-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GlNqOyhpHlhuyKblt1/MGPd3JpxZpKK6NUEu6H4LbJumlbmjZXHKNxwGOVQEgwXF KWa6ytEErNfa4atSUsHTeQ== 0000950109-96-007424.txt : 19961115 0000950109-96-007424.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950109-96-007424 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION CORP CENTRAL INDEX KEY: 0000100817 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 250848970 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05371 FILM NUMBER: 96660196 BUSINESS ADDRESS: STREET 1: 145 MASON STREET CITY: GREEENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036290505 MAIL ADDRESS: STREET 1: 145 MASON STREET CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: SUPER ELECTRIC PRODUCTS INC DATE OF NAME CHANGE: 19661121 FORMER COMPANY: FORMER CONFORMED NAME: UNION SPRING & MANUFACTURING CO DATE OF NAME CHANGE: 19660921 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 1996 Commission File Number 1-5371 ------------------ ------ The Union Corporation --------------------- (Exact name of Registrant as specified in its charter) Delaware 25-0848970 ------------------------ --------------------------------------- (State of incorporation) (I.R.S. Employer Identification Number) 145 Mason Street, Greenwich, CT 06830 -------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (203) 629-0505 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether 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 --------- --------- 5,727,346 Common shares were outstanding as of November 6, 1996 - --------- ----------------- THE UNION CORPORATION AND SUBSIDIARIES Index to Condensed Consolidated Financial Statements and Exhibits
Part I. Financial Information: Page ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets, September 30, 1996 (Unaudited) and June 30, 1996 3 Condensed Consolidated Statements of Operations (Unaudited), for the Three Months Ended September 30, 1996 and 1995 4 Condensed Consolidated Statements of Cash Flows (Unaudited), for the Three Months Ended September 30, 1996 and 1995 5 Condensed Consolidated Statement of Shareholders' Equity (Unaudited), for the Three Months Ended September 30, 1996 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) 9-13 Part II. Other Information: Item 1. Legal Proceedings 14-17 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19
THE UNION CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets September 30, 1996 (Unaudited) and June 30, 1996 (In thousands)
September 30, June 30, 1996 1996 ------------- -------- ASSETS ------ Current assets: Cash $ 16,106 $ 18,634 Short-term investments, at cost, which approximates market 21,159 24,529 Accounts receivable, trade, less allowance for doubtful accounts of $836 and $700 10,399 9,135 Prepaid expenses and other current assets 5,111 5,860 -------- -------- Total current assets 52,775 58,158 Property, buildings and equipment, net 9,602 9,168 Cost of intangible assets from businesses acquired, less accumulated amortization of $9,443 and $9,080 48,952 49,248 Other assets and deferred charges 3,544 3,526 Deferred income taxes 2,886 2,886 -------- -------- Total assets $117,759 $122,986 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 3,573 $ 3,531 Accrued expenses 15,992 22,065 Income taxes payable 1,154 1,448 Current portion of long-term debt 279 277 -------- -------- Total current liabilities 20,998 27,321 Long-term debt 20,566 20,634 Other liabilities 12,181 12,038 -------- -------- Total liabilities 53,745 59,993 -------- -------- Shareholders' equity: Common stock, $.50 par value; authorized shares, 15,000; issued shares 8,668 and 8,601 4,334 4,300 Additional paid-in capital 44,138 44,708 Retained earnings 52,348 50,791 Less treasury stock, at cost, 2,941 and 2,941 shares (36,806) (36,806) -------- -------- Total shareholders' equity 64,014 62,993 -------- -------- Total liabilities and shareholders' equity $117,759 $122,986 ======== ========
3 THE UNION CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) For the Three Months Ended September 30, 1996 and 1995 (Dollars in thousands, except per share amounts)
1996 1995 ----------- ----------- Operating revenues $ 28,741 $ 23,987 ---------- ---------- Expenses: Operating expenses 19,165 16,126 Selling, general and administrative expenses 5,670 4,881 Depreciation and amortization 1,164 1,025 ---------- ---------- Total expenses 25,999 22,032 ---------- ---------- Operating income 2,742 1,955 Interest expense (350) (407) Interest income 389 374 ---------- ---------- Income before income taxes 2,781 1,922 Provision for income taxes 1,224 845 ---------- ---------- Net income $ 1,557 $ 1,077 ========== ========== Primary and fully diluted net income per common share $.26 $.19 ========== ========== Average number of common and common equivalent shares outstanding: Primary 5,909,201 5,720,817 Fully diluted 5,913,479 5,723,147
4 THE UNION CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended September 30, 1996 and 1995 (In thousands)
