1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] 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 001-13973
UNICAPITAL CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 65-0788314
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10800 BISCAYNE BOULEVARD, SUITE 800, MIAMI, FLORIDA 33161
--------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (305) 899-5000
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 [ ]
On November 10, 2000, there were 56,164,421 shares of Common Stock
outstanding.
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UNICAPITAL CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements............................................................. 3
Consolidated Balance Sheets..................................................................................... 3
Consolidated Statements of Operations........................................................................... 4
Consolidated Statements of Stockholders' Equity................................................................. 5
Consolidated Statements of Cash Flows........................................................................... 6
Notes to Unaudited Consolidated Financial Statements ........................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................. 26
PART II. OTHER INFORMATION.......................................................................................... 30
Item 1. Legal Proceedings....................................................................................... 30
Item 6. Exhibits and Reports on Form 8-K........................................................................ 30
Signature....................................................................................................... 31
3
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
UNICAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents ....................... $ 20,216 $ 25,849
Restricted cash ................................. 27,647 126,637
Accounts receivable, net ........................ 23,008 60,870
Notes receivable ................................ 2,062 45,097
Net investment in finance contracts ............. 944,549 856,527
Equipment under operating leases, net ........... 127,024 1,908,686
Equipment held for sale or lease ................ 56,203 264,714
Investments ..................................... 28,909 20,981
Property and equipment, net ..................... 14,691 18,601
Goodwill, net of accumulated amortization of
$28,752 at December 31, 1999 .................. -- 625,180
Income taxes receivable ......................... 2,586 5,872
Net assets of discontinued operations ........... 52,740 --
Deposits and other assets ....................... 12,408 45,567
----------- -----------
Total assets .................................... $ 1,312,043 $ 4,004,581
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Recourse debt ................................... $ 262,654 $ 455,900
Non-recourse and limited recourse debt .......... 982,969 2,412,233
Accounts payable and accrued expenses ........... 49,892 115,210
Security and other deposits ..................... 4,481 61,185
Accrued restructuring ........................... 2,268 --
Deferred income taxes ........................... -- 82,772
Other liabilities ............................... 8,335 14,988
----------- -----------
Total liabilities ............................... 1,310,599 3,142,288
=========== ===========
Minority interest ............................... -- 23,725
Commitments and contingencies (Note 3) .......... -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value,
20,000,000 shares authorized, no shares
issued and outstanding ........................ -- --
Common stock, $.001 par value, 200,000,000 shares
authorized, 56,164,421 and 53,512,308 shares
issued and outstanding, respectively .......... 56 53
Additional paid-in capital ...................... 817,663 808,657
Stock subscription notes receivable ............. -- (3,210)
Accumulated other comprehensive income .......... 289 430
Retained (deficit) earnings ..................... (816,564) 32,638
----------- -----------
Total stockholders' equity ...................... 1,444 838,568
----------- -----------
Total liabilities and stockholders' equity ...... $ 1,312,043 $ 4,004,581
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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4
UNICAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Income from finance contracts ................... $ 27,347 $ 18,917 $ 79,045 $ 45,093
Rental income from operating leases ............. 19,093 15,067 56,305 45,980
Sales of equipment .............................. 34,170 35,195 125,231 85,646
Gain on sale of finance contracts ............... 344 9,526 8,144 10,703
Fees, commissions and remarketing income ........ 4,528 5,643 12,424 18,207
Interest and other income (expense), net ........ (826) 1,293 (99) 5,232
------------ ------------ ------------ ------------
Total revenues ............................. 84,656 85,641 281,050 210,861
------------ ------------ ------------ ------------
Cost of operating leases ........................ 14,600 9,738 41,528 28,818
Cost of equipment sold .......................... 32,379 33,090 116,789 77,958
Interest expense ................................ 21,513 14,544 64,104 37,140
Selling, general and administrative
expenses ...................................... 33,773 21,951 103,756 67,374
Restructuring and other nonrecurring
charges ....................................... -- -- 5,924 --
Goodwill amortization and impairment ............ 331,029 2,713 406,553 8,115
------------ ------------ ------------ ------------
Total expenses ............................. 433,294 82,036 738,654 219,405
------------ ------------ ------------ ------------
Income (loss) from continuing operations
before taxes .................................. (348,638) 3,605 (457,604) (8,544)
Benefit for income taxes ........................ (2,698) 2,383 (18,134) (210)
------------ ------------ ------------ ------------
Net income (loss) from continuing
operations .................................... (345,940) 1,222 (439,470) (8,334)
------------ ------------ ------------ ------------
Discontinued operations (Note 12):
Income (loss) from operations of
discontinued Big Ticket Division (plus
(less) applicable income taxes of $0,
($1.6) million, $44.4 million
and ($12.2) million, respectively) ............ -- 667 (250,873) 13,945
Loss on disposal of Big Ticket Division
including provision of $33.2 million for
operating losses during phaseout period
(plus (less) applicable income taxes of $0
and $22.4 million, respectively) .............. (32,866) -- (158,859) --
------------ ------------ ------------ ------------
Total discontinued operations .............. (32,866) 667 (409,732) 13,945
------------ ------------ ------------ ------------
Net income (loss) ............................... $ (378,806) $ 1,889 $ (849,202) $ 5,611
============ ============ ============ ============
Income (loss) per common share, basic
and diluted -continuing operations ............ $ (6.14) $ 0.02 $ (7.84) $ (0.16)
Income (loss) per common share, basic
and diluted- discontinued operations .......... $ (0.58) $ 0.01 $ (7.31) $ 0.27
Income (loss) per common share,
basic and diluted- net ........................ $ (6.72) $ 0.03 $ (15.15) $ 0.11
Weighted average shares outstanding,
basic ......................................... 56,329,109 52,812,661 56,050,225 52,439,186
Weighted average shares outstanding,
diluted ....................................... 56,329,109 52,981,562 56,091,870 52,860,744
The accompanying notes are an integral part of these
consolidated financial statements.
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UNICAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
STOCK ACCUMULATED
ADDITIONAL SUBSCRIPTION OTHER RETAINED
COMMON PAID-IN NOTES COMPREHENSIVE EARNINGS COMPREHENSIVE
STOCK CAPITAL RECEIVABLE INCOME (LOSS) (DEFICIT) INCOME (LOSS) TOTAL
------ ---------- ------------- ------------- --------- ------------- --------
Balance at December 31, 1999........ $53 $808,657 $(3,210) $ 430 $ 32,638 $ 838,568
Issuance of 3,340,971
shares of common stock in
connection with earnouts
for companies acquired
in 1998........................... 3 8,657 -- -- -- 8,660
Issuance of 263,642 shares
of Common stock in
connection with employee
stock purchase plan............... -- 349 -- -- -- 349
Forgiveness of notes
receivable related to
stock subscriptions............... 3,210 3,210
Comprehensive income (loss):
Net loss.......................... -- -- -- (849,202) $(849,202) (849,202)
Other comprehensive income (loss):
Change in net unrealized
gain on securities
(net of deferred
taxes of $86)................. -- -- (141) -- (141) (141)
---------
Total comprehensive
income (loss)................. $(849,343)
--- -------- ------- ------ --------- =========
Balance at September 30, 2000....... $56 $817,663 $ 0 $ 289 $(816,564) $ 1,444
=== ======== ======= ====== ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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UNICAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
----------- -----------
Cash flows from operating activities:
Net income (loss) ....................................... $ (849,202) $ 5,611
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ......................... 66,457 95,495
Impairment of goodwill ................................ 399,099 --
Deferred income tax expense (benefit) ................. (82,772) 5,991
Provision for credit losses ........................... 21,319 5,370
Forgiveness of Stock subscription notes receivable .... 3,210 --
Gain on sale of finance contracts ..................... (8,144) (10,703)
Gain on sale of equipment ............................. (8,442) (31,891)
Loss on remarketing of off lease equipment ............ 755 --
Gain on sale of beneficial interest in Subsidiary ..... (220) (5,389)
Equity in net earnings of minority-owned affiliates ... (441) --
Changes in other assets and liabilities:
Restricted cash ..................................... -- (84,555)
Notes and accounts receivable ....................... 23,675 (94,188)
Income taxes receivable ............................. 3,286 --
Deposits and other assets ........................... (1,645) 14,393
Accounts payable and accrued expenses ............... (47,093) 55,455
Security and other deposits ......................... 1,155 32,646
Accrued restructuring ............................... 2,117 --
Net assets of discontinued operations ............... 506,593 --
Income taxes payable ................................ -- (6,353)
Other liabilities ................................... 7,020 9,869
----------- -----------
Net cash provided by (used in) operating
activities ....................................... 36,727 (8,249)
----------- -----------
Cash flows from investing activities:
Capital expenditures .................................... (2,925) (8,214)
Proceeds from sale of finance contracts ................. 153,032 235,666
Proceeds from sale of equipment ......................... 70,613 153,853
Proceeds from sale of beneficial interest in
subsidiary .......................................... 779 19,943
Collection of finance contracts, net of finance
income earned ....................................... 184,857 153,199
Investment in finance contracts and purchases of
equipment for sale or lease ......................... (644,711) (2,375,715)
Cash paid under earnout agreements for companies
acquired in 1998 .................................... (2,764) (15,421)
Decrease in investments, net ............................ 11,061 3,833
----------- -----------
Net cash used in investing activities ............... (230,058) (1,832,856)
----------- -----------
Cash flows from financing activities:
Proceeds from recourse debt ............................. 344,147 758,188
Repayment of recourse debt .............................. (527,816) (505,567)
Proceeds from non-recourse and limited recourse debt .... 1,125,883 2,163,399
Repayment of non-recourse and limited recourse debt ..... (761,356) (477,792)
Proceeds received on subscription notes receivable ...... -- 233
Purchase of treasury stock .............................. -- (651)
Change in restricted cash ............................... 6,840 (66,341)
----------- -----------
Net cash provided by financing activities ........... 187,698 1,871,469
----------- -----------
Decrease (increase) in cash and cash equivalents .......... (5,633) 30,364
Cash and cash equivalents at beginning of period .......... 25,849 9,772
----------- -----------
Cash and cash equivalents at end of period ................ $ 20,216 $ 40,136
=========== ===========
Supplemental disclosure of non-cash investing and
Financing transactions:
Debt assumed in connection with acquisition of
aircraft and aircraft engines ......................... $ -- $ 89,633
=========== ===========
Notes received as partial consideration on sales of
aircraft and aircraft engines ......................... $ -- $ 20,357
=========== ===========
Debt assumed by buyers as partial consideration
on sales of aircraft and aircraft engines ............. $ -- $ 29,385
=========== ===========
Debt assumed by buyers as partial consideration
on sales of equipment ................................. $ 18,138 $ --
=========== ===========
Common stock issued in connection with earnouts for
companies acquired in 1998 ............................ $ 8,659 $ 7,824
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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UNICAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF BUSINESS
UniCapital Corporation, incorporated in Delaware, was founded in October
1997 to create a national operator and integrator of equipment leasing,
specialty finance and related businesses serving the commercial market.
