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, 1999
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 Office) (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 15, 1999, there were 53,325,524 shares of Common Stock
outstanding.
2
UNICAPITAL CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements.................. 3
Consolidated Balance Sheets.......................................... 3
Consolidated Statements of Income.................................... 4
Consolidated Statements of Stockholders' Equity...................... 5
Consolidated Statements of Cash Flows................................ 6
Notes to Unaudited Consolidated Financial Statements................. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 13
Item 3. Quantitative and Qualitative Disclosures
about Market Risk................................................... 24
PART II. OTHER INFORMATION................................................ 27
Item 1. Legal Proceedings............................................ 27
Item 6. Exhibits and Reports on Form 8-K............................. 27
Signatures................................................................ 28
Statement Regarding Computation of Per Share Earnings..................... 29
Financial Data Table......................................................
2
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,
1999 1998
------------- ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents ........................... $ 40,136 $ 9,772
Restricted cash ..................................... 150,896 --
Accounts receivable, net ............................ 107,047 41,987
Notes receivable .................................... 39,046 9,647
Net investment in finance contracts ................. 750,290 373,113
Equipment under operating leases, net ............... 1,780,436 430,229
Equipment held for sale or lease .................... 223,412 79,897
Investments ......................................... 20,169 29,548
Property and equipment, net ......................... 15,222 8,433
Goodwill, net of accumulated amortization of
$24,012 and $10,119, respectively ................. 616,181 613,646
Deposits and other assets ........................... 48,074 73,251
---------- ----------
Total assets ................................... $3,790,909 $1,669,523
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Recourse debt ....................................... $ 448,900 $ 196,279
Non-recourse and limited recourse debt .............. 2,227,906 471,043
Accounts payable and accrued expenses ............... 125,001 84,967
Security and other deposits ......................... 57,119 24,473
Income taxes payable ................................ -- 6,353
Deferred income taxes ............................... 72,513 66,522
Other liabilities ................................... 12,467 2,598
---------- ----------
Total liabilities .............................. 2,943,906 852,235
---------- ----------
Minority interest ................................... 13,839 --
Commitments and contingencies ....................... -- --
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,
53,293,715 and 51,433,539 shares
issued and outstanding, respectively ........... 53 51
Additional paid-in capital ........................ 807,907 796,960
Stock subscription notes receivable ............... (3,210) (3,443)
Accumulated other comprehensive income ............ 147 1,064
Retained earnings ................................. 28,267 22,656
---------- ----------
Total stockholders' equity ..................... 833,164 817,288
---------- ----------
Total liabilities and stockholders' equity...... $3,790,909 $1,669,523
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
3
4
UNICAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Income from finance contracts........................... $ 19,454 $ 11,407 $ 46,040 $ 16,975
Rental income from operating leases..................... 73,783 27,624 165,487 36,518
Sales of equipment...................................... 69,257 76,117 237,441 99,624
Gain on sale of finance contracts....................... 9,526 5,487 10,703 15,258
Fees, commissions and remarketing income................ 6,426 7,907 20,354 10,265
Interest and other income............................... 8,436 1,772 14,324 5,682
----------- ----------- ----------- -----------
Total revenues..................................... 186,882 130,314 494,349 184,322
----------- ----------- ----------- -----------
Cost of operating leases................................ 33,175 10,403 72,803 15,452
Cost of equipment sold.................................. 67,518 63,299 205,550 81,111
Interest expense........................................ 49,504 12,335 105,014 18,758
Selling, general and administrative expenses............ 26,135 15,329 79,523 40,069
Goodwill amortization................................... 4,652 3,704 13,893 5,115
----------- ----------- ----------- -----------
Total expenses..................................... 180,984 105,070 476,783 160,505
----------- ----------- ----------- -----------
Income from operations.................................. 5,898 25,244 17,566 23,817
Equity in income from minority-owned affiliates......... -- 763 -- 808
----------- ----------- ----------- -----------
Income before taxes..................................... 5,898 26,007 17,566 24,625
Provision for income taxes.............................. 4,009 11,439 11,955 18,118
----------- ----------- ----------- -----------
Net income ............................................. $ 1,889 $ 14,568 $ 5,611 $ 6,507
=========== =========== =========== ===========
Earnings per common share, basic........................ $0.04 $0.29 $ 0.11 $0.24
Earnings per common share, diluted...................... $0.04 $0.29 $ 0.11 $0.23
Weighted average shares outstanding, basic.............. 52,812,661 50,480,166 52,439,186 27,651,839
Weighted average shares outstanding, diluted............ 52,981,562 50,799,783 52,860,744 27,850,248
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
COMMON PAID-IN NOTES COMPREHENSIVE RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL RECEIVABLE INCOME EARNINGS INCOME STOCK TOTAL
----- ---------- ------------ ------------- -------- ------------- --------- --------
Balance at December 31, 1998.... $51 $796,960 $ (3,443) $ 1,064 $22,656 $ -- $817,288
Issuance of 1,850,166 shares of
Common stock in connection
With earnouts for companies
Acquired in 1998............. 2 10,870 -- -- -- -- 10,872
Cancellation of 36,633 shares of
Common stock in connection
With indemnification claims for
Companies acquired in 1998... -- (311) -- -- -- -- (311)
Issuance of 46,643 shares of
Common Stock in connection
With employee stock purchase
Plan......................... -- 252 -- -- -- -- 252
Repurchase of 150,000 shares of
common stock................. -- -- -- -- -- (651) (651)
Issuance of 150,000 shares of
Common Stock in connection
with earnouts for companies
acquired in 1998............... -- 136 -- -- -- 651 787
Payments received on stock
Subscription notes
receivable.................... -- -- 233 -- -- -- 233
Comprehensive income:
Net income.................... -- -- -- -- 5,611 $5,611 -- 5,611
Other comprehensive income:
Change in net unrealized
gain on securities (net of
deferred taxes of $569)... -- -- -- (917) -- (917) -- (917)
------
Total comprehensive income.. $4,694
--- -------- -------- ------- ------- ====== -----
Balance at September 30, 1999... $53 $807,907 $ (3,210) $ 147 $28,267 $ -- $833,164
=== ======== ======== ======= ======= ===== ========
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 NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
Cash flows from operating activities:
Net income ................................................. $ 5,611 $ 6,507
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization........................... 95,495 22,439
Deferred income tax expense............................. 5,991 10,668
Provision for credit losses............................. 5,370 298
Compensation expense related to equity issuances........ -- 17,308
Gain on sale of finance contracts....................... (10,703) (15,258)
Gain on sale of equipment............................... (31,891) (18,513)
Gain on sale of equity interest in subsidiary........... (5,389) --
Equity in net earnings of minority-owned affiliates..... -- (808)
Changes in other assets and liabilities:
Restricted cash.................................... (84,555) --
Notes and accounts receivable...................... (94,188) (44,083)
Deposits and other assets.......................... 14,393 (21,504)
Accounts payable and accrued expenses.............. 55,455 (10,938)
Security and other deposits........................ 32,646 (1,245)
Income taxes payable............................... (6,353) 5,319
Other liabilities.................................. 9,869 (25,364)
----------- ----------
Net cash used in operating activities.............. (8,249) (75,174)
----------- ---------
Cash flows from investing activities:
Capital expenditures........................................ (8,214) (3,844)
Proceeds from sale of finance contracts..................... 235,666 206,572
Proceeds from sale of equipment............................. 153,853 87,773
Proceeds from sale of equity interest in subsidiary......... 19,943 --
Collection of finance contracts, net of
finance contract income earned............................ 153,199 74,382
Investment in finance contracts and
purchases of equipment for sale or lease.................. (2,375,715) (437,071)
Cash paid for acquisitions, net of cash acquired............ -- (393,502)
Cash paid under earnout agreements for companies
acquired in 1998.......................................... (15,421) --
Decrease in investments, net................................ 3,833 885
----------- ---------
Net cash used in investing activities.............. (1,832,856) (464,805)
----------- ---------
Cash flows from financing activities:
Proceeds from recourse debt................................. 758,188 301,712
Repayment of recourse debt.................................. (505,567) (320,366)
Proceeds from non-recourse and limited recourse debt........ 2,163,399 194,428
Repayment of non-recourse and limited recourse debt......... (477,792) (112,027)
Change in restricted cash................................... (66,341) --
Purchase of treasury stock.................................. (651) --
Proceeds received on stock subscription notes receivable.... 233 --
Proceeds from issuance of common stock...................... -- 489,931
Repayment of subordinated debt.............................. -- (2,002)
----------- ---------
Net cash provided by financing activities.......... 1,871,469 551,676
----------- ---------
Increase in cash and cash equivalents....................... 30,364 11,697
Cash and cash equivalents at beginning of period............ 9,772 30
----------- ---------
Cash and cash equivalents at end of period.................. $ 40,136 $ 11,727
=========== =========
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
(CONTINUED)
(UNAUDITED)
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
Supplemental disclosure of cash flow information for
Non-cash items:
Stock subscription notes receivable received as
consideration for issuance of common stock................... $ -- $3,830
======= ======
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 in connection with acquisition of aircraft
and aircraft engines......................................... $89,633 $ --
======= ======
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 originates, acquires, sells and services equipment leases and
arranges structured financing in the computer and telecommunications equipment,
large ticket and structured finance, middle market and small ticket areas of the
equipment leasing industry. In addition, the Company provides lease
administration and processing services, which include the servicing of certain
leases sold to third parties. The Company's leases and structured financing
arrangements cover a broad range of equipment, including aircraft, aircraft
engines and other aircraft equipment, computer and telecommunications equipment,
construction and manufacturing equipment, office equipment, tractor trailers,
printing equipment, car washes, petroleum retail equipment and vending machines.
