amortization of the
Company's assets. Additionally, the depreciation and amortization expense of the
Company's educational
7
<PAGE>
segment increased approximately $340,000, as compared to the prior six month
period due to that segment's results being included in the entire six month
period ended June 30, 2000, as compared to only three months in the six month
period ended June 30, 1999.
Interest expense decreased $49,000 and increased by $292,000 to $760,000 and
$1,440,000 for the three and six month periods ended June 30, 2000,
respectively, as compared to the same periods of the prior year. The decrease
for the three month period ended June 30, 2000 was primarily due to reduced
average debt levels, as compared to the prior year. The increase for the six
months ended June 30, 2000 was primarily due to the Company's acquisition of
Primrose in April 1999, and therefore no interest expense attributable to that
acquisition was incurred during the first quarter of 1999.
The Company has recorded income tax benefits at a rate of 37% and 10% for the
six month periods ended June 30, 2000, and 1999, respectively. For the six month
period ended June 30, 1999, the Company recorded its tax benefit based upon
projected changes in its valuation allowance. The Company continues to
reevaluate its valuation allowance applied to its net operating loss
carry-forwards based upon current developments of its operations.
SEASONALITY
The seasonal products segment consists of Possible Dreams and Pumpkin. This
segment experiences a significant seasonal pattern in its working capital
requirements and operating results. In 1999, the seasonal products segment
received orders representing approximately 21% and 11% of its annual sales
during the first and second quarters, respectively. It ships products throughout
the year, with a majority of the shipping from July through November. Temporary
employees are hired to accommodate peak shipping periods. This segment provides
extended payment terms to some of its customers for seasonal merchandise and,
accordingly, collects a substantial portion its accounts receivable in the
fourth quarter. Due to the seasonal pattern, the seasonal products segment has
had greater working capital needs in its peak seasons and has experienced
greater cash availability in the fourth calendar quarter. As a result of this
sales pattern, a substantial portion of its revenues is typically recorded in
the third calendar quarter. The Company expects this seasonal pattern to
continue in fiscal year 2000. The seasonal products segment has historically
financed its operations through internally generated cash flow and short-term
seasonal borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $1,477,000, from $1,813,000 at December
31, 1999 to $336,000 at June 30, 2000. The educational services segment
decreased its cash and cash equivalents by $23,000. The seasonal products
segment's cash and cash equivalents decreased by $1,485,000 due to its need for
working capital during that segment's traditionally slowest period. The
remaining $31,000 increase was primarily attributable to holding company
corporate activities.
The Company's consolidated working capital decreased by $1,647,000, from
$3,866,000 at December 31, 1999 to $2,219,000 at June 30, 2000. The educational
services segment's working capital decreased by $262,000. The seasonal products
segment's decrease in working capital was approximately $1,235,000 and was
primarily due to its results from operations and working capital utilization
during that segment's traditionally slowest period. The remaining decrease of
$150,000 was primarily attributable to holding company corporate activities.
The Company's educational services segment maintains a $2,500,000 revolving line
of credit, which had a balance of $500,000 outstanding and $2,000,000 available
at June 30, 2000. The seasonal products segment, in the aggregate, maintains
revolving lines of credit, which had a balance of $7,815,000 outstanding and
$2,988,000 available at June 30, 2000, which was due to this segment's seasonal
pattern.
Total term debt, excluding original issue discounts, decreased by $2,151,000,
from $22,074,000 at December 31, 1999 to $19,923,000 at June 30, 2000. Term debt
in the aggregate had an approximate 9.87% average interest rate and current
maturities of $3,602,000 at June 30, 2000. Term debt also has certain covenants
at the subsidiary level, the more significant of which require the subsidiary
operating
8
<PAGE>
companies to maintain minimum earnings before interest, taxes, depreciation and
amortization ("EBITDA"), leverage ratio, interest coverage ratio, fixed charge
ratio and maximum lease expense. At June 30, 2000, the Company was in compliance
with all its covenants.
The Company had no major capital expenditures during the three month period
ended June 30, 2000 and expects no major capital expenditures during the
remainder of calendar year 2000.
