<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
For the quarterly period ended March 31, 1994
-----------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
---------------- ----------------
Commission File Number: 1-10104
------------------------------------------
United Capital Corp.
- - ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2294493
- - ---------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 Great Neck Road, Suite 401, Great Neck, New York 11021
- - ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
516-466-6464
- - ---------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- - ---------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.10 par value -- 6,081,561 shares outstanding
as of May 16, 1994.
Page 1 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of March 31, 1994 and December 31, 1993 3
Consolidated Statements of Income for
the Three Months Ended March 31, 1994 and
1993 4
Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1994 and
1993 5-6
Notes to Consolidated Financial Statements 7-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12-17
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 18
Page 2 of 18
<PAGE>
<TABLE>
<CAPTION>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1994 AND DECEMBER 31, 1993
(UNAUDITED)
ASSETS 1994 1993
- - ------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,999,972 $ 3,749,301
Marketable securities 2,912,296 1,718,277
Notes and accounts
receivable, net 18,547,927 13,681,863
Inventories 14,294,345 8,069,275
Prepaid expenses and other
current assets 979,033 634,056
Deferred income taxes 291,126 609,078
------------ ------------
Total current assets 39,024,699 28,461,850
------------ ------------
PROPERTY, PLANT AND
EQUIPMENT, net 12,968,875 8,913,186
REAL PROPERTY HELD FOR
RENTAL, net 73,077,235 74,392,684
NONCURRENT NOTES RECEIVABLE 814,548 822,541
OTHER ASSETS 10,941,621 2,030,641
DEFERRED INCOME TAXES 457,194 261,062
------------ ------------
Total assets $137,284,172 $114,881,964
------------ ------------
------------ ------------
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY 1994 1993
- - -------------------- ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of
long-term debt $ 6,398,570 $ 6,414,052
Loans payable to banks 11,155,000 1,895,000
Accounts payable and
accrued liabilities 17,004,846 11,987,590
Income taxes payable 4,450,011 4,355,182
------------ ------------
Total current
liabilities 39,008,427 24,651,824
LONG-TERM LIABILITIES:
Long-term debt 57,539,401 58,640,201
Other long-term liabilities 8,407,626 1,412,087
------------ ------------
Total liabilities 104,955,454 84,704,112
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 609,026 606,326
Additional paid-in capital 15,009,959 14,921,406
Retained earnings 16,092,531 14,650,120
Net unrealized gain (loss)
on marketable securities,
net of tax 617,202 -
------------ ------------
Total stockholders'
equity 32,328,718 30,177,852
------------ ------------
Total liabilities and
stockholders' equity $137,284,172 $114,881,964
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE BALANCE SHEETS
Page 3 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, 1994 March 31, 1993
-------------- --------------
REVENUES:
<S> <C> <C>
Net sales $15,642,662 $12,731,094
Rental revenues from real estate
operations 5,713,248 5,101,289
----------- -----------
Total revenues 21,355,910 17,832,383
----------- -----------
COSTS AND EXPENSES:
Cost of sales 11,354,597 8,801,733
Real estate operations -
Mortgage interest expense 1,338,790 1,456,543
Depreciation expense 1,591,732 1,581,563
Other operating expenses 1,152,645 1,220,036
General and administrative expenses 1,879,227 2,185,399
Selling expenses 1,796,264 1,268,033
----------- -----------
Total costs and expenses 19,113,255 16,513,307
----------- -----------
Income from operations 2,242,655 1,319,076
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net of
dividend and interest income (211,740) (174,683)
Other income and expense, net 496,496 486,263
----------- -----------
Total other income (expense) 284,756 311,580
----------- -----------
Income before income taxes 2,527,411 1,630,656
Provision for income taxes 1,085,000 660,000
----------- -----------
Income before cumulative effect
of change in accounting principle 1,442,411 970,656
Cumulative effect of change in
accounting principle - 702,000
----------- -----------
Net income $ 1,442,411 $ 1,672,656
----------- -----------
----------- -----------
Earnings per share:
Income before cumulative effect
of change in accounting principle $ .23 $ .16
Cumulative effect of change in - .11
accounting principle
----------- -----------
Net income per common share $ .23 $ .27
----------- -----------
----------- -----------