UniCapital Corporation acquired twelve equipment leasing, specialty finance and
related businesses (the "Founding Companies") upon consummation of an initial
public offering (the "Offering") of its common stock ("Common Stock") in May
1998. Subsequent to the Offering, UniCapital Corporation acquired, through
merger or purchase, five additional companies, continuing the expansion of its
national operations. UniCapital Corporation, the Founding Companies and the
subsequently acquired companies are referred to collectively as the "Company."
The Company has originated, acquired, sold and serviced equipment leases and
arranged structured financing in the computer and telecommunications equipment,
middle market and small ticket areas of the equipment leasing industry. In
addition, the Company provided lease administration and processing services,
which included the servicing of certain leases sold to third parties. The
Company's leases and structured financing arrangements have covered a broad
range of equipment, including computer and telecommunications equipment,
construction and manufacturing equipment, office equipment, tractor trailers,
printing equipment, car washes, and petroleum retail equipment. The Company's
Big Ticket Division originated leases and structured financing arrangements for
aircraft, aircraft engines and other aircraft equipment. During June 2000, the
Company reached a decision to discontinue the operations of its Big Ticket
Division and has developed and is implementing a plan to divest all assets of
the Big Ticket Division within one year.
As its financial ability to originate new leases is seriously impaired, on
November 15, 2000, as part of its continuing restructuring efforts, the Company
decided to cease the new originations aspect of its business and to concentrate
on servicing and realizing value from the Company's existing lease portfolio. As
a result, the Company terminated 245 employees whose responsibilities were
rendered unnecessary by the Company's decision to cease lease originations. The
Company's remaining employees are continuing to service the Company's existing
lease portfolio and to collect payments thereon, and are fulfilling accounting,
treasury and other financial and administrative responsibilities at the
Company's headquarters and operating units. The Company has put in place
retention programs for certain of its remaining key employees at an estimated
cost of $2.3 million through June 30, 2001.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission for interim
financial statements. Accordingly, the interim statements do not include all of
the information and disclosures required for annual financial statements. In the
opinion of the Company's management, all adjustments (consisting solely of
adjustments of a normal recurring nature) necessary for a fair statement of
these interim results have been included. Intercompany accounts and transactions
have been eliminated. The results for the interim periods are not necessarily
indicative of the results to be expected for the entire year.
The unaudited consolidated financial statements should be read in
conjunction with the Company's Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999 filed
with the Securities and Exchange Commission.
Certain reclassifications have been made to prior period amounts to conform
to the current presentation.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
For a description of the Company's accounting policies, refer to the Notes
to Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 filed with the Securities and
Exchange Commission.
NOTE 3 - LIQUIDITY CONCERNS
The Company's existing financial condition severely limits its ability to
obtain additional sources of financing. The Company does not believe that it
will be able to obtain additional credit facilities at this time, nor does it
anticipate that it will be able to sell leases and obtain financing for
transactions on a non-recourse basis. Moreover, the Company is not currently in
compliance with the original financial covenants of its credit facilities and
has only been able to secure financing therefrom pursuant to amendments and
waivers agreed to by the Company's lenders in their discretion. The Company's
required compliance with certain financial covenants has been waived through
December 1, 2000. The Company does not generate sufficient cash to support its
operating costs and therefore the unwillingness of the lenders to amend or waive
further any non-compliance will have a material adverse effect on the Company's
ability to obtain adequate financing, including financing from alternative
sources. If the Company is unable to obtain
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adequate financing, or if it is unable to implement other alternative
strategies, then it will have insufficient cash to continue to operate its
business or fund working capital requirements. In such circumstances, the
Company, which currently has no other viable financing alternatives, would be
subject to risk of foreclosure upon its assets or other proceedings to satisfy
the claims of its creditors. The Company is currently exploring the sale of
certain business units, as well as certain tangible and intangible assets, and
is also exploring other alternative strategies to resolve its liquidity issues.
NOTE 4 -- INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are provided to reduce
deferred taxes to the amount expected to be realized based on available
evidence. The Company's effective tax rate differs from that computed at the
statutory rate principally as a result of non-deductible goodwill amortization,
asset impairment writedowns and write-offs of certain goodwill amounts in 2000.
NOTE 5 -- STOCKHOLDERS' EQUITY
During the nine months ended September 30, 2000, the Company issued
3,340,971 shares of Common Stock to the former owners of certain companies
acquired in 1998. These shares were issued in connection with earn-out
arrangements and have been recorded as additional purchase price in the amount
of $8.7 million.
In 1999, the Company implemented an employee stock purchase plan. During the
nine months ended September 30, 2000, the Company issued 263,642 shares of
Common Stock to employees under the plan. This plan was terminated as of
September 30, 2000.
During the three and nine months ended September 30, 2000, the outstanding
balance of notes receivable and accrued interest relating to stock subscriptions
for various executives, no longer employed by the Company, net of the fair
market value of the shares subject to the stock subscriptions, were forgiven or
written off by the Company. The notes and interest amounted to $3.4 million, of
which $2.1 million was forgiven with the related 1,000,000 shares being
transferred back to the Company and subsequently retired. The remaining $1.3
million was written off due to collection issues.
NOTE 6 -- INCOME (LOSS) PER SHARE
Income (loss) per share has been calculated and presented in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which
requires the Company to compute and present basic and diluted earnings per
share. Dilutive securities are excluded from the computation in periods in which
they have an anti-dilutive effect.
NOTE 7 -- SEGMENT INFORMATION
The following tables present selected financial information for the
Company's continuing reporting segments as of and for the three months ended
September, 2000 and 1999 (in thousands):
THREE MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
FINANCE CREDIT CORPORATE
GROUP GROUP DIVISION CONSOLIDATED
----------- ----------- ----------- ------------
Income from finance contracts... $ 17,572 $ 9,774 $ 1 $ 27,347
Rental income from operating
leases ....................... 19,085 8 -- 19,093
Sales of equipment ............. 34,170 -- -- 34,170
Gain on sale of finance
contracts .................... 344 -- -- 344
Fees, commissions and
remarketing income............ 2,322 1,745 461 4,528
Interest and other income
(expense), net ............... (1,386) (216) 776 (826)
----------- ----------- ----------- -----------
Total revenues ............ 72,107 11,311 1,238 84,656
----------- ----------- ----------- -----------
Cost of operating leases ....... 14,596 4 -- 14,600
Cost of equipment sold ......... 32,262 117 -- 32,379
Interest expense ............... 12,801 6,315 2,397 21,513
Selling, general and
administrative expenses ...... 17,159 9,557 7,057 33,773
Restructuring and other
nonrecurring charges ......... -- -- -- --
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THREE MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
FINANCE CREDIT CORPORATE
GROUP GROUP DIVISION CONSOLIDATED
----------- ----------- ----------- ------------
Goodwill amortization and
impairment ................... 280,693 46,622 3,714 331,029
----------- ----------- ----------- -----------
Total expenses ............ 357,511 62,615 13,168 433,294
----------- ----------- ----------- -----------
Income (loss) from continuing
operations before taxes ...... $ (285,404) $ (51,304) $ (11,930) $ (348,638)
=========== =========== =========== ===========
Net investment in finance
contracts .................... $ 620,986 $ 344,942 $ (21,379) $ 944,549
=========== =========== =========== ===========
Equipment under operating
leases, net .................. $ 126,926 $ 98 $ -- $ 127,024
=========== =========== =========== ===========
Total assets from continuing
operations ................... $ 840,092 $ 355,789 $ 63,422 $ 1,259,303
=========== =========== =========== ===========
Total assets from discontinued
operations ................... $ -- $ -- $ -- $ 52,740
=========== =========== =========== ===========
Total assets ................... $ 840,092 $ 355,789 $ 63,422 $ 1,312,043
=========== =========== =========== ===========
Total debt ..................... $ 660,405 $ 321,437 $ 263,781 $ 1,245,623
=========== =========== =========== ===========
THREE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
FINANCE CREDIT CORPORATE
GROUP GROUP DIVISION CONSOLIDATED
---------- ---------- ---------- ------------
Income from finance contracts... $ 12,908 $ 6,009 $ -- $ 18,917
Rental income from operating
leases ....................... 14,891 176 -- 15,067
Sales of equipment ............. 35,195 -- -- 35,195
Gain on sale of finance
contracts .................... 9,365 161 -- 9,526
Fees, commissions and
remarketing income............ 4,856 631 156 5,643
Interest and other income ...... 862 431 -- 1,293
---------- ---------- ---------- ----------
Total revenues ............ 78,077 7,408 156 85,641
---------- ---------- ---------- ----------
Cost of operating leases ....... 9,707 31 -- 9,738
Cost of equipment sold ......... 33,089 1 -- 33,090
Interest expense ............... 8,005 2,714 3,825 14,544
Selling, general and
administrative expenses ...... 11,454 6,953 3,544 21,951
Goodwill amortization and
impairment ................... 2,185 453 75 2,713
---------- ---------- ---------- ----------
Total expenses ............ 64,440 10,152 7,444 82,036
---------- ---------- ---------- ----------
Income (loss) from continuing
operations before taxes ...... $ 13,637 $ (2,744) $ (7,288) $ 3,605
---------- ---------- ---------- ----------
Net investment in finance
contracts .................... $ 489,182 $ 190,043 $ (5,139) $ 674,086
========== ========== ========== ==========
Equipment under operating
leases, net................... $ 96,407 $ 68 $ -- $ 96,475
========== ========== ========== ==========
Total assets ................... $1,082,646 $ 286,028 $ 122,023 $1,490,697
========== ========== ========== ==========
Total debt ..................... $ 499,832 $ 171,186 $ 323,668 $ 994,686
========== ========== ========== ==========
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The following tables present selected financial information for the
Company's continuing reporting segments as of and for the nine months ended
September, 2000 and 1999 (in thousands):
