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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER 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__________
COMMISSION FILE NUMBER: 0-10443
UNITED FINANCIAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-2029669
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
OF INCORPORATION OR ORGANIZATION)
5847 SAN FELIPE, SUITE 2600 77057
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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 NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AT
MAY 12, 1997: 8,073,620
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UNITED FINANCIAL GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
Section Page
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PART I
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Financial Condition as
of March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 3. Default Upon Senior Securities 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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2
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UNITED FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
In Thousands
- -------------------------------------------------------------------------------
March 31, December 31,
1997 1996
- -------------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 2,829 2,930
Short-term investments 8,674 8,557
Other investments 78 81
Other assets 137 139
- -------------------------------------------------------------------------------
Total assets $ 11,718 11,707
===============================================================================
Liabilities:
Accounts payable and accrued liabilities $ 184 158
Notes payable and other borrowings 1,360 1,360
Other liabilities 10,200 10,200
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Total liabilities $ 11,744 11,718
- -------------------------------------------------------------------------------
Cumulative preferred dividends in arrears 190 190
Redeemable preferred stock, no par value 16,404 16,404
Common stockholders' equity (deficit):
Common stock, no par value; 12,000,000
shares authorized at March 31, 1997
and December 31, 1996; 8,073,620
shares issued and outstanding, net of
115,750 shares in treasury 56,289 56,289
Retained deficit (72,909) (72,894)
- -------------------------------------------------------------------------------
Total common stockholders' equity (deficit) $ (16,620) (16,605)
- -------------------------------------------------------------------------------
$ 11,718 11,707
===============================================================================
See accompanying notes to condensed consolidated financial statements.
3
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UNITED FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
In Thousands
Except Per Share Data
- -------------------------------------------------------------------------------
Three Months Ended March 31, 1997 1996
- -------------------------------------------------------------------------------
Interest income $ 149 160
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149 160
General and administrative expenses 164 135
Interest expense -- 105
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164 240
- -------------------------------------------------------------------------------
Net loss $ (15) (80)
===============================================================================
Net loss applicable to common stock
after reductions for preferred stock dividends $ (15) (271)
Loss per common and common equivalent share $ (0.00) (0.03)
===============================================================================
See accompanying notes to condensed consolidated financial statements.
4
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UNITED FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
In Thousands
- --------------------------------------------------------------------------------
Three Months Ended March 31, 1997 1996
- --------------------------------------------------------------------------------
Operating Activities
Net loss $ (15) (80)
Adjustments to reconcile net income to net cash
provided (used) by operating activities --
Changes in assets and liabilities related to
operations:
Decrease (increase) in other assets 2 22
Increase (decrease) in accounts payable and
accrued liabilities 26 101
- --------------------------------------------------------------------------------
Cash from (for) operating activities $ 13 43
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Investing Activities:
Sales and maturities of short-term investments $ 7,811 8,805
Purchases of short-term investments (7,928) (8,937)
Maturities of investments in debt securities 3 264
- --------------------------------------------------------------------------------
Cash from (for) investing activities $ (114) 132
- --------------------------------------------------------------------------------
Financing Activities:
Payment of post-employment benefits liabilities $ -- (4)
- --------------------------------------------------------------------------------
Cash from (for) financing activities $ -- (4)
- --------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (101) 171
Cash and cash equivalents, beginning of period 2,930 348
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,829 519
================================================================================
See accompanying notes to condensed consolidated financial statements.
5
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UNITED FINANCIAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
1. BASIS OF PRESENTATION
Principles of consolidation and presentation
The unaudited condensed consolidated financial statements include the
accounts of United Financial Group, Inc. and its subsidiaries ("UFGI" or the
"Company"), all of which are wholly owned. Prior to December 30, 1988, UFGI
was in the business of offering products and services in the mortgage lending
and savings industries and engaged in an array of investment activities,
primarily through its most significant subsidiary, United Savings Association
of Texas ("USAT"), and USAT's wholly owned subsidiaries. On December 30,
1988, USAT was placed into receivership by the Federal Deposit Insurance
Corporation ("FDIC" which term, as used herein, includes its predecessor, the
Federal Savings and Loan Insurance Corporation, "FSLIC"), and the Company's
net liabilities related to its investment in USAT were written off at that
time. Since December 30, 1988, management of the Company has concentrated its
efforts on the resolution of issues with the FDIC, the Office of Thrift
Supervision ("OTS"), and other claimants, and the Company's business
activities have been limited to the management of investments.
All material intercompany transactions are eliminated in consolidation. The
unaudited condensed consolidated financial statements included herein reflect
all adjustments necessary to present fairly the financial position and
results of operations for the periods indicated. The results of operations
for the interim periods are not necessarily indicative of results to be
expected for the year.