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 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, 1998 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, 1998 filed with the Securities and
Exchange Commission.
NOTE 3--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,
and compensation expense related to certain equity issuances in 1998.
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NOTE 4--STOCKHOLDERS' EQUITY
During the nine months ended September 30, 1999, the Company issued
1,850,166 shares of Common Stock to the former owners of certain companies
acquired in 1998. These shares were issued in connection with earnout
arrangements and have been recorded as additional purchase price in the amount
of $10.9 million. During the nine months ended September 30 ,1999, the Company
cancelled 36,633 shares of Common Stock in connection with indemnification and
other contractual claims and this cancellation has been recorded as a reduction
of purchase price in the amount of $ 0.3 million. During the nine months ended
September 30, 1999, the Company repurchased 150,000 shares of Common Stock for $
0.6 million, which were reissued to the former owners of certain companies
acquired in 1998, in connection with earnout arrangements and have been recorded
as additional purchase price of $ .8 million.
In 1999, the Company implemented an employee stock purchase plan. During the
nine months ended September 30, 1999, the Company issued 46,643 shares of Common
Stock to employees under the plan.
NOTE 5--EARNINGS PER SHARE
Earnings per share have 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 6--SEGMENT INFORMATION
During the three months ended June 30, 1999, the Company reassessed the
economic characteristics and nature of the products, services and customers of
the "Air Group" and "Aircraft Engine Group". Based upon the similarity of the
nature of the products, services and customers and the economic characteristics
of those subsidiaries, the Company aggregated those former reportable segments
as the "Big Ticket Division", which also includes the Rail Group.
The following tables present selected financial information for the
Company's reporting segments as of and for the three months ended September 30,
1999 and 1998 (in thousands):
THREE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
BIG TICKET FINANCE CREDIT CORPORATE
DIVISION GROUP GROUP DIVISION CONSOLIDATED
----------- ----------- -------- --------- ------------
Income from finance contracts....................... $ 537 $ 12,908 $ 6,009 $ -- $ 19,454
Rental income from operating leases................. 58,716 14,891 176 -- 73,783
Sales of equipment.................................. 34,062 35,195 -- -- 69,257
Gain on sale of finance contracts................... -- 9,365 161 -- 9,526
Fees, commissions and remarketing income............ 293 4,955 1,023 155 6,426
Interest and other income........................... 7,143 862 431 -- 8,436
---------- ---------- -------- -------- ----------
Total revenues................................. 100,751 78,176 7,800 155 186,882
---------- ---------- -------- -------- ----------
Cost of operating leases............................ 23,437 9,707 31 -- 33,175
Cost of equipment sold.............................. 34,428 33,089 1 -- 67,518
Interest expense.................................... 34,470 8,005 2,714 4,315 49,504
Selling, general and administrative expenses........ 4,984 11,454 6,953 2,744 26,135
Goodwill amortization............................... 1,939 2,185 453 75 4,652
---------- ---------- -------- -------- ----------
Total expenses................................. 99,258 64,440 10,152 7,134 180,984
---------- ---------- -------- -------- ----------
Income (loss) before taxes.......................... $ 1,493 $ 13,736 $ (2,352) $ (6,979) $ 5,898
========== ========== ======== ======== ==========
Net investment in finance contracts................. $ 76,204 $ 489,182 $190,043 $ (5,139) $ 750,290
========== ========== ======== ======== ==========
Equipment under operating Leases, net............... $1,683,961 $ 96,407 $ 68 $ -- $1,780,436
========== ========== ======== ======== ==========
Total assets................................... $2,300,212 $1,082,646 $286,028 $122,023 $3,790,909
========== ========== ======== ======== ==========
Total debt..................................... $1,682,120 $ 499,832 $171,186 $323,668 $2,676,806
========== ========== ======== ======== ==========
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THREE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
BIG TICKET FINANCE CREDIT CORPORATE
DIVISION GROUP GROUP DIVISION CONSOLIDATED
---------- --------- -------- --------- ------------
Income from finance contracts...................... $ -- $ 8,905 $ 2,502 $ -- $ 11,407
Rental income from operating leases................ 17,540 9,909 175 -- 27,624
Sales of equipment................................. 45,589 30,528 -- -- 76,117
Gain on sale of finance contracts.................. -- 3,050 2,437 -- 5,487
Fees, commissions and remarketing income........... 686 5,422 895 904 7,907
Interest and other income.......................... 321 816 303 332 1,772
-------- -------- -------- -------- ----------
Total revenues................................ 64,136 58,630 6,312 1,236 130,314
-------- -------- -------- -------- ----------
Cost of operating leases........................... 5,266 5,080 57 -- 10,403
Cost of equipment sold............................. 37,701 25,598 -- -- 63,299
Interest expense................................... 5,058 5,287 982 1,008 12,335
Selling, general and administrative expenses....... 1,957 9,435 2,933 1,004 15,329
Goodwill amortization.............................. 1,065 2,145 415 79 3,704
-------- -------- -------- -------- ----------
Total expenses................................ 51,047 47,545 4,387 2,091 105,070
Equity in income from minority-owned affiliates.... 763 -- -- -- 763
-------- -------- -------- -------- ----------
Income (loss) before taxes......................... $ 13,852 $ 11,085 $ 1,925 $ (855) $ 26,007
======== ======== ======== ======== ==========
Net investment in finance contracts................ $ -- $273,940 $ 63,968 $ 885 $ 338,793
======== ======== ======== ======== ==========
Equipment under operating leases, net.............. $228,671 $ 44,861 $ 385 $ -- $ 273,917
======== ======== ======== ======== ==========
Total assets.................................. $539,639 $745,260 $149,481 $ 27,359 $1,461,739
======== ======== ======== ======== ==========
Total debt.................................... $131,548 $195,211 $ 23,731 $177,160 $ 527,650
======== ======== ======== ======== ==========
The following tables present selected financial information for the
Company's reporting segments for the nine months ended September 30, 1999 and
1998 (in thousands):
NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
BIG TICKET FINANCE CREDIT CORPORATE
DIVISION GROUP GROUP DIVISION CONSOLIDATED
---------- --------- -------- --------- ------------
Income from finance contracts...................... $ 947 $ 32,494 $ 12,599 $ -- $ 46,040
Rental income from operating leases................ 119,507 45,448 532 -- 165,487
Sales of equipment................................. 151,795 85,646 -- -- 237,441
Gain on sale of finance contracts.................. -- 10,542 161 -- 10,703
Fees, commissions and remarketing income........... 1,241 13,705 4,401 1,007 20,354
Interest and other income.......................... 9,092 2,646 1,752 834 14,324
-------- -------- -------- -------- --------
Total revenues................................ 282,582 190,481 19,445 1,841 494,349
-------- -------- -------- -------- --------
Cost of operating leases........................... 43,985 28,680 138 -- 72,803
Cost of equipment sold............................. 127,592 77,957 1 -- 205,550
Interest expense................................... 66,942 20,288 5,477 12,307 105,014
Selling, general and administrative expenses....... 15,273 34,355 21,300 8,595 79,523
Goodwill amortization.............................. 5,778 6,531 1,357 227 13,893
-------- -------- -------- -------- --------
Total expenses................................ 259,570 167,811 28,273 21,129 476,783
-------- -------- -------- -------- --------
Income (loss) before taxes......................... $ 23,012 $ 22,670 $ (8,828) $(19,288) $ 17,566
======== ======== ========= ========= ========
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NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
BIG TICKET FINANCE CREDIT CORPORATE
DIVISION GROUP GROUP DIVISION CONSOLIDATED
---------- --------- -------- --------- ------------
Income from finance contracts...................... $ -- $12,795 $ 4,180 $ -- $ 16,975
Rental income from operating leases................ 21,730 14,560 228 -- 36,518