Weighted average number of common
shares outstanding 6,196,509 6,305,587
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 4 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,442,411 $ 1,672,656
------------ ------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,044,576 1,994,604
Cumulative effect of change in accounting
principle - (702,000)
Net realized and unrealized (gains)
losses on marketable securities - (285,789)
Changes in assets and liabilities, net
of effects from business acquisitions (A) (1,327,449) (794,943)
------------ ------------
Total adjustments 717,127 211,872
------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,159,538 1,884,528
------------ ------------
Cash Flows From Investing Activities:
Purchase of marketable securities (258,866) (137,683)
Proceeds from sale of marketable securities -
Acquisition of property, plant and
equipment (2,551,973) (340,686)
Cash paid in acquisition of operating
business, net of cash acquired (2,673,000) -
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (5,483,839) (478,369)
------------ ------------
Cash Flows From Financing Activities:
Principal payments on mortgage
commitments, notes and loans (1,909,282) (2,046,557)
Net borrowings under lines of credit 3,393,000 1,035,000
Purchase of common shares (131,246) (491,314)
Proceeds from exercise of stock options 222,500 -
------------ ------------
NET CASH USED IN FINANCING
ACTIVITIES 1,574,972 (1,502,871)
------------ ------------
Net decrease in cash and cash equivalents (1,749,329) (96,712)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 3,749,301 2,271,889
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,999,972 $ 2,175,177
------------ ------------
------------ ------------
</TABLE>
Page 5 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993 (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period For:
Interest $ 1,580,194 $ 1,708,542
Taxes 1,182,399 202,995
----------- -----------
----------- -----------
Supplemental Schedule of Noncash Investing
and Financing Activities:
Acquisition of operating business -
Purchase price $ 9,607,000 $ -
Cash paid (3,140,000) -
----------- -----------
Assumption of Debt $ 6,467,000 $ -
----------- -----------
----------- -----------
(A) Changes in assets and liabilities, net of effects from business
acquisitions, for the three months ended March 31, 1994 and 1993
are as follows:
Decrease (increase) in notes and
accounts receivable, net $ 794,936 ($ 123,331)
Increase in inventories (671,070) (551,769)
Decrease (increase) in prepaid
expenses and other current assets (192,977) 283,757
Increase in deferred income taxes (196,132) (1,465,049)
Decrease (increase) in real property
held for rental, net (349,843) 10,207
Decrease (increase) in noncurrent notes
receivable 7,993 3,018
Decrease (increase) in other assets (6,922,980) (271,560)
Increase (decrease) in accounts payable
and accrued liabilities (887,744) 1,358
Increase in income taxes payable 94,829 892,302
Increase in other
long-term liabilities 6,995,539 426,124
----------- ------------
Total ($ 1,327,449) ($ 794,943)
----------- ------------
----------- ------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 6 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q used for quarterly
reports under Section 13 or 15(d) of the Securities Exchange Act of 1934, and
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles.
The financial information included in this report has been prepared in
conformity with the accounting principles and methods of applying those
accounting principles, reflected in the financial statements included in the
Annual Report on Form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 1993.
All adjustments necessary for a fair statement of the results for the
interim periods presented have been recorded.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the year.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1993 the Registrant adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). In
prior years, the Registrant accounted for income taxes using Accounting
Principles Board Opinion No. 11. SFAS 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the tax basis of an asset or liability and its reported
amount in the consolidated financial statements using enacted tax rates. Future
tax benefits attributable to these differences are recognized to the extent that
realization of such benefits is more likely than not.
Under the provisions of SFAS 109, the Registrant has elected not to restate
prior years' consolidated financial statements. The cumulative effect of this
accounting change on years prior to 1993 resulted in a benefit of $702,000, or
$.11 per share which was recorded in the 1993 first quarter results.
