<PAGE>
 
                      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 December 31, 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 
                                                ---------              ---------

          5,730,345 Common shares were outstanding as of February 7, 1997
          ---------                                      ------------------
<PAGE>
 
                    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,  
                        December 31, 1996 (Unaudited) and       
                        June 30, 1996                                   3
                                          
                        Condensed Consolidated Statements of  
                        Operations (Unaudited), for the Six   
                        Months Ended December 31, 1996 and 1995         4
                                                              
                        Condensed Consolidated Statements of  
                        Operations (Unaudited), for the Three 
                        Months Ended December 31, 1996 and 1995         5
                                                              
                        Condensed Consolidated Statements of  
                        Cash Flows (Unaudited), for the Six   
                        Months Ended December 31, 1996 and 1995         6
                                                              
                        Condensed Consolidated Statement of   
                        Shareholders' Equity (Unaudited), for 
                        the Six Months Ended December 31, 1996          7
                                                              
                        Notes to Condensed Consolidated       
                        Financial Statements (Unaudited)               8-9 
 
              Item 2.   Management's Discussion and Analysis
                        of Financial Condition and Results    
                        of Operations (Unaudited)                     10-15 
 
Part II.      Other Information (Unaudited):
 
              Item 1.   Legal Proceedings                             16-19
                                                              
              Item 4.   Submission of Matters to a Vote of               
                        Security Holders                               20
                                                              
              Item 6.   Exhibits and Reports on Form 8-K               20
                                                              
              Signatures                                               21 
<PAGE>
 
                    THE UNION CORPORATION AND SUBSIDIARIES
                     Condensed Consolidated Balance Sheets
                December 31, 1996 (Unaudited) and June 30, 1996
                                (In thousands)
 
<TABLE> 
<CAPTION> 
                                                               December 31,    June 30,
                                                                   1996          1996
                                                               ------------    --------
   ASSETS
   ------
<S>                                                              <C>           <C> 
Current assets:
 Cash                                                             $ 15,869     $ 18,634
 Short-term investments, at cost,                                                                         
  which approximates market                                         24,644       24,529                   
 Accounts receivable, trade, less allowance                                                               
  for doubtful accounts of $775 and $700                             8,768        9,135                   
 Prepaid expenses and other current assets                           4,582        5,860                   
                                                                  --------     --------                   
  Total current assets                                              53,863       58,158                   
                                                                                                          
Property, buildings and equipment, net                               9,083        9,168                   
Cost of intangible assets from businesses acquired,                                                       
 less accumulated amortization of $9,805 and $9,080                 48,657       49,248                   
Other assets and deferred charges                                    3,455        3,526                   
Deferred income taxes                                                2,886        2,886
                                                                  --------     --------
  Total assets                                                    $117,944     $122,986
                                                                  ========     ========
 
    LIABILITIES AND SHAREHOLDERS' EQUITY
    ------------------------------------
 
Current liabilities:
 Accounts payable                                                 $  3,021     $  3,531
 Accrued expenses                                                   18,804       22,065
 Income taxes payable                                                  867        1,448
 Current portion of long-term debt                                     282          277
                                                                  --------     --------
  Total current liabilities                                         22,974       27,321
 
Long-term debt                                                      20,495       20,634
Other liabilities                                                    8,991       12,038
                                                                  --------     --------
  Total liabilities                                                 52,460       59,993
                                                                  --------     --------
 
Shareholders' equity:
 Common stock, $.50 par value; authorized shares,
  15,000; issued shares 8,671 and 8,601                              4,335        4,300
 Additional paid-in capital                                         44,166       44,708
 Retained earnings                                                  53,789       50,791
 Less treasury stock, at cost, 2,941 and 2,941 shares              (36,806)     (36,806)
                                                                  --------     --------
  Total shareholders' equity                                        65,484       62,993
                                                                  --------     --------
  Total liabilities and shareholders' equity                      $117,944     $122,986
                                                                  ========     ========
</TABLE> 

