1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1998
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 Identification Number)
Incorporation or Organization)
10800 Biscayne Boulevard, Suite 300
Miami, Florida 33161
(Address of Principal Executive Offices) (Zip Code)
(305) 899-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
On November 12, 1998, there were 51,433,539 shares of Common Stock, par value $
.001, outstanding.
2
UniCapital Corporation
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements 4
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statement of Cash Flows 6
Consolidated Statement of Stockholders' Equity 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
2
3
PART I. FINANCIAL INFORMATION
3
4
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
UniCapital Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
ASSETS December 31, 1997 September 30, 1998
----------------- ------------------
(Unaudited)
Cash and cash equivalents $ 30 $ 11,727
Accounts receivable -- 70,523
Net investment in direct financing and sales-type leases -- 338,793
Equipment under operating leases, net -- 273,917
Equipment held for sale or lease -- 64,248
Property and equipment, net -- 6,052
Investments -- 18,475
Goodwill, net -- 602,073
Deposits and other assets 601 75,931
--------- -----------
Total assets $ 631 $ 1,461,739
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Recourse debt $ -- $ 125,461
Non-recourse and limited recourse debt -- 402,189
Accounts payable and accrued expenses 355 49,450
Security and other deposits -- 18,504
Income taxes payable -- 9,485
Deferred income taxes payable -- 54,966
Other liabilities -- 3,565
--------- -----------
Total liabilities 355 663,620
Commitments and Contingencies -- --
Stockholders' equity:
Preferred stock, $.001 par value, 0 and 20,000,000
shares authorized, respectively, no shares issued and
outstanding -- --
Common stock, $.001 par value, 100,000,000 and 200,000,000
shares authorized, 5,276,250 and 51,433,539 shares issued
and outstanding, respectively 5 51
Additional paid-in capital 2,537 796,960
Stock subscription notes receivable (129) (3,668)
Unrealized net gain on securities -- 406
Retained earnings (deficit) (2,137) 4,370
--------- -----------
Total stockholders' equity
276 798,119
--------- -----------
Total liabilities and stockholders' equity $ 631 $ 1,461,739
========= ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
5
UniCapital Corporation and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Data)
(Unaudited)
Three Nine
months ended months ended
September 30, 1998 September 30, 1998
------------------ ------------------
Finance income from direct financing and sales-type leases $ 11,407 $ 16,975
Rental income from operating leases 27,624 36,518
Sale of equipment 80,526 104,446
Gain on sale of leases 5,487 15,258
Fees, commissions and remarketing income 6,546 8,873
Interest and other income 1,772 5,682
----------- ----------
Total revenues 133,362 187,752
----------- ----------
Cost of operating leases 10,403 15,452
Cost of equipment sold 66,347 84,541
Interest expense 12,335 18,758
Selling, general and administrative 15,329 40,069
Goodwill amortization 3,704 5,115
----------- ----------
Total expenses 108,118 163,935
----------- ----------
Income from operations 25,244 23,817
Equity in income from minority-owned affiliates 763 808
----------- ----------
Income before taxes 26,007 24,625
Provision for income taxes 11,439 18,118
----------- ----------
Net income $ 14,568 $ 6,507
=========== ==========
Earnings per common share, basic $ .29 $ .24
=========== ==========
Earnings per common share, diluted $ .29 $ .23
=========== ==========
Weighted average shares outstanding, basic 50,480,166 27,651,839
=========== ==========
Weighted average shares outstanding, diluted 50,799,783 27,850,248
=========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
5
6
UniCapital Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in Thousands)
(Unaudited)
Nine months ended
September 30, 1998
------------------
Cash flows from operating activities:
Net income $ 6,507
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 22,439
Deferred income tax expense 10,668
Provision for credit losses 298
Gain on sale of lease financing receivables (15,258)
Compensation expenses related to equity issuances 17,308
Gain on sale of equipment (19,905)
Equity in net earnings of minority-owned affiliates (808)
Changes in other assets and liabilities:
Accounts receivable (44,083)
Deposits and other assets (21,504)
Accounts payable and accrued expenses (10,938)
Security and other deposits (1,245)
Income taxes payable 5,319
Other liabilities
(25,364)
---------
Net cash used in operating activities (76,566)
---------
Cash flows from investing activities:
Capital expenditures (3,844)
Cash paid for acquisitions, net of cash acquired (393,502)
Proceeds from sale of lease financing receivables 206,572
Proceeds from sale of equipment 89,165
Purchase of equipment held for sale or lease (288,727)
Collection of direct financing and sales-type 74,382
leases, net of finance income earned
Investment in direct financing and sales-type leases (148,344)
Increase in investments, net
885
Net cash used in investing activities ---------
(463,413)
---------
Cash flows from financing activities:
Proceeds from recourse debt borrowings 301,712
Repayment of recourse debt (320,366)
Proceeds from non-recourse and limited recourse debt 194,428
Repayment of non-recourse and limited recourse debt (112,027)
Proceeds from issuance of common stock 489,931
Repayment of subordinated debt (2,002)
---------
Net cash provided by financing activities 551,676
---------
Increase in cash and equivalents 11,697
Cash and cash equivalents at beginning of period 30
---------
Cash and cash equivalents at end of period $ 11,727
=========
Supplemental disclosure of cash flow information for non-cash item:
Stock subscription notes receivable received as $ 3,830
consideration for issuance of common stock =========
The accompanying notes are an integral part of these
consolidated financial statements.