Earnings (loss) per common and common equivalent share
Earnings (loss) per common and common equivalent share is computed using
UFGI's net income (loss), adjusted for redeemable preferred stock dividends
accrued (none in 1997). The adjusted net income (loss) is then divided by the
weighted average number of common shares outstanding during the period,
including any dilutive common stock equivalents resulting from common stock
options and redeemable preferred stock outstanding. There were no dilutive
common stock equivalents in the three-month periods ended March 31, 1997 and
1996. Average common and common equivalent shares were 8,073,620 for the
three-month periods ended March 31, 1997 and 1996.
2. COMMITMENTS AND CONTINGENT LIABILITIES
In connection with its actions placing USAT into receivership on December 30,
1988, the FDIC made claims against the Company for damages equal to
approximately $548 million (the "FDIC Claims"). The FDIC alleged that it was
damaged by the Company's failure to maintain USAT's net worth in accordance
with Federal Home Loan Bank Board regulations. Additionally, the FDIC claimed
that, as a result of the Company's utilization of the benefits of certain tax
losses incurred by USAT, the Company was obligated to USAT for amounts
related to federal income tax refunds allegedly obtained. The Company has
denied the merits of any potential claim alleged by the FDIC. In 1991, the
Company entered an agreement to toll the running of the statute of
limitations and certain other equitable defenses in order to delay final
litigation decisions and to permit additional time for negotiation of a
settlement of the FDIC Claims. Such agreement was amended several times to
postpone its expiration.
In mid-1994, settlement discussions relating to the FDIC Claims were joined
by the Office of Thrift Supervision ("OTS"), a separate agency whose
jurisdiction covers areas not included within the scope of the FDICOs
jurisdiction. The OTS is investigating the possibility of certain regulatory
violations (the "OTS Claims") by the Company and others, including current
and former officers and directors of the Company. The Company denies any such
violations and has been in negotiations with the OTS since September 1994
concerning possible settlement of the OTS Claims. The Company entered an
agreement with the OTS to toll the running of the statute of limitations,
subject to the right of the OTS to terminate such agreements with 10 days'
notice. That agreement was amended several times to postpone its expiration.
In December 1995, the Company entered into agreements with the OTS and an
agreement with the FDIC, the trustee for the 9% Secured Sinking Fund
Debentures (the "Debenture Trustee") and Nu-West Florida, Inc. ("Nu-West"),
as sole holder of the Company's Series B Preferred Stock (the "FDIC
Settlement"). Under these agreements, the Company neither admits nor denies
liability under claims by the FDIC and the OTS.
6
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The FDIC Settlement was conditioned upon the Company obtaining a final order
of the Delaware Bankruptcy Court and requires that the Company pay a minimum
of $9,450,000 to the FDIC, a minimum of $1,360,000 to the Debenture Trustee
and a minimum of $190,000 to Nu-West. The Company is required to proceed with
a plan of reorganization or liquidation in the Delaware Bankruptcy Court, and
payments are to be made after confirmation of a final plan by the Delaware
Bankruptcy Court. Under the FDIC Settlement, and with some exceptions,
expenditures by the Company in excess of $300,000 from and after the
effective date are subject to approval by FDIC and OTS. Any assets of the
Company remaining after the payments and expenditures described above must be
paid to the FDIC, the Debenture Trustee and Nu-West in proportion to the
minimum settlement payments. The FDIC Settlement also provides that the
Company may not, except in limited circumstances, utilize the benefits of tax
losses carried forward from 1988 and prior years. In connection with the
agreements with the FDIC and OTS, the Company has agreed to toll the running
of the statute of limitations.
On January 14, 1997, the Company filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. The Plan of Reorganization ("Plan") submitted with that
filing implements the provisions of the FDIC Settlement described above,
which specifies amounts to be paid to certain of the Company's creditors and
claimants. The Plan was confirmed by the Bankruptcy Court on March 31, 1997.
The liabilities and commitments of the Company have been adjusted to the
amounts specified in the Plan.
3. FEDERAL INCOME TAXES
No tax benefits have been recognized in connection with the Company's net
losses in 1997 and 1996. At December 31, 1996, UFGI had a tax net operating
loss carryforward of approximately $6,982,000 which, if not utilized to
offset future taxable income, will expire in the period from 1999 to 2011.
Under the terms of the agreement to settle claims against the Company by the
FDIC and the OTS, the Company would, except under limited circumstances, be
unable to utilize the tax benefits of any net operating losses carried over
from 1988 and prior years. That agreement is discussed further in Note 2.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides information which management believes is
relevant to an assessment and understanding of the Company's operations and
financial condition. This discussion should be read in conjunction with the
Condensed Consolidated Financial Statements (unaudited) and accompanying
Notes included in Item 1.