                                       3
<PAGE>
 
                    THE UNION CORPORATION AND SUBSIDIARIES
          Condensed Consolidated Statements of Operations (Unaudited)
              For the Six Months Ended December 31, 1996 and 1995
               (Dollars in thousands, except per share amounts)
 
<TABLE> 
<CAPTION> 
                                                                     1996         1995
                                                                  ----------   ----------
<S>                                                              <C>          <C>  
Operating revenues                                                $   57,718   $   48,056
                                                                  ----------   ----------
 
Expenses:
 Operating expenses                                                   38,690       32,458
 Selling, general and administrative expenses                         11,399        9,656
 Depreciation and amortization                                         2,326        2,018
                                                                  ----------   ----------
 
 Total expenses                                                       52,415       44,132
                                                                  ----------   ----------
 
Operating income                                                       5,303        3,924
 
Interest expense                                                        (696)        (788)
Interest income                                                          746          748
                                                                  ----------   ----------
 
Income from continuing operations
 before income taxes                                                   5,353        3,884
 
Provision for income taxes                                             2,355        1,709
                                                                  ----------   ----------
 
Income from continuing operations                                      2,998        2,175
 
Discontinued operations loss provision
 (net of tax benefit of $935)                                              -       (2,065)
                                                                  ----------   ----------
 
Net income                                                        $    2,998   $      110
                                                                  ==========   ==========
 
Primary and fully diluted income (loss) per common share:
 Income from continuing operations                                $      .51    $     .38
 Discontinued operations loss provision                                    -         (.36)
                                                                  ----------   ----------
 Net income                                                       $      .51    $     .02
                                                                  ==========   ==========
 
Average number of common and common equivalent
 shares outstanding:
  Primary                                                          5,904,829    5,734,729
  Fully diluted                                                    5,912,175    5,789,605
</TABLE>

                                       4
<PAGE>
 
                    THE UNION CORPORATION AND SUBSIDIARIES
          Condensed Consolidated Statements of Operations (Unaudited)
             For the Three Months Ended December 31, 1996 and 1995
               (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                 1996         1995
                                                             -----------  -----------
<S>                                                          <C>          <C>
 
Operating revenues                                           $   28,977   $   24,069
                                                             ----------   ----------
 
Expenses:
  Operating expenses                                             19,525       16,332
  Selling, general and administrative expenses                    5,729        4,775
  Depreciation and amortization                                   1,162          993
                                                             ----------   ----------
 
  Total expenses                                                 26,416       22,100
                                                             ----------   ----------
 
Operating income                                                  2,561        1,969
 
Interest expense                                                   (346)        (381)
Interest income                                                     357          374
                                                             ----------   ----------
 
Income from continuing operations
  before income taxes                                             2,572        1,962
 
Provision for income taxes                                        1,131          864
                                                             ----------   ----------
 
Income from continuing operations                                 1,441        1,098
 
Discontinued operations loss provision
  (net of tax benefit of $935)                                        -       (2,065)
                                                             ----------   ----------
 
Net income (loss)                                            $    1,441   $     (967)
                                                             ==========   ==========
 
Primary and fully diluted income (loss) per common share:
  Income from continuing operations                          $      .24   $      .19
  Discontinued operations loss provision                              -         (.36)
                                                             ----------   ----------
  Net income (loss)                                          $      .24   $     (.17)
                                                             ==========   ==========
 
Average number of common and common equivalent
  shares outstanding:
    Primary                                                   5,900,186    5,747,793
    Fully diluted                                             5,909,406    5,793,259
</TABLE>

                                       5
<PAGE>
 
                    THE UNION CORPORATION AND SUBSIDIARIES
          Condensed Consolidated Statements of Cash Flows (Unaudited)
              For the Six Months Ended December 31, 1996 and 1995
                                (In thousands)