Sales of equipment................................. 57,507 42,117 -- -- 99,624
Gain on sale of finance contracts.................. -- 5,054 10,204 -- 15,258
Fees, commissions and remarketing income........... 1,705 6,256 1,152 1,152 10,265
Interest and other income.......................... 2,888 1,541 463 790 5,682
------- ------- ------- -------- --------
Total revenues................................ 83,830 82,323 16,227 1,942 184,322
------- ------- ------- -------- --------
Cost of operating leases........................... 7,720 7,649 83 -- 15,452
Cost of equipment sold............................. 48,720 32,391 -- -- 81,111
Interest expense................................... 7,159 8,268 1,541 1,790 18,758
Selling, general and administrative expenses....... 3,403 12,538 3,981 20,147 40,069
Goodwill amortization.............................. 1,332 3,113 570 100 5,115
------- ------- ------- -------- --------
Total expenses................................ 68,334 63,959 6,175 22,037 160,505
Equity in income from minority-owned affiliates.... 808 -- -- -- 808
------- ------- ------- -------- --------
Income (loss) before taxes......................... $16,304 $18,364 $10,052 $(20,095) $ 24,625
======= ======= ======= ======== ========
NOTE 7--UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information for the three and nine months
ended September 30, 1998 includes the results of UniCapital Corporation combined
with the Founding Companies and subsequent acquisitions as if all acquisitions
had occurred at the beginning of the period presented. This unaudited pro forma
financial information includes the effects of (a) the acquisition of the
Founding Companies; (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
agreed contractually as a condition to the acquisitions; (e) amortization of
goodwill; (f) the incremental provision for federal and state income taxes
assuming all entities were subject to corporate federal and state income taxes;
and (g) the incremental costs of being a public company.
The unaudited pro forma financial information may not be comparable to, and
may not be indicative of, the Company's results of operations subsequent to the
acquisitions of the Founding Companies and subsequent acquisitions 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.
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
(IN THOUSANDS, (IN THOUSANDS,
EXCEPT SHARE DATA) EXCEPT SHARE DATA)
Total revenues................................. $131,145 $342,925
Income before taxes............................ $ 25,114 $ 66,064
Net income..................................... $ 13,850 $ 35,796
Earnings per common share, basic............... $ 0.27 $ 0.71
Earnings per common share, diluted............. $ 0.27 $ 0.71
NOTE 8--NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities", which is effective for
fiscal years beginning after September 15, 2000. SFAS 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities
and it requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of such derivatives
will vary based on the intended use of the derivative. The Company plans to
adopt SFAS 133 beginning in the year 2001. Adoption of SFAS 133 is not expected
to have a significant impact on the Company's results of operations, cash flows
or financial position.
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NOTE 9--SALES OF FINANCE CONTRACTS
The Company transfers finance contracts to third parties in the normal
course of business, which 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 additionally retain servicing 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 months ending September 30,1999, the Company transferred
finance contracts with a net book value of $95.6 million to third parties in
sales transactions, received proceeds of $ 105.9 million, including accounts
receivable of $59.5 million and recognized a gain of $8.9 million.
During the three months ending September 30, 1999, in connection with a
securitization transaction, the Company transferred finance contracts with a net
book value of $ 162.7 million and recognized a gain of $ .5 million. Under this
transaction the Company received cash of $149.7 million and recorded retained
interests and certificates of $12.5 million.
NOTE 10--GAIN ON SALE OF EQUITY INTEREST IN SUBSIDIARY
Aircraft Finance Trust, which was formed on April 13, 1999, was originally
owned by UniCapital AFT-I, Inc. (51% equity interest) and UniCapital AFT-II,
Inc. (49% equity interest) each of which is a wholly-owned subsidiary of the
UniCapital Corporation. During the third quarter, UniCapital AFT-I, Inc. sold a
30.0% equity interest in Aircraft Finance Trust to two financial services
companies for proceeds of $19.9 million and recognized a gain of $5.4 million.
On September 30, 1999, the Company entered into an agreement with a United
States corporation to sell up to an additional 21% of its equity interest in
Aircraft Finance Trust.
At September 30, 1999, and for the three and nine months then ended, the
Company accounted for Aircraft Finance Trust as a consolidated subsidiary.
NOTE 11--RESTRICTED CASH
At September 30, 1999, the Company reported $150.9 million of restricted
cash of which $66.4 million relates to reserve accounts established in September
1999 under securitization and other credit facilities.
12
13
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, 1998 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. We intend to integrate the businesses,
operations and administrative functions of the businesses that we acquired over
a period of time. Integration may present opportunities to reduce costs through
the elimination of duplicate functions, as contemplated by our expense-reduction
program, and through economies of scale, and may necessitate additional costs
and expenditures for corporate management and administration, corporate expenses
related to being a public company, systems integration, employee relocation and
severance and facilities expansion. These various costs and possible
cost-savings make comparison of future operating results with historical
operating results difficult.
On October 25, 1999 we announced our intention to implement, in the fourth
quarter, Phase I of an expense-reduction program. We expect that Phase I of the
expense-reduction program will result in $4.5 million to $5.0 million of
annualized savings in 2000, before any one-time charges. We are currently
planning Phase II of our expense-reduction program. The program involves the
elimination of duplicative expenses and non-core activities as well as other
possible expense reductions. There can be no assurance that these expense
reductions will result in an increase in the Company's pre-tax income. In
addition, unforeseen delays and expenses may affect our ability to implement our
expense reduction program in a timely manner or to realize savings therefrom in
2000 and thereafter.
We derive the majority of our 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, we
derive revenue from servicing fees, late charges and administrative fees. We
also receive remarketing fees for the sale of off-lease equipment on behalf of
equity investors in leases and we may obtain a premium for sales prices in
excess of an agreed-upon amount.
We intend to retain on-balance-sheet leases that we transfer to our
commercial paper credit facility, as well as leases to be transferred in
connection with future securitizations, rather than account for such
transactions through gain-on-sale accounting. We intend to continue our core
business practice of selling certain leases to third parties on a whole-loan
basis. These sales are typically non-recourse, and we generally maintain no
retained interest in those leases. In addition, to the extent we repurchase or
otherwise transfer out of our commercial paper credit facility leases that we
originally accounted for under gain on sale accounting, we intend to account for
any leases substituted therefor on a gain on sale basis.
On October 29, 1999 we announced our intention to develop a program that
would expedite our ability to turnover assets and thereby seek to improve our
liquidity and long-term profitability. Unforeseen delays and expenses and
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 such a program or to improve our
liquidity and long-term profitability therefrom.
During the quarter ended September 30, 1999, we experienced a decline in our
aircraft engine sales. We believe that there are two primary drivers of the
current unfavorable market conditions for the sale of certain engine types: (1)
the Asian and South American long haul markets have not yet reached full
economic recovery and (2) many older model 747 aircraft that use this engine
type will not be Stage 3 noise abatement compliant after December 31, 1999.
Those engine types can be rendered compliant through conversion processes.