NINE MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
FINANCE CREDIT CORPORATE
GROUP GROUP DIVISION CONSOLIDATED
----------- ----------- ----------- ------------
Income from finance contracts .... $ 52,541 $ 26,501 $ 3 $ 79,045
Rental income from operating
leases ......................... 56,315 (10) -- 56,305
Sales of equipment ............... 125,215 16 -- 125,231
Gain on sale of finance
contracts ...................... 6,235 1,909 -- 8,144
Fees, commissions and remarketing
income.......................... 6,284 5,334 806 12,424
Interest and other income
(expense), net ................. (1,641) (768) 2,310 (99)
----------- ----------- ----------- -----------
Total revenues .............. 244,949 32,982 3,119 281,050
----------- ----------- ----------- -----------
Cost of operating leases ......... 41,520 8 -- 41,528
Cost of equipment sold ........... 116,666 123 -- 116,789
Interest expense ................. 35,344 16,286 12,474 64,104
Selling, general and
administrative expenses ........ 61,927 29,501 12,328 103,756
Restructuring and other
nonrecurring charges ........... 1,239 712 3,973 5,924
Goodwill amortization and
impairment ..................... 328,435 74,254 3,864 406,553
----------- ----------- ----------- -----------
Total expenses .............. 585,131 120,884 32,639 738,654
----------- ----------- ----------- -----------
Income (loss) from continuing
operations before taxes ........ $ (340,182) $ (87,902) $ (29,520) $ (457,604)
=========== =========== =========== ===========
Net investment in finance
contracts ...................... $ 620,986 $ 344,942 $ (21,379) $ 944,549
=========== =========== =========== ===========
Equipment under operating leases,
net ............................ $ 126,926 $ 98 $ -- $ 127,024
=========== =========== =========== ===========
Total assets from continuing
operations ..................... $ 840,092 $ 355,789 $ 63,422 $ 1,259,303
=========== =========== =========== ===========
Total assets from discontinued
operations ..................... $ -- $ -- $ -- $ 52,740
=========== =========== =========== ===========
Total assets ..................... $ 840,092 $ 355,789 $ 63,422 $ 1,312,043
=========== =========== =========== ===========
Total debt ....................... $ 660,405 $ 321,437 $ 263,781 $ 1,245,623
=========== =========== =========== ===========
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NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
FINANCE CREDIT CORPORATE
GROUP GROUP DIVISION CONSOLIDATED
----------- ----------- ----------- ------------
Income from finance contracts ... $ 32,494 $ 12,599 $ -- $ 45,093
Rental income from operating
leases ........................ 45,448 532 -- 45,980
Sales of equipment .............. 85,646 -- -- 85,646
Gain on sale of finance
contracts ..................... 10,542 161 -- 10,703
Fees, commissions and remarketing
income ........................ 13,606 4,009 592 18,207
Interest and other income ....... 2,646 1,752 834 5,232
----------- ----------- ----------- -----------
Total revenues ............. 190,382 19,053 1,426 210,861
----------- ----------- ----------- -----------
Cost of operating leases ........ 28,680 138 -- 28,818
Cost of equipment sold .......... 77,957 1 -- 77,958
Interest expense ................ 20,288 5,477 11,375 37,140
Selling, general and
administrative expenses ....... 34,355 21,300 11,719 67,374
Goodwill amortization and
impairment .................... 6,531 1,357 227 8,115
----------- ----------- ----------- -----------
Total expenses ............. 167,811 28,273 23,321 219,405
----------- ----------- ----------- -----------
Income (loss) from continuing
operations before taxes ....... $ 22,571 $ (9,220) $ (21,895) $ (8,544)
=========== =========== =========== ===========
Net investment in finance
contracts ..................... $ 489,182 $ 190,043 $ (5,139) $ 674,086
=========== =========== =========== ===========
Equipment under operating leases,
net ........................... $ 96,407 $ 68 $ -- $ 96,475
=========== =========== =========== ===========
Total assets .................... $ 1,082,646 $ 286,028 $ 122,023 $ 1,490,697
=========== =========== =========== ===========
Total debt ...................... $ 499,832 $ 171,186 $ 323,668 $ 994,686
=========== =========== =========== ===========
NOTE 8 -- NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
As issued, SFAS 133 was effective for fiscal years beginning after June 15,
1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS 137"). SFAS 137 deferred the effective date of SFAS
133 for one year to fiscal years beginning after June 15, 2000. SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is the type
of hedge transaction. In June 2000, the FASB issued Statement of Financial
Accounting Standard No. 138 ("SFAS 138"), "Accounting for Certain Derivative
Instruments and Certain Hedging Activities -- an amendment of FASB Statement No.
133." SFAS 138 amends the accounting and reporting standards of SFAS 133 for
certain derivative instruments and certain hedging activities. UniCapital will
adopt SFAS 133 and SFAS 138 in the year 2001. Management estimates that, at
September 30, 2000, the effect on its financial statements of adopting SFAS 133,
as amended, would have been to decrease net earnings and stockholders' equity by
approximately $3 million. The transition effect as of January 1, 2001 cannot be
estimated at this time because it is subject to the following unknown variables
as of that date: (1) actual hedged positions, and (2) market values of hedged
positions.
NOTE 9 -- SALES OF FINANCE CONTRACTS
Prior to the cessation of new lease originations, the Company transferred
finance contracts to third parties in the normal course of business, which
transfers are accounted for as sales of finance contracts under the provisions
of SFAS 125. In these transactions, the Company records a gain on the sale of
finance contracts and may also retain interests in the residual cash flows of
the underlying receivables. Under the provisions of SFAS 125, gain on sale of
finance contracts is calculated as the difference between the proceeds received,
net of related selling expenses, and the allocable carrying amount of the
related finance contracts, determined using the fair value approach.
During the three and nine months ended September 30, 2000, the Company
transferred finance contracts with a net book value of $11.0 million and $70.3
million, respectively, to third parties in sales transactions, received proceeds
of $11.3 million and $75.4 million, respectively, and recognized a gain of $0.3
million and $5.1 million, respectively.
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12
During the nine months ended September 30, 2000, the Company transferred
finance contracts with a net book value of $21.7 million to its Revolving
Purchase Facility with Key Global Finance in sales transactions, received
proceeds of $22.9 million and recognized a gain of $1.2 million. During the
three months ended September 30, 2000, the company did not transfer any finance
contracts to its Revolving Purchase Facility with Key Global Finance.
During the nine months ended September 30, 2000, in connection with a
securitization transaction, the Company transferred finance contracts with a net
book value of $58.9 million and recognized a gain of $1.8 million. From this
transaction the Company received cash of $59.5 million and recorded retained
interests of $1.2 million. During the three months ended September 30, 2000, the
company did not have any securitization transactions.
NOTE 10 -- RESTRICTED CASH
At September 30, 2000, the Company reported $27.6 million of restricted
cash, which relates to reserve accounts established in September 1999 and March
2000 under securitization and other credit facilities.
NOTE 11 -- RESTRUCTURING AND OTHER NONRECURRING CHARGES
During the three months ended March 31, 2000, the Company implemented a
restructuring program and recorded certain restructuring charges related to
headcount reductions and the elimination of duplicative expenses and non-core
activities and businesses. The restructuring and other nonrecurring charges are
shown as a separate component of operating expenses. Cash outlays during the
period were principally for professional fees and severance. The remaining cash
outlays are expected to be funded from cash flows from operations or through
credit facilities within the next nine months.
A summary of the restructuring charges for continuing operations is as
follows:
THIRD
ACCRUAL AT QUARTER ACCRUAL AT
JUNE 30, 2000 CASH OUTLAY SEPTEMBER 30, 2000
------------- ----------- ------------------
(DOLLARS IN MILLIONS)
Severance ........................ $0.8 $0.2 $0.6
Future lease obligations on
facility closures ............. 0.9 0.2 0.7
Other costs ...................... 2.1 1.1 1.0
---- ---- ----
Total restructuring charges.. $3.8 $1.5 $2.3
==== ==== ====
The severance costs are related to the termination of personnel in two
non-core businesses and other headcount reductions including positions ranging
from executive to administrative. At September 30, 2000 the remaining accrual
represents the severance costs associated with those employees notified of
termination but not paid as of September 30, 2000.
The other costs include costs associated with the early termination of
contractual arrangements as well as costs associated with the elimination of
three non-core businesses.
NOTE 12 -- IMPAIRMENT OF GOODWILL
During the three and nine months ended September 30, 2000, the Company
determined that $328.9 million and $399.1 million, respectively, of goodwill
from all subsidiaries in continuing segments was impaired and fully amortized
these amounts during the respective periods. These amounts are included in the
caption "Goodwill amortization and impairment" in the accompanying Consolidated
Statement of Operations.
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13
A summary of goodwill impairment and amortization for the three and nine
months ended September 30, 2000 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
------------------- ------------------
(DOLLARS IN (DOLLARS IN
THOUSANDS) THOUSANDS)
Business Credit Group ........... $ 50.0 $ 76.7
Technology and Finance Group .... 278.9 322.4
------ ------
Total impairment of goodwill .... 328.9 399.1
Amortization expense ............ 2.1 7.5
------ ------
Total impairment and amortization $331.0 $406.6
====== ======
The write-off of goodwill was a result of the Company's determination,
subsequent to September 30, 2000 (see Note 14), to cease originating new leases
and to concentrate on servicing and realizing value from the Company's existing
lease portfolio. The write-off of goodwill in the amount of $224.1 million and
the related amortization of $3.3 million for the Big Ticket Division, which
write-off was reflected during the three months ended March 31, 2000, is not
reflected in the above numbers because the operations of that division have been
discontinued.
NOTE 13 -- DISCONTINUED OPERATIONS
During June 2000, the Company reached a decision to discontinue the
operations of its Big Ticket Division, and formulated a plan of disposal for
that division's remaining assets, which divestiture is expected to be completed
within twelve months. In connection with this plan, the Company wrote down the
remaining aircraft and aircraft engines to their estimated net realizable values
assuming disposition on an expedited basis. The write-down during the second
quarter ended June 30, 2000 amounted to a pretax charge of $115.2 million and is
reported in the caption, "Loss on disposal of Big Ticket Division" on the
Consolidated Statements of Operations. During the three months ended September
30, 2000, the Company recorded an additional write-down of $32.9 million
relating to the carrying value of its aircraft and aircraft engines to their
estimated net realizable value. As of September 30, 2000, the Company is
actively marketing the aircraft and the aircraft engines to third parties.