The Company is currently negotiating with various financial institutions to
obtain acceptable financing for the proposed Health Power, Inc. acquisition.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Intruments and Hedging Activities." This statement
establishes standards for the accounting and reporting for derivative
instruments and for hedging activities and requires the recognition of all
derivatives as assets or liabilities measured at their fair value. Gains or
losses resulting from changes in the fair value of derivatives would be
recognized in earnings in the period of change unless certain hedging criteria
are met. The Company is currently in the process of evaluating the impact on the
consolidated results. SFAS No. 133, as amended by SFAS No. 137, is effective for
fiscal years beginning after June 15, 2000.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
On June 26, 2000, the SEC issued SAB 101B to defer the effective date of
implementation of SAB 101 until no later than the fourth fiscal quater of fiscal
year beginning after December 31, 1999. The Company is required to adopt SAB 101
by December 31, 2000. The Company is currently in the process of evaluating the
impact on the consolidated results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the Company. The
Company is exposed to market risk associated with changes in interest rates. The
Company's notes payable and long-term debt bear interest primarily at variable
rates. The Company is subject to increases and decreases in interest expense on
its variable rate debt resulting from fluctuations in the interest rates on such
debt. The effect of a percentage point change in interest rates would have
impacted interest expense by approximately $65,000 and $135,000 for the three
and six month periods ended June 30, 2000, respectively.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its 2000 Annual Meeting of Stockholders (the "Annual
Meeting") on July 13, 2000.
(b) The following directors were elected at the Annual Meeting and they
are the only directors of the Company: Brian D. Fitzgerald, A. George
Gebauer, M. Paul Kelly and Craig R. Stapleton.
(c) Set forth below is a description of the matters voted upon at the
Annual Meeting, including the number of votes cast for, as well as the
number of votes withheld and broker non-votes, as to each nominee for
election as a director.
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
-------- --------- -------------- ---------
Brian D. Fitzgerald 6,287,480 12,897 0
A. George Gebauer 6,287,230 13,147 0
M. Paul Kelly 6,287,480 12,897 0
Craig R. Stapleton 6,244,956 55,421 0
2. To approve the adoption of the 2000 Long-Term Incentive Plan of the
Company.
BROKER-
VOTES FOR AGAINST ABSTENTIONS NON-VOTES
--------- ------- ----------- ---------
5,642,748 66,405 9,078 582,146
ITEM 5. OTHER INFORMATION.
The Annual Meeting of the Company's Board of Directors was held on July 13,
2000, the Board of Directors elected Brian D Fitzgerald as Chairman of the
Board, President and Chief Executive Officer, A. George Gebauer as Vice Chairman
of the Board and Secretary and William R. Schlueter as Vice President and Chief
Financial Officer of the Company.
The Class A common stock of the Company trades on the American Stock Exchange
Inc. and, prior to
9
<PAGE>
August 1, 2000, traded on the Pacific Exchange, Inc. The Class A common stock
was suspended from trading on the Pacific Exchange effective August 1, 2000. The
Company was in favor of this suspension of trading because (i) it believes the
American Stock Exchange provides adequate liquidity for the Company's holders of
Class A common stock and (ii) the Company historically has had difficulty
meeting the maintenance requirements of the Pacific Exchange as a result of the
non-cash, goodwill charges resulting from the Company's acquisitions. The
American Stock Exchange's maintenance requirements do not take into account
goodwill generated on acquisitions.
This filing contains "forward-looking" statements within the meaning of the
"safe harbor" provisions of the Private Litigation Reform Act of 1995. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties which could cause actual results to differ
materially from those described in the forward looking statements. Such factors
and uncertainties include, but are not limited to: the level of orders that are
received and shipped by the Company in any given quarter, the rescheduling and
cancellation of orders by customers, availability and cost of materials, the
Company's ability to enhance its existing products and to develop, manufacture
and successfully introduce and market new products, new product developments by
the Company's competitors, market acceptance of products of both the Company and
its competitors, competitive pressures on prices, the ability to attract and
maintain qualified personnel, significant damage to or prolonged delay in
operations at the manufacturing facilities of the Company's suppliers, interest
rate and foreign exchange fluctuations, political instability in the Pacific
Rim, and the Company's ability to attract qualified franchisees.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K:
None
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: August 14, 2000 By: /s/ Brian D. Fitzgerald
------------------------------------
Brian D. Fitzgerald
President
Date: August 14, 2000 By: /s/ William R. Schlueter
------------------------------------
William R. Schlueter
Chief Financial Officer
(Principal Financial and
Accounting Officer)