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7
Unicapital Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
(Dollars in Thousands)
(Unaudited)
Retained
Common Additional Stock Subscription Unrealized Net Gain Earnings
Stock Paid-In Capital Notes Receivable on Securities (Deficit) Total
----- --------------- ---------------- ------------- --------- -----
Balance at December 31, 1997 $ 5 $ 2,537 $ (129) $ -- $(2,137) $ 276
Issuance of common stock 46 792,363 (3,830) -- -- 788,579
Issuance of options -- 2,060 -- -- -- 2,060
Payments received -- -- 291 -- -- 291
Change in unrealized net gain -- -- -- 406 -- 406
on securities
Net income -- -- -- -- 6,507 6,507
----- -------- ------- ------ ------- --------
Balance at September 30, 1998 $ 51 $796,960 $(3,668) $ 406 $ 4,370 $798,119
===== ======== ======= ====== ======= ========
The accompanying notes are an integral part of these
consolidated financial statements.
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8
UniCapital Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
UniCapital Corporation, a Delaware corporation, was founded in October
1997 to create a national operator and integrator of equipment leasing and
specialty finance businesses serving the commercial market. UniCapital acquired
twelve equipment leasing and related businesses (the "Founding Companies") (the
"Mergers") upon consummation of an initial public offering (the "Offering") of
its common stock, $.001 par value (the "Common Stock"). Subsequent to the
Offering, UniCapital Corporation acquired, through merger or purchase, five
similar 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" or "UniCapital."
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 presentation 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 financial statements should be read in conjunction with the
Company's audited financial statements included in the Company's registration
statement on Form S-1 (file no. 333-53779).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For a description of the Company's accounting policies, refer to the
Notes to the Financial Statements of the Company and each of the Founding
Companies and subsequent acquisition companies included in the Company's
registration statement on Form S-1 (file no. 333-53779).
NOTE 3 - STOCKHOLDERS' EQUITY
On May 20, 1998, in connection with its Offering, the Company sold
28,000,000 shares of Common Stock to the public at $19.00 per share. The net
proceeds to the Company from the Offering (after deducting underwriting
commissions and other offering costs) were $488.6 million. Of this amount,
$335.0 million was used to pay the cash portion of the purchase prices of the
Founding Companies, in addition to the issuance of 13.3 million shares of Common
Stock of the Company. In July and August of 1998, the Company issued 3,293,888
shares in connection with the purchase of four subsequent acquisitions. See Note
7.
NOTE 4 - EARNINGS PER SHARE
Earnings per share have been calculated and presented in accordance
with Statement of Financial Accounting Standards ("SFAS") 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 5 - INCOME TAXES
The Company accounts for income taxes under SFAS 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 and compensation expense related to certain
equity issuances.
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9
UniCapital Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
NOTE 6 - CREDIT FACILITIES
In August 1998, the Company received a commitment from a major
financial institution to provide a $500 million credit facility ("Warehouse
Facility"), primarily to finance the purchase and leasing of aircraft. Under the
Warehouse Facility, the Company may borrow up to $500 million. The Warehouse
Facility has a term of 364 days. Amounts outstanding under the Warehouse
Facility bear interest, at the Company's option, at LIBOR plus an applicable
margin or the base rate plus an applicable margin. The Warehouse Facility is
non-recourse to the Company, and is secured by a first priority perfected pledge
of the assets purchased and held by the Company through the facility. The
Warehouse Facility was entered into in October 1998.