The "Net assets of discontinued operations" reflected on the accompanying
Consolidated Balance Sheets consist of the following:
SEPTEMBER 30, 2000
------------------
(DOLLARS IN
THOUSANDS)
ASSETS
Cash and cash equivalents ................ $ 4,383
Accounts receivable, net ................. 6,185
Notes receivable ......................... 23,062
Net investment in finance contracts ...... 3,060
Equipment under operating leases, net .... 115,068
Equipment held for sale or lease ......... 43,852
Investments .............................. 26,001
Property and equipment, net .............. 755
Deposits and other assets ................ 8,501
--------
Total assets ............................. 230,867
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-recourse and limited recourse debt ... 125,340
Accounts payable and accrued expenses .... 5,086
Security and other deposits .............. 20,142
Accrued restructuring .................... 1,623
Accrued costs of discontinued operations 22,359
Other liabilities ........................ 3,577
--------
Total liabilities ........................ 178,127
Net assets of discontinued operations .... $ 52,740
========
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The net operating results have been reported in the captions "Income (loss)
from operations of discontinued Big Ticket Division" and "Loss on disposal of
Big Ticket Division" in the Consolidated Statements of Operations. Summarized
results from discontinued operations are as follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Income from finance contracts ............... $ -- $ 5,924 $ 3,828 $ 22,931
Rental income from operating leases ......... -- 53,329 40,913 134,170
Sales of equipment .......................... -- 34,062 219,531 115,148
Gain on Sale of finance Contracts ........... -- -- -- --
Fees, commissions and remarketing
income .................................... -- 293 36 4,788
Interest and other income ................... -- 7,143 2,183 9,092
--------- --------- --------- ---------
Total revenues ......................... -- 100,751 266,491 286,129
--------- --------- --------- ---------
Cost of operating leases .................... -- 23,437 17,529 43,985
Cost of equipment sold ...................... -- 34,428 240,752 131,102
Interest expense ............................ -- 34,470 47,709 67,005
Selling, general and administrative
expenses .................................. -- 4,184 27,168 12,149
Restructuring and other nonrecurring
charges ................................... -- 122 3,242 --
Goodwill amortization and impairment ........ -- 1,817 227,440 5,778
--------- --------- --------- ---------
Total expenses ......................... -- 98,458 563,840 260,019
--------- --------- --------- ---------
Income (loss) from continuing
operations ................................ -- 2,293 (297,349) 26,110
Equity in income from minority-owned
affiliates ................................ -- -- 2,097 --
--------- --------- --------- ---------
Income (loss) from operations of
discontinued Big Ticket Division before
provision (benefit) from income taxes ..... -- 2,293 (295,252) 26,110
Provision (benefit) for income taxes ........ -- 1,626 (44,379) 12,165
--------- --------- --------- ---------
Income (loss) from operations of
discontinued Big Ticket Division after
provision (benefit) for income taxes ...... -- 667 (250,873) 13,945
--------- --------- --------- ---------
Loss on disposal of Big Ticket Division
including provision of $33.2 million for
operating losses during phaseout
period before benefit for income taxes.... (32,866) -- (181,282) --
Benefit for income taxes .................... -- -- (22,423) --
--------- --------- --------- ---------
Income (loss) from disposal of
discontinued Big Ticket Division .......... (32,866) 667 (158,859) 13,945
--------- --------- --------- ---------
Total discontinued operations ............... $ (32,866) $ 667 $(409,732) $ 13,945
========= ========= ========= =========
The Company also intends to sell the remaining 49% beneficial interest in
Aircraft Finance Trust. Aircraft Finance Trust, which was formed on April 13,
1999, owns the equity interest in a portfolio of 36 commercial aircraft. The
Company now owns a 49% beneficial interest in Aircraft Finance Trust and
accounts for its remaining investment in Aircraft Finance Trust under the equity
method of accounting. The Company's results of operations reflect only the
Company's proportionate share of the net results from Aircraft Finance Trust as
equity in net income from minority-owned affiliates. The carrying value of this
interest was $26.0 million as of September 30, 2000 and is included in
investments in the accompanying unaudited balance sheet above.
14
15
Aircraft Finance Trust's unaudited condensed statement of operations for the
three months and nine months ended September 30, 2000 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
------------------- ------------------
(DOLLARS IN (DOLLARS IN
THOUSANDS) THOUSANDS)
Total revenues.......................... $37,413 $114,030
Total expenses.......................... $36,323 $108,681
Net income.............................. $ 1,090 $ 5,349
NOTE 14 - SUBSEQUENT EVENTS
On October 16, 2000, the Company entered into a Purchase and Settlement
Agreement with Morgan Stanley Asset Funding Inc. whereby the Company sold all of
its finance contracts with a net book value of $14.9 million to the Warehouse
Lender. The debt balance of $13.1 million owed under the facility was deemed
paid in full, and all agreements related to the facility were terminated.
Servicing for the contracts pledged under the Warehouse Facility is being
transferred to a third party for the benefit of Morgan Stanley Asset Funding
Inc.
As its financial ability to originate new leases is seriously impaired, on
November 15, 2000, as part of its continuing restructuring efforts, the Company
decided to cease the new originations aspect of its business and to concentrate
on servicing and realizing value from the Company's existing lease portfolio. As
a result, the Company terminated 245 employees whose responsibilities were
rendered unnecessary by the Company's decision to cease lease originations. The
Company's remaining employees are continuing to service the Company's existing
lease portfolio and to collect payments thereon, and are fulfilling accounting,
treasury and other financial and administrative responsibilities at the
Company's headquarters and operating units. The Company has put in place
retention programs for certain of its remaining key employees at an estimated
cost of $2.3 million through June 30, 2001.
The carrying value of the lease portfolio on the financial statements is
determined using a number of factors, including the amount of payments to be
received throughout the term of a lease and the remaining value of a leased
asset at the termination of the lease. The Company was largely dependent upon
its sales force to achieve the residual value through remarketing, which
includes a sale or lease of the equipment. Due to the termination of the
Company's sales force, the Company no longer has the internal capability to
remarket assets at or prior to the termination of leases. Although other
remarketing measures are being considered, the transition to and implementation
of these alternative remarketing capabilities could have a material adverse
impact on the realization of the residual values of those assets. In addition,
the termination of the sales force could have a material adverse impact on the
receipt of lease payments. At this time, the Company is unable to estimate the
impact, if any, that the termination of the sales force and transition to
alternative remarketing efforts may have on the value of the Company's lease
portfolio.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the unaudited
consolidated financial statements, including the related notes thereto,
appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the
audited consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 filed with the
Securities and Exchange Commission.
UniCapital was founded in October 1997 as a Delaware corporation. We
commenced operations in May 1998 in conjunction with the consummation of our
initial public offering and the acquisition of twelve equipment leasing,
specialty finance and related businesses. In June, July and August 1998, we
completed the acquisition of five additional equipment leasing, specialty
finance and related businesses.
Historically, UniCapital has derived the majority of its revenue from lease
payments on leases originated and held by the Company and sales of equipment,
including sales of equipment off-lease and the sale of new and used equipment.
In addition, UniCapital has derived revenue from sales of leases to third
parties, as well as from servicing fees, late charges and administrative fees
and from remarketing fees for the sale of off-lease equipment on behalf of
equity investors in leases.
15
16
We amended the Revolving Facility as of March 31, 2000 to waive required
compliance with certain financial covenants, which waiver has been extended
through December 1, 2000. If we had not amended this facility our financial
condition as of March 31, 2000 and our results of operations for the first
quarter of 2000 would have caused us to breach the fixed-charge coverage ratio
and tangible net worth ratio covenants of the Revolving Facility. As a condition
to the amendment and waiver extensions of the Revolving Facility, described
above, we agreed to (i) develop a revised business plan, including the sale of
our Big Ticket Division assets, (ii) apply collateral proceeds and the net
proceeds of any liquidity events or asset sales (excluding $30 million of such
proceeds that we have been allowed to retain to use to support the continuing
negative cash flow from the core businesses) to reduce the amount outstanding
under the facility, with a corresponding permanent reduction in the lenders'
commitment thereunder, (iii) require the consent of Bank of America to any lease
sales or securitizations or other collateral transfers, (iv) appoint independent
financial consultants to assist us in evaluating our business and financial
condition and (v) pay the costs of any financial consultants engaged by our
lender to conduct an independent investigation of our business and financial
condition.
On June 19, 2000 the Company named E. Talbot Briddell as the Company's chief
executive officer, replacing Robert J. New. Daniel Chait, senior vice president
and treasurer, has been appointed interim chief financial officer, replacing
Jonathan New, who left the Company to pursue other interests. In addition to the
changes in senior management, the Company eliminated 38 positions and reduced
the salaries of 11 senior employees.
During June 2000, following the appointment of new senior management, the
Company reached a decision to discontinue the operations of its Big Ticket
Division and has developed and implemented a plan to divest all assets of the
Big Ticket Division within one year. As a result, the Company recorded a pretax
charge of $174.5 million ($123.1 million after taxes) for the three months ended
June 30, 2000. The charge includes $89.0 million for the asset impairment
related to aircraft, $26.2 million related to asset impairment of aircraft
engines, $50.1 million related to operating costs during the wind down period
and $9.2 million related to the writedown of a note and a deposit. During the
three months ended September 30, 2000, the company recorded an additional
write-down of $32.9 million relating to the carrying value of its aircraft and
aircraft engines to their estimated net realizable value. The Company intends to
sell the aircraft and the aircraft engines to third parties.
As its financial ability to originate new leases is seriously impaired, on
November 15, 2000, as part of its continuing restructuring efforts, the Company
decided to cease the new originations aspect of its business and to concentrate
on servicing and realizing value from the Company's existing lease portfolio. As
a result, the Company terminated 245 employees whose responsibilities were
rendered unnecessary by the Company's decision to cease lease originations. The
Company's remaining employees are continuing to service the Company's existing
lease portfolio and to collect payments thereon, and are fulfilling accounting,
treasury and other financial and administrative responsibilities at the
Company's headquarters and operating units. The Company has put in place
retention programs for certain of its remaining key employees at an estimated
cost of $2.3 million through June 30, 2001.
As a result of the Company's decision to discontinue originations and other
restructuring efforts, the remaining $328.9 million of related goodwill was
considered to be permanently impaired and was written off.
The carrying value of the lease portfolio on the financial statements is
determined using a number of factors, including the amount of payments to be
received throughout the term of a lease and the remaining value of a leased
asset at the termination of the lease. The Company was largely dependent upon
its sales force to achieve the residual value through remarketing, which
includes a sale or lease of the equipment. Due to the termination of the
Company's sales force, the Company no longer has the internal capability to
remarket assets at or prior to the termination of leases. Although other
remarketing measures are being considered, the transition to and implementation
of these alternative remarketing capabilities could have a material adverse
impact on the realization of the residual values of those assets. In addition,
the termination of the sales force could have a material adverse impact on the
receipt of lease payments. At this time, the Company is unable to estimate the
impact, if any, that the termination of the sales force and transition to
alternative remarketing efforts may have on the value of the Company's lease
portfolio.
LIQUIDITY AND CAPITAL RESOURCES
The "Revolving Facility" and "Limited Recourse Conduit Facility" (referred
to as the "Senior Credit Facilities") and the "Warehouse Facility" are described
in greater detail under the heading "Credit Facilities."
As of September 30, 2000, we had cash and cash equivalents of approximately
$20.2 million. Our business requires access to substantial short-term and
long-term credit. Our uses of cash include the payment of interest expenses,
repayment of borrowings under our credit facilities, operating and
administrative expenses and income taxes.
Effective March 31, 2000 we amended our Revolving Facility to waive required
compliance with two of the three primary financial covenants, (fixed-charge
coverage ratio and minimum tangible net worth covenants), which waiver has been
extended through December 1, 2000 and expanded to include a waiver of compliance
with the third financial covenant (debt to tangible net
16
17
worth covenant). If we had not amended this facility, our financial condition as
of March 31, 2000 and our results of operations for the first quarter of 2000
would have caused us to breach the fixed-charge coverage ratio and the minimum
tangible net worth covenants of this facility. Although compliance with these
financial covenants has been waived through December 1, 2000, we will not be in
compliance with these financial covenants, or the debt to tangible net worth
ratio covenant, as of December 1, 2000 and we may not be able to negotiate
extensions of the waiver or negotiate modifications of the covenants prior to
the expiration of the waiver. In addition, the Limited Recourse Conduit Facility
was to terminate on August 14, 2000, but Bank of America and other lenders under
the facility have agreed to extend its termination date to December 1, 2000.