Page 7 of 18
<PAGE>
The cumulative benefit recorded by the Registrant primarily arises from
basis differences of real properties held for rental for financial statement and
income tax purposes. Based upon the Registrant's historical and projected
levels of pre-tax income, management believes it is more likely than not that
the Registrant will realize such benefits in the future and accordingly no
valuation reserve has been recorded.
The components of the net deferred tax asset (liability) at March 31, 1994
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Realization allowances related to marketable
securities, accounts receivable and
inventories $ 115,247
Basis differences relating to real
property held for rental 1,446,670
Accrued expenses, deductible when paid 1,496,393
Deferred revenue and profit (for
tax purposes) (247,422)
Basis differences relating to certain
investments obtained in the BMG merger (1,642,060)
Property, plant & equipment (199,685)
Pensions (199,465)
Other, net (21,358)
-----------
Net deferred tax asset 748,320
Current portion 291,126
-----------
Noncurrent portion $ 457,194
-----------
-----------
</TABLE>
BUSINESS ACQUISITIONS
On March 14, 1994 the Registrant, through a new wholly-owned subsidiary
known as Kentile, Inc., purchased substantially all of the operating assets of
Kentile Floors, Inc. ("Kentile") for approximately $9.6 million. Kentile, Inc.
is expected to generate approximately $40 million in revenues during calendar
1994. The purchase price was comprised of approximately $6.5 million in new
bank financing and approximately $3.1 million in cash including a portion paid
to obtain clear title to Kentile's Chicago manufacturing facility.
The $3.1 million cash payment includes $775,000 that was advanced to
Kentile by the Registrant during 1993 and was also partially derived from a
total of $4 million in short-term borrowings by the Registrant during the first
quarter of 1994. The proceeds from this sale were used by Kentile to repay
amounts outstanding under its asset-based lending agreement, thereby relieving
the Registrant of its obligation under the letter of credit, discussed below.
Page 8 of 18
<PAGE>
In November 1992, Kentile filed for protection under Chapter 11 of the
United States Bankruptcy Code. Subsequent thereto, the Registrant acquired a
one-third equity interest in Kentile together with an option to purchase an
additional interest in the future. In consideration for this interest and
option in Kentile, the Registrant provided a $2 million letter of credit to
partially guarantee borrowings under Kentile's asset-based lending agreement.
The letter of credit arrangement was made pursuant to Bankruptcy Court approval
on a priority basis. In light of the uncertain outcome of Kentile's bankruptcy
proceedings, no value was assigned to the stock acquired by the Registrant.
The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the purchase price, including associated costs of
the acquisition, was allocated to assets acquired and liabilities assumed based
on their fair value at the date of acquisition as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current Assets $ 11,834
Current Liabilities (5,905)
Property, plant & equipment 1,883
Non-current assets 1,988
Long-term liabilities (193)
---------
Allocated purchase price $ 9,607
---------
---------
</TABLE>
The results of operations of Kentile have been included in the accompanying
consolidated statements of income from the date of acquisition.
The following unaudited pro-forma consolidated results of operations of the
Registrant for the three months ended March 31, 1994 and 1993, assume that the
acquisition of Kentile had occurred at the beginning of each period presented.
In addition to combining historical results of operations of the two companies,
the pro-forma calculations include adjustments to historical assets, liabilities
and results of operations which occur in a purchase.
UNAUDITED PRO-FORMA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(In thousands except per
share amounts) 1994 1993
---------- --------
<S> <C> <C>
Revenues $ 28,420 $ 31,347
---------- --------
---------- --------
Net Income $ 560 $ 1,557
---------- --------
---------- --------
Net Income Per Common $ .09 $ .25
Share
---------- --------
---------- --------
</TABLE>
The above financial information is not necessarily indicative of the actual
results that would have occurred had the acquisition of Kentile been consummated
at the beginning of the periods presented or of future operations of the
combined companies.