NOTE 7 - ACQUISITIONS
During July and August 1998, the Company acquired all of the stock of
HLC Financial, Inc., Saddleback Financial Corporation, The Myerson Companies,
Inc. (d/b/a BSB Leasing), and United States Turbine Engine Corp. for aggregate
consideration of $115.6 million consisting of $60.3 million in cash and $55.3
million in Common Stock of the Company. These transactions were accounted for
using the purchase method of accounting. The results of operations of the
Company include these subsequent acquisitions from the date of each respective
acquisition.
NOTE 8 - STATEMENT OF CASH FLOWS
The following table details the net cash paid for the acquisition of
equipment leasing companies which were accounted for using the purchase method
of accounting.
Nine
Months ended
September 30, 1998
------------------
(Dollars in Thousands)
Fair value of assets acquired $ 1,143,280
Fair value of liabilities assumed (580,122)
Common Stock issued (228,132)
-----------
Cash paid for the purchases of Founding Companies 335,026
Fair value of assets acquired 169,440
Fair value of liabilities assumed (38,494)
Common Stock issued (55,267)
-----------
Cash paid for the purchases of subsequent acquisitions 75,679
Cash paid for the purchases of companies 410,705
Cash and cash equivalents acquired (17,203)
-----------
Total cash paid for acquisitions $ 393,502
===========
NOTE 9 - UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information for the three and nine
months ended September 30, 1998 and 1997 includes the results of UniCapital
combined with the Founding Companies and subsequent acquisitions as if the
Mergers and subsequent acquisitions had occurred at the beginning of each
respective period. This pro forma combined financial information includes the
effects of (a) the Mergers; (b) the Offering; (c) the subsequent acquisitions;
(d) certain reductions in salaries, bonuses and benefits to the stockholders and
managers of the Founding Companies and the subsequent acquisitions to which they
have agreed prospectively; (e) amortization of goodwill; (f) the incremental
provision for federal and state income taxes assuming all entities were subject
to federal and state income taxes; and (g) the incremental costs of being a
public company.
The pro forma financial information may not be comparable to and may
not be indicative of the Company's post-Merger and post-subsequent acquisitions
results of operations because the Founding Companies and the subsequent
acquisitions were not under common control or management and had different tax
and capital structures during the periods presented.
9
10
UniCapital Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
The following tables set forth the combined results of operations of
UniCapital and its subsidiaries on a pro forma basis for the periods indicated:
(Dollars in Thousands)
Three months ended September 30,
--------------------------------
1997 1998
---- ----
Total revenues $ 56,390 $ 134,193
============ ===========
Net income $ 5,025 $ 14,291
============ ===========
Earnings per common share, basic $ .10 $ .28
============ ===========
Earnings per common share, diluted $ .10 $ .28
============ ===========
Weighted average shares outstanding, basic 50,567,134 50,567,134
============ ===========
Weighted average shares outstanding, diluted 50,567,134 50,886,751
============ ===========
Nine months ended September 30,
-------------------------------
1997 1998
------------ ----------
Total revenues $ 174,007 $ 347,789
============ ===========
Net income $ 13,470 $ 37,630
============ ===========
Earnings per common share, basic $ .27 $ .74
============ ===========
Earnings per common share, diluted $ .27 $ .74
============ ===========
Weighted average shares outstanding, basic 50,567,134 50,567,134
============ ===========
Weighted average shares outstanding, diluted 50,567,134 50,765,543
============ ===========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Unaudited Consolidated Financial Statements and the related notes thereto and
the historical financial statements of the Company.
INTRODUCTION
UniCapital was founded in October 1997 to create a national operator
and integrator of equipment leasing and specialty finance businesses serving the
commercial market. UniCapital originates, acquires, sells and services equipment
leases and arranges structured financings in the computer and telecommunications
equipment, large ticket and structured finance, middle market and small ticket
areas of the equipment leasing industry. In addition, one of the Founding
Companies provides lease administration and processing services for certain of
the leases originated by UniCapital and the other operating subsidiaries, as
well as for any securitizations undertaken by the Company. The Company's leases
and structured financing arrangements cover a broad range of equipment,
including aircraft and aircraft equipment, computer and telecommunications
equipment, construction and manufacturing equipment, office equipment, trucks,
printing equipment, car washes, petroleum retail equipment and vending machines.