However, a condition of such extension is that the lenders have the discretion
over whether to provide further funding under the facility. In addition, our
financial condition as of March 31, 2000 and our results of operations for the
first quarter of 2000 would have caused us to breach the fixed-charge coverage
ratio and minimum tangible net worth covenants of the Morgan Stanley Asset
Funding Warehouse Facility as described below (under the heading "Term Loans"),
all amounts owing under the Warehouse Facility have since been settled and
facility terminated.
The Company's existing financial condition severely limits its ability to
obtain additional sources of financing. The Company does not believe that it
will be able to obtain additional credit facilities at this time, nor does it
anticipate that it will be able to sell leases and obtain financing for
transactions on a non-recourse basis. Moreover, the Company is not currently in
compliance with the original financial covenants of its credit facilities and
has only been able to secure financing therefrom pursuant to amendments and
waivers agreed to by the Company's lenders in their discretion. The Company's
required compliance with certain financial covenants has been waived through
December 1, 2000. The Company does not generate sufficient cash to support its
operating costs and therefore the unwillingness of the lenders to amend or waive
further any non-compliance will have a material adverse effect on the Company's
ability to obtain adequate financing, including financing from alternative
sources. If the Company is unable to obtain adequate financing, or if it is
unable to implement other alternative strategies, then it will have insufficient
cash to continue to operate its business or fund working capital requirements.
In such circumstances, the Company, which currently has no other viable
financing alternatives, would be subject to risk of foreclosure upon its assets
or other proceedings to satisfy the claims of its creditors. The Company is
currently exploring the sale of certain business units, as well as certain
tangible and intangible assets, and is also exploring other alternative
strategies to resolve its liquidity issues.
Credit Facilities
We have in place two credit facilities (the "Senior Credit Facilities")
which consist of the following: (i) a $300.0 million Corporate Revolving Credit
Facility (the committed amount of which is reducing with the proceeds realized
on certain asset sales as detailed below) primarily to finance working capital
needs (the "Revolving Facility"); and (ii) an asset-backed commercial paper
conduit facility totaling $450.0 million to finance small ticket and middle
market leases, consisting of a limited recourse Equipment Lease Receivable
Facility (the "Limited Recourse Conduit Facility").
The Company paid and continues to pay financing fees in connection with
entering into or extending each of the Senior Credit Facilities, which are being
amortized as a yield adjustment over the terms of the Senior Credit Facilities
using the interest method, and will pay an annual administration fee equal to a
percentage of certain of the facilities. We expect that the aggregate fees and
expenses to be paid in connection with entering into the Senior Credit
Facilities will be paid from cash flows from operating activities as well as
borrowings under the Revolving Facility.
Revolving Facility. We amended the Revolving Facility as of March 31, 2000
to waive required compliance with certain financial covenants, which waiver has
been extended through December 1, 2000. If we had not amended this facility, our
financial condition as of March 31, 2000 and our results of operations for the
first quarter of 2000 would have caused us to breach the fixed-charge coverage
ratio and tangible net worth ratio covenants of the Revolving Facility. As a
condition to the amendment and waiver extensions of the Revolving Facility,
described above, we agreed to (i) develop a revised business plan, including the
sale of our Big Ticket Division assets, (ii) apply collateral proceeds and the
net proceeds of any liquidity events or asset sales (excluding $30 million of
such proceeds that we have been allowed to retain to use to support the
continuing negative cash flow from the core businesses) to reduce the amount
outstanding under the facility, with a corresponding permanent reduction in the
lenders' commitment thereunder, (iii) require the consent of Bank of America to
any lease sales or securitizations or other collateral transfers, (iv) appoint
independent financial consultants to assist us in evaluating our business and
financial condition and (v) pay the costs of any financial consultants engaged
by our lender to conduct an independent investigation of our business and
financial condition. The Revolving Facility, which was entered into in June
1998, has a three-year term. We pay a quarterly fee equal to a percentage of the
unused portion of the Revolving Facility. As of November 9, 2000, the Company
has received approximately $75 million of net proceeds from certain liquidity
events and asset sales. Of this amount $45 million was applied to reduce the
amount outstanding under the Revolving and resulted in a permanent reduction of
the lenders' commitments under the Revolving Facility to $255.0 million. As of
November 9, 2000, the amount outstanding under the Revolving Facility was $255.0
million with a weighted average interest rate of 9.1%.
17
18
Limited Recourse Conduit Facility. The term of the Limited Recourse Conduit
Facility has been extended through December 1, 2000. However, a condition of
such extension is that the lenders have discretion over whether to provide
further funding under the facility. In addition, the lenders have appointed
Wells Fargo Bank Minnesota, National Association ("Wells Fargo") as back-up
servicer of the leases and loan contracts included in the collateral for the
facility. As of November 9, 2000, the amount outstanding under the Limited
Recourse Conduit Facility was $408.4 million with a weighted average interest
rate of 9.2%.
Other Credit Facilities
Revolving Purchase Facility. Effective August 15, 2000, we amended the
revolving purchase facility with Key Global Finance ("Key"), terminating
UniCapital Operations Group ("UOG") as servicer, and transferring servicing on
approximately 25% of the outstanding portfolio to Key. UOG is continuing to
service the remaining 75% of the portfolio under a sub-servicing arrangement
with Key, which is renewed monthly at Key's discretion. The facility expired on
October 26, 2000, and it is not anticipated that a renewal will be sought.
Term Loans
Aircraft Facility. Effective March 30, 2000, we converted our revolving
credit facility for the financing of aircraft into a term loan (the "Aircraft
Facility"). As a condition of the conversion, the Company pledged 100% of the
stock of UniCapital AFT-II, Inc., five engines and the Class C Notes related to
the 1999-1 and 2000-1 securitization transactions. The Aircraft Facility was
nonrecourse to the Company and was collateralized by a first priority perfected
pledge of all of the common stock of each special purpose entity wholly owned by
the Company which uses the Aircraft Facility ("SPE Aircraft Borrower") and each
domestic subsidiary of each SPE Aircraft Borrower, a first priority perfected
security interest in all present and future assets and properties of each SPE
Aircraft Borrower and each of its subsidiaries and certain other assets of the
Company as detailed above. The Aircraft Facility had an initial expiry in
December 2000. As of June 30, 2000, the Company had borrowings of $346.8 million
outstanding under the Aircraft Facility with a weighted average interest rate of
9.9%.
On July 26, 2000 the aircraft securing the Aircraft Facility were sold and
the full amount of the Aircraft Facility was repaid. A new loan agreement dated
July 21, 2000 (the "New Aircraft Facility") closed on July 26, 2000 pursuant to
which the Company financed various assets including 100% of the stock of
UniCapital AFT-II, Inc., three engines and the Class C Notes related to the
1999-1 and 2000-1 securitization transactions. The New Aircraft Facility is
nonrecourse to the Company. Interest on the loan will be charged at 30-day LIBOR
plus 3.25% and principal will amortize as proceeds are received from the
underlying collateral in excess of amounts necessary to pay interest. The loan
matures on the earlier of December 31, 2000 or the date on which all outstanding
amounts due under the Bank of America Revolving Facility become due and payable.
Morgan Stanley Asset Funding. Effective May 15, 2000, Morgan Stanley Asset
Funding Inc. (the "Warehouse Lender") converted a $200 million warehouse
facility (the "Warehouse Facility") into a term loan by not permitting
additional borrowings under the facility. The Warehouse Facility had provided
for loans to an indirect, bankruptcy remote subsidiary of the Company, to
finance certain small ticket and middle market leases and loans. Effective July
12, 2000, the parties provided for Morgan Stanley & Co. Incorporated (the "Sales
Agent") to act as sales agent to attempt to sell the collateral pledged under
the Warehouse Facility. Effective October 16, 2000, the Company entered into a
Purchase and Settlement Agreement, (the "Agreement") with the Warehouse Lender
and Sales Agent, (collectively, "Morgan"), whereby the Company sold all of the
leases and loans securing the Warehouse Facility to the Warehouse Lender, all
amounts owed under the facility were deemed paid in full, and all agreements
related to the facility were terminated. Servicing for the contracts pledged
under the Warehouse Facility is being transferred to a third party for the
benefit of Morgan.
Securitization Transactions
On September 9, 1999, we completed our first securitization transaction
involving the issuance of $365.7 million of Equipment Contract Backed Notes
originated primarily by the Business Credit Group and the Technology and Finance
Group. In connection with this transaction, four tranches of Class A Notes were
sold to accredited investors under Rule 144A. The Class A-1 Notes had short term
ratings of A-1+ by Standard & Poor's, P-1 by Moody's Investor Services, Inc.,
F1+/AAA by Fitch IBCA and D-1+ by Duff & Phelps Credit Rating Co. The Class A-2
through A-4 Notes were rated AAA by Standard & Poor's, Aaa by Moody's Investor
Services, Inc., AAA by Duff & Phelps Credit Rating Co. and AAA by Fitch IBCA.
The Class A Notes benefit from a surety bond issued by Ambac Assurance
Corporation ("Ambac"). In addition, Class B and Class C Notes, rated BBB and BB,
respectively by Duff & Phelps Credit Rating Co. and Fitch IBCA, were retained by
the Company. We financed the Class B Notes pursuant to short-term facilities.
The weighted average interest rate for the Class A Notes as of September 30,
2000 was 7.07%. The weighted average interest rate will vary as Class A Notes
are paid. As of September 30, 2000, the outstanding principal balance was $276.4
million.
18
19
On March 28, 2000, the Company completed its second securitization
transaction involving the issuance of $301.5 million of Equipment Contract
Backed Notes originated primarily by the Business Credit Group and the
Technology and Finance Group. In connection with this transaction, four tranches
of Class A Notes and the Class B Notes were sold to accredited investors under
Rule 144A. The Class A-1 Notes had short term ratings of A-1+ by Standard &
Poor's, P-1 by Moody's Investor Services, Inc., F1+/AAA by Fitch IBCA and D-1+
by Duff & Phelps Credit Rating Co. The Class A-2 through A-4 Notes were rated
AAA by Standard & Poor's, Aaa by Moody's Investor Services, Inc., AAA by Duff &
Phelps Credit Rating Co. and AAA by Fitch IBCA. The Class A Notes benefit from a
surety bond issued by Ambac. The Class B Notes were rated BBB- by each of Duff &
Phelps Credit Rating Co. and Fitch IBCA. In addition, Class C Notes rated BB by
Duff & Phelps Credit Rating Co and Fitch IBCA were retained by the Company. The
weighted average interest rate for the Class A and Class B Notes as of September
30, 2000 was 7.35%. The weighted average interest rate will vary as Class A and
Class B Notes are paid. As of September 30, 2000, the outstanding principal
balance was $237.1 million.