<TABLE> 
<CAPTION> 
                                                                           1996        1995 
                                                                         --------   ---------                         
<S>                                                                     <C>         <C>                              
Cash Flows From Operating Activities:                                                                                
Net income                                                               $ 2,998    $    110                         
Adjustments to reconcile net income  to net cash                                                                     
  provided by operations:                                                                                            
 Discontinued operations loss provision, net of tax benefit                    -       2,065                         
 Depreciation and amortization                                             2,326       2,018                         
 Deferred compensation expense                                               194         193                         
 Provision for doubtful accounts                                             129         108                         
 Provision for deferred income taxes                                         900       1,153                         
 Changes in assets and liabilities:                                                                                  
  Accounts receivable - decrease                                             238         266                         
  Prepaid expenses and other current assets - decrease (increase)            378        (863)                         
  Other assets and deferred charges - decrease (increase)                     71        (885)                         
  Accounts payable and accrued expenses - (decrease)                      (7,489)       (629)                         
  Income taxes payable - (decrease)                                         (581)       (746)                         
  Other liabilities - increase (decrease)                                    477        (963)                         
                                                                        --------   ---------                         
Net cash (used by) provided by operating activities                         (359)      1,827                         
                                                                        --------   ---------                         
                                                                                                                     
Cash Flows From Investing Activities:                                                                                
 Capital expenditures                                                     (1,523)       (373)                         
 Additional purchase price related to the                                                                            
  purchase of Allied Bond & Collection Agency                               (134)       (131)                         
 Other                                                                         7          31                         
                                                                        --------   ---------                         
Net cash (used by) investing activities                                   (1,650)       (473)                         
                                                                        --------   ---------                         
                                                                                                                     
Cash Flows From Financing Activities:                                                                                
 Principal payments on long-term debt                                        (59)        (54)                         
 Principal payments on capital lease obligations                             (75)        (52)                         
 Fair market value of shares of common stock received                                                                
  from an optionee to satisfy withholding tax obligation                    (868)          -                         
 Proceeds from the exercise of stock options                                 361           -                         
                                                                        --------   ---------                         
Net cash (used by) financing activities                                     (641)       (106)                         
                                                                        --------   ---------                         
                                                                                                                     
Net (decrease) increase in cash and short-term  investments               (2,650)      1,248                         
                                                                                                                     
Cash and short-term investments at June 30                                43,163      36,735                         
                                                                        --------   ---------                         
                                                                                                                     
Cash and short-term investments at December 31                           $40,513    $ 37,983                         
                                                                        ========   =========                         
                                                                                                                     
Supplemental disclosures of cash flow information:                                                                   
 Interest paid                                                           $   685    $    748                         
 Income taxes paid                                                         2,036       1,302                          
</TABLE> 

 

                                       6
<PAGE>
 
                    THE UNION CORPORATION AND SUBSIDIARIES
     Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
                  For the Six Months Ended December 31, 1996
                            (Dollars in thousands)
 
<TABLE> 
<CAPTION>  
                                                   Additional                                                         
                                           Common     paid-in   Retained    Treasury
                                            stock     capital   earnings       stock                                  
                                           ------     -------   --------   ---------                                  
<S>                                       <C>        <C>        <C>        <C> 
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)                                 
                                                                                                                      
Net income                                      -           -      1,441           -                                  
                                                                                                                      
Proceeds from common stock issued                                                                                     
  upon exercise of stock options                                                                                      
  (2,333 shares)                                1          28          -           -                                  
                                           ------     -------   --------   ---------                                  
                                                                                                                      
Balance at December 31, 1996               $4,335     $44,166    $53,789    $(36,806)                                 
                                           ======     =======   ========   =========                                   
</TABLE>


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.

                                       7
<PAGE>
 
                    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 

                                       8
<PAGE>
 
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 March 31,
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.

                                       9
<PAGE>
 
                    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
December 31, 1996 with cash and short-term investments totaling $40,513,000,
working capital of $30,889,000 and net worth of $65,484,000.  During the six
months ended December 31, 1996, the net cash used by operating activities was
$359,000 compared to the net cash provided by operating activities of
$1,827,000 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 $5,441,000 an
increase of $3,614,000 compared to a year ago.  This increase was principally
the result of improved year-to-date operating results at the preexisting account
receivable management companies and the inclusion of the results of new
outsourcing companies. The six months ended December 31, 1995 also included an
increase in other current assets and other assets of $900,000 for cash deposited
into a trust established to fund deferred bonuses for a chairman of a subsidiary
of the Company.