The Company funds the acquisition or origination of its leases through warehouse
credit facilities or through recourse or non-recourse financing and retains the
leases for its own account or sells the leases to third parties.
The Company derives the majority of its revenue from the sale of
equipment subject to lease, lease payments on leases originated and held by the
Company and gain on sale of leases. The Company also derives revenue from sale
of equipment off-lease and the sale of new equipment, as well as from servicing
fees, late charges and administrative fees. The Company also receives
remarketing fees for the sale of off-lease equipment on behalf of equity
investors in leases originated by the Company and may obtain a premium for sales
prices in excess of an agreed amount.
Cost of operating leases is primarily depreciation on equipment under
operating lease. Cost of equipment sold represents cost of equipment sold
subject to lease, cost of equipment sold through sales-type leases and cost of
equipment sold off-lease.
Interest expense includes interest and fees on the Company's credit
facilities.
Selling, general and administrative costs include salaries and benefits
payable to the Company's personnel, occupancy and other general and
administrative costs.
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HISTORICAL RESULTS OF OPERATIONS
The following table sets forth certain selected financial data for the
Company and its subsidiaries on an historical basis and as a percentage of
revenues for the periods indicated:
Three Nine
months ended months ended
September 30, 1998 September 30, 1998
--------------------- ----------------------
(Dollars in Thousands)
Finance income from direct financing and sales-type leases $ 11,407 8.6% $ 16,975 9.0%
Rental income from operating leases 27,624 20.7 36,518 19.5
Sale of equipment 80,526 60.4 104,446 55.6
Gain on sale of leases 5,487 4.1 15,258 8.1
Fees, commissions and remarketing income 6,546 4.9 8,873 4.7
Interest and other income 1,772 1.3 5,682 3.1
-------- --------- -------- --------
Total revenues 133,362 100.0 187,752 100.0
-------- --------- -------- --------
Cost of operating leases 10,403 7.8 15,452 8.3
Cost of equipment sold 66,347 49.8 84,541 45.0
Interest expense 12,335 9.2 18,758 10.0
Selling, general and administrative 15,329 11.5 40,069 21.3
Goodwill amortization 3,704 2.8 5,115 2.7
-------- --------- -------- --------
Total expenses 108,118 81.1 163,935 87.3
-------- --------- -------- --------
Income from operations 25,244 18.9 23,817 12.7
Equity in income from minority owned affiliates 763 0.6 808 0.4
-------- --------- -------- --------
Income before taxes 26,007 19.5 24,625 13.1
Provision for income taxes 11,439 8.6 18,118 9.6
-------- --------- -------- --------
Net income $ 14,568 10.9% $ 6,507 3.5%
======== ========= ======== ========
Historical Combined Results for the Three Months Ended September 30, 1998.
Rental income from operating leases. Rental income from operating leases was
$27.6 million for the three months ended September 30, 1998. Included in this
amount is monthly rental income from small, middle market and computer and
telecommunications operating leases and commercial aircraft under operating
leases. In addition the Company recorded $2.4 million of contingent rent
associated with the termination of an aircraft lease.
Sale of equipment. Sale of equipment was $80.5 million for the three months
ended September 30, 1998. These sales were primarily comprised of sales of
commercial aircraft and aircraft equipment and sales of computer and
telecommunications equipment through sales-type leases.
Gain on sale of leases. Gain on sale of leases was primarily generated from the
sale of approximately $46.7 million of leases into the Company's commercial
paper facility in September 1998.
Cost of equipment sold. Cost of equipment sold was $66.3 million for the three
months ended September 30, 1998, primarily as a result of sales of commercial
aircraft and aircraft equipment and sales of computer and telecommunications
equipment through sales-type leases.
Selling, general and administrative. Selling, general and administrative
expenses were $15.3 million for the three months ended September 30, 1998. These
expenses included salaries and benefits and occupancy expenses of the Company's
combined headquarters, sales and operations facilities.
Historical Combined Results for the Nine Months Ended September 30, 1998.
