<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 June 30, 1994
----------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number: 1-10104
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United Capital Corp.
- - - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2294493
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(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 -- 6,068,366 shares outstanding
as of August 5, 1994.
Page 1 of 21
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UNITED CAPITAL CORP. AND SUBSIDIARIES
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of June 30, 1994 and December 31, 1993 3
Consolidated Statements of Income for
the Three Months Ended June 30, 1994 and
1993 4
Consolidated Statements of Income for the
Six Months ended June 30, 1994 and 1993 5
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1994 and
1993 6-7
Notes to Consolidated Financial Statements 8-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13-19
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 19-20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 21
Page 2 of 21
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<TABLE>
<CAPTION>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1994 AND DECEMBER 31, 1993
(UNAUDITED)
ASSETS 1994 1993
-------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,692,957 $ 3,749,301
Marketable securities 2,034,000 1,718,277
Notes and accounts
receivable, net 23,515,094 13,681,863
Inventories 13,463,499 8,069,275
Prepaid expenses and other
current assets 1,203,242 634,056
Deferred income taxes 206,456 609,078
-------------- ---------------
Total current assets 43,115,248 28,461,850
-------------- ---------------
PROPERTY, PLANT AND
EQUIPMENT, net 13,274,062 8,913,186
REAL PROPERTY HELD FOR
RENTAL, net 72,584,845 74,392,684
NONCURRENT NOTES RECEIVABLE 809,911 822,541
OTHER ASSETS 10,184,779 2,030,641
DEFERRED INCOME TAXES 681,475 261,062
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Total assets $140,650,320 $114,881,964
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-------------- ---------------
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY 1994 1993
- - - -------------------- -------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of
long-term debt $ 6,650,074 $ 6,414,052
Loans payable to banks 14,816,000 1,895,000
Accounts payable and
accrued liabilities 17,701,741 11,987,590
Income taxes payable 5,460,733 4,355,182
-------------- ---------------
Total current
liabilities 44,628,548 24,651,824
LONG-TERM LIABILITIES:
Long-term debt 54,319,984 58,640,201
Other long-term liabilities 8,400,191 1,412,087
-------------- ---------------
Total liabilities 107,348,723 84,704,112
-------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 602,145 606,326
Additional paid-in capital 14,414,955 14,921,406
Retained earnings 17,502,938 14,650,120
Net unrealized gain (loss)
on marketable securities,
net of tax 781,559 -
-------------- ---------------
Total stockholders'
equity 33,301,597 30,177,852
-------------- ---------------
Total liabilities and
stockholders' equity $140,650,320 $114,881,964
-------------- ---------------
-------------- ---------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE BALANCE SHEETS
Page 3 of 21
<PAGE>
<TABLE>
<CAPTION>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
-----------------------------
June 30, 1994 June 30, 1993
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<S> <C> <C>
REVENUES:
Net sales $24,703,889 $12,232,406
Rental revenues from real estate
operations 5,357,522 4,962,039
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Total revenues 30,061,411 17,194,445
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COSTS AND EXPENSES:
Cost of sales 18,623,117 8,712,362
Real estate operations -
Mortgage interest expense 1,188,727 1,287,890
Depreciation expense 1,591,812 1,579,705
Other operating expenses 1,275,003 1,276,104
General and administrative expenses 2,404,705 2,125,417
Selling expenses 3,101,403 1,206,219
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Total costs and expenses 28,184,767 16,187,697
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Income from operations 1,876,644 1,006,748
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OTHER INCOME (EXPENSE):
Interest expense, net of
dividend and interest income (249,211) (147,309)
Other income and expense, net 762,974 1,168,543
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Total other income (expense) 513,763 1,021,234
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Income before income taxes 2,390,407 2,027,982
Provision for income taxes 980,000 800,000
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Net Income $ 1,410,407 $ 1,227,982
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------------ ------------
Earnings per share:
Net income per common share $ .23 $ .20
------------ ------------
------------ ------------
Weighted average number of common
shares outstanding 6,212,540 6,285,210
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</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 4 of 21
<PAGE>
<TABLE>
<CAPTION>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
-----------------------------
June 30, 1994 June 30, 1993
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<S> <C> <C>
REVENUES:
Net sales $40,346,551 $24,963,500
Rental revenues from real estate
operations 11,070,770 10,063,328
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Total revenues 51,417,321 35,026,828
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COSTS AND EXPENSES:
Cost of sales 29,977,714 17,514,095
Real estate operations -
Mortgage interest expense 2,527,517 2,744,433
Depreciation expense 3,183,544 3,161,268
Other operating expenses 2,427,648 2,496,140
General and administrative expenses 4,283,932 4,310,816
Selling expenses 4,897,667 2,474,252
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Total costs and expenses 47,298,022 32,701,004
------------ ------------
Income from operations 4,119,299 2,325,824
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OTHER INCOME (EXPENSE):
Interest expense, net of
dividend and interest income (460,951) (321,992)
Other income and expense, net 1,259,470 1,654,806
------------ ------------
Total other income (expense) 798,519 1,332,814
------------ ------------
Income before income taxes 4,917,818 3,658,638
Provision for income taxes 2,065,000 1,460,000
------------ ------------
Income before cumulative effect
of change in accounting principle 2,852,818 2,198,638
Cumulative effect of change in
accounting principle - 702,000
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Net Income $ 2,852,818 $ 2,900,638
------------ ------------
------------ ------------
Earnings per share:
Income before cumulative effect
of change in accounting principle $ .46 $ .35
Cumulative effect of change in
accounting principle - .11
------------ ------------
Net income per common share $ .46 $ .46
------------ ------------
------------ ------------
Weighted average number of common
shares outstanding 6,199,225 6,288,571
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------------ ------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 5 of 21
<PAGE>
<TABLE>
<CAPTION>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(UNAUDITED)
1994 1993
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $2,852,818 $2,900,638
------------ ------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 4,122,794 3,957,334
Cumulative effect of change in accounting
principle - (702,000)
Net realized and unrealized (gains)
losses on marketable securities - (743,637)
Changes in assets and liabilities, net
of effects from business acquisitions (A) (4,713,229) (541,235)
------------ ------------
Total adjustments (590,435) 1,970,462
------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,262,383 4,871,100
------------ ------------
Cash Flows From Investing Activities:
Purchase of marketable securities (411,892) (174,703)
Proceeds from sale of marketable securities 1,280,350 -
Acquisition of property, plant and
equipment (3,180,358) (608,588)
Cash paid in acquisition of operating
business, net of cash acquired (2,673,000) -
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (4,984,900) (783,291)
------------ ------------
Cash Flows From Financing Activities:
Principal payments on mortgage
commitments, notes and loans (4,877,195) (4,071,848)
Net borrowings under lines of credit 7,054,000 1,035,000
Purchase of common shares (870,632) (1,674,600)
Proceeds from exercise of stock options 360,000 -
------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,666,173 (4,711,448)
------------ ------------
Net decrease in cash and cash equivalents (1,056,344) (623,639)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 3,749,301 2,271,889
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,692,957 $1,648,250
------------ ------------
------------ ------------
</TABLE>
Page 6 of 21
<PAGE>
<TABLE>
<CAPTION>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993 (CONTINUED)
(UNAUDITED)
1994 1993
------------ ------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period For:
Interest $3,147,922 $3,229,574
Taxes 1,329,951 475,797
------------ ------------
------------ ------------
Supplemental Schedule of Noncash Investing
and Financing Activities:
See Notes to Consolidated Financial
Statements - "Business Acquisitions"
(A) Changes in assets and liabilities, net of effects from business
acquisitions, for the six months ended June 30, 1994 and 1993 are as
follows:
Increase in notes and
accounts receivable, net ($3,246,231) ($ 959,887)
Decrease (increase) in inventories 159,776 (675,565)
Decrease (increase) in prepaid
expenses and other current assets (504,449) 224,168
Increase in deferred income taxes (420,413) (1,491,791)
Decrease (increase) in real property
held for rental, net (1,525,210) 324,185
Decrease in noncurrent notes
receivable 12,630 6,025
Increase in other assets (6,592,138) (222,592)
Increase (decrease) in accounts payable
and accrued liabilities (690,849) 413,535
Increase in income taxes payable 1,105,551 1,418,138
Increase in other
long-term liabilities 6,988,104 422,549
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Total ($4,713,229) ($ 541,235)
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------------ ------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 7 of 21
<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 consolidated 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 consolidated 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 full 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.