1996 1995 -------- -------- Cash Flows From Operating Activities: Net income $ 1,557 $ 1,077 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 1,164 1,025 Deferred compensation expense 108 97 Provision for doubtful accounts 173 41 Provision for deferred income taxes 900 360 Fair market value of shares of common stock received from an optionee to satisfy withholding tax obligation (868) - Changes in assets and liabilities: Accounts receivable - (increase) decrease (1,437) 211 Prepaid expenses and other current assets - (increase) (151) (141) Other assets and deferred charges - (increase) decrease (18) 58 Accounts payable and accrued expenses - (decrease) (6,031) (1,498) Income taxes payable - (decrease) increase (294) 327 Other liabilities - increase (decrease) 35 (310) ------- ------- Net cash (used by) provided by operating activities (4,862) 1,247 ------- ------- Cash Flows From Investing Activities: Capital expenditures (1,241) (315) Additional purchase price related to the purchase of Allied Bond & Collection Agency (67) (66) Other 6 14 ------- ------- Net cash (used by) investing activities (1,302) (367) ------- ------- Cash Flows From Financing Activities: Principal payments on long-term debt (30) (27) Principal payments on capital lease obligations (36) (26) Proceeds from the exercise of stock options 332 - ------- ------- Net cash provided by (used by) financing activities 266 (53) ------- ------- Net (decrease) increase in cash and short-term investments (5,898) 827 Cash and short-term investments at June 30 43,163 36,735 ------- ------- Cash and short-term investments at September 30 $37,265 $37,562 ======= ======= Supplemental disclosures of cash flow information: Interest paid $ 351 $ 393 Income taxes paid 618 158
5 THE UNION CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Shareholders' Equity (Unaudited) For the Three Months Ended September 30, 1996 (Dollars in thousands)
Additional Common paid-in Retained Treasury stock capital earnings stock ------- ---------- -------- --------- Balance at June 30, 1996 $4,300 $44,708 $50,791 $(36,806) Net income - - 1,557 - Proceeds from common stock issued upon exercise of stock options (67,613 shares, net) 34 (570) - - ------ ------- ------- -------- Balance at September 30, 1996 $4,334 $44,138 $52,348 $(36,806) ====== ======= ======= ========
During the quarter ended September 30, 1996, options were exercised to purchase 131,000 shares of common stock of the Company and the optionee elected to pay the aggregate exercise price of these options by surrendering to the Company 56,050 shares of common stock of the Company, previously acquired by the optionee, that had a fair market value on the date of exercise equal to the aggregate exercise price. In addition, the optionee elected to satisfy the withholding tax obligations resulting from such exercise by surrendering 12,977 shares of common stock of the Company previously acquired by the optionee and 21,524 shares of common stock of the Company acquired by the optionee in conjunction with the exercise of the options. The shares surrendered to satisfy the withholding tax obligations were valued at the fair market value on the date of exercise of the options. 6 THE UNION CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) The amounts set forth in this Form 10-Q have not been audited by independent auditors; however, in the opinion of the management of The Union Corporation (the "Company"), all adjustments (including normal recurring accruals) necessary for a fair statement of the results of such periods have been made. The financial statements included in this Form 10-Q are presented in accordance with the requirements of the form and may not include all disclosures required by generally accepted accounting principles. For additional information, reference is made to the Company's Annual Report for the year ended June 30, 1996. 1. Discontinued Operations ----------------------- The Company reached agreements with the federal government in January 1996, subject to certain agency approvals and final approval by the Court, which approvals were given in August 1996, to settle the previously reported matters involving false pricing information and claims made by certain senior officers of the Company's former Gichner Systems Group division (the "Gichner Division"). In accordance with the agreements, which recognize the Company's co-operation in and substantial contribution to the investigation of these matters, the Company fulfilled its commitment to make compensation for the government's civil claims by paying $5,550,000 in September 1996. The Company also accepted responsibility for the actions of the officers of the former Gichner Division by entering a plea of guilty under the federal False Claims Act, although those actions were concealed from the management of the Company, and paid a fine of $250,000 in August 1996. As previously reported, the Company recorded a $3,000,000 