Selling, general and administrative. Selling, general and administrative
expenses include a $17.3 million non-cash compensation charge for Common Stock
and options issued to certain stockholders during the three months ended March
31, 1998, representing the excess of the estimated fair value over the
consideration received for the shares at issuance.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information for the three and nine
months ended September 30, 1998 and 1997 includes the results of UniCapital
combined with the Founding Companies and subsequent acquisitions as if the
Mergers and subsequent acquisitions had occurred at the beginning of each
respective period. This pro forma combined financial information includes the
effects of (a) the Mergers; (b) the Offering; (c) the subsequent acquisitions;
(d) certain reductions in salaries, bonuses and benefits to the stockholders and
managers of the Founding Companies and the subsequent acquisitions to which they
have agreed prospectively; (e) amortization of goodwill; (f) the incremental
provision for federal and state income taxes assuming all entities were subject
to federal and state income taxes; and (g) the incremental costs of being a
public company.
The pro forma financial information may not be comparable to and may
not be indicative of the Company's post-Merger and post-subsequent acquisitions
results of operations because the Founding Companies and subsequent acquisitions
were not under common control or management and had different tax and capital
structures during the periods presented.
The following table sets forth the combined results of operations of UniCapital
and its subsidiaries on a pro forma basis for the period indicated:
Three months ended September 30,
--------------------------------
1997 1998
---- ----
(Dollars in Thousands)
Total revenues $56,390 $134,193
------- --------
$ 5,025 $ 14,291
Net income ======= ========
Pro Forma Combined Results for the Three Months Ended September 30, 1998
Compared to the Three Months Ended September 30, 1997.
Total revenues. Total revenues increased 138% to $134.2 million from $56.4
million for the three months ended September 30, 1998 as compared to the three
months ended September 30, 1997. This increase was primarily attributable to a
$12.1 million increase in rental income from operating leases due to increased
originations of operating leases during the period and a $63.3 million increase
in sale of equipment. The increase in sale of equipment is due to additional
aircraft and aircraft equipment sales as well as sales of computer and
telecommunications equipment through sales-type leases. The increase in aircraft
lease originations and sales of aircraft equipment is primarily attributable to
the increased capital available to the Company's big ticket leasing subsidiaries
under the Company's credit facilities. In addition the Company recorded $2.4
million of contingent rent associated with the termination of an aircraft lease.
Net income. Net income increased 186% to $14.3 million from $5.0 million for the
three months ended September 30, 1998 as compared to the three months ended
September 30, 1997. This increase was primarily attributable to an increased
contribution of $7.9 million from sales of computer and telecommunications
equipment through sales-type leases and sales of aircraft and aircraft
equipment.
Nine months ended September 30,
-------------------------------
1997 1998
---- ----
(Dollars in Thousands)
Total revenues $174,007 $347,789
-------- --------
Net income $ 13,470 $ 37,630
======== ========
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14
Pro Forma Combined Results for the Nine Months Ended September 30, 1998 Compared
to the Nine Months Ended September 30, 1997.
Total revenues. Total revenues increased 100% to $347.8 million from $174.0
million for the nine months ended September 30, 1998 as compared to the nine
months ended September 30, 1997. This increase was primarily attributable to a
$136.8 million increase from sales of computer and telecommunications equipment
through sales-type leases and sales of commercial aircraft and aircraft
equipment, due to increased originations during the period. In addition, rental
income from operating leases increased $15.8 million and gain on sale of leases
increased $9.2 million. The increase in aircraft lease originations and sales of
aircraft equipment is primarily attributable to the increased capital available
to the Company's big ticket leasing subsidiaries under the Company's credit
facilities. In addition the Company recorded $2.4 million of contingent rent
associated with the termination of an aircraft lease.
Net income. Net income increased 179% to $37.6 million from $13.5 million for
the nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997. This increase was primarily attributable to an increased
contribution to net income from sales of computer and telecommunications
equipment through sales-type leases and sales of aircraft and aircraft equipment
of $23.4 million.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements in this Form 10-Q that are not strictly historical
statements, such as the Company's or management's intentions, hopes, beliefs,
expectations, strategies, or predictions, are forward-looking statements. Such
statements, or any other variation thereof regarding the Company's future
activities or other future events or conditions within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, are intended to be covered by the safe harbors
for forward-looking statements created thereby. Investors are cautioned that all
forward-looking statements involve risk and uncertainty, including without
limitation, the sufficiency of the Company's working capital, the Company's
ability to renew, replace or extend the Company's credit facilities, the ability
of the Company to realize benefits from consolidating certain general and
administrative functions, to pursue strategic acquisitions and alliances, to
retain management and to implement its focused business strategy, to leverage
consulting services, to secure full-service contracts, to expand client
relationships, to recruit, train and retain personnel successfully, to expand
services and geographic reach and to defend successfully itself in ongoing and
future litigation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is capital intensive and requires access to
substantial short-term and long-term credit to fund new equipment leases.