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
Page 8 of 21
<PAGE>
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 June 30, 1994
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Realization allowances related to
accounts receivable and inventories $ 433,199
Net unrealized (gain) loss on
marketable securities (402,622)
Basis differences relating to real
property held for rental 1,670,951
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 887,931
Current portion 206,456
----------
Noncurrent portion $ 681,475
----------
----------
</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. The purchase
price was comprised of approximately $6.5 million in new bank financing and
approximately $3.1 million in cash.
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.
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 equity interest in the future. In consideration for this interest
and option in Kentile,
Page 9 of 21
<PAGE>
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 equity interest 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 $12,760
Current Liabilities (6,444)
Property, plant & equipment 1,883
Non-current assets 1,562
Long-term liabilities (154)
----------
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 six months ended June 30, 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.
<TABLE>
<CAPTION>
UNAUDITED PRO-FORMA RESULTS OF OPERATIONS
Six Months Ended
June 30,
(In thousands except per
share amounts) 1994 1993
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<S> <C> <C>
Revenues $58,481 $60,715
------- -------
------- -------
Net Income $ 1,971 $ 2,943
------- -------
------- -------
Net Income Per Common $ .32 $ .47
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.
In February 1994, in a separate transaction, the Registrant acquired the
underlying mortgage secured by Kentile's South
Page 10 of 21
<PAGE>
Plainfield facility for $2,250,000. 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 $782,000 on a net of tax basis at June 30,
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 June 30, 1994 and December 31, 1993 the aggregate market value of
marketable securities which are all available for sale exceeded their aggregate
cost by approximately $1,184,000 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 11 of 21
<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
Page 12 of 21
<PAGE>
insurance recoveries as a component of other assets in the Registrant's
consolidated financial statements.
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 six months of 1994, the Registrant purchased and retired
107,316 shares of its common stock at a cost of $870,632. In addition, during
this period 65,500 shares of the Registrant's common shares were issued pursuant
to the exercise of options under the Registrant's stock option plans. During
the same period in 1993, 270,304 shares of the Registrant's common stock were
purchased and retired at a cost of $1,674,600. There were no options exercised
during the same 1993 period.
AUTHORIZED CAPITAL
At the 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 dilutive 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 consolidated
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
SIX MONTHS ENDED JUNE 30, 1994 and 1993
Revenues for the six-month period ended June 30, 1994 were $51,417,000, a
$16,390,000 increase from comparable 1993 revenues. Net income for the period
was $2,853,000 or $.46 per share as compared to net income of $2,901,000 or
$.46 per share for the same
Page 13 of 21
<PAGE>
period in 1993. Earnings before cumulative effect of change in accounting
principle for the first six months of 1994 were $.46 per share as compared to
$.35 per share for the same period in 1993.
Revenues for the three-month period ended June 30, 1994 were $30,061,000,
an increase of $12,866,000 from revenues in the comparable 1993 period. Net
income for the second quarter of 1994 was $1,410,000 or $.23 per share as
compared to $1,228,000 or $.20 per share during the comparable 1993 period.
REAL ESTATE OPERATIONS
Rental revenues from real estate operations increased $395,000 and
$1,007,000, respectively for the three- and six-month periods ended June 30,
1994, as compared to such revenues in the comparable periods of 1993. These
increases are primarily the result of additional revenues generated from the
renewal of existing leases at higher rents.
Mortgage interest expense decreased $99,000 during the current quarter and
$217,000 during the six-month period ended June 30, 1994, versus such expense of
the corresponding periods in 1993. These decreases of approximately 8% each,
are due to continuing mortgage amortization resulting from the repayment of
approximately $5 million in mortgage indebtedness during the last 12 months.
Depreciation expense associated with rental properties was virtually
unchanged during the three- and six-month periods ended June 30, 1994, as
compared to such costs during the corresponding periods of 1993.