          The Company's capital spending during the six months ended December
31, 1996 was $1,523,000 compared with $373,000 a year ago.  This increase was
principally attributable to the purchase of computer and office equipment and
leasehold improvements by Interactive Performance, Inc. ("Interactive
Performance") and High Performance Services, Inc. ("High Performance Services"),
principally due to the start-up of the new outsourcing businesses.

          As of February 7, 1997, 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 and High Performance Services, 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 December 31, 1996, approximately $1,038,000 of such
contingent payments have 

                                       10
<PAGE>
 
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 bank extended 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 6.25% at December 31, 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 February 7,
1997, 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,
together with certain other amounts, be paid to the Chairman at the time of his
retirement.  The discounted net present value of the deferred compensation at
December 31, 1996 was approximately $3,100,000, which amount is included in
"Accrued expenses" 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 $2,500,000 at
December 31, 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 December 31, 1996, $250,000 of the balance 

                                       11
<PAGE>
 
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".

          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
16 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.


Six Months Ended December 31, 1996  vs. Six Months Ended December 31, 1995
--------------------------------------------------------------------------

Operating Revenues
------------------

          Operating revenues increased by 20% to $57,718,000 for the six months
ended December 31, 1996 compared with $48,056,000 for the six months ended
December 31, 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 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 $29,456,000 for the six months ended December 31, 1996
compared with $27,990,000 a year ago.  Revenues at Capital Credit increased by
19% for the six months ended December 31, 1996 compared with a year ago, which
was the result of an increase in the dollar value of accounts placed for
collection from its clients.  Allied Bond reported a 9% decrease in revenues
compared with a year ago primarily resulting from a decrease in the number of
collectors employed by Allied Bond and the changing market conditions previously
reported, such as reduced collectibility of accounts placed for collections.
Allied also reported an increase in the dollar value of accounts placed for
collection from its clients during the six months ended December 31, 1996
compared to a year ago.

                                       12
<PAGE>
 
Operating Expenses
------------------

          Operating expenses increased by $6,232,000 for the six months ended
December 31, 1996 compared with the six months ended December 31, 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, most significantly, 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 $1,743,000
for the six months ended December 31, 1996 compared with the six months ended
December 31, 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 $308,000 for the
six months ended December 31, 1996 compared with the six months ended December
31, 1995 due to the inclusion of the depreciation expense of Interactive
Performance and High Performance Services, partially offset by decreases in
depreciation expense at Transworld Systems, Capital Credit and Allied Bond.

Operating Income
----------------

          Operating income increased by 35% to $5,303,000 for the six months
ended December 31, 1996 compared with $3,924,000 for the six months ended
December 31, 1995.  This increase was due to increases at Transworld Systems and
Capital Credit, 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 $6,600,000 for the six months ended December 31,
1996, an increase of 12%, compared with $5,879,000 a year ago, principally
reflecting the increase in its revenues and an operating margin in excess of
22%, before amortization of goodwill, for the six months ended December 31,
1996. Capital Credit's operating income increased significantly for the six
months ended December 31, 1996 compared with a year ago.  Allied Bond reported
only a slight decrease in operating income, before amortization of goodwill and
depreciation expense related to its acquisition, for the six months ended
December 31, 1996 compared to a year ago despite a 9% decrease in revenues
compared with a year ago.

                                       13
<PAGE>
 
Interest Expense and Interest Income
------------------------------------

          Interest expense decreased by $92,000 for the six months ended
December 31, 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 was essentially unchanged for the six months ended December 31, 1996
compared with a year ago.

          During the six months ended December 31, 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 six months ended December 31, 1996 and 1995.