Historically, the Company's subsidiaries have funded their operations primarily
through sale of leases and non-recourse or recourse borrowings. The Company will
require access to significant additional capital to maintain and expand its
volume of leases funded, as well as to fund any future acquisitions of equipment
leasing and specialty finance companies.
The Company's uses of cash include the origination of equipment leases,
payment of interest expenses, repayment of borrowings under its credit
facilities, operating and administrative expenses, income taxes and capital
expenditures and may include payment of the cash portion of the earn-out
arrangements with the former stockholders of the Founding Companies and the
subsequent acquisitions.
The Company has $1.7 billion in committed credit facilities consisting
of the following: (i) a $300.0 million Corporate Revolving Credit Facility
primarily to finance acquisitions and working capital; (ii) a $300 million Large
Ticket Warehouse Facility primarily to finance the purchase and leasing of
aircraft and engines; (iii) two asset-backed commercial paper facilities
totaling $600.0 million to finance small ticket and middle market leases,
consisting of an Equipment Lease Receivable Purchase Facility and an Equipment
Lease Receivable Finance Facility; and (iv) a $500 million Warehouse Facility
primarily to finance the purchase and acquisition of aircraft.
The Company currently does not have any commitments to make significant
capital expenditures in the next twelve months. The Company believes that funds
generated from operations, together with the Company's $1.7 billion in committed
credit facilities, will be sufficient to finance its current operations and
planned capital expenditure requirements for at least one year. To the extent
that the Company is successful in consummating acquisitions, it may be necessary
to finance such acquisitions through the issuance of additional equity
securities, incurrence of indebtedness or a combination
14
15
of both. At September 30, 1998, the Company had borrowings of $177.2 million
under its credit facilities at an effective annual interest rate of LIBOR plus
an applicable margin as defined in the individual credit facilities. In
addition, at September 30, 1998, the Company had $146.3 million outstanding
under its Equipment Lease Receivable Purchase Facility. The Company was in
compliance with its covenants under the credit facilities at September 30, 1998.
YEAR 2000 COMPLIANCE
As many computer systems and other equipment with embedded chips or
processors (collectively, "Business Systems") use only two digits to represent
the year, they may be unable to process accurately certain data before, during
or after the year 2000. As a result, business and governmental entities are at
risk for possible miscalculations or systems failures causing disruptions in
their business operations. This is commonly known as the Year 2000 ("Y2K")
issue.
The Company and each of its operating subsidiaries are in the process
of implementing a Y2K readiness program with the objective of having all of
their significant Business Systems functioning properly with respect to the Y2K
before January 1, 2000.
The first component of the Y2K readiness program is to identify the
internal Business Systems of the Company and its operating subsidiaries that are
susceptible to system failures or processing errors as a result of the Y2K
issue. This effort is substantially complete with all operating subsidiaries
having identified the Business Systems that may require remediation or
replacement and established priorities for repair or replacement. Those Business
Systems considered most critical to continuing operations are being given the
highest priority.
The second component of the Y2K readiness program involves the actual
remediation and replacement of Business Systems. The Company and its operating
subsidiaries are using both internal and external resources to complete this
process. Business Systems ranked highest in priority have either been remediated
or replaced or scheduled for remediation or replacement. Business Systems
previously identified for retirement and replacement without regard to the Y2K
issue have been evaluated for early replacement with Y2K compliant systems or
programs or, in the alternative, remediation. The Company's objective is to
complete substantially all remediation and replacement on internal Business
Systems by January 1, 1999, and to complete final testing and certification for
Y2K readiness by March 31, 1999.
As part of the Y2K readiness program, significant service providers,
vendors, suppliers, customers and governmental entities that are believed to be
critical to business operations after January 1, 2000, have been identified and
steps are being undertaken in an attempt to reasonably ascertain their stage of
Y2K readiness through questionnaires, interviews, on-site visits and other
available means.