13
14
On September 30, 1999, the Company sold 30% of its equity interest in
Aircraft Finance Trust. As of this date, we have also entered into an agreement
to sell up to an additional 21% of our equity interest. On October 29, 1999, the
Company sold 5% of its equity interest in Aircraft Finance Trust pursuant to
this agreement. As a result of these sales, we will present, in our future
consolidated results of operations, 35% of Aircraft Finance Trust's results
represented by outside interests as equity in minority interest, which will
reduce net income. Upon any sale or sales by the Company aggregating over 50% of
its equity interest in Aircraft Finance Trust, the officer of the Company that
presently serves as one of the three controlling trustees of Aircraft Finance
Trust may resign and a replacement trustee would be appointed by a majority of
the holders of the equity interests in Aircraft Finance Trust. Additionally, any
sale or sales aggregating over 50% of our equity interest in Aircraft Finance
Trust may result in deconsolidation.
We expect to fund the majority of the leases that we originate through
credit facilities. We may also sell leases to third parties or refinance them
through a securitization program or other structured finance products. On
September 9, 1999, we completed a $365.7 million term securitization
transaction. Should we be unable to sell or securitize leases going forward with
satisfactory fixed rates within a reasonable period of time after funding, our
operating margins could be adversely affected by any increase in interest rates
to the extent that we have not effectively hedged our interest rate exposure on
variable rate debt. Moreover, increases in interest rates which cause us to
raise the implicit interest rate charged to our customers could decrease demand
for our lease and other financial products.
The leases we acquire or originate generally are noncancelable for a
specified term during which we generally receive scheduled payments sufficient,
in the aggregate, to cover our borrowing costs and, when aggregated with the
residual, the costs of the underlying equipment. The noncancelable term of each
lease is generally equal to or less than the equipment's estimated economic
life. Initial terms of the leases in our portfolio generally range from 12 to 84
months. Certain of the leases we acquire or originate carry a $1.00 buy-out
provision upon maturity of the lease.
Our leases are collateralized by the equipment leased as well as, in some
cases, a personal guarantee provided by a principal of the lessee. We manage
credit risk through diversifying our business customer base, geographic location
of lessees and the type of business equipment leased. We believe that prepayment
risks are mitigated by the noncancelable nature of the majority of our leases.
14
15
HISTORICAL RESULTS OF OPERATIONS
Historical results of operations for the three and nine months ended
September 30, 1998 principally reflect combined results for the period from the
Company's commencement of operations in May 1998, in addition to certain
organizational costs and compensation charges incurred prior to May 1998. As a
result, historical results of operations for the three and nine months ended
September 30, 1999 and 1998 are not comparable.
The following tables set forth selected financial data for the Company on an
historical basis and as a percentage of revenues for the periods indicated.
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1999 1998
----------------- ------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Income from finance contracts....................... $ 19,454 10.4% $ 11,407 8.8%
Rental income from operating leases................. 73,783 39.5 27,624 21.2
Sales of equipment.................................. 69,257 37.1 76,117 58.4
Gain on sale of finance contracts................... 9,526 5.1 5,487 4.2
Fees, commissions and remarketing income............ 6,426 3.4 7,907 6.1
Interest and other income........................... 8,436 4.5 1,772 1.3
-------- ----- -------- -----
Total revenues.................................. 186,882 100.0 130,314 100.0
-------- ----- -------- -----
Cost of operating leases............................ 33,175 17.8 10,403 8.0
Cost of equipment sold.............................. 67,518 36.1 63,299 48.6
Interest expense.................................... 49,504 26.5 12,335 9.5
Selling, general and administrative expenses........ 26,135 14.0 15,329 11.8
Goodwill amortization............................... 4,652 2.5 3,704 2.8
-------- ----- -------- -----
Total expenses.................................. 180,984 96.9 105,070 80.7
-------- ----- -------- -----
Income from operations.............................. 5,898 3.1 25,244 19.3
Equity in income from minority-owned affiliates..... -- 0.0 763 0.6
-------- ----- -------- -----
Income before taxes................................. 5,898 3.1 26,007 19.9
Provision for income taxes.......................... 4,009 2.1 11,439 8.8
-------- ----- -------- -----
Net income.......................................... $ 1,889 1.0% $ 14,568 11.1%
======== ====== ======== =====
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1999 1998
----------------- -----------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Income from finance contracts....................... $ 46,040 9.3% $16,975 9.2%
Rental income from operating leases................. 165,487 33.5 36,518 19.8
Sales of equipment.................................. 237,441 48.0 99,624 54.0
Gain on sale of finance contracts................... 10,703 2.2 15,258 8.3
Fees, commissions and remarketing income............ 20,354 4.1 10,265 5.6
Interest and other income........................... 14,324 2.9 5,682 3.1
--------- ----- ------- -----
Total revenues................................. 494,349 100.0 184,322 100.0
--------- ----- ------- -----
Cost of operating leases............................ 72,803 14.7 15,452 8.4
Cost of equipment sold.............................. 205,550 41.6 81,111 44.0
Interest expense.................................... 105,014 21.2 18,758 10.2
Selling, general and administrative expenses........ 79,523 16.1 40,069 21.7
Goodwill amortization............................... 13,893 2.8 5,115 2.8
--------- ----- ------- -----
Total expenses................................. 476,783 96.4 160,505 87.1
--------- ----- ------- -----
Income from operations.............................. 17,566 3.6 23,817 12.9
Equity in income from minority-owned affiliates..... -- 0.0 808 0.4
--------- ----- ------- -----
Income before taxes................................. 17,566 3.6 24,625 13.3
Provision for income taxes.......................... 11,955 2.4 18,118 9.8
--------- ----- ------- -----
Net income.......................................... $ 5,611 1.2% $ 6,507 3.5%
========= ===== ======= =====
15
16
The following tables set forth selected financial data for the Company on an
historical basis by segment for the three months ended September 30, 1999 and
1998.