loss provision ($2,065,000 net of tax benefit), or $.36 loss per share, during the second quarter of fiscal 1996 for its Discontinued Operations, which provision, combined with amounts previously reserved in connection with these matters, covered all costs of the above settlements with the government, and included an accrual for the estimated legal and accounting fees related to the government claims and other costs related to certain discontinued operations of the Company, all of which were terminated or otherwise disposed of prior to fiscal 1990. The net loss provision of $2,065,000 was included in the Condensed Consolidated Statements of Operations under the caption "Discontinued operations loss provision" beginning in the second quarter of fiscal 1996. As previously reported, the Company also recorded an $8,000,000 loss provision ($5,200,000 net of tax benefit), or $.92 loss per share, during the third quarter of fiscal 1995 for costs related to certain of its discontinued operations, all of which were terminated or otherwise disposed of prior to fiscal 1990. This provision was recorded as a result of developments regarding the former Gichner 7 Division (discussed in the preceding paragraph) and environmental matters, principally involving a site where an inactive subsidiary of the Company fully performed a settlement with the federal government which has reopened the matter. The net loss provision of $5,200,000 was included in the Condensed Consolidated Statements of Operations under the caption "Discontinued operations loss provision" beginning in the third quarter of fiscal 1995. The $8,000,000 loss provision included an accrual of $3,500,000 for estimated legal and accounting fees and settlement costs which were expected to be incurred as a result of government claims for the matter involving the former Gichner Division and the estimated legal costs to defend the Company against the claims asserted by the purchaser of the Gichner Division. The $8,000,000 loss provision also included $4,000,000 for environmental matters and approximately $500,000 of costs incurred by the Company during the quarter ended September 30, 1995 for the Gichner Division and environmental matters. See Part II, Item 1 of this Form 10-Q for additional information regarding these discontinued operations and claims in connection with the sale of the former Gichner Division. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) Liquidity and Capital Resources - ------------------------------- The Company's financial condition remained very strong and liquid at September 30, 1996 with cash and short-term investments totaling $37,265,000, working capital of $31,777,000 and net worth of $64,014,000. During the three months ended September 30, 1996, the net cash used by operating activities was $4,862,000 compared to the net cash provided by operating activities of $1,247,000 a year ago. This decrease was principally the result of the $5,800,000 aggregate payment made to the federal government regarding the matters involving the former Gichner Division of the Company (See Note 1 of Notes to Condensed Consolidated Financial Statements and the section titled "Gichner Systems Group Division" of Part II, Item 1 of this Form 10-Q for additional information). Excluding the aggregate payment to the federal government, the net cash provided by operating activities was $938,000. The Company's capital spending during the three months ended September 30, 1996 was $1,241,000 compared with $315,000 a year ago. This increase was principally attributable to the purchase of computer and office equipment and leasehold improvements by Interactive Performance, Inc. and High Performance Services, Inc., principally due to the start-up of the new outsourcing businesses. As of November 6, 1996, the Company holds approximately 2,941,000 shares of its common stock at an aggregate cost of approximately $36,806,000. Future purchases, if any, by the Company of its common stock will be funded with available funds. Interactive Performance, Inc. ("Interactive Performance") and High Performance Services, Inc. ("High Performance Services"), the recently formed, wholly-owned subsidiaries of the Company, signed multi-year contracts in fiscal 1996 to provide outsourcing services to AT&T Corp. and Advanta Corp., respectively. As previously announced, Interactive Performance is also providing outsourcing services to Lucent Technologies under a letter of intent. The Company began providing services to AT&T Corp. late in the third quarter of fiscal 1996 while services for Advanta Corp. and Lucent Technologies began late in the fourth quarter of fiscal 1996. In December 1992, the Company completed the acquisition of Allied Bond & Collection Agency ("Allied Bond") for an initial purchase price of approximately $40,300,000. In addition, contingent payments not to exceed approximately $8,300,000 may be payable by the Company based upon Allied Bond attaining certain earnings