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 ending September 30, 1996
--------------------------------------
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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9 Park Place, 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 5,412,929 shares outstanding
as of November 4, 1996.
Page 1 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations for
the Three Months Ended September 30, 1996 and
1995 4
Consolidated Statements of Operations for
the Nine Months Ended September 30, 1996 and
1995 5
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1996 and
1995 6 - 7
Notes to Consolidated Financial Statements 8 - 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 - 17
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 18
Page 2 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS 1996 1995
------ ------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,965,082 $ 3,527,925
Marketable securities 235,960 83,760
Notes and accounts receivable, net 15,153,945 16,253,100
Inventories 8,468,488 7,764,873
Prepaid expenses and other current assets 689,772 687,535
Deferred income taxes 1,876,123 1,893,205
------------- -------------
Total current assets 29,389,370 30,210,398
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, net 7,429,673 9,957,648
REAL PROPERTY HELD FOR RENTAL, net 62,533,035 68,063,502
NONCURRENT NOTES RECEIVABLE 3,622,664 3,624,188
OTHER ASSETS 5,319,220 4,387,064
DEFERRED INCOME TAXES 1,758,606 956,991
------------- -------------
Total assets $ 110,052,568 $ 117,199,791
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ------------------------------------ ------------- -------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 10,151,390 $ 10,085,227
Borrowings under revolving credit facilities 7,100,000 7,785,000
Accounts payable and accrued liabilities 17,887,028 19,144,363
Income taxes payable 5,748,166 3,680,639
------------- -------------
Total current liabilities 40,886,584 40,695,229
------------- -------------
LONG-TERM LIABILITIES:
Long-term debt 32,365,863 41,899,690
Other long-term liabilities 8,657,425 8,375,643
------------- -------------
Total liabilities 81,909,872 90,970,562
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 543,243 560,608
Additional paid-in capital 8,166,312 10,101,147
Retained earnings 19,511,021 15,678,511
Minimum pension liability, net of tax (165,659) (165,659)
Net unrealized gain on marketable securities,
net of tax 87,779 54,622
------------- -------------
Total stockholders' equity 28,142,696 26,229,229
------------- -------------
Total liabilities and stockholders'
equity $ 110,052,568 $ 117,199,791
============= =============
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 OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1996 September 30, 1995
------------ ------------
<S> <C> <C>
REVENUES:
Net sales $ 14,765,953 $ 13,567,104
Rental revenues from real estate operations 6,482,497 5,740,559
------------ ------------
Total revenues 21,248,450 19,307,663
------------ ------------
COSTS AND EXPENSES:
Costs of sales 11,613,678 10,956,127
Real estate operations -
Mortgage interest expense 944,740 1,154,275
Depreciaiton expense 1,516,912 1,569,251
Other operating expenses 2,133,374 1,511,610
General and administrative expenses 1,923,111 2,104,211
Selling expenses 1,622,313 1,391,368
------------ ------------
Total costs and expenses 19,754,128 18,686,842
------------ ------------
Operating income 1,494,322 620,821
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 273,930 43,783
Interest expense (220,501) (110,354)
Other income and expense, net 350,497 200,338
------------ ------------
Total other income (expense) 403,926 133,767
------------ ------------
Income from continuing operations before
income taxes 1,898,248 754,588
Provision for income taxes 912,000 261,000
------------ ------------
Income from continuing operations 986,248 493,588
DISCONTINUED OPERATIONS:
Operating loss, net of tax benefit of $225,000 -- (436,077)
Provision for disposition, net of tax benefit
of $2,040,000 -- (3,960,000)
------------ ------------
Loss from discontinued operations, net of tax -- (4,396,077)
------------ ------------
Net income (loss) $ 986,248 ($ 3,902,489)
============ ============
Earnings (loss) per share:
Income from continuing operations $ .18 $ .08
Loss from discontinued operations, net of tax -- (.77)
------------ ------------
Net income (loss) $ .18 ($ .69)
============ ============
Weighted average number of common shares outstanding 5,517,245 5,688,029
============ ============
</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 OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996 September 30, 1995
------------ ------------
<S> <C> <C>
REVENUES:
Net sales $ 45,465,910 $ 46,010,697
Rental revenues from real estate operations 18,309,379 16,787,683
------------ ------------
Total revenues 63,775,289 62,798,380
------------ ------------
COSTS AND EXPENSES:
Costs of sales 35,438,022 35,062,028
Real estate operations -
Mortgage interest expense 2,878,948 3,433,127
Depreciaiton expense 4,762,807 4,739,862
Other operating expenses 6,023,164 4,205,956
General and administrative expenses 6,428,323 6,093,364
Selling expenses 4,959,316 4,390,710
------------ ------------
Total costs and expenses 60,490,580 57,925,047
------------ ------------
Operating income 3,284,709 4,873,333
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 766,158 554,370
Interest expense (781,762) (863,445)
Other income and expense, net 3,393,405 1,506,579
------------ ------------
Total other income (expense) 3,377,801 1,197,504
------------ ------------
Income from continuing operations before income taxes 6,662,510 6,070,837
Provision for income taxes 2,830,000 2,585,000
------------ ------------
Income from continuing operations 3,832,510 3,485,837
DISCONTINUED OPERATIONS:
Operating loss, net of tax benefit of $780,000 -- (1,512,961)