Page 9 of 18
<PAGE>
In a separate transaction, the Registrant acquired the underlying mortgage
secured by Kentile's manufacturing facilities for $3,000,000. One such facility
is not currently being utilized in Kentile's operations. This note has a face
amount outstanding of approximately $6.5 million plus delinquent accrued
interest. Due to the uncertainty of collection of this note the Registrant has
accounted for this mortgage as an in-substance foreclosure and accordingly
recorded the purchase price as property, plant and equipment in the accompanying
consolidated balance sheet.
MARKETABLE SECURITIES
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). This standard requires,
among other things, that investments in debt and equity securities be classified
as either held-to-maturity, trading, or available for sale. Investments in debt
securities will be classified as held-to-maturity and measured at amortized cost
in the consolidated balance sheet only if the Registrant has the positive intent
and ability to hold those securities to maturity. Debt and equity securities
that are purchased and held principally for the purpose of selling in the near
term will be measured at fair value and classified as trading
securities. Unrealized gains and losses on trading securities will be included
in current earnings. All securities not classified as trading or held-to-
maturity will be classified as available for sale and measured at fair value.
Unrealized gains and losses on securities available for sale will be recorded
net, as a separate component of stockholders' equity until realized.
The Registrant adopted SFAS 115 effective January 1, 1994. The application
of this new principle has resulted in an increase in the Registrant's
stockholders' equity of approximately $617,000 on a net of tax basis at March
31, 1994 . This change in accounting principle is not expected to have a
material effect upon the consolidated financial results of the Registrant given
the current market value and cost basis of securities available for sale.
At March 31, 1994 and December 31, 1993 the aggregate market value of
marketable securities which are all available for sale exceeded their aggregate
cost by approximately $935,000 and $578,000, respectively.
CONTINGENCIES
The Registrant has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities.
The process of remediation has begun at one facility pursuant to a plan
filed with the New Jersey Department of Environmental Protection and Energy
("NJDEPE"). Environmental experts engaged by the Registrant currently estimate
that under the most probable remediation scenario the remediation of this site
is anticipated to require initial expenditures of $860,000, including the cost
of capital equipment, and $86,000 in annual operating and maintenance costs over
a 15-year period.
Page 10 of 18
<PAGE>
Environmental studies at the second facility indicate that remediation
may be necessary. Based upon the facts presently available, environmental
experts have advised the Registrant that under the most probable remediation
scenario, the estimated cost to remediate this site is anticipated to require
$2.3 million in initial costs, including capital equipment expenditures, and
$258,000 in annual operating and maintenance costs over a 10-year period. The
Registrant may revise such estimates in the future due to the uncertainty
regarding the nature, timing and extent of any remediation efforts that may be
required at this site, should an appropriate regulatory agency deem such
efforts to be necessary.
The foregoing estimates may also be revised by the Registrant as new or
additional information in these matters become available or should the NJDEPE
or other regulatory agencies require additional or alternative remediation
efforts in the future. It is not currently possible to estimate the range or
amount of any such liability.
Although the Registrant believes that it is entitled to full defense and
indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the Registrant's insurers have denied such
coverage. Accordingly, the Registrant has filed an action against certain
insurance carriers seeking defense and indemnification with respect to all
prior and future costs incurred in the investigation and remediation of these
sites. Upon the advice of counsel, the Registrant believes that based upon a
present understanding of the facts and the present state of the law in New
Jersey, it is probable that the Registrant will prevail in the pending
litigation and thereby access all or a very substantial portion of the
insurance coverage it claims; however, the ultimate outcome of litigation
cannot be predicted.
As a result of the foregoing, the Registrant has not recorded a charge
to operations for the environmental remediation, noted above, in the
consolidated financial statements, as anticipated proceeds from insurance
recoveries are expected to offset such liabilities. Although the Registrant
has reached a settlement with two insurance carriers, it has not recognized
any significant recoveries to date.
In the opinion of management, these matters will be resolved favorably
and such amounts, if any, not recovered under the Registrant's insurance
policies will be paid gradually over a period of years and, accordingly,
should not have a material adverse effect upon the business, liquidity or
financial position of the Registrant. However, adverse decisions or events,
particularly as to the merits of the Registrant's factual and legal basis
could cause the Registrant to change it's estimate of liability with respect
to such matters in the future.