levels over the five and one-half year period ending June 30, 1998. As of September 30, 1996, approximately $971,000 of such contingent payments have been made. The acquisition was financed in part from $20,000,000 borrowed under an existing unsecured $25,000,000 two year revolving line of credit furnished by a bank (the "Credit Agreement"). During fiscal 1996, the Company received written confirmation that the bank will 9 extend the revolving line of credit until December 31, 1998, at which time the revolving line of credit will convert to a three year term loan. Under the new terms of the Credit Agreement, the aggregate principal amount outstanding, which is limited to a maximum of $20,000,000, under the revolving line of credit on December 31, 1998 must be repaid by the Company in twelve quarterly installments commencing March 31, 1999 and ending December 31, 2001. Each of the first eleven installments must be in an amount equal to one-twentieth of the outstanding loan balance on December 31, 1998, with the twelfth installment equal to the amount necessary to repay the then unpaid principal amount of the loan. The loans bear interest, at the Company's option, at either the bank's base rate, which is announced by the bank from time to time; or at 3/4% above the bank's Eurodollar rate during both the revolving and term loan periods. The interest rate, which is reset periodically, on the revolving term loan was 6.44% at September 30, 1996. The maximum amount of letters of credit that the bank will issue under the Credit Agreement is currently limited to $5,000,000. As of November 6, 1996, the Company was contingently liable for outstanding letters of credit aggregating approximately $3,725,000 which reduced the amount available for letters of credit under the Credit Agreement to approximately $1,275,000. Pursuant to a March 1995 amendment (the "Amendment") to the Company's employment agreement with the Chairman of the Company (the "Employment Agreement"), an amount equal to the discounted net present value of the deferred compensation payable to the Chairman under the Employment Agreement will be paid to the Chairman at the time of his retirement. The discounted net present value of the deferred compensation at September 30, 1996 was approximately $3,100,000, which amount is included in "Other liabilities" in the Condensed Consolidated Balance Sheet. The Amendment also extends the term of the Chairman's employment to December 31, 1997 and provides for the Company to deposit into a trust, at the time of the Chairman's retirement, an amount equal to the discounted net present value of the aggregate consulting fees to be paid by the Company to the Chairman for consulting services to be rendered by the Chairman for a period of up to ten years following his retirement; previously such consulting services were to be rendered by the Chairman for the remainder of his life. The discounted net present value of the aggregate consulting fees was approximately $2,400,000 at September 30, 1996, which will be expensed as the services are rendered. In accordance with the employment agreement dated July 1, 1995 with the chairman of a subsidiary of the Company, the subsidiary deposited approximately $1,500,000 into a trust during fiscal 1996, which represented the deferred bonuses, and related interest, previously earned by the chairman. In accordance with the agreement, the chairman withdrew $250,000 in January 1996 and may withdraw $250,000 each January thereafter until the entire amount deposited in the trust, including all earnings and net of any losses, has been paid. The chairman may also withdraw the balance remaining in the trust upon retirement. As of September 30, 1996, $250,000 of the balance remaining in the trust is included in the Condensed Consolidated Balance Sheet in "Prepaid and other current assets" and approximately $1,000,000 is included in "Other assets and deferred charges". 10 The Company and its subsidiaries are involved in litigation and administrative proceedings described in Part II, Item 1 of this Form 10-Q. The Company periodically reviews and updates the status of these matters and the past costs incurred with respect to each. Estimates of future costs are based upon currently available data. Management believes that reserves established to meet known and potential environmental liabilities for the pending environmental proceedings referred to above are adequate based on current information. The Company does not anticipate, based on current information, that the resolution of the Legal Proceedings and the matters relating to Discontinued Operations described in Part II, Item 1 of this Form 10-Q will have a material adverse impact on the Company's overall financial condition given its available cash and short-term investments, nor that the resolution of the Legal Proceedings described on page 14 will have a material adverse impact on the Company's future results of operations. However, there