Three Months Ended December 31, 1996  vs. Three Months Ended December 31, 1995
------------------------------------------------------------------------------

Operating Revenues
------------------

          Operating revenues increased by 20% to $28,977,000 for the three
months ended December 31, 1996 compared with $24,069,000 for the three months
ended December 31, 1995 reflecting increases at Transworld Systems and Capital
Credit and, most significantly, the inclusion of revenues from the Company's
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 $14,571,000 for the three months ended
December 31, 1996 compared with $14,174,000 a year ago.  Revenues at Capital
Credit increased by 22% for the three months ended December 31, 1996 compared
with a year ago, which was the result of an increase in the dollar value of
accounts placed for collection from its clients.  Allied Bond reported a 13%
decrease in revenues compared with a year ago primarily resulting from a
decrease in the number of collectors employed by Allied Bond and the changing
market conditions previously reported, such as reduced collectibility of
accounts placed for collection.  Allied also reported an increase in the dollar
value of accounts placed for collection from its clients during the three months
ended December 31, 1996 compared to a year ago.

Operating Expenses
------------------

          Operating expenses increased by $3,193,000 for the three months ended
December 31, 1996 compared with the three months ended December 31, 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, most significantly, the
inclusion of the operating expenses of Interactive Performance and High
Performance Services, partially offset by a decrease in operating expenses at
Allied Bond.

                                       14
<PAGE>
 
Selling, General and Administrative Expenses
--------------------------------------------

          Selling, general and administrative expenses increased by $954,000 for
the three months ended December 31, 1996 compared with the three months ended
December 31, 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 expenses increased by $169,000 for the
three months ended December 31, 1996 compared with the three months ended
December 31, 1995 due to the inclusion of the depreciation expense of
Interactive Performance and High Performance Services, partially offset by
decreases in depreciation expense at Transworld Systems, Capital Credit and
Allied Bond.

Operating Income
----------------

          Operating income increased by 30% to $2,561,000 for the three months
ended December 31, 1996 compared with $1,969,000 for the three months ended
December 31, 1995.  This increase was due to increases at Transworld Systems and
Capital Credit, and the inclusion of the operating results of Interactive
Performance and High Performance Services, partially offset by a decrease in
operating income at Allied Bond, before amortization of goodwill and
depreciation expense related to its acquisition, and an increase in Corporate
office expenses.  Transworld Systems reported operating income, before
amortization of goodwill, of $3,286,000 for the three months ended December 31,
1996, an increase of 11%, compared with $2,954,000 a year ago, principally
reflecting the increase in its revenues and an operating margin in excess of
22%, before amortization of goodwill, for the three months ended December 31,
1996. Capital Credit's operating income increased significantly for the three
months ended December 31, 1996 compared with a year ago.

Interest Expense and Interest Income
------------------------------------

          Interest expense decreased by $35,000 for the three months ended
December 31, 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 was essentially unchanged for the three months ended December 31, 1996
compared with a year ago.

          During the three months ended December 31, 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 December 31, 1996 and 1995.

                                       15
<PAGE>
 
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.

                                       16
<PAGE>
 
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.

                                       17
<PAGE>
 
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, 

                                       18
<PAGE>
 
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 within the next twelve months. 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 six months ended December 31, 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.

                                       19
<PAGE>
 
Item 4.  Submission of Matters to a Vote of Security Holders:
-------------------------------------------------------------

On November 14, 1996, the Company held its Annual Meeting of Stockholders.  The
following matter was voted on and approved by the stockholders:

          Messrs. Melvin L. Cooper and Gordon S. Dunn were re-elected to the
Board of Directors and Messrs. John E. Angle, William B. Hewitt, Robert A. Kerr,
James C. Miller III, Stuart J. Northrop and Herbert R. Silver continued to serve
as members of the Board of Directors after the meeting.

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 December
     31, 1996.

                                       20
<PAGE>
 
                                 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:  February 12, 1997      By: Melvin L. Cooper
                                  ------------------------------
                                  Melvin L. Cooper
                                  Chairman of the Board
                                  (Chief Executive Officer)



Date:  February 12, 1997      By: Nicholas P. Gill
                                  -------------------------------
                                  Nicholas P. Gill
                                  Vice President,
                                  Treasurer and Secretary
                                  (Chief Financial Officer)

                                       21