THREE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
BIG TICKET FINANCE CREDIT CORPORATE
DIVISION GROUP GROUP DIVISION CONSOLIDATED
---------- --------- -------- --------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Income from finance contracts..................... $ 537 $12,908 $ 6,009 $ -- $ 19,454
Rental income from operating leases............... 58,716 14,891 176 -- 73,783
Sales of equipment................................ 34,062 35,195 -- -- 69,257
Gain on sale of finance contracts................. -- 9,365 161 -- 9,526
Fees, commissions and remarketing income.......... 293 4,955 1,023 155 6,426
Interest and other income......................... 7,143 862 431 -- 8,436
-------- ------- ------- ------- --------
Total revenues............................... 100,751 78,176 7,800 155 186,882
-------- ------- ------- ------- --------
Cost of operating leases.......................... 23,437 9,707 31 -- 33,175
Cost of equipment sold............................ 34,428 33,089 1 -- 67,518
Interest expense.................................. 34,470 8,005 2,714 4,315 49,504
Selling, general and administrative expenses...... 4,984 11,454 6,953 2,744 26,135
Goodwill amortization............................. 1,939 2,185 453 75 4,652
-------- ------- ------- ------- --------
Total expenses............................... 99,258 64,440 10,152 7,134 180,984
-------- ------- ------- ------- --------
Income (loss) before taxes........................ $ 1,493 $13,736 $(2,352) $(6,979) $ 5,898
======== ======= ======== ======== ========
THREE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
BIG TICKET FINANCE CREDIT CORPORATE
DIVISION GROUP GROUP DIVISION CONSOLIDATED
---------- --------- -------- --------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Income from finance contracts..................... $ -- $ 8,905 $2,502 $ -- $ 11,407
Rental income from operating leases............... 17,540 9,909 175 -- 27,624
Sales of equipment................................ 45,589 30,528 -- -- 76,117
Gain on sale of finance contracts................. -- 3,050 2,437 -- 5,487
Fees, commissions and remarketing income.......... 686 5,422 895 904 7,907
Interest and other income......................... 321 816 303 332 1,772
------- ------- ------ ------ --------
Total revenues................................ 64,136 58,630 6,312 1,236 130,314
------- ------- ------ ------ --------
Cost of operating leases.......................... 5,266 5,080 57 -- 10,403
Cost of equipment sold............................ 37,701 25,598 -- -- 63,299
Interest expense.................................. 5,058 5,287 982 1,008 12,335
Selling, general and administrative expenses...... 1,957 9,435 2,933 1,004 15,329
Goodwill amortization............................. 1,065 2,145 415 79 3,704
------- ------- ------ ------ --------
Total expenses................................ 51,047 47,545 4,387 2,091 105,070
Equity in income from minority-owned affiliates... 763 -- -- -- 763
------- ------- ------ ------ --------
Income (loss) before taxes........................ $13,852 $11,085 $1,925 $ (855) $ 26,007
======= ======= ====== ====== ========
16
17
The following tables set forth selected financial data for the Company on an
historical basis by segment for the nine months ended September 30, 1999 and
1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
BIG TICKET FINANCE CREDIT CORPORATE
DIVISION GROUP GROUP DIVISION CONSOLIDATED
---------- --------- -------- --------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Income from finance contracts..................... $ 947 $ 32,494 $12,599 $ -- $ 46,040
Rental income from operating leases............... 119,507 45,448 532 -- 165,487
Sales of equipment................................ 151,795 85,646 -- -- 237,441
Gain on sale of finance contracts................. -- 10,542 161 -- 10,703
Fees, commissions and remarketing income.......... 1,241 13,705 4,401 1,007 20,354
Interest and other income......................... 9,092 2,646 1,752 834 14,324
-------- -------- ------- -------- --------
Total revenues................................ 282,582 190,481 19,445 1,841 494,349
-------- -------- ------- -------- --------
Cost of operating leases.......................... 43,985 28,680 138 -- 72,803
Cost of equipment sold............................ 127,592 77,957 1 -- 205,550
Interest expense.................................. 66,942 20,288 5,477 12,307 105,014
Selling, general and administrative expenses...... 15,273 34,355 21,300 8,595 79,523
Goodwill amortization............................. 5,778 6,531 1,357 227 13,893
-------- -------- ------- -------- --------
Total expenses................................ 259,570 167,811 28,273 21,129 476,783
-------- -------- ------- -------- --------
Income (loss) before taxes........................ $ 23,012 $ 22,670 $(8,828) $(19,288) $ 17,566
======== ======== ======= ======== ========
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------
TECHNOLOGY
AND BUSINESS
BIG TICKET FINANCE CREDIT CORPORATE
DIVISION GROUP GROUP DIVISION CONSOLIDATED
---------- --------- -------- --------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Income from finance contracts..................... $ -- $12,795 $ 4,180 $ -- $ 16,975
Rental income from operating leases............... 21,730 14,560 228 -- 36,518
Sales of equipment................................ 57,507 42,117 -- -- 99,624
Gain on sale of finance contracts................. -- 5,054 10,204 -- 15,258
Fees, commissions and remarketing income.......... 1,705 6,256 1,152 1,152 10,265
Interest and other income......................... 2,888 1,541 463 790 5,682
------- ------- ------- -------- --------
Total revenues............................... 83,830 82,323 16,227 1,942 184,322
------- ------- ------- -------- --------
Cost of operating leases.......................... 7,720 7,649 83 -- 15,452
Cost of equipment sold............................ 48,720 32,391 -- -- 81,111
Interest expense.................................. 7,159 8,268 1,541 1,790 18,758
Selling, general and administrative expenses...... 3,403 12,538 3,981 20,147 40,069
Goodwill amortization............................. 1,332 3,113 570 100 5,115
------- ------- ------ -------- --------
Total expenses............................... 68,334 63,959 6,175 22,037 160,505
Equity in income from minority-owned affiliates... 808 -- -- -- 808
------- ------- ------- -------- --------
Income (loss) before taxes........................ $16,304 $18,364 $10,052 $(20,095) $ 24,625
======= ======= ======= ======== ========
UNAUDITED PRO FORMA AND HISTORICAL RESULTS OF OPERATIONS
The unaudited pro forma financial information for the three and nine months
ended September 30, 1998 includes the results of the Company as if all
acquisitions had occurred at the beginning of the period presented. This
unaudited pro forma financial information includes the effects of (a) the
acquisition of the Founding Companies; (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 agreed contractually as a condition to the
acquisitions; (e) amortization of goodwill; (f) the incremental provision for
federal and state income taxes assuming all entities were subject to corporate
federal and state income taxes; and (g) the incremental costs of being a public
company.
The unaudited pro forma financial information may not be comparable to and
may not be indicative of the Company's results of operations subsequent to the
acquisitions 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.
17
18
The following table sets forth selected financial data for the Company and
its subsidiaries on a historical and a pro forma basis and as a percentage of
revenues for the periods indicated.
HISTORICAL PRO FORMA
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Income from finance contracts..................... $ 19,454 10.4% $ 11,407 8.7%
Rental income from operating leases............... 73,783 39.5 27,644 21.1
Sales of equipment................................ 69,257 37.1 76,117 58.0
Gain on sale of finance contracts................. 9,526 5.1 5,824 4.5
Fees, commissions and remarketing income.......... 6,426 3.4 8,324 6.3
Interest and other income......................... 8,436 4.5 1,829 1.4
-------- ----- -------- -----
Total revenues............................... 186,882 100.0 131,145 100.0
-------- ----- -------- -----
Cost of operating leases.......................... 33,175 17.8 10,403 7.9
Cost of equipment sold............................ 67,518 36.1 63,299 48.3
Interest expense.................................. 49,504 26.5 12,416 9.5
Selling, general and administrative expenses...... 26,135 14.0 16,145 12.3
Goodwill amortization............................. 4,652 2.5 4,531 3.5
-------- ----- -------- -----
Total expenses............................... 180,984 96.9 106,794 81.5
-------- ----- -------- -----
Income from operations............................ 5,898 3.1 24,351 18.5
Equity in income from minority-owned Affiliates... -- 0.0 763 .6
-------- ----- -------- -----
Income before taxes............................... 5,898 3.1 25,114 19.1
Provision for income taxes........................ 4,009 2.1 11,264 8.6
-------- ----- -------- -----
Net income........................................ $ 1,889 1.0% $ 13,850 10.5%
======== ===== ======== =====
HISTORICAL RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THE PRO FORMA COMBINED RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
Income from finance contracts. Income from finance contracts for the three
months ended September 30, 1999 increased by $8.1 million, or 70.5%, to $19.5
million from $11.4 million for the pro forma three months ended September 30,
1998. This increase is primarily due to an increase in the direct financing and
sales-type lease portfolios of the Technology and Finance Group and Business
Credit Group attributable to increased retained originations during 1999
resulting from the Company's decision to retain, for its own portfolio, a
greater portion of the leases that it originates rather than sell such leases in
transactions qualifying for gain-on-sale accounting treatment.
Rental income from operating leases. Rental income from operating leases for
the three months ended September 30, 1999 increased by $46.2 million, or 166.9%,
to $73.8 million from $27.6 million for the pro forma three months ended
September 30, 1998. This increase is primarily due to a $1.5 billion increase in
the Big Ticket Division's portfolio of equipment under operating lease and a
$51.5 million increase in the Technology and Finance Group's portfolio of
equipment under operating lease.
Sales of equipment. Sales of equipment for the three months ended September
30, 1999 decreased by $6.8 million, or 9.0%, to $69.3 million from $76.1 million
for the pro forma three months ended September 30, 1998. This decrease is
primarily due to the decrease in sales of aircraft engines. The Company expects
the current unfavorable market conditions for the sale of aircraft engines to
continue into the fourth quarter.
Gain on sale of finance contracts. Gain on sale of finance contracts for the
three months ended September 30, 1999 increased by $3.7 million, or 63.6%, to
$9.5 million from $5.8 million for the pro forma three months ended September
30, 1998. This increase is primarily attributable to an increased volume of
leases sold in connection with two third party sales transactions.
Fees, commissions and remarketing income. Fees, commissions and remarketing
income for the three months ended September 30, 1999 decreased by $1.9 million,
or 22.8%, to $6.4 million from $8.3 million for the pro forma three months ended
September 30, 1998. This decrease is primarily due to a decrease in broker fee
income in the Business Credit Group resulting primarily from the Company's
decision to retain, for its own portfolio, a greater portion of the leases that
it originates and a decrease in the remarketing income in the Technology and
Finance Group due to a significant remarketing transaction that occurred in the
third quarter of 1998.