On June 29, 2000, the Company received $29.1 million in proceeds from the
pre-funding of its second securitization transaction. The indenture trustee had
held the additional proceeds for the benefit of note holders and Ambac pending
the transfer of additional equipment leases to the note issuers. Most of the
proceeds received by the Company were used to reduce outstanding indebtedness
under the Limited Recourse Conduit Facility that had been used to finance the
transferred leases. The remaining $32 million of pre-funding proceeds was used
as a pre-payment of principal on the Class A-1 Notes on July 20, 2000. In
connection with the release of the proceeds from the pre-funding, the Company
agreed to elevate the status of the back-up servicer for both the 99-1 and
2000-1 securitizations from stand-by status to a live status. A new back-up
servicer was selected and established a fully redundant servicing capability on
its system for the leases and loans in the securitizations.
Under the terms of each of the securitization transactions, if we sustain
losses for two consecutive quarters or if certain financial triggers occur, then
the majority interest of the bondholders (currently controlled by Ambac, as note
insurer) may remove the Company as servicer. In addition, if we default certain
obligations under the securitization agreements, or if certain portfolio
performance triggers occur (including, but not limited to delinquency, default
and charged off contract measurements, each a "Restricting Event"), then certain
payments on subordinate notes otherwise due to the holders of the subordinate
notes and the Company may be redirected to accelerate the outstanding principal
on the senior notes. Upon payment in full of the outstanding principal and
interest on the senior notes, or upon the cure or waiver of any Restricting
Event, cash flow from the collateral pool may resume to the holders of the
subordinate notes.
As of September 30, 2000, we had sustained losses for three consecutive
quarters, and Ambac as note insurer, has directed Wells Fargo, as indenture
trustee, to replace the Company as servicer. On September 28, 2000, we received
Notice of Servicer Termination from Wells Fargo, and have been cooperating with
Wells Fargo to secure a replacement servicer for each of the securitization
transactions. We are continuing to perform all duties of the servicer until such
time as the replacement servicer can assume all responsibilities. At this time,
there are no additional events of default under the securitization transactions,
and the collateral pools are performing as expected.
RESULTS OF OPERATIONS
The results of operations discussed below are for periods during which the
Company was engaged in the business of originating leases and selling and
remarketing equipment. Due to the Company's decision to cease originating new
leases, the Company's revenues in the future will be derived solely from its
existing lease portfolio. Therefore, the historical results described below are
not indicative of the Company's future results of operations.
The following table sets forth selected financial data for the Company and
its subsidiaries as a percentage of revenues for the periods indicated.
THREE MONTHS ENDED SEPTEMBER 30,
2000 1999
--------------------------- -------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Income from finance contracts .......... $ 27,347 32.3% $ 18,917 22.1%
Rental income from operating leases .... 19,093 22.6 15,067 17.6
Sales of equipment ..................... 34,170 40.4 35,195 41.1
Gain on sale of finance contracts ...... 344 0.4 9,526 11.1
Fees, commissions and remarketing
income ............................... 4,528 5.3 5,643 6.6
Interest and other income (expense),
net .................................. (826) -1.0 1,293 1.5
--------- ------ -------- -----
Total revenues .................... 84,656 100.0 85,641 100.0
--------- ------ -------- -----
Cost of operating leases ............... 14,600 17.2 9,738 11.4
Cost of equipment sold ................. 32,379 38.2 33,090 38.6
Interest expense ....................... 21,513 25.4 14,544 17.0
Selling, general and administrative
expenses ............................. 33,773 39.9 21,951 25.6
19
20
THREE MONTHS ENDED SEPTEMBER 30,
2000 1999
--------------------------- -------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Restructuring and other nonrecurring
charges .............................. -- 0.0 -- --
Goodwill amortization and impairment ... 331,029 391.0 2,713 3.2
--------- ------ -------- -----
Total expenses ......................... 433,294 511.7 82,036 95.8
--------- ------ -------- -----
Income (loss) from continuing operations
before taxes ......................... (348,638) (411.7) 3,605 4.2
Benefit for income taxes ............... (2,698) (3.2) 2,383 2.8
--------- ------ -------- -----
Net loss from continuing operations .... (345,940) (408.5) 1,222 1.4
--------- ------ -------- -----
Discontinued operations (Note 12):
Income (loss) from operations of
discontinued Big Ticket Division
(plus (less) applicable income taxes
of $0.0 million and ($7.2) million,
respectively) ........................ -- -- 667 0.8
Loss on disposal of Big Ticket Division
including provision of $33.2 million
for operating losses during phaseout
period (plus (less) applicable income
of 44.1 million) ..................... (32,866) (38.8) -- --
--------- ------ -------- -----
Total discontinued operations .......... (32,866) (38.8) 667 0.8
--------- ------ -------- -----
Net income (loss) ...................... $(378,806) (447.3) $ 1,889 2.2
========= ====== ======== =====
20
21
The following tables set forth selected financial data for the Company by
continuing reported business segment for the three months ended September 30,
2000 and 1999.
THREE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
FINANCE CREDIT CORPORATE
GROUP GROUP DIVISION CONSOLIDATED
---------- -------- --------- ------------
Income from finance contracts.. $ 17,572 $ 9,774 $ 1 $ 27,347
Rental income from operating
leases....................... 19,085 8 -- 19,093
Sales of equipment............. 34,170 -- -- 34,170
Gain on sale of finance
contracts.................... 344 -- -- 344
Fees, commissions and
remarketing income........... 2,322 1,745 461 4,528
Interest and other income
(expense), net............... (1,386) (216) 776 (826)
--------- -------- -------- ---------
Total revenues............ 72,107 11,311 1,238 84,656
--------- -------- -------- ---------
Cost of operating leases....... 14,596 4 -- 14,600
Cost of equipment sold......... 32,262 117 -- 32,379
Interest expense............... 12,801 6,315 2,397 21,513
Selling, general and
administrative expenses...... 17,159 9,557 7,057 33,773
Restructuring and other
nonrecurring charges......... -- -- -- --
Goodwill amortization and
impairment................... 280,693 46,622 3,714 331,029
--------- -------- -------- ---------
Total expenses............ 357,511 62,615 13,168 433,294
--------- -------- -------- ---------
Income (loss) from continuing
operations before taxes........ $(285,404) $(51,304) $(11,930) $(348,638)
========= ======== ======== =========
THREE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
FINANCE CREDIT CORPORATE
GROUP GROUP DIVISION CONSOLIDATED
---------- -------- --------- ------------
Income from finance contracts.. $12,908 $ 6,009 $ -- $18,917
Rental income from operating
leases....................... 14,891 176 -- 15,067
Sales of equipment............. 35,195 -- -- 35,195
Gain on sale of finance
contracts.................... 9,365 161 -- 9,526
Fees, commissions and
remarketing income........... 4,856 631 156 5,643
Interest and other income...... 862 431 -- 1,293
------- ------- ------- -------
Total revenues............ 78,077 7,408 156 85,641
------- ------- ------- -------
Cost of operating leases....... 9,707 31 -- 9,738
Cost of equipment sold......... 33,089 1 -- 33,090
Interest expense............... 8,005 2,714 3,825 14,544
Selling, general and
administrative expenses...... 11,454 6,953 3,544 21,951
Goodwill amortization and
impairment................... 2,185 453 75 2,713
------- ------- ------- -------
Total expenses............ 64,440 10,152 7,444 82,036
------- ------- ------- -------
Income (loss) from continuing
operations before taxes...... $13,637 $(2,744) $(7,288) $ 3,605
======= ======= ======= =======
Results For The Three Months Ended September 30, 2000 Compared To The
Results For The Three Months Ended September 30, 1999
Income from finance contracts. Income from finance contracts for the three
months ended September 30, 2000 increased by $8.4 million, or 44.6%, to $27.3
million from $18.9 million for the three months ended September 30, 1999. This
increase is primarily due to the $286.7 million increase in the finance contract
portfolios of the Technology and Finance Group and Business Credit Group,
partially offset by a decrease in lease originations for the three months ended
September 30, 2000 as compared to the three months ended September 30, 1999.
Rental income from operating leases. Rental income from operating leases for
the three months ended September 30, 2000 increased by $4.0 million, or 26.7%,
to $19.1 million from $15.1 million for the three months ended September 30,
1999. This increase is due to a $30.5 million increase in equipment under
operating leases in the Technology and Finance Group.
21
22
Sales of equipment. Sales of equipment for the three months ended
September 30, 2000 decreased by $1.0 million, or 2.9%, to $34.2 million from
$35.2 million for the three months ended September 30, 1999. This decrease is
primarily due to a decrease in the number of sales-type leases originated by two
of the companies in the Technology and Finance Group.
Gain on sale of finance contracts. Gain on sale of finance contracts for the
three months ended September 30, 2000 decreased by $9.2 million, or 96.4%, to
$0.3 million from $9.5 million for the three months ended September 30, 1999.
This decrease is primarily attributable to a decrease in sales to third parties
of finance contracts originated by the Technology and Finance Group.
Fees, commissions and remarketing income. Fees, commissions and remarketing
income for the three months ended September 30, 2000 decreased by $1.1 million,
or 19.8%, to $4.5 million from $5.6 million for the three months ended September
30, 1999. This decrease is primarily due to a decline in the origination of
brokered deals in the Technology and Finance Group in the three months ended
September 30, 2000.
Interest and other income. Interest and other income for the three months
ended September 30, 2000 decreased by $2.1 million, or 163.9%, to negative $0.8
million from $1.3 million for the three months ended September 30, 1999. This
decrease is due to a write-down of $2.5 million, as a result of a change in
estimates of the value of the Company's interests in retained certificates.
Cost of operating leases. Cost of operating leases for the three months
ended September 30, 2000 increased by $4.9 million, or 49.9%, to $14.6 million
from $9.7 million for the three months ended September 30, 1999. This increase
is primarily due to the $30.5 million growth in the equipment under operating
leases in the Technology and Finance Group.
Cost of equipment sold. Cost of equipment sold for the three months ended
September 30, 2000 decreased by $0.7 million, or 2.2%, to $32.4 million from
$33.1 million for the three months ended September 30, 1999. This decrease is
primarily due to a decrease in the number of leases qualifying for sales-type
lease treatment in two of the companies in the Technology and Finance Group.
Interest expense. Interest expense for the three months ended September 30,
2000 increased by $7.0 million, or 47.9%, to $21.5 million from $14.5 million
for the three months ended September 30, 1999. This increase is primarily due to
increased borrowings outstanding to finance the $301.0 million growth of the
Company's lease and equipment portfolio as well as the effect of rising interest
rates.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended September 30, 2000 increased
by $11.8 million, or 53.9%, to $33.8 million from $22.0 million for the three
months ended September 30, 1999. Approximately $2.5 million of the increase is
due to increased professional fees company-wide as a result of the restructuring
efforts in place during the three months ended September 30, 2000. In addition,
bad debt expense increased by $7.4 million due to a higher provision for lease
losses and the $3.4 million write-off of stock subscription notes receivable and
related interest.