FINANCIAL CONDITION
At March 31, 1997 and December 31, 1996, cash, cash equivalents and short-
term investments made up approximately 98% of the Company's assets. Mortgage-
backed securities were the Company's only other income-earning assets at
March 31, 1997 and at December 31, 1996. Included in the $8.7 million total
for "Short-term investments" at March 31, 1997 is an investment portfolio of
government securities and commercial paper. At December 31, 1996 and March
31, 1996, the Company's assets were similarly invested.
The Company's significant remaining liabilities at March 31, 1997 and
December 31, 1996 include the Company's 9% Secured Sinking Fund Debentures
(the "Debentures") which matured August 1, 1993 and amounts accrued for
payments to creditors and claimants, including the FDIC. As of December 31,
1996, the Company's liabilities and commitments were adjusted to reflect the
terms of the FDIC Settlement and the Plan of Reorganization. For information
concerning an event of default relating to the Debentures, see "Item 3.
Defaults Upon Senior Securities." The FDIC Settlement and the Plan of
Reorganization are discussed in Note 2 of Notes to Condensed Consolidated
Financial Statements, included herein.
RESULTS OF OPERATIONS
Interest income and investment income (loss)
Interest income for the three months ended March 31, 1997 was $149,000,
compared to $160,000 in the first three months of 1996. That decrease is
attributable, in part, to lower interest rates earned by the Company's short-
term investments. Average amounts invested short term were similar during the
quarters ended March 31, 1997 and 1996, but interest rates on the Company's
short-term investments were lower. The average yield on those assets was
approximately 5.1% in the first quarter of 1997, compared to 5.5% in the
first quarter of 1996.
General and administrative expenses
General and administrative expenses were $29,000 higher in the first quarter
of 1997, a 21.5% increase compared to the same period in 1996. Such expenses
for the three-month periods ended March 31, 1997 and 1996 were dominated by
legal fees and reorganization costs related to the settlements of the claims
described in Note 2 of Notes to Condensed Consolidated Financial Statements,
included herein. In the three-month periods ended March 31, 1997 and 1996,
legal fees were 30% and 53% of total general and administrative expenses. In
the quarter ended March 31, 1997, the Company incurred professional services
and publication costs in connection with the filing of the bankruptcy
petition discussed in Note 2 of Notes to Condensed Consolidated Financial
Statements, included herein. Such costs represented 37% of total general and
administrative expenses for the quarter.
Other professional services - primarily investment management, audit and
accounting fees - were 19% and 21% of total general and administrative
expenses for the three-month periods ended March 31, 1997 and 1996,
respectively. Franchise tax expense was 11% and 13% of total general and
administrative expenses for the quarters ended March 31, 1997 and 1996. No
other expense type included in general and administrative represented more
than more than 10% of the total.
During 1991, the four full-time employees of the Company resigned. Since that
time, the Company has operated without employees and without incurring
salaries and related expenses. The Company has an outsourcing arrangement
with a former employee and a firm of certified public accountants to provide
for certain of the Company's accounting, financial reporting and
administrative functions. The cost of those services is included in general
and administrative expenses.
Interest expense
The 9% Secured Sinking Fund Debentures, which matured August 1, 1993, were
the only interest-bearing debt of the Company during the three-month periods
ended March 31, 1997 and 1996. No interest expense was recognized in the
three months ended March 31, 1997 because the FDIC Settlement and the Plan of
Reorganization (discussed in Note 2 of Notes to Condensed Consolidated
Financial Statements) fixes the amount to be paid to the holders of the
Company's Debentures. As of December 31, 1996, the Company ceased to accrue
additional interest on the Debentures and adjusted the liability balances for
accrued interest payable and principal to reflect the terms of the FDIC
Settlement.
8
<PAGE>
Though interest payments were not made on the Company's Debentures during
1996, interest was accrued on those matured Debentures at the same rate as
required before the maturity date. For information concerning an event of
default relating to the Debentures, see "Item 3. Defaults Upon Senior
Securities."
CASH FLOWS AND LIQUIDITY
In the first three months of 1997, cash and cash equivalents decreased by
$101,000, reflecting an increase in short-term investments. The Company's
portfolio of short-term investments may be readily liquidated to cover
operating expenses or payments to creditors and claimants, as discussed
above.
Operations generated a small amount of cash for the quarter ended March 31,
1996, in part, because certain of the Company's expenses were being accrued,
but not paid.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Since May 1, 1988, quarterly dividends on UFGI's Series B $13 Cumulative
Preferred Stock (the "Series B Preferred") in the amount of $190,856 have
been due and have not been paid. As of December 31, 1996, the total amount of
arrearages in the payment of the Series B Preferred dividends was $6,680,000
In addition, UFGI has been required to make sinking fund payments for the
redemption commencing May 1, 1989, of certain shares of such Series B
Preferred in the amount of $146,813 per quarter. As a result of UFGI's
capital position, and pursuant to Section 170 of the Delaware Corporation
Law, UFGI has not been legally permitted to make such sinking fund and
dividend payments. In addition, the Board of Directors of UFGI has determined
not to make any further preferred stock dividend or sinking fund payments on
any class of preferred stock until further action of the Board of Directors
changes such determination.