is no way to be certain that future developments relating to the environmental matters, or the matters involving the Company's former Gichner Systems Group division described in Part II, Item 1 of this Form 10-Q, will not involve additional substantial costs that may require future charges to the Discontinued operations loss provision. Management believes that current cash and short-term investments and the Company's future cash flows from operations are sufficient to provide for anticipated working capital, debt service and capital expenditure requirements. Three Months Ended September 30, 1996 vs. Three Months Ended - ------------------------------------------------------------- September 30, 1995 - ------------------ Operating Revenues - ------------------ Operating revenues increased by 20% to $28,741,000 for the three months ended September 30, 1996 compared with $23,987,000 for the three months ended September 30, 1995 reflecting increases at Transworld Systems Inc. ("Transworld Systems") and Capital Credit Corporation ("Capital Credit") and, most significantly, the inclusion of revenues from the Company's recently formed Interactive Performance and High Performance Services subsidiaries, which began operations late in the third and fourth quarters of fiscal 1996, respectively. Revenues at Transworld Systems were $14,885,000 for the three months ended September 30, 1996 compared with $13,816,000 a year ago. Revenues at Capital Credit increased by 16% in the first quarter of fiscal 1997 compared with a year ago, which was the result of an increase in the level of placements received from its clients. Allied Bond reported a 5% decrease in revenues compared with a year ago primarily resulting from the changing market conditions previously reported, such as reduced collectibility of accounts placed for collection and lower commission rates in certain key markets. Allied also reported an increase in the dollar value of accounts placed for collection from its clients during the three months ended September 30, 1996 compared to a year ago. 11 Operating Expenses - ------------------ Operating expenses increased by $3,039,000 for the three months ended September 30, 1996 compared with the three months ended September 30, 1995. The increase was attributable to increases in operating expenses at Transworld Systems and Capital Credit, which expenses increased at a rate proportionately less than their respective increases in revenues, and the inclusion of the operating expenses of Interactive Performance and High Performance Services, partially offset by a decrease in operating expenses at Allied Bond. Selling, General and Administrative Expenses - -------------------------------------------- Selling, general and administrative expenses increased by $789,000 for the three months ended September 30, 1996 compared with the three months ended September 30, 1995. The increase was attributable to the inclusion of the selling, general and administrative expenses of Interactive Performance and High Performance Services, and increases at Transworld Systems, Capital Credit and the Corporate office. Depreciation and Amortization - ----------------------------- Depreciation and amortization expense increased by $139,000 for the three months ended September 30, 1996 compared with the three months ended September 30, 1995 due to the inclusion of Interactive Performance and High Performance Services. Operating Income - ---------------- Operating income was $2,742,000 for the three months ended September 30, 1996 compared with $1,955,000 for the three months ended September 30, 1995. This increase was due to increases at Transworld Systems, Captial Credit and Allied Bond, and the inclusion of the operating results of Interactive Performance and High Performance Services, partially offset by an increase in Corporate office expenses. Transworld Systems reported operating income, before amortization of goodwill, of $3,314,000 for the quarter ended September 30, 1996, an increase of 13%, compared with $2,925,000 a year ago, principally reflecting the increase in its revenues and an operating margin of 21%, after amortization of goodwill, for the first quarter of fiscal 1997. Capital Credit's operating income increased by 11% for the three months ended September 30, 1996 compared with a year ago. Allied Bond continued to operate profitably, after amortization of goodwill and depreciation expense related to its acquisition, and reported an increase in operating income for the three months ended September 30, 1996 compared with a year ago, despite the modest decrease in revenues compared with a year ago. 12 Interest Expense and Interest Income - ------------------------------------ Interest expense decreased by $57,000 for the three months ended September 30, 1996 compared with a year ago principally due to a decrease in the interest rate charged for the borrowings under the Credit Agreement. Interest income increased by $15,000 for the three months ended September 30, 1996 compared with a year ago, due to higher average short-term investment balances, partially offset by lower interest rates. During the three months ended September 30, 1996 and 1995, the Company primarily invested in commercial paper with short-term maturities and overnight time deposits. Income Taxes - ------------ The Company's effective income tax rate for continuing operations was 44% for the three months ended September 30, 1996 and 1995. 