18
19
Interest and other income. Interest and other income for the three months
ended September 30, 1999 increased by $6.6 million, or 361.2%, to $8.4 million
from $1.8 million for the pro forma three months ended September 30, 1998. This
increase is primarily due to a $5.4 million gain recognized on the sale of 30.0%
of the Company's equity interest in Aircraft Finance Trust.
Cost of operating leases. Cost of operating leases for the three months
ended September 30, 1999 increased by $22.8 million, or 218.9%, to $33.2 million
from $10.4 million for the pro forma three months ended September 30, 1998. This
increase is primarily due to the increase in depreciation resulting from the
addition of $1.5 billion of equipment to the Big Ticket Division's portfolio of
equipment under operating lease and from the addition of $51.5 million of
equipment to the Technology and Finance Group's portfolio of equipment under
operating lease.
Cost of equipment sold. Cost of equipment sold for the three months ended
September 30, 1999 increased by $4.2 million, or 6.7%, to $67.5 million from
$63.3 million for the pro forma three months ended September 30, 1998. This
increase is primarily due to increased sales and lower margins in one of the
companies in the Technology and Finance Group and increased costs and lower
margins related to portfolio management sales of Stage 2 and other older
aircraft in the Big Ticket Division.
Interest expense. Interest expense for the three months ended September 30,
1999 increased by $37.1 million, or 298.7%, to $49.5 million from $12.4 million
for the pro forma three months ended September 30, 1998. This increase is
primarily due to increased borrowings outstanding to finance the growth of the
Company's lease and equipment portfolio, including the $1.5 billion increase in
equipment under operating lease in the Big Ticket Division.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended September 30, 1999 increased
by $10.0 million, or 61.9%, to $26.1 million from $16.1 million for the pro
forma three months ended September 30, 1998. This increase is primarily due to
costs associated with the growth in the volume of our lease originations and
assets under management, as well as costs that are being incurred in relation to
systems implementation and integration of the Company's subsidiaries.
Equity in income from minority-owned affiliates. During 1999, the Company
liquidated its investments in minority-owned affiliates.
The following table sets forth selected financial data for the Company and
its subsidiaries on a historical and a pro forma basis and as a percentage of
revenues for the periods indicated.
HISTORICAL PRO FORMA
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Income from finance contracts......................... $ 46,040 9.3% $ 36,593 10.7%
Rental income from operating leases................... 165,487 33.5 56,864 16.6
Sales of equipment.................................... 237,441 48.0 196,774 57.4
Gain on sale of finance contracts..................... 10,703 2.2 20,876 6.1
Fees, commissions and remarketing income.............. 20,354 4.1 23,072 6.7
Interest and other income............................. 14,324 2.9 8,746 2.5
-------- ----- -------- -----
Total revenues................................... 494,349 100.0 342,925 100.0
-------- ----- -------- -----
Cost of operating leases.............................. 72,803 14.7 28,375 8.3
Cost of equipment sold................................ 205,550 41.6 154,582 45.1
Interest expense...................................... 105,014 21.2 32,871 9.6
Selling, general and administrative expenses.......... 79,523 16.1 51,788 15.1
Goodwill amortization................................. 13,893 2.8 13,591 3.9
-------- ----- -------- -----
Total expenses................................... 476,783 96.4 281,207 82.0
-------- ----- -------- -----
Income from operations................................ 17,566 3.6 61,718 18.0
Equity in income from minority-owned ffiliates........ -- 0.0 4,346 1.3
-------- ----- -------- -----
Income before taxes................................... 17,566 3.6 66,064 19.3
Provision for income taxes............................ 11,955 2.4 30,268 8.8
-------- ----- -------- -----
Net income............................................ $ 5,611 1.2% $ 35,796 10.5%
======== ===== ======== =====
19
20
HISTORICAL RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THE PRO FORMA COMBINED RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Income from finance contracts. Income from finance contracts for the nine
months ended September 30, 1999 increased by $9.4 million, or 25.8%, to $46.0
million from $36.6 million for the pro forma nine months ended September 30,
1998. This increase is primarily due to an increase in the direct financing and
sales- type lease portfolios of the Technology and Finance Group and Business
Credit Group attributable to increased retained originations during the nine
months ending September 30, 1999 resulting from the Company's decision to
retain, for its own portfolio, a greater portion of the leases that it
originates rather than to sell such leases in transactions qualifying for
gain-on-sale accounting treatment.
Rental income from operating leases. Rental income from operating leases for
the nine months ended September 30, 1999 increased by $108.6 million, or 191.0%,
to $165.5 million from $56.9 million for the pro forma nine months ended
September 30, 1998. This increase is primarily due to a $1.5 billion increase in
the Big Ticket Division's portfolio of equipment under operating lease and a
$51.5 million increase in the Technology and Finance Group's portfolio of
equipment under operating lease.
Sales of equipment. Sales of equipment for the nine months ended September
30, 1999 increased by $40.6 million, or 20.7%, to $237.4 million from $196.8
million for the pro forma nine months ended September 30, 1998. This increase is
primarily due to an increase in sales of aircraft engines in the first and
second quarters, partially offset by a decrease in sales of aircraft engines in
the third quarter, and portfolio management sales of aircraft by the Big Ticket
Division.
Gain on sale of finance contracts. Gain on sale of finance contracts for the
nine months ended September 30, 1999 decreased by $10.2 million, or 48.7%, to
$10.7 million from $20.9 million for the pro forma nine months ended September
30, 1998. This decrease is due to the Company's decision to retain, for its own
portfolio, a greater portion of the leases it originates, rather than sell such
leases in transactions qualifying for gain-on-sale accounting treatment.
Fees, commissions and remarketing income. Fees, commissions and remarketing
income for the nine months ended September 30, 1999 decreased by $2.7 million,
or 11.8%, to $20.4 million from $23.1 million for the pro forma nine months
ended September 30, 1998. This decrease is primarily due to a $1.9 million
decrease in broker fee income in the Business Credit Group resulting primarily
from the Company's decision to retain, for its own portfolio, a greater portion
of the leases that it originates and a $ .8 million reduction in commission
income on municipal lease transactions in the Technology and Finance Group.
Interest and other income. Interest and other income for the nine months
ended September 30, 1999 increased by $5.6 million, or 63.8%, to $14.3 million
from $8.7 million for the pro forma nine months ended September 30, 1998. This
increase is primarily due to a $5.4 million gain from the sale of 30.0% of the
Company's equity interest in Aircraft Finance Trust.
Cost of operating leases. Cost of operating leases for the nine months ended
September 30, 1999 increased by $44.4 million, or 156.8%, to $72.8 million from
$28.4 million for the pro forma nine months ended September 30, 1998. This
increase is primarily due to the increase in depreciation resulting from the
addition of $1.5 billion of equipment to the Big Ticket Division's portfolio of
equipment under operating lease and from the addition of $51.5 million of
equipment to the Technology and Finance Group's portfolio of equipment under
operating lease.
Cost of equipment sold. Cost of equipment sold for the nine months ended
September 30, 1999 increased by $51.0 million, or 33.0%, to $205.6 million from
$154.6 million for the pro forma nine months ended September 30, 1998. This
increase is primarily due to the increased sales of aircraft engines in the
first and second quarters and increased costs and lower margins related to
portfolio management sales of Stage 2 and other older aircraft in the Big Ticket
Division as well as increased costs and lower margins in one of the companies in
the Technology and Finance Group.
Interest expense. Interest expense for the nine months ended September 30,
1999 increased by $72.1 million, or 219.5%, to $105.0 million from $32.9 million
for the pro forma nine months ended September 30, 1998. This increase is
primarily due to increased borrowings outstanding to finance the growth of the
Company's lease and equipment portfolio, including the $1.5 billion increase in
equipment under operating lease in the Big Ticket Division.
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Selling, general and administrative expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1999 increased
by $27.7 million, or 53.6%, to $79.5 million from $51.8 million for the pro
forma nine months ended September 30, 1998. This increase is primarily due to
costs associated with the growth in the volume of our lease originations and
assets under management, as well as costs that are being incurred in relation to
systems implementation and integration of the Company's subsidiaries.