Goodwill amortization and impairment. Goodwill amortization and impairment
for the three months ended September 30, 2000 increased by $328.3 million, to
$331.0 million from $2.7 million for the three months ended September 30, 1999.
This increase is primarily due to the impairment write-off of the Company's
remaining goodwill in the amount of $328.9 million.
The following table sets forth selected financial data for the Company and
its subsidiaries as a percentage of revenues for the periods indicated.
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
--------------------------- --------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Income from finance contracts ........... $ 79,045 28.1% $ 45,093 21.4%
Rental income from operating leases ..... 56,305 20.0 45,980 21.8
Sales of equipment ...................... 125,231 44.6 85,646 40.6
Gain on sale of finance contracts ....... 8,144 2.9 10,703 5.1
Fees, commissions and remarketing
income ................................ 12,424 4.4 18,207 8.6
Interest and other income (expense),
net ................................... (99) 0.0 5,232 2.5
--------- ----- --------- -----
Total revenues ..................... 281,050 100.0 210,861 100.0
--------- ----- --------- -----
Cost of operating leases ................ 41,528 14.8 28,818 13.7
Cost of equipment sold .................. 116,789 41.6 77,958 37.0
Interest expense ........................ 64,104 22.8 37,140 17.6
Selling, general and administrative
expenses .............................. 103,756 36.9 67,374 32.0
Restructuring and other nonrecurring
charges ............................... 5,924 2.1 -- --
22
23
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
--------------------------- --------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Goodwill amortization and impairment .... 406,553 144.6 8,115 3.8
--------- ------- --------- -----
Total expenses .......................... 738,654 262.8 219,405 104.1
--------- ------- --------- -----
Income (loss) from continuing operations
before taxes .......................... (457,604) (162.8) (8,544) (4.1)
Benefit for income taxes ................ (18,134) (6.5) (210) (0.1)
--------- ------- --------- -----
Net loss from continuing operations ..... (439,470) (156.3) (8,334) (4.0)
--------- ------- --------- -----
Discontinued operations (Note 12):
Income (loss) from operations of
discontinued Big Ticket Division
(plus (less) applicable income taxes
of $44.4 million and ($10.5) million,
respectively) ......................... (250,873) (89.3) 13,945 6.6
Loss on disposal of Big Ticket Division
including provision of $33.2 million
for operating losses during
phaseout period (plus (less) applicable
income taxes of $22.4 million) ........ (158,859) (56.5) -- --
--------- ------- --------- -----
Total discontinued operations ...... (409,732) (145.8) 13,945 6.6
--------- ------- --------- -----
Net income (loss) ....................... (849,202) (302.1) 5,611 2.6
========= ======= ========= =====
23
24
The following tables set forth selected financial data for the Company by
continuing reported business segment for the nine months ended September 30,
2000 and 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
TECHNOLOGY
AND BUSINESS
FINANCE CREDIT CORPORATE
GROUP GROUP DIVISION CONSOLIDATED
---------- --------- --------- ------------
Income from finance contracts ... $ 52,541 $ 26,501 $ 3 $ 79,045
Rental income from operating
leases ........................ 56,315 (10) -- 56,305
Sales of equipment .............. 125,215 16 -- 125,231
Gain on sale of finance
contracts ..................... 6,235 1,909 -- 8,144
Fees, commissions and remarketing
income ........................ 6,284 5,334 806 12,424
Interest and other income
(expense), net ................ (1,641) (768) 2,310 (99)
--------- --------- --------- ---------
Total revenues ............. 244,949 32,982 3,119 281,050
--------- --------- --------- ---------
Cost of operating leases ........ 41,520 8 -- 41,528
Cost of equipment sold .......... 116,666 123 -- 116,789
Interest expense ................ 35,344 16,286 12,474 64,104
Selling, general and
administrative expenses ....... 61,927 29,501 12,328 103,756
Restructuring and other
nonrecurring charges .......... 1,239 712 3,973 5,924
Goodwill amortization and
impairment .................... 328,435 74,254 3,864 406,553
--------- --------- --------- ---------
Total expenses ............. 585,131 120,884 32,639 738,654
--------- --------- --------- ---------
Income (loss) from continuing
operations before taxes ....... $(340,182) $ (87,902) $ (29,520) $(457,604)
========= ========= ========= =========
NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
TECHNOLOGY
AND BUSINESS
FINANCE CREDIT CORPORATE
GROUP GROUP DIVISION CONSOLIDATED
--------- --------- --------- ------------
Income from finance contracts ... $ 32,494 $ 12,599 -- $ 45,093
Rental income from operating
leases ........................ 45,448 532 -- 45,980
Sales of equipment .............. 85,646 -- -- 85,646
Gain on sale of finance
contracts ..................... 10,542 161 -- 10,703
Fees, commissions and remarketing
income ........................ 13,606 4,009 592 18,207
Interest and other income ....... 2,646 1,752 834 5,232
--------- --------- --------- ---------
Total revenues ............. 190,382 19,053 1,426 210,861
--------- --------- --------- ---------
Cost of operating leases ........ 28,680 138 -- 28,818
Cost of equipment sold .......... 77,957 1 -- 77,958
Interest expense ................ 20,288 5,477 11,375 37,140
Selling, general and
administrative expenses ....... 34,355 21,300 11,719 67,374
Goodwill amortization and
impairment .................... 6,531 1,357 227 8,115
--------- --------- --------- ---------
Total expenses ............. 167,811 28,273 23,321 219,405
--------- --------- --------- ---------
Income (loss) from continuing
operations before taxes ....... $ 22,571 $ (9,220) $ (21,895) $ (8,544)
========= ========= ========= =========
24
25
Results For The Nine Months Ended September 30, 2000 Compared To The
Results For The Nine Months Ended September 30, 1999
Income from finance contracts. Income from finance contracts for the nine
months ended September 30, 2000 increased by $34.0 million, or 75.3%, to $79.1
million from $45.1 million for the nine months ended September 30, 1999. This
increase is primarily due to the $286.7 million increase in the finance contract
portfolios of the Technology and Finance Group and Business Credit Group.
Rental income from operating leases. Rental income from operating leases for
the nine months ended September 30, 2000 increased by $10.3 million, or 22.5%,
to $56.3 million from $46.0 million for the nine months ended September 30,
1999. This increase is primarily due to a $30.5 million increase in equipment
under operating leases in the Technology and Finance Group.
Sales of equipment. Sales of equipment for the nine months ended September
30, 2000 increased by $39.6 million, or 46.2%, to $125.2 million from $85.6
million for the nine months ended September 30, 1999 This increase is primarily
due to an increase in the number of leases qualifying for sales-type lease
treatment in two of the companies in the Technology and Finance Group in the
first and second quarters of 2000.
Gain on sale of finance contracts. Gain on sale of finance contracts for the
nine months ended September 30, 2000 decreased by $2.6 million, or 23.9%, to
$8.1 million from $10.7 million for the nine months ended September 30, 1999.
This decrease is primarily attributable to a decrease in sales to third parties
of finance contracts originated by the Technology and Finance Group.
Fees, commissions and remarketing income. Fees, commissions and remarketing
income for the nine months ended September 30, 2000 decreased by $5.8 million,
or 31.8%, to $12.4 million from $18.2 million for the nine months ended
September 30, 1999. This decrease is primarily due to the completion of large
transactions in the Technology and Finance Group in the six months ended June
30, 1999 as well as a decline in the origination of broker deals during the
three months ended September 30, 2000.
Interest and other income. Interest and other income for the nine months
ended September 30, 2000 decreased by $5.3 million, or 101.9%, to negative $0.1
million from $5.2 million for the nine months ended September 30, 1999. This
decrease is due to a write-down of $4.3 million, as a result of a change in
estimates of the value of the Company's interests in retained certificates.
Cost of operating leases. Cost of operating leases for the nine months ended
September 30, 2000 increased by $12.7 million, or 44.1%, to $41.5 million from
$28.8 million for the nine months ended September 30, 1999. This increase is
primarily due to the $30.5 million growth in the equipment under operating
leases in the Technology and Finance Group.
Cost of equipment sold. Cost of equipment sold for the nine months ended
September 30, 2000 increased by $38.8 million, or 49.8%, to $116.8 million from
$78.0 million for the nine months ended September 30, 1999. This increase is
primarily due to an increase in the number of leases qualifying for sales-type
lease treatment in two of the companies in the Technology and Finance Group in
the first and second quarters of 2000.
Interest expense. Interest expense for the nine months ended September 30,
2000 increased by $27.0 million, or 72.6%, to $64.1 million from $37.1 million
for the nine months ended September 30, 1999. This increase is primarily due to
increased borrowings outstanding to finance the $301.0 million growth of the
Company's lease and equipment portfolio as well as the effect of rising interest
rates.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the nine months ended September 30, 2000 increased
by $36.4 million, or 54.0%, to $103.8 million from $67.4 million for the nine
months ended September 30, 1999. Approximately $19.8 million of this increase is
due to a provision for leases losses taken in excess of the Company's normal
provision as a result of the bankruptcies and general credit deterioration of
several customers of the Technology and Finance Group and Business Credit Group
and the $3.4 million write-off of stock subscription notes receivable and
related interest. In addition, the impact of new employment agreements with
certain of the Company's officers and subsidiary executives, resulted in a $5.3
million increase in personnel costs, as compared to the nine months ended
September 30, 1999. Also, higher professional fees company-wide as a result of
the restructuring efforts in place during 2000 have contributed to this
increase.
Restructuring and other nonrecurring charges. The Company incurred $5.9
million of restructuring and other nonrecurring charges during the nine months
ended September 30, 2000, primarily as a result of severance costs of $2.2
million and lease obligations and other costs of $3.7 million related to the
elimination of non-core businesses.
25
26
Goodwill amortization and impairment. Goodwill amortization and impairment
for the nine months ended September 30, 2000 increased by $398.4 million, to
$406.5 million from $8.1 million for the nine months ended September 30, 1999.