13 Part II - Other Information (Unaudited) - --------------------------------------- Item 1. Legal Proceedings: - -------------------------- In addition to the continuing environmental clean-up efforts and other matters described below, the Company and certain subsidiaries are parties to a number of lawsuits arising in the ordinary course of business. In a lawsuit brought in 1993 by three individuals engaged by Transworld Systems as independent contractors, in which it was alleged that Transworld Systems has improperly treated the plaintiffs as independent contractors rather than employees, all of the asserted claims have been dismissed by the Court in 1996 with prejudice. Some of the same persons and others have also brought suit against Transworld Systems and certain of its directors and officers, alleging breach of contract and mental distress as a result of Transworld Systems' failure to supply plaintiffs with certain business information including copies of a monthly publication distributed by Transworld Systems. Several persons have also brought suit alleging wrongful termination. The claims in these actions against Transworld Systems have been reviewed by counsel and, based upon their assessment, management has concluded that the claims are without merit. Four alleged class actions have been brought against Transworld Systems and one alleged class action has been brought against Allied Bond by debtors who received written collection notices from either Transworld Systems or its Credit Management Services division, or Allied Bond, respectively. Plaintiffs in these actions allege that such letters violated various provisions of the federal Fair Debt Collection Practices Act or comparable state regulations. The claims in these actions have been reviewed by counsel and, based on their assessment, management has concluded that the claims are of doubtful merit. Both Transworld Systems and Allied Bond intend to vigorously defend these respective actions. Based on current estimates and information, the Company does not believe that the ultimate resolution of the above lawsuits will have a material adverse impact on the Company's overall financial condition or future results of operations. 14 Gichner Systems Group Division: The Company sold the assets and business of the Company's Gichner Systems Group division (the "Gichner Division") to Gichner Systems Group, Inc. (the "Purchaser") in 1989 and, accordingly, reflected the Gichner Division as a discontinued operation in the Company's Consolidated Statements of Operations. In 1991 the Purchaser informed the Company that false pricing information might have been supplied by former officers of the Gichner Division, who were also members of the group that purchased the Gichner Division from the Company and who were officers of the Purchaser, in connection with certain government contracts negotiated prior to the sale. After investigation, the former officers who were then working for the Purchaser were terminated for cause by the Purchaser, and the Company and Purchaser tendered to the Department of Defense a report of the results of their investigation. The Company reached agreements with the federal government in January 1996, subject to certain agency approvals and final approval by the Court, which approvals were given in August 1996, to settle the government's claims against the Company. In accordance with the agreements, which recognize the Company's co-operation in and substantial contribution to the investigation of these matters, the Company fulfilled its commitment to make compensation for the government's civil claims by paying $5,550,000 in September 1996. The Company also accepted responsibility for the actions of the officers of the former Gichner Division by entering a plea of guilty under the federal False Claims Act, although those actions were concealed from the management of the Company, and paid a fine of $250,000 in August 1996. The Purchaser, which has pled guilty to obstruction of justice as a result of its hindrance of the government's investigation and its destruction of documents related to this matter, commenced suit against the Company in which it alleges misrepresentation and breach by the Company of the provisions of the Purchase Agreement and asserts claims for damages and indemnification. The Company denies each of the claims and intends to vigorously defend this action. Although management believes the reserve established for this matter is adequate