Effective January 1, 1994 the Registrant has adopted the provisions of
Staff Accounting Bulletin 92 by recording the expected liability associated
with remediation efforts as a component of other long-term liabilities and the
anticipated insurance recoveries as a component of other assets in the
Registrant's consolidated financial statements.
Page 11 of 18
<PAGE>
The Registrant is involved in various other litigation and legal matters
which are being defended and handled in the ordinary course of business. None
of these matters are expected to result in a judgment having a material
adverse effect on the Registrant's consolidated financial position or results
of operations.
COMMON STOCK
During the first three months of 1994, the Registrant purchased and
retired 13,500 shares of its common stock at a cost of $131,246. During the
same period in 1993, 111,304 shares were purchased and retired at a cost of
$491,314.
Authorized Capital and Treasury Stock
At the June 8, 1993 Annual Meeting of Stockholders, stockholders voted
to amend the Registrant's Certificate of Incorporation to reduce the
authorized capital of the Registrant to 7,500,000 shares of $.10 par value
common stock.
Earnings Per Share
Earnings per share computations for each quarterly period presented are
based on the weighted average number of common shares and dilative common
equivalent shares outstanding during the period. Fully diluted and primary
earnings per common share are the same amounts for each of the periods
presented. Earnings per share data is neither restated nor adjusted currently
to obtain quarterly amounts which equal the amount computed for the year-to-
date.
RECLASSIFICATIONS
Certain amounts have been reclassified in the prior year financial
statements to present them on a basis consistent with the current year.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
Revenues for the three-month period ended March 31, 1994 were
$21,356,000, a $3,524,000 increase from comparable 1993 revenues. Net income
for the period was $1,442,000 or $.23 per share as compared to net income of
$1,673,000 or $.27 per share for the same period in 1993. Earnings before
cumulative effect of change in accounting principle for the first three months
of 1994 were $.23 per share as compared to $.16 per share for the same period
in 1993.
Page 12 of 18
<PAGE>
REAL ESTATE OPERATIONS
Rental revenues from real estate operations increased $612,000 or 12%
for the three-month period ended March 31, 1994 versus such revenues for the
comparable 1993 period. This increase is primarily the result of additional
revenues generated from the renewal of existing leases at higher rates.
Mortgage interest expense decreased $118,000 during the quarter ended
March 31, 1994 as compared to such expense in the corresponding 1993 period.
This represents a 8% decrease which is the result of continuing mortgage
amortization.
Depreciation expense associated with rental properties was virtually
unchanged during the three-month period just ended as compared to such expense
for the same period in 1993.
Operating expenses associated with the management of real estate
properties decreased $67,000 for the three-month period ended March 31, 1994
versus that of the same period in 1993. The timing of certain maintenance
costs in the current quarter and prior year account for this decrease.
ANTENNA SYSTEMS
The Registrant's antenna systems segment includes Dorne & Margolin, Inc.
and D&M/Chu Technology, Inc.
The operating results of the antenna systems segment for the three-month
period ended March 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
(In thousands) 1994 1993
------- -------
<S> <C> <C>
Net Sales $ 5,304 $ 5,442
------- -------
------- -------
Cost of Sales $ 3,787 $ 3,482
------- -------
------- -------
Selling, General and
Administrative Expenses $ 1,264 $ 1,436
------- -------
------- -------
Income from Operations $ 253 $ 524
------- -------
------- -------
</TABLE>
Net sales of the antenna systems segment decreased $138,000 or 3% during
the first quarter of 1994 versus such sales generated during the comparable
1993 period. Reduction in military, as well as commercial sales continue to
seriously effect the Registrant's antenna systems segment.
Cost of sales as a percentage of net sales for the antenna systems
segment increased 7.4% during the first quarter of 1994 as compared to that of
the same period in 1993. This increase is the result of changes in the mix of
products sold and from incurring additional manufacturing costs of certain
D&M/CHU products that are now being manufactured at Dorne & Margolin. This is
not expected to continue in the future as experience is gained in the
production of these products.