Pursuant to the terms of the Series B Preferred, any dividend not paid will
accumulate, and UFGI will be unable to pay dividends on its Common Stock
until all dividend arrearages are paid. In addition, since UFGI has failed to
make five dividend payments when due (whether consecutive or not), the holder
of the Series B Preferred is entitled to elect one person to the Board of
Directors of the Company. The Series B Preferred holder has not opted to
elect such a director.
Under the terms of an agreement to settle claims against the Company through
a plan of bankruptcy, the Company would pay a minimum of $190,000 to Nu-West.
That agreement and the Company's bankruptcy filing and Plan of Reorganization
are discussed further in Note 2 of Notes to Condensed Consolidated Financial
Statements, included herein.
At March 31, 1997 and December 31, 1996, the Company's notes payable and
other borrowings consisted of $4,671,000 of 9% Secured Sinking Fund
Debentures due 1993 (the "Debentures"). While the Company continued to make
interest payments on the Debentures when due, pursuant to a decision of the
Company's Board of Directors, a sinking fund payment of approximately
$1,826,000 due August 1, 1992 under the terms of the Debentures and the full
principal payment of $4,671,000 due August 1, 1993 were not made by the
Company. As a result, the Indenture Trustee notified the Company that there
had occurred an event of default under the terms of the Indenture. The
Indenture Trustee or the beneficial owners of the Debentures may, therefore,
be entitled to take certain actions pursuant to the Indenture. The Company
continued to pay semi-annual interest on the Debentures at the stated rate of
9% and on the payment dates in effect prior to maturity of the Debentures
(February 1 and August 1) through August 1, 1994. In January 1995, the
Company was informed by the staff of the OTS and counsel to the FDIC that no
additional interest payments should be made to the Debentureholders.
Therefore, the Company has not made interest payments on the Debentures since
August 1994 and is not expected to make any future interest payments.
Under the terms of an agreement to settle claims against the Company through
a plan of bankruptcy, the Company would pay a minimum of $1,360,000 to the
trustee for the Debentureholders. That agreement, the CompanyOs bankruptcy
filing and Plan of Reorganization are discussed further in Note 2 of Notes to
Condensed Consolidated Financial Statements, included herein.
ITEM 5. OTHER INFORMATION
The Company has received an exemption from the registration requirements of
the Investment Company Act of 1940. Such exemption will expire on December
30, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 - Computation of Net Income (Loss) per Common and Common Equivalent
Share for the Three Months Ended March 31, 1997 and 1996.
27 - Financial Data Schedule
(b) Reports on Form 8-K
On January 14, 1997, the Company reported on Item 3, "Bankruptcy or
Recievership," concerning the filing of a petition for protection under the
U.S. Bankruptcy Code.
10
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
United Financial Group, Inc.
_______________________________
Registrant
By: Paul N. Schwartz
_______________________________
May 12, 1997 Paul N. Schwartz
Chairman of the Board,
President, Chief Executive Officer
and Chief Financial Officer
11
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UNITED FINANCIAL GROUP, INC.
EXHIBIT INDEX
Exhibit Number
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11.1 Computation of Net Income (Loss) per Common
and Common Equivalent Share for the Three
Months Ended March 31, 1997 and 1996
27 Financial Data Schedule
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<PAGE>
UNITED FINANCIAL GROUP, INC. EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE
(UNAUDITED)
(In Thousands Except Per Share Data)
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March 31, March 31,
Three Months Ended: 1997 1996
- --------------------------------------------------------------------------------
Computation of net income (loss) applicable to common stock:
Net (income) loss $ (15) (80)
Redeemable preferred stock dividends accrued -- (191)
- --------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ (15) (271)
================================================================================
Computation of average common and common equivalent shares:
Common stock outstanding at beginning and end of period 8,074 8,074
Average common and common equivalent shares 8,074 8,074
================================================================================
Net income (loss) per common and common equivalent share $(0.00) (0.03)
================================================================================
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,829
<SECURITIES> 8,752
<RECEIVABLES> 137
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,718
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,718
<CURRENT-LIABILITIES> 184
<BONDS> 0
0
16,594
<COMMON> 56,289
<OTHER-SE> (72,909)
<TOTAL-LIABILITY-AND-EQUITY> 11,718
<SALES> 0
<TOTAL-REVENUES> 149
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 164
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