This increase is primarily due to the impairment write-off of goodwill in the
amount of $399.1 million.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Certain statements contained in this Quarterly Report on Form 10-Q
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements generally can be
identified by the use of forward-looking terminology such as "may," "will,"
"intend," "estimate," "anticipate," "believe," "expect" or "continue" or the
negative thereof or variations thereon or similar terminology. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from possible
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions; changes in interest rates; changes in
asset values; inflation or deflation; changes in markets for financial products,
including securitized assets; changes in political, social and economic
conditions and local regulations; changes in, or failure to comply with,
government regulations; demographic changes; changes in the mix of sources of
revenues; competition; changes in business strategy or development plans;
availability of capital sufficient to meet the Company's need for capital or on
terms or at times acceptable to the Company; and availability of qualified
personnel. Factors that could cause or contribute to such differences include
those discussed under the heading "Factors that May Affect Future Operating
Results" in the Company's Annual Report on Form 10-K for the year ended December
31, 1999. If the Company is unable to obtain adequate financing or implement
alternative strategies, it will have insufficient cash to continue to operate
its business or fund working capital requirements. In such circumstances, the
Company, which currently has no other viable financing alternatives, would be
subject to risk of foreclosure upon its assets or other proceedings to satisfy
the claims of its creditors. Unforeseen delays may affect the timing of the exit
from certain operations. Unforeseen delays and expenses as well as possible
unfavorable market conditions for certain of our assets, such as the current
unfavorable market condition for the sale of aircraft engines, may affect our
ability to develop or implement our asset turnover program, our ability to
refinance our debt or to secure adequate sources of liquidity, and our ability
to divest our Big Ticket Division assets in an orderly manner. The Company
assumes no obligation to update any forward-looking statements to reflect actual
results or changes in the factors affecting such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We incur debt to fund the origination and acquisition of leases, equipment,
lease portfolios and equipment leasing businesses and for general corporate
purposes. The interest rates charged on the debt are generally determined based
on variable measures of interest rates such as the prevailing "Prime" rates in
the United States or the London Interbank Offered Rate ("LIBOR"). For
information regarding contractual interest rates on the debt and amounts
outstanding and weighted average interest rate at September 30, 2000, see the
discussion in "Liquidity and Capital Resources."
We continually monitor interest rates in order to mitigate exposure to
certain unfavorable variations. Our objectives in managing this risk include:
o achieving fixed-rate financing at the same time the Company establishes
the rate to be received by the Company on a lease;
o achieving certain ratios of fixed-rate debt to variable-rate debt; and
o achieving certain levels of our aggregate cost of funds.
As a result, from time to time we utilize interest rate swaps to hedge some of
the Company's exposure to changing interest rates. We do not hedge all interest
rate risks. As used by the Company, interest rate swaps synthetically alter the
repricing characteristics of recorded assets and liabilities, effectively
allowing us to reduce our exposure to variations in Prime or LIBOR. There are
risks associated with the use of these instruments, including:
o the possible inability of the counterparties to meet the terms of their
contracts; and
o market movements in values and interest rates.
We do not enter into interest rate swap agreements for trading purposes.
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The fair value of the swaps at any particular time is determined by
calculating the difference between the contractual payments at the contract rate
and the prevailing market rate of the swap at such time, and discounting the
stream of payments at the appropriate market discount rate.
The following table presents, as of September 30, 2000, the following
information regarding interest rate swap agreements to which we are a party: (i)
the notional amount of the agreement, (ii) the fixed interest rate to be paid by
the Company or its subsidiaries, (iii) the variable rate to be paid by the
counterparty under the agreement, (iv) the fair value of the instrument, (v) the
commencement date for agreements for which the effective period does not begin
until a subsequent date, if applicable, and (vi) the maturity of the agreement.
EFFECTIVE PERIOD OF INTEREST RATE SWAP
AVERAGE NOTIONAL AMOUNT FOR THE TWELVE MONTHS ENDING SEPTEMBER 30,(B)
SEPTEMBER 30, ---------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 THEREAFTER
---- ---- ---- ---- ---- ---- ----------
INTEREST RATE SWAPS
Amortizing notional
Amount................ $ 16,794,152 $13,212,991 $ 6,617,956 $ 2,304,415 $ 272,779
Rate to be paid by the
Company............... 6.115%
Rate to be received by
the Company........... 30-day CP(a)
Fair value at September 30,
2000.................. $ 67,946
Maturity................ October 2003
Amortizing notional
Amount................ $ 18,282,550 $17,296,106 $15,909,483 $ 8,729,280 $ 3,004,386
Rate to be paid by
the Company........... 6.245%
Rate to be received by
the Company........... 30-day CP(a)
Fair value at September 30,
2000.................. $ 76,188
Maturity................ June 2004
Amortizing notional
Amount................ $ 18,532,974 $20,353,427 $19,276,746 $15,887,576 $13,641,282 $9,937,204 $3,147,027
Rate to be paid by
the Company........... 6.575%
Rate to be received by
the Company........... 30-day CP(a)
Fair value at September 30,
2000.................. $ (49,104)
Maturity................ August 2009
Amortizing notional
Amount............. $ 34,295,361 $28,530,635 $17,917,439 $10,634,438 $ 6,858,985 $4,210,078 $1,579,065
Rate to be paid by
the Company........ 7.035%
Rate to be received by
the Company........ 30-day CP(a)
Fair value at September 30,
2000............... $ (367,714)
Maturity............. September 2009
Amortizing notional
Amount............. $ 26,097,658 $20,982,307 $11,478,780 $ 7,786,558 $ 6,008,370 $5,301,337 $2,347,119
Rate to be paid by
the Company........ 6.995%
Rate to be received by
the Company........ 30-day CP(a)
Fair value at September 30,
2000............... $ (254,570)
Maturity............. September 2009
Amortizing notional
Amount............. $ 35,046,919 $28,756,491 $16,705,924 $10,800,483 $ 7,562,032 $5,705,297 $2,346,050
Rate to be paid by
the Company........ 7.110%
Rate to be received by
the Company........ 30-day CP(a)
Fair value at September 30,
2000............... $ (425,103)
Maturity............. September 2009
Amortizing notional
Amount............. $ 28,909,543 $25,430,880 $17,558,507 $10,238,206 $ 5,683,879 $2,214,904 $ 683,062
Rate to be paid by
the Company........ 6.840%
Rate to be received by
the Company........ 30-day CP(a)
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EFFECTIVE PERIOD OF INTEREST RATE SWAP
AVERAGE NOTIONAL AMOUNT FOR THE TWELVE MONTHS ENDING SEPTEMBER 30,(B)
SEPTEMBER 30, ---------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 THEREAFTER
---- ---- ---- ---- ---- ---- ----------
Fair value at September 30,
2000............... $ (219,119)
Maturity............. February 2010
Amortizing notional
Amount............. $ 18,512,552 $15,633,134 $ 9,514,939 $4,764,539 $2,160,448 $ 774,682 $219,297
Rate to be paid by
the Company........ 6.870%
Rate to be received by
the Company........ 30-day CP(a)
Fair value at September 30,
2000............... $ (129,714)
Maturity............. February 2008
Amortizing notional
Amount............. $ 14,632,507 $13,129,763 $10,010,735 $5,258,576 $3,175,328 $1,753,394 $880,018
Rate to be paid by
the Company........ 7.520%
Rate to be received by
the Company........ 30-day CP(a)
Fair value at September 30,
2000............... $ (336,980)
Commencement......... August 2000
Maturity............. May 2008
Amortizing notional
Amount............. $ 18,265,880 $15,955,905 $10,803,473 $5,758,057 $2,680,787 $ 939,615 $268,383
Rate to be paid by
the Company........ 7.295%
Rate to be received by
the Company........ 30-day CP(a)
Fair value at September 30,
2000............... $ (286,071)
Commencement......... August 2000
Maturity............. May 2008
Amortizing notional
Amount............. $ 31,070,073 $26,899,247 $17,252,988 $7,904,682 $3,773,267 $1,602,160 $500,821
Rate to be paid by
the Company........ 7.095%
Rate to be received by
the Company............ 30-day CP(a)
Fair value at September 30,
2000................... $ (350,444)
Commencement............. October 2000
Maturity................. January 2010
Amortizing notional
Amount................. $ 16,373,086 $14,343,286 $ 9,847,456 $6,539,233 $6,539,233 $6,539,233
Rate to be paid by
the Company............ 7.230%
Rate to be received by
the Company............ 30-day CP(a)
Fair value at September 30,
2000................... $ (243,000)
Maturity................. July 2005
Amortizing notional
Amount................. $ 38,248,923 $30,249,245 $12,139,189 $1,677,631
Rate to be paid by
the Company............ 7.005%
Rate to be received by
the Company............ 30-day CP(a)
Fair value at September 30,
2000................... $ (234,041)
Commencement............. October 2000
Maturity................. January 2003
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EFFECTIVE PERIOD OF INTEREST RATE SWAP
AVERAGE NOTIONAL AMOUNT FOR THE TWELVE MONTHS ENDING SEPTEMBER 30,(B)
SEPTEMBER 30, ---------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 THEREAFTER
---- ---- ---- ---- ---- ---- ----------
Amortizing notional
Amount................. $ -- $14,647,182 $11,355,419 $ 4,772,832
Rate to be paid by
the Company............ 6.775%
Rate to be received by
the Company............ 30-day CP(a)
Fair value at September 30,
2000................... $ (98,264)
Commencement............. December 2000
Maturity................. May 2003
Amortizing notional
Amount................. $ -- $18,259,756 $17,736,517 $12,217,156 $5,242,119 $1,407,169
Rate to be paid by
the Company............ 6.825%
Rate to be received by
the Company............ 30-day CP(a)
Fair value at September 30,
2000................... $ (194,232)
Commencement............. December 2000
Maturity................. April 2005
Fixed notional amount.... $ 75,000,000 $75,000,000
Rate to be paid by
the Company............ 6.830%
Rate to be received by 3-month LIBOR
the Company..............
Fair value at September 30,
2000................... $ (84,536)
Maturity................. May 2001
- ----------
(a) The rate to be received by the Company is based on a 30-day commercial paper
rate published by the U.S. Federal Reserve (H15 report).
(b) The amortizing notional amount is based on contractual agreements with the
counterparty.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Individuals purporting to represent various classes comprising stockholders
who purchased shares of UniCapital common stock between May 14, 1998 and May 15,
2000 have filed seven actions in the United States District Court for the
Southern District of Florida. Each of the actions named the Company, Robert New
and Jonathan New as defendants. These actions have been consolidated into a
single class action complaint, which adds Stuart L. Cauff, former President of
UniCapital, as an additional named individual defendant and the co-manager's of
UniCapital's initial public offering as named defendants. The actions alleged
that the defendants made misstatements, failed to disclose material information,
and otherwise violated Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934 and Rule 10-b thereunder and Sections 11, 12(a), and 15 of the
Securities Act of 1933. The actions seek declaratory relief, unspecified
monetary damages, and attorneys' fees. The Company believes theses complaints to
be without merit and intends to contest these actions vigorously.
UniCapital and its subsidiaries are from time to time parties to other legal
proceedings arising out of our respective operations. We believe that none of
these legal proceedings will have a material adverse effect upon our business or
financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
11.01 Statement Regarding Computation of Per Share Earnings
27.01 Financial Data Schedule
(b.) Reports on Form 8-K
None.
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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.
UniCapital Corporation
Date: November 28, 2000
By: /s/ E. TALBOT BRIDDELL
-------------------------------
E. Talbot Briddell
Chief Executive Officer
/s/ ALBERT J. MINK
-------------------------------
Albert J. Mink
Chief Accounting Officer
(Principal Accounting Officer)
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