Provision for disposition, net of tax benefit of $2,040,000 -- (3,960,000)
------------ ------------
Loss from discontinued operations, net of tax -- (5,472,961)
------------ ------------
Net income (loss) $ 3,832,510 ($ 1,987,124)
============ ============
Earnings (loss) per share:
Income from continuing operations $ .69 $ .59
Loss from discontinued operations, net of tax -- (.93)
------------ ------------
Net income (loss) $ .69 ($ .34)
============ ============
Weighted average number of common shares outstanding 5,546,888 5,899,615
============ ============
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 5 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 3,832,510 ($ 1,987,124)
------------ ------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 5,989,480 5,925,306
Disposal of discontinued operations -- 1,868,597
Net realized (gains) losses
on marketable securities -- (229,979)
Changes in assets and liabilities net of effects from business
acquisitions and disposals in 1995 2,366,499 4,131,086
------------ ------------
Total adjustments 8,355,979 11,695,010
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,188,489 9,707,886
------------ ------------
Cash Flows from Investing Activities:
Purchase of marketable securities (101,962) --
Proceeds from sales of marketable securities -- 729,318
Acquisition of property, plant and equipment (544,506) (1,997,709)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (646,468) (1,268,391)
------------ ------------
Cash Flows from Financing Activities:
Principal payments on mortgage commitments, notes and loans (9,467,664) (7,713,957)
Proceeds from mortgage commitments, notes and loans -- 3,150,000
Net borrowings under revolving credit facilities (685,000) 435,000
Purchase and retirement of common shares (2,858,450) (4,478,192)
Proceeds from exercise of stock options 906,250 3,500
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (12,104,864) (8,603,649)
------------ ------------
Net decrease in cash and cash equivalents (562,843) (164,154)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,527,925 1,584,744
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,965,082 $ 1,420,590
============ ============
</TABLE>
Page 6 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Continued)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period For:
Interest $3,802,085 $4,276,210
Taxes 896,943 1,029,946
========== ==========
Supplemental Schedule of Noncash Investing
and Financing Activities:
See Notes to Consolidated Financial Statements
(A) Changes in assets and liabilities for the nine months ended September
30, 1996 and 1995, net of effects from business acquisitions and
disposals in 1995, are as follows:
Decrease in notes and accounts receivable, net $1,099,155 $ 47,127
Decrease (increase) in inventories (703,615) 402,410
Decrease (increase) in prepaid expenses
and other current assets (2,237) 3,947,558
Increase in deferred income taxes (801,614) (666,320)
Decrease (increase) in real property held for rental, net 2,613,468 (1,030,078)
Decrease in noncurrent notes receivable 1,524 21,850
Decrease (increase) in other assets (932,156) 356,634
Increase (decrease) in accounts payable and
accrued liabilities (1,257,335) 2,256,734
Increase (decrease) in income taxes payable 2,067,527 (1,236,864)
Increase in other long-term liabilities 281,782 32,035
---------- ----------
Total $2,366,499 $4,131,086
========== ==========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS
Page 7 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 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, 1995.
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.
DISCONTINUED OPERATIONS
In August 1995, the operations of the Registrant's Kentile, Inc.
("Kentile") subsidiary ceased when its raw material stocks were exhausted
resulting from an unwillingness of major trade suppliers of Kentile to extend
further credit. In December 1995, the assets of Kentile were assigned for the
benefit of creditors and are currently being liquidated. In connection with the
write-off of the Registrant's investment in Kentile, a pretax charge of
approximately $6 million, including estimated costs of disposition was recorded
in the third quarter of 1995. Additional costs could be incurred by the
Registrant as a result of this matter. Management will continue to monitor this
situation very closely, including the values received upon the disposition of
the Kentile assets.
In addition, the accompanying consolidated statements of income include
operating losses of Kentile, incurred prior to its closure, of approximately
$436,000 and $1,513,000, on an after tax basis, for the three and nine month
periods ended September 30, 1995, respectively.
Page 8 of 18
<PAGE>
MARKETABLE SECURITIES
Investments in debt securities are 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. For the purpose of calculating realized gains
and losses, the cost of investments sold is determined using the first-in,
first-out method. Unrealized gains and losses on trading securities are included
in current earnings. All securities not classified as trading or
held-to-maturity are classified as available-for-sale and measured at fair
value. Unrealized gains and losses on securities available-for-sale are recorded
net of income taxes, as a separate component of stockholders' equity until
realized. Management determines the appropriate classification of securities at
the time of purchase and reassesses the appropriateness of the classification at
each reporting date.
The aggregate market value of marketable securities, which were all
available-for-sale, was $235,960 and $83,760 at September 30, 1996 and December
31, 1995 respectively, while gross unrealized holding gains of the Registrant's
marketable security portfolio were $87,779 and $54,622 on a net of tax basis as
of September 30, 1996 and December 31, 1995, respectively.