It is currently estimated that the aggregate cost of the Company's Y2K
efforts will be approximately $700 thousand to $1.2 million, of which
approximately $700 thousand has been spent. The costs of remediation are being
expensed as they are incurred and are being funded through operating cash flow.
The costs associated with the replacement of computerized systems, hardware or
equipment (currently estimated to be approximately $500 thousand), substantially
all of which has been capitalized, are included in the above estimates.
The Company's Y2K readiness program is an ongoing process and the
estimates of costs and completion dates for various components of the Y2K
readiness program described above are subject to change. In the event that the
Company's Y2K readiness program is unsuccessful, the Company may, as a
contingency plan, contract with third party lease portfolio service providers to
meet the servicing needs of its daily operations.
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PART II. OTHER INFORMATION
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ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.01 Agreement and Plan of Merger dated as of
July 27, 1998 by and among UniCapital
Corporation, USTEC Acquisition Corp., United
States Turbine Engine Corp., James K. Neff,
Carmit P. Neff and Randall P. Fiorenza.
(Incorporated by reference to the Company's
Report on Form 8-K dated August 11, 1998.)
2.02 Agreement and Plan of Reorganization dated
as of July 27, 1998 by and among UniCapital
Corporation, SFC Acquisition Corp.,
Saddleback Financial Corporation, Warren E.
Emard and Stuart Kennedy. (Incorporated by
reference to the Company's Report on Form
8-K dated August 11, 1998.)
2.03 Agreement and Plan of Reorganization dated
as of July 28, 1998 by and among UniCapital
Corporation, JRI Acquisition Corp., HLC
Financial, Inc., Lawrence P. Ciuffitelli
and Soron Litman. (Incorporated by
reference to the Company's Report on Form
8-K dated August 11, 1998.)
2.04 Agreement and Plan of Reorganization dated
as of August 7, 1998 by and among UniCapital
Corporation, MYC Acquisition Corp., The
Myerson Companies, Inc., Donald A. Myerson
and Virgina Milke. (Incorporated by
reference to the Company's Report on Form
8-K dated August 11, 1998.)
11.01 Statement regarding computation of per share
earnings.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K
On July 14, 1998, the Company filed a Form 8-K to report
the acquisition of Jumbo Jet Leasing LP, an entity which
provides lease financing for the acquisition of commercial
aircraft under Item 5- Other Events.
On August 11, 1998, the Company filed a Form 8-K to report
(i) the acquisition of USTEC Acquisition Corp., a company
engaged in the purchase, refurnishment and sale of
commercial aircraft engines, under Item 2- Acquisitions
and Disposition of Assets; and (ii) the acquisition of
three equipment leasing and related business under Item 5-
Other Events.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNICAPITAL CORPORATION
Date: November 12, 1998 By: /s/ JONATHAN NEW
-----------------------------------
Jonathan New
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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Exhibit Index
2.01 Agreement and Plan of Merger dated as of July 27, 1998 by and among
UniCapital Corporation, USTEC Acquisition Corp., United States Turbine
Engine Corp., James K. Neff, Carmit P. Neff and Randall P. Fiorenza
(Incorporated by reference to the Company's Report on Form 8-K dated
August 11, 1998).
2.02 Agreement and Plan of Reorganization dated as of July 27, 1998 by and
among UniCapital Corporation, SFC Acquisition Corp., Saddleback
Financial Corporation, Warren E. Emard and Stuart Kennedy (Incorporated
by reference to the Company's Report on Form 8-K dated August 11,
1998).
2.03 Agreement and Plan of Reorganization dated as of July 28, 1998 by and
among UniCapital Corporation, JRI Acquisition Corp., HLC Financial,
Inc., Lawrence P. Ciuffitelli and Soron Litman (Incorporated by
reference to the Company's Report on Form 8-K dated August 11, 1998).
2.04 Agreement and Plan of Reorganization dated as of August 7, 1998 by and
among UniCapital Corporation, MYC Acquisition Corp., The Myerson
Companies, Inc., Donald A. Myerson and Virgina Milke (Incorporated by
reference to the Company's Report on Form 8-K dated August 11, 1998).
11.01 Statement regarding computation of per share earnings.
27.01 Financial Data Schedule.
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