based on current information, there is no way to be certain that future developments will not involve additional substantial costs that may require future charges to the Discontinued operations loss provision. The Company does not anticipate, based on current information, that the resolution of this matter will have a material adverse impact on the Company's overall financial condition given its available cash and short-term investments. Two former officers of the Gichner Division filed suit against the Company for retirement benefits which the Company terminated when their alleged misconduct was reported to the Company. All of their claims, and their refiled claims, have been dismissed by the Court. The Company has counterclaimed for damages resulting from the misconduct of the two former officers of the Gichner Division. Appeals are pending in these matters. The estate of a third former officer of the Gichner Division has filed suit against the Company for similar claims, which the Company denies and intends to vigorously defend. 15 Environmental Matters: Current commercial operations of the Company and its subsidiaries do not involve activities affecting the environment. However, the Company is a party in several pending environmental proceedings involving the federal Environmental Protection Agency ("EPA") and comparable state agencies in Indiana, Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania, South Carolina and Virginia. All of these matters relate to discontinued operations of former divisions or subsidiaries for which the Company has potential continuing responsibility. One group of the Company's known environmental proceedings relates to Superfund or other sites where the Company's liability arises from arranging for the disposal of allegedly hazardous substances in the ordinary course of prior business operations. In most of these "generator" liability cases, the Company's involvement is considered to be de minimus (i.e. a volumetric share of approximately 1% or less) and in each of these cases the Company is only one of many potentially responsible parties. From the information currently available, there are a sufficient number of other economically viable participating parties so that the Company's projected liability, although potentially joint and several, is consistent with its allocable share of liability. At one "generator" liability site, the Company's involvement is potentially more significant because of the volume of waste contributed in past years by a currently inactive subsidiary. Insufficient information is available regarding the need for or extent and scope of any remedial actions which may be required. The Company has recorded what it believes to be a reasonable estimate of its potential liability, based on current information, for this site. The second group of matters relates to environmental issues on properties currently or formerly owned or operated by a subsidiary or division of the Company. These cases generally involve matters for which the Company or an inactive subsidiary is the sole or primary responsible party. In one such case, however, although the affected subsidiary fully performed a settlement with the federal government, the government has reopened the matter. A group of financially solvent responsible parties has completed an extensive investigation of this Superfund site under a consent order with the EPA and submitted Remedial Investigation and Feasibility Study Reports (the "Reports") to the EPA, which outline a range of various remedial alternatives for the site. The EPA issued a proposed plan which was subject to public comment. The Company's environmental counsel retained two environmental consulting firms to review and evaluate the Reports and proposed plan. The findings of these consulting firms indicated that many of the assumptions, purported facts and conclusions contained in the Reports and proposed plan are significantly flawed and such findings have been submitted to the EPA. Notwithstanding the foregoing and the Company's denial of liability because of the prior settlement with the government, the $8,000,000 loss provision recorded during the third quarter of fiscal 1995 for costs related to certain of its discontinued operations, all of which were terminated or otherwise disposed of prior to fiscal 1990, included a provision of approximately $4,000,000 for environmental matters. The provision for environmental matters included the estimated legal and consulting costs for this and other sites involving the Company or an inactive subsidiary, the estimated costs to defend the Company's aforementioned settlement with the government regarding this site, and the estimated remediation costs that the Company will incur, 16 based on current information, if its prior settlement with the government is not upheld in court. However, the Company may be exposed to additional substantial liability for this site as additional information becomes