Page 13 of 18
<PAGE>
Selling, general and administrative expenses of the antenna systems
segment decreased $172,000 for the quarter as compared to such expenses in the
corresponding period of 1993. This decrease is the result of administrative
savings resulting from the consolidation of the Dorne & Margolin and D&M/Chu
operations.
ENGINEERED PRODUCTS
The Registrant's engineered products segment includes Metex Corporation
and AFP Transformers, Inc.
The operating results of the engineered products segment for the three-
month period ended March 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
(In thousands) 1994 1993
------- -------
<S> <C> <C>
Net Sales $ 8,453 $ 7,289
------- -------
------- -------
Cost of Sales $ 6,215 $ 5,320
------- -------
------- -------
Selling, General and
Administrative Expenses $ 1,355 $ 1,399
------- -------
------- -------
Income from Operations $ 883 $ 570
------- -------
------- -------
</TABLE>
Net sales generated by the engineered products segment increased $1,164,000
for the three-month period ended March 31, 1994 as compared to net sales
generated during the comparable 1993 period. This increase is the result of
higher automotive related sales at Metex' Technical Products Division and is
offset by slightly lower sales generated by AFP Transformers. The additional
sales generated by Metex is primarily a result of increased demand for the
company's air bag components.
Cost of sales as a percentage of net sales increased by less than 1% for
the quarter ended March 31, 1994 versus that of the corresponding period in
1993.
Selling, general and administrative expenses of the engineered products
segment decreased $44,000 or 3% for the quarter and ended March 31, 1994
versus the corresponding 1993 period. This decrease primarily results non-
recurring SG&A costs of AFP Transformers incurred in 1993 in connection with
the relocation of such operations from Massachusetts to New Jersey.
Page 14 of 18
<PAGE>
RESILIENT VINYL FLOORING
The Registrant's resilient vinyl flooring segment, which is now known as
Kentile, Inc. was acquired on March 14, 1994 through the acquisition of
substantially all of the operating assets of Kentile Floors, Inc. The
operations of Kentile, Inc. have been included here and in the accompanying
consolidated statements of income since the acquisition date, as outlined
below.
<TABLE>
<CAPTION>
Three Months
Ended March 31, 1994
--------------------
<S> <C>
Net Sales $1,886
------
------
Cost of Sales $1,352
------
------
Selling, General and
Administrative Expenses $ 478
------
------
Income from operations $ 56
------
------
</TABLE>
See Notes to Consolidated Financial Statements for a further explanation of
the acquisition and pro-forma financial information.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the
manufacturing operations decreased by $40,000 for the three-month period ended
March 31, 1994 versus that of the same period in 1993. This decrease in
general and administrative expenses is primarily the result of lower
professional fees incurred in the current year period.
OTHER INCOME AND EXPENSE
The components of other income and expense in the accompanying
consolidated statements of income for the three-month period ended March 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1994 1993
--------- ---------
<S> <C> <C>
Gain on sales of real
estate assets $ 286,496 $ 158,298
Net realized and
unrealized gains (losses)
on marketable securities - 285,789
Income from equity
investments 35,000 3,676
Other 175,000 38,500
--------- ---------
$ 496,496 $ 486,263
--------- ---------
--------- ---------
</TABLE>
Page 15 of 18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1994, the Registrant's cash resources exceeded business
requirements with current assets exceeding current liabilities by
approximately $16,272.
In addition, the Registrant has an unsecured line of credit with a bank
which provides for borrowings up to $7,000,000 at the bank's prime lending
rate. At March 31, 1994, $4,000,000 was outstanding under this facility.
This demand facility is reviewed by the bank annually on May 31.
On March 14, 1994, the Registrant, through a new wholly-owned subsidiary known
as Kentile, Inc., purchased substantially all of the operating assets of
Kentile for approximately $9.6 million. Kentile is expected to generate
approximately $40 million in revenues during calendar 1994. See Notes to
Consolidated Financial Statements.