Operating expenses associated with the management of real estate properties
decreased approximately $68,000 or 3% for the six-month period ended June 30,
1994, versus the comparable period in 1993. The timing of certain maintenance
costs in the current and prior year periods account for this decrease. During
the current quarter, such expenses were virtually unchanged from the same period
a year ago.
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 and six
month periods ended June 30, 1994 and 1993 are as follows:
Page 14 of 21
<PAGE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
(In thousands) 1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $5,769 $ 5,415 $11,073 $10,857
------- ------- ------- -------
------- ------- ------- -------
Cost of Sales $4,168 $ 3,587 $ 7,955 $ 7,069
------- ------- ------- -------
------- ------- ------- -------
Selling, General and
Administrative Expenses $ 1,366 $ 1,356 $ 2,630 $ 2,792
------- ------- ------- -------
------- ------- ------- -------
Income from Operations $ 235 $ 472 $ 488 $ 996
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Net sales of the antenna systems segment increased $354,000 or 7% during
the second quarter of 1994 and $216,000 or 2% for the six-month period ended
June 30, 1994, versus such sales generated during the respective 1993 periods.
Increased marketing efforts and improved order input generate these increases.
Cost of sales as a percentage of net sales increased from the prior year by
6% and 7%, respectively for the three- and six-month periods just ended. These
increases are 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.
Selling, general and administrative costs of the antenna systems segment
decreased by approximately $162,000 during the first half of 1994 as compared to
such costs of the comparable 1993 period. This decrease is the result of
administrative savings resulting from the consolidation of the Dorne & Margolin
and D&M/Chu operations. SG&A costs of the current quarter were virtually
unchanged from that of the corresponding period in 1993.
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 and
six month periods ended June 30, 1994 and 1993 are as follows:
Page 15 of 21
<PAGE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
(In thousands) 1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $8,798 $6,817 $17,251 $14,106
------- ------- ------- -------
------- ------- ------- -------
Cost of Sales $6,664 $5,125 $12,879 $10,445
------- ------- ------- -------
------- ------- ------- -------
Selling, General and
Administrative Expenses $1,369 $1,237 $ 2,724 $ 2,636
------- ------- ------- -------
------- ------- ------- -------
Income from Operations $ 765 $ 455 $ 1,648 $ 1,025
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Net sales of the engineered products segment increased $3,145,000 and
$1,981,000, respectively, for the year-to-date and three-month periods ended
June 30, 1994, versus such results of the corresponding prior year periods.
These increases are the result of higher automotive related sales at Metex'
Technical Products Division and are offset by slightly lower sales generated by
AFP Transformers. The additional sales generated by Metex are primarily the
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% in
each of the three- and six-month periods ended June 30, 1994, as compared to the
respective periods in 1993.
Selling, general and administrative expenses of the engineered products
segment increased by $132,000 and $88,000, respectively, during the quarter and
year-to-date periods just ended versus such costs of the comparable 1993
periods. These increases are primarily the result of additional selling costs
associated with the increased sales volumes noted above.
RESILIENT VINYL FLOORING
The Registrant's resilient vinyl flooring segment, which is now known as
Kentile, Inc. ("Kentile"), was acquired on March 14, 1994 through the
acquisition of substantially all of the operating assets of Kentile Floors, Inc.
The operations of Kentile have been included here and in the accompanying
consolidated statements of income since the acquisition date, as outlined below.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, 1994 Ended June 30,1994
------------------- ------------------
<S> <C> <C>
Net Sales $10,136 $12,022
------- -------
------- -------
Cost of Sales $ 7,792 $ 9,144
------- -------
------- -------
Selling, General and
Administrative Expenses $ 2,249 $ 2,727
------- -------
------- -------
Income from operations $ 95 $ 151
------- -------
------- -------
</TABLE>
Page 16 of 21
<PAGE>
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 $216,000 for the three-month period ended June 30, 1994
versus that of the same period in 1993. On a year-to-date basis such costs
decreased $256,000 from the comparable 1993 period. These decreases in general
and administrative expenses are the result of lower salaries and professional
fees incurred in the current year periods.