Equity in income from minority-owned affiliates. During 1999, the Company
liquidated its investments in minority-owned affiliates.
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and requires access to substantial
short-term and long-term credit to fund new equipment leases and the purchase of
equipment. We will continue to require access to significant additional capital
to maintain and expand the volume of leases that we fund, as well as to fund any
possible future acquisitions of lease portfolios or leasing and specialty
finance companies.
Our uses of cash include the origination of equipment leases and the
purchase of equipment, payment of interest expenses, repayment of borrowings
under our 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 certain of the acquired
companies, as well as any possible future acquisitions of lease portfolios or
leasing and specialty finance companies.
We believe that borrowings from amounts available under our credit
facilities, funds generated from future operations, and possible future sources
of financing, for which we are currently negotiating, will be sufficient to
finance our current operations and planned capital expenditure requirements for
the next twelve months, assuming the consummation of one or more such possible
future sources of financing and the satisfactory renewal, modification or
replacement of our credit facilities. If we are unable to consummate one or more
such possible future sources of financing, or to renew, modify or replace our
credit facilities prior to their expiration with facilities of like amount, or
if we are unable to implement other alternative strategies, then we may have
insufficient cash to continue the current rate of growth of our business or
otherwise to continue to operate our business as it is now conducted, and may be
unable, in whole or in part, to fund new equipment leases or the purchase of
equipment, fund the acquisition of lease portfolios, fund the purchase price of
additional leasing or specialty finance companies or fund other working capital
requirements. Accordingly, in such circumstances, we would have to make choices
among the various demands upon our liquidity, and our business, financial
condition and results of operations could be materially and adversely affected.
From time-to-time we engage in discussions and conduct analyses with respect
to possible acquisitions of equipment, lease portfolios and leasing and
specialty finance companies, some of which may lead to and include the
negotiation and execution of letters of intent. In order to consummate these
transactions, we would need to issue additional equity securities, incur
additional indebtedness or obtain additional sources of financing, and if we
were unable to do so, our business, financial condition and results of
operations could be materially and adversely affected.
CREDIT FACILITIES
We have $1.5 billion in committed credit, through the following facilities:
(i) We have a $300.0 million Corporate Revolving Credit Facility, primarily
to finance acquisitions and working capital. As of September 30, 1999, we had
borrowings of $274.0 million outstanding, with a weighted average interest rate
of 8.03%. This facility, which was entered into in June 1998, has a three-year
term. We are currently negotiating with our lenders to modify certain provisions
of the Corporate Revolving Credit Facility, including financial covenants which
are required to be amended as a result of our decision to retain a greater
portion of the leases that we originate or acquire for our portfolio rather than
sell such leases in transactions qualifying for gain-on-sale accounting
treatment. As of September 30, 1999, we were in violation of two of our
financial covenants. Our lenders have agreed to waive, during the period we are
negotiating with them, any violation of these financial covenants. We anticipate
that these financial covenants will be modified on or before November 30, 1999.
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(ii) We have two asset-backed commercial paper facilities totaling $600.0
million, which decreased to $400.0 million as of October 1, 1999, to finance
small ticket and middle market leases, consisting of an Equipment Lease
Receivable Purchase Facility and an Equipment Lease Receivable Financing
Facility. As of September 30, 1999, $156.4 million was outstanding under the
Purchase Facility and $165.5 million was outstanding under the Finance Facility,
with a weighted average interest rate of 6.15%. The Purchase Facility and the
Financing Facility were renewed on August 16, 1999 and expire on August 14,
2000.
(iii) We also have a $600.0 million revolving credit facility to finance the
purchase and leasing of aircraft, which was increased from $500.0 million on
August 16, 1999. As of September 30, 1999 we had borrowings outstanding of
$311.1 million, with a weighted average interest rate of 8.63%. This facility,
which was entered into in October 1998, has a 364-day term. The facility has
been temporarily extended while renewal terms are being negotiated. We expect
this facility to be renewed for up to a 3 year term on or before November 30,
1999. The credit facility permits us to borrow up to a specified percentage of
the value of the collateral. On March 26, 1999, we amended this credit facility.
The amendment increased this percentage and provides for an increase in the
applicable interest rate in the event that we borrow in excess of the amount
that would have been permitted prior to the amendment.
On April 30, 1999 we entered into a loan arrangement in the amount of $40.5
million, to fund the purchase of the equity interest in the portfolio of 36
commercial aircraft that we acquired from GE Capital Aviation Services on May 5,
1999 and for general corporate purposes. The loan has an interest rate of LIBOR
plus 400 basis points, and had an original term of 6 months. The loan has been
temporarily extended while terms of a formal extension are negotiated with the
lender. We expect the loan to be extended for a period of up to one year on or
before November 30, 1999. The loan is secured by a security interest in the
aircraft and engine assets held by the special purpose entities which are the
borrowers under the loan arrangement.
On November 3, 1999 we announced a $50.0 million increase in our existing
$75.0 million discretionary, revolving facility for the funding of eligible
leases. This facility is available to most of the originating units in our
Technology and Finance Group as well as one of the originating units in our
Business Credit Group.
SECURITIZATION TRANSACTION
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.,
AAA by Fitch IBCA and D-1+ by Duff & Phelps Credit Rating company. 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 and AAA by Fitch IBCA. The
Class A Notes benefit from a surety bond issued by Ambac Assurance Corp. In
addition, Class B and Class C Notes, rated BBB and BB respectively by Duff &
Phelps Credit Rating Company and Fitch IBCA, were retained by the Company. We
subsequently financed the Class B Notes pursuant to short term facilities.
YEAR 2000 READINESS
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.
We are in the process of implementing a Y2K readiness program with the
objective of having all of our significant Business Systems functioning properly
with respect to the Y2K issue before January 1, 2000. The program is divided
into three major sections -- Infrastructure, Applications Software, and
third-party suppliers and customers ("External Agents"). The phases common to
all sections are: (1) inventorying Y2K items and assigning priorities; (2)
assessing the Y2K compliance of those items; (3) repairing, retiring or
replacing the items that are determined not to be Y2K compliant, beginning with
the items considered most critical to the Company's operations; (4) testing
those items; (5) implementing necessary changes; and (6) designing and
implementing contingency plans.
Infrastructure. This section consists of hardware and systems software other
than Applications Software. We estimate that approximately 85 percent of the
activities related to this section were completed by September 30, 1999. The
testing phase is ongoing as hardware or system software is remediated, upgraded
or replaced. All Infrastructure activities are expected to be completed by the
end of 1999.
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Applications Software. This section includes the remediation, retirement or
replacement of applications software that is not Y2K compliant. We are using
both internal and external resources to complete this process. As of September
30, 1999, substantially all of the applications software was remediated or
replaced, and tested. The remaining applications are expected to be remediated
or replaced and tested by November 30, 1999 and any necessary changes are
expected to be implemented by the end of 1999.
External Agents. This section includes the process of identifying and
prioritizing service providers, vendors, suppliers, customers and governmental
entities that we believe will be critical to our business operations after
January 1, 2000. We could be adversely affected if these critical business
partners failed to provide essential services. We have sent questionnaires, and
are conducting interviews, browsing websites and using other available means to
attempt to ascertain the Y2K readiness of our critical business partners. This
process is substantially complete.
We are developing contingency plans intended to mitigate possible
disruptions in business operations that may result from the Y2K issue and we are
developing cost estimates for these plans. If our Y2K readiness program is
unsuccessful, we may, as a contingency plan, contract with third party lease
portfolio service providers to meet the servicing needs of our daily operations.
Contingency plans and related cost estimates will be continually refined, as
additional information becomes available.
We estimate that the aggregate cost of our Y2K compliance efforts will be
approximately $1.3 million, of which approximately $1.2 million 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 $0.5 million), substantially all of which has been capitalized,
are included in the above estimates.
Our 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. The failure to correct a Y2K issue could
result in a failure of certain normal business activities or operations, which
could adversely affect the Company's results of operations, liquidity and
financial condition.