The Registrant has received approval for the State of Illinois and State
of New York for Industrial Development Bonds in the amount of $10 million and
$3 million, respectively. The Illinois bonds will help finance the purchase
of capital equipment in connection with the purchase and continuing
improvements to the operations of Kentile and will result in the transition of
approximately $4 million of current loans payable at March 31, 1994 to long-
term debt. The New York bonds will help to finance the expansion of the Dorne
& Margolin facility in connection with the relocation of the D&M/CHU
operations to Bohemia, New York. The Registrant expects to receive the
proceeds from these bonds during the third quarter of 1994.
The Registrant has undertaken the completion of environmental studies and/or
remedial action at Metex' two New Jersey facilities and has filed an action
against certain insurance carriers seeking recovery of costs incurred and to
be incurred in these matters. Based upon the advice of counsel, management
believes such recovery is probable and therefore should not have a material
effect on the liquidity or capital resources of the Registrant. See notes to
Consolidated Financial Statements.
The cash needs of the Registrant have been satisfied from funds generated by
current operations and additional borrowings. It is expected that future
operational cash needs will also be satisfied from ongoing operations and
additional borrowings. The primary source of capital to fund additional real
estate acquisitions will come from the sale, financing and refinancing of the
Registrant's properties and from the third party mortgages and purchase money
notes obtained in connection with specific acquisitions.
In addition to the acquisition of properties for consideration consisting of
cash and mortgage financing proceeds, the Registrant may acquire real
properties in exchange for the issuance of the Registrant's equity securities.
The Registrant may also finance acquisitions of other companies in the future
with borrowings from institutional lenders and/or the public or private
offerings of debt or equity securities.
Page 16 of 18
<PAGE>
Funds of the Registrant in excess of that needed for working capital,
purchasing real estate and arranging financing for real estate acquisitions
are invested by the Registrant in corporate equity securities, corporate
notes, certificates of deposit and government securities.
BUSINESS TRENDS
Total revenues for the three months ended March 31, 1994 were $21,356,000, an
increase of $3,524,000 over the comparable 1993 period. This increase is the
result of $1,886,000 in revenues from the operations of Kentile, Inc. which
was acquired in March 1994 and from improved results in the Registrant's real
estate and engineered products businesses offset by slightly lower sales from
the antenna systems segment.
The acquisition of Kentile, Inc. will make a significant contribution to sales
during the remainder of 1994 with projections of $40 million in revenues on an
annualized basis. Marginal income contributions are expected from Kentile,
Inc. during 1994 as many aspects of Kentile's transition are being implemented
and changes begin to take shape.
The Registrant's engineered products segment continues to reflect growth in
sales of air bag components and automotive sales which has resulted in an
increase of $1,164,000 in revenues during the first quarter of 1994 versus
comparable 1993 results. With continued increases in U.S. automobile demand
and as more vehicles are outfitted with air bags, demand for these products
should continue.
The Registrant's antenna systems results reflect marginally lower revenues
during the first quarter of 1994 than during the comparable 1993 period.
Although U.S. military spending still remains low, the decrease in spending
appears to have leveled off. In addition, concentrated efforts to increase
sales have been implemented and are reflected in the 1994 results.
The improved results in the Registrant's real estate operations reflect the
renewal of existing leases at higher rents and improved results from the
Registrant's hotel properties. These results can be expected to continue in
the future as older leases are renewed with current market rates.
Although there can be no assurances as to how the events discussed
above, or other changes in the economy will impact the future financial
conditions or results of operations of the Registrant, management continues to
monitor these developments and has implemented measures to minimize the
possible negative effects they may have upon these businesses.
Page 17 of 18
<PAGE>
PART II OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits - None
(B) Reports on Form 8-K. The Registrant filed a report on Form 8-K
with the Securities and Exchange Commission on
March 28, 1994 in response to Item 2. Acquisition or
Disposition of Assets.
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.
UNITED CAPITAL CORP.
-------------------------------------
Registrant
/s/ Dennis S. Rosatelli
DATE: May 23, 1994
-------------------------------------
Dennis S. Rosatelli, Vice President, Chief
Financial Officer & Secretary of the
Registrant
Page 18 of 18