OTHER INCOME AND EXPENSE
The components of other income and expense in the accompanying consolidated
statements of income for the three and six month periods ended June 30, 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
(In thousands) 1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Gain on sales
of real estate
assets $787,924 $ 247,018 $1,074,420 $ 405,316
Net realized and
unrealized gains
(losses) on
marketable
securities (29,926) 457,848 (29,926) 743,637
Income from equity
investments 3,676 463,677 38,676 467,353
Other 1,300 - 176,300 38,500
------- --------- --------- ---------
$762,974 $1,168,543 $1,259,470 $1,654,806
------- --------- --------- ---------
------- --------- --------- ---------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1994 the Registrant's current liabilities exceeded current assets by
approximately $1,500,000. The change in working capital since December 31, 1993
has resulted from financing the purchase of long-term assets utilizing short-
term borrowings primarily in connection with the acquisition of Kentile. The
Company intends to replace these short-term borrowings with long-term financing
by December 31, 1994. The Registrant has received approval from the State of
Illinois and State of New York for Industrial Development Bonds in the amounts
of $10 million and $3 million, respectively. The Illinois bonds will help
finance the purchase of capital equipment in connection with the purchase and
Page 17 of 21
<PAGE>
continuing improvements to the operations of Kentile and will result in the
transition of approximately $4 million of current loans payable at June 30, 1994
to long-term debt, as discussed above. 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 fourth quarter of 1994.
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
June 30, 1994, $6,650,000 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, of which approximately $6.5 million consists of
new bank financing. See Notes to Consolidated Financial Statements.
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.
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.
Page 18 of 21
<PAGE>
BUSINESS TRENDS
Total revenues of the Registrant increased $16,390,000 or 47% on a year-to-
date basis and $12,866,000 or 75% for the second quarter of 1994 versus such
results of the comparable 1993 periods. Of these additional revenues,
approximately $12 million and $10 million, respectively, were generated by
Kentile, Inc. during the six- and three-month periods ended June 30, 1994.
Kentile was acquired by the Registrant in March 1994. The Registrant's real
estate, engineered products and antenna systems segments also contributed to the
increased revenues during the second quarter and first half of this year.
The acquisition of Kentile 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
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 products which has resulted in an
increase of $3,145,000 in revenues during the first half 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 segment's results reflect slightly
improved sales during the first half 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 of 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 at 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.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 14, 1994, the Company held its Annual Meeting of Stockholders (the
"Meeting"), whereby the stockholders elected Directors and approved proposals to
(i) amend the Company's stock option plans to increase the number of shares
available for
Page 19 of 21
<PAGE>
issuance under the plans to 325,000 shares under each plan and provide that no
recipient of options may be granted options in excess of 90% of the maximum
number of shares authorized to be issued under the plans (ii) provide
performance criteria for the payment of bonuses to the Chief Executive Officer
for the Company, and (iii) ratify the appointment of Arthur Andersen & Co. as
the Company's independent auditors for the year ending December 31, 1994. The
vote on such matters was as follows:
1. ELECTION OF DIRECTORS:
<TABLE>
<CAPTION>
For Withhold
--- --------
<S> <C> <C>
Mason N. Carter 4,989,995 26,987
Howard M. Lorber 4,989,995 26,987
Arnold S. Penner 4,989,995 26,987
A.F. Petrocelli 4,977,583 39,399
Dennis S. Rosatelli 4,989,225 27,757
</TABLE>
2. TO AMEND THE 1988 JOINT INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN AND
THE 1988 INCENTIVE STOCK OPTION PLAN:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
4,765,341 195,340 56,301
</TABLE>
3. BONUS CRITERIA: To approve the proposal to provide performance criteria
for the payment of a bonus to the Chief Executive Officer.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
4,799,799 90,849 126,334
</TABLE>
4. RATIFICATION OF APPOINTMENT OF AUDITORS: To ratify the appointment of
Arthur Andersen & Co. as the independent auditors of the Company for the
year ending December 31, 1994.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
4,951,009 17,701 48,272
</TABLE>
Page 20 of 21
<PAGE>
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/A with the
Securities and Exchange Commission on May 31, 1994 in response to Item 2.
Acquisition orDisposition 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: August 12, 1994 -------------------------------------
Dennis S. Rosatelli, Vice President,
Chief Financial Officer & Secretary of
the Registrant
Page 21 of 21