available over the long-term. A better estimate of costs associated with any further remediation to be taken at the site cannot be made until a Record of Decision is issued by the EPA, which is expected to be issued in fiscal 1997. Actual remediation costs cannot be computed until such remedial action is completed. Some of the other sites involving the Company or an inactive subsidiary are at a stage where an assessment of liability, if any, cannot reasonably be made. It is the Company's policy to comply fully with all laws regulating activities affecting the environment and to meet its obligations in this area. In many "generator" liability cases, reasonable cost estimates are available on which to base reserves on the Company's likely allocated share among viable parties. Where insufficient information is available regarding projected remedial actions for these "generator" liability cases, the Company has recorded what it believes to be reasonable estimates of its potential liabilities. Reserves for liability for sites on which former operations were conducted are based on cost estimates of remedial actions projected for these sites. All known environmental claims are periodically reviewed by the Company, where information is available, to provide reasonable assurance that adequate reserves are maintained. Reserves recorded for environmental liabilities are not net of insurance or other expected recoveries. Other than the aforementioned loss provision that was recorded by the Company during the third quarter of fiscal 1995, no significant expenses related to environmental matters were recorded by the Company during the three months ended September 30, 1996 or the three years ended June 30, 1996 due to the adequacy of previously recorded reserve balances based on information available at that time. Management believes that reserves established to meet known and potential environmental liabilities are adequate based on current information. The Company does not anticipate, based on current information, that the resolution of these matters will have a material adverse impact on the Company's overall financial condition given its available cash and short-term investments. However, there is no way to be certain that future developments relating to environmental matters will not involve additional substantial costs that may require future charges to the Discontinued operations loss provision. 17 Item 6. Exhibits and Reports on Form 8-K: ----------------------------------------- (a) Exhibits: -------- Exhibit No. 11 Computation of Primary and Fully Diluted Earnings Per Share (Unaudited) Exhibit No. 27 Financial Data Schedule (Unaudited) (b) Reports on Form 8-K: ------------------- There were no reports on Form 8-K filed for the three months ended September 30, 1996. 18 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE UNION CORPORATION (Registrant) Date: November 12, 1996 By: Melvin L. Cooper -------------------------------------- Melvin L. Cooper Chairman of the Board (Chief Executive Officer) Date: November 12, 1996 By: Nicholas P. Gill -------------------------------------- Nicholas P. Gill Vice President, Treasurer and Secretary (Chief Financial Officer) 19 EX-11 2 COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS THE UNION CORPORATION AND SUBSIDIARIES Item 6 Computation of Primary and Fully Exhibit 11 Diluted Earnings Per Share (Unaudited) (Dollars in thousands, except per share amounts)
Three Months Ended September 30, ------------------------------------------------------------ 1996 1995 ----------------------------- ----------------------------- Number Income Number Income of Net of Per Share of Net of Per Share Shares Taxes Amount Shares Taxes Amount --------- ------- --------- --------- ------- --------- Primary Earnings: - ----------------- Average common shares (based on weighted average number of shares outstanding) 5,683,499 5,580,617 Common stock equivalents (stock options) 225,702 140,200 --------- --------- Net income 5,909,201 $1,557 $.26 5,720,817 $1,077 $.19 ========= ====== ==== ========= ====== ==== Fully Diluted Earnings: - ----------------------- Average common shares (based on weighted average number of shares outstanding) 5,683,499 5,580,617 Common stock equivalents (stock options) 229,980 142,530 --------- --------- Net income 5,913,479 $1,557 $.26 5,723,147 $1,077 $.19 ========= ====== ==== ========= ====== ====
EX-27 3 FINANCIAL DATA SCHEDULE
5 Note: This schedule contains summary financial information extracted from the Form 10-Q for the Quarter Ended September 30, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS JUN-30-1997 JUL-01-1996 SEP-30-1996 $16,106 21,159 11,235 836 0 52,775 23,996 14,394 117,759 20,998 20,566 0 0 4,334 59,680 117,759 0 28,741 0 19,165 1,164 173 350 2,781 1,224 1,557 0 0 0 1,557 .26 .26 Represents the total depreciation and amortization expense, but does not include S,G&A expenses of $5,670.
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