Our Big Ticket Division has Y2K risks associated with the ownership of
aircraft and aircraft engines. If lessees fail to ensure that the equipment is
Y2K compliant, the lessees could lose revenue which could result in their
inability to meet the financial obligations of the leases. Aircraft and air
traffic control systems noncompliance may result in an inability to place
aircraft in revenue producing service. Compliance failures on the part of the
Federal Aviation Administration could result in a virtual grounding of all
commercial aircraft. To mitigate these risks, the Big Ticket Division has taken
preventive measures which include: surveying all operators of aircraft and
aircraft engines in the portfolio as to compliance, verifying with aircraft
manufacturers as to compliance of certain aircraft types in the portfolio that
are currently off lease as well as securing Year 2000 insurance endorsement
coverage for all aircraft and aircraft engines in the portfolio.
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FLUCTUATIONS IN QUARTERLY RESULTS
We could experience fluctuations in quarterly operating results due to a
number of factors including, among others, the consummation of a transaction in
a particular calendar quarter (or the failure to complete such a transaction),
variations in the volume of leases originated and variations in interest rates.
In addition, certain of our operating subsidiaries may from time to time
experience relatively large transactions for one or a few customers or
relatively large sales of equipment and/or lease portfolios, which may not recur
or may not be followed by correspondingly large transactions in subsequent
periods. Moreover, to the extent that we retain for our own portfolio a greater
portion of the leases that we acquire or originate and the equipment that we
acquire, we will not generate revenue from gain on sale for the retained leases
or revenue from sales of the retained equipment. As a result of these
fluctuations, results for any one quarter, including historical results, should
not be relied upon as being indicative of performance in future quarters.
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," 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,
1998. Unforeseen delays and expenses may affect our ability to develop or
implement our expense-reduction program. 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. 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 U.S. Federal Reserve Prime
rate ("Prime") or the London Interbank Offered Rate ("LIBOR"). For information
regarding amounts outstanding and weighted average interest rates at September
30, 1999, see the discussion in "Liquidity and Capital Resources."
We continually monitor interest rates in order to mitigate exposure to
unfavorable variations. Our objectives in managing this risk include:
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. We do not
hedge all interest rate risks. Interest rate swaps synthetically alter the
repricing characteristics of recorded assets and liabilities, effectively
allowing us to reduce our exposure to unfavorable 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.
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We do not enter into interest rate swap agreements for trading purposes.
The table below presents, as of September 30, 1999, the following
information regarding interest rate swap agreements to which we are a party: (i)
notional amount of the agreement, (ii) the fixed interest rate to be paid by the
Company, (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, 1999 2000 2001 2002 2003 2004 THEREAFTER
------------------ ------------ ------------- ------------- -------------- ------------- ----------
INTEREST RATE
SWAPS
- ----------------------
Amortizing notional
Amount............ $ 41,581,278 $35,236,934 $21,751,395 $12,912,210 $ 7,950,669 $ 4,317,006 $1,914,803
Rate to be paid by the
Company........... 5.495%
Rate to be received by
The Company....... 30-day CP (a)
Fair value at
September 30, 1999 $ 436,320
Maturity............ January 2006
Amortizing notional
Amount............ $ 8,038,519 $ 7,187,937 $ 5,362,205 $ 3,537,635 $ 2,407,989 $ 1,552,437 $ 850,747
Rate to be paid by the
Company........... 5.555%
Rate to be received by
The Company....... 30-day CP (a)
Fair value at
September 30, 1999 $ 111,349
Maturity............ April 2006
Amortizing notional
Amount............ $ 13,010,709 $10,853,286 $ 4,230,859
Rate to be paid by the
Company........... 5.693%
Rate to be received by
The Company....... 30-day CP (a)
Fair value at
September 30, 1999. $ 14,020
Maturity............ September 2001
Amortizing notional
Amount............ $ 28,955,401 $27,093,793 $21,691,494 $10,434,629 $ 2,789,043
Rate to be paid by the
Company........... 6.015%
Rate to be received by
The Company....... 30-day CP (a)
Fair value at
September 30, 1999 $ (6,688)
Maturity............ November 2003
Amortizing notional
Amount............ $ 77,900,577 $67,319,630 $46,233,825 $30,432,883 $21,602,950 $15,052,094 $10,274,289
Rate to be paid by the
Company........... 6.195%
Rate to be received by
The Company....... 30-day CP (a)
Fair value at
September 30, 1999 $ (63,019)
Maturity............ August 2006
Amortizing notional
Amount............ $ 23,594,555 $20,516,400 $13,212,991 $ 6,617,956 $ 2,304,415
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, 1999 $ (54,390)
Maturity............ October 2003
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EFFECTIVE PERIOD OF INTEREST RATE SWAP
AVERAGE NOTIONAL AMOUNT FOR THE TWELVE MONTHS ENDING SEPTEMBER 30, (B)
SEPTEMBER 30, 1999 2000 2001 2002 2003 2004 THEREAFTER
------------------ ------------ ------------ ------------- -------------- ------------- ---------
Amortizing notional
Amount............ $ -- $ 22,809,392 $ 17,296,106 $ 15,909,483 $ 8,729,280
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, 1999 $ (36,522)
Commencement........ November 1999
Maturity............ June 2004
Fixed notional
Amount............ $ 75,000,000 $ 75,000,000 $ 75,000,000 $ 75,000,000
Rate to be paid by the
Company........... 5.125%
Rate to be received by
The Company....... 3-month LIBOR
Fair value at
September 30, 1999 $ 2,407,100
Maturity............ November 2002
Amortizing notional
Amount............ $ -- $ -- $ 1,064,441 $ 982,048 $ 891,942 $ 793,548 $ 685,947
Rate to be paid by the
Company........... 6.540%
Rate to be received by
The Company....... 30-day CP (a)
Fair value at
September 30, 1999 $ 4,240
Commencement........ October 2000
Maturity............ January 2010
Amortizing notional
Amount............ $ -- $ 2,357,500 $ 2,121,750 $ 1,875,750 $ 1,629,750 $ 1,383,750 $1,137,750
Rate to be paid by the
Company........... 6.510%
Rate to be received by
The Company....... 30-day CP (a)
Fair value at
September 30, 1999 $ (9,953)
Commencement........ November 1999
Maturity............ October 2009
Fixed notional
Amount............ $ 80,000,000 $ 80,000,000
Rate to be paid by the
Company........... 5.230%
Rate to be received by
The Company....... 1-month LIBOR
Fair value at
September 30, 1999 $ 260,505
Maturity............ April 2000
Fixed notional
Amount............ $ 60,000,000 $ 60,000,000 $ 60,000,000 $ 60,000,000
Rate to be paid by the
Company........... 5.500%
Rate to be received by
The Company....... 1-month LIBOR
Fair value at
September 30, 1999 $ 850,291
Maturity............ January 2002
Fixed notional
Amount............ $ 175,000,000 $175,000,000 $175,000,000 $175,000,000 $ 175,000,000
Rate to be paid by the
Company........... 5.560%
Rate to be received by
The Company....... 1-month LIBOR
Fair value at
September 30, 1999 $ 3,439,543
Maturity............ October 2002
Fixed notional
Amount............ $ 345,000,000 $345,000,000 $345,000,000 $345,000,000 $ 345,000,000 $345,000,000
Rate to be paid by the
Company........... 5.650%
Rate to be received by
The Company....... 1-month LIBOR
Fair value at
September 30, 1999 $ 9,829,655
Maturity............ January 2004
Fixed notional
Amount............ $ 230,000,000 $230,000,000 $230,000,000 $230,000,000 $ 230,000,000 $230,000,000 $ 230,000,000
Rate to be paid by the
Company........... 5.710%
Rate to be received by
The Company....... 1-month LIBOR
Fair value at
September 30, 1999 $ 7,735,636
Maturity............ November 2004
- ----------
(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
counter-party.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
UniCapital and its subsidiaries are from time to time parties to lawsuits
arising out of our respective operations. We believe that any pending litigation
to which we or our subsidiaries are parties will not 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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SIGNATURES
Pursuant to the requirement 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
(Registrant)
Date: November 15, 1999
By: /s/ JONATHAN NEW
-----------------------------------------
Jonathan New
Chief Financial Officer
(Principal Financial and Accounting Officer)
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