DEFERRED TAXES
The components of the net deferred tax asset (liability) at September 30, 1996
are as follows:
Realization allowances related to
accounts receivable and inventories $ 585,046
Net unrealized (gain) loss on
marketable securities (45,220)
Basis differences relating to real
property held for rental 3,047,743
Accrued expenses, deductible when paid 2,683,819
Deferred revenue and profit (for
tax purposes) (221,486)
Basis differences relating to business acquisitions (1,858,912)
Property, plant and equipment (579,619)
Pensions 7,959
Other, net 15,399
-----------
Net deferred tax asset 3,634,729
Current portion 1,876,123
-----------
Noncurrent portion $ 1,758,606
===========
Page 9 of 18
<PAGE>
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 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.
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. The Registrant has reached
settlements with several insurance carriers in this matter.
Management believes that recoveries in excess of the amounts reflected
in the accompanying consolidated financial statements, which were $2.9 million
at September 30, 1996 and December 31, 1995, are available under the insurance
policies but have not been recorded. There can be no assurance, however, that
the Registrant will prevail in its efforts to obtain amounts at or in excess of
the estimated recoveries.
Page 10 of 18
<PAGE>
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 its 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 and accordingly has recorded 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.
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 nine months of 1996, the Registrant purchased and
retired 338,900 shares of its common stock at a cost of $2,858,450. In addition,
during this period 165,250 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 1995, 445,887 shares of the Registrant's common stock
were purchased and retired at a cost of $4,478,192. In addition, 700 shares of
the Registrant's common shares were issued pursuant to the exercise of options
during the first nine months of 1995.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Page 11 of 18
<PAGE>
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
which are intended to be covered by the safe harbors created thereby. All
forward-looking statements involve risks and uncertainty. Although the
Registrant believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included in this Form 10-Q will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Registrant or any other person that the objectives and
plans of the Registrant will be achieved.
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
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues for the nine month period ended September 30, 1996 were
$63,775,000, a $977,000 increase from comparable 1995 revenues. Income from
continuing operations for the period was $3,833,000 or $.69 per share as
compared to income from continuing operations of $3,486,000 or $.59 per share
for the same period in 1995. Net loss in the prior year period was ($1,987,000)
or ($.34) per share as this period included both losses from the Company's
discontinued resilient vinyl flooring operations as well as the write-off of
this investment in Kentile, Inc.
Revenues for the three month period ended September 30, 1996 were
$21,248,000, an increase of $1,940,000 from revenues in the comparable 1995
period. Income from continuing operations for the third quarter of 1996 was
$986,000 or $.18 per share as compared to $494,000 or $.08 per share during the
comparable 1995 period. The results for the quarter ended September 30, 1995
also included a loss of ($4,396,000) or ($.77) per share from discontinued
operations.
REAL ESTATE OPERATIONS
Rental revenues from real estate operations increased $742,000 and
$1,522,000, respectively for the three and nine month periods ended September
30, 1996 as compared to the same periods in 1995. These increases are primarily
the result of additional revenues related to 1995 property acquisitions, as well
as a 48% increase in revenues from the Registrant's hotel operations.
Mortgage interest expense decreased $210,000 or 18% during the current
quarter and $554,000 or 16% during the nine month period ended September 30,
1996, versus such expense of the corresponding periods in 1995. These decreases
are due to continuing mortgage amortization which approximated $8 million during
the last twelve months, including repayments associated with properties sold.
Page 12 of 18
<PAGE>
Depreciation expense associated with rental properties decreased
$52,000 during the quarter while increasing $23,000 during the nine month period
ended September 30, 1996, versus such expense of the corresponding periods in
1995. The decrease in the current quarter is primarily due to the impact of
properties sold in the current year while the increase in the year-to-date
period is primarily due to additional depreciation associated with mid-1995
property additions.
Operating expenses associated with the management of real estate
properties increased $622,000 and $1,817,000, respectively, for the three and
nine month periods ending September 30, 1996 as compared to the same periods in
1995. These increases are due to expenses directly associated with the increase
in rental revenues, the reclassification of prior manufacturing facilities to
real property held for rental and the timing of certain maintenance costs in the
current quarter and prior year periods.
ANTENNA SYSTEMS
The operating results of the antenna systems segment for the three and
nine month periods ended September 30, 1996 and 1995 are as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In thousands) 1996 1995 1996 1995
---- ---- ---- ----
Net Sales $ 4,430 $ 4,082 $ 13,097 $ 14,871
======== ======== ======== ========
Cost of Sales $ 3,997 $ 3,749 $ 11,476 $ 11,723
======== ======== ======== ========
Selling, General and
Administrative
Expenses $ 1,193 $ 1,175 $ 3,653 $ 3,641
======== ======== ======== ========
(Loss) from Operations ($ 760) ($ 842) ($ 2,032) ($ 493)
======== ======== ======== ========
Net sales of the antenna system segment increased $348,000 or 8.5%
during the third quarter but decreased $1,774,000 or 12% for the nine month
period ended September 30, 1996, versus such sales generated during the
respective 1995 periods. In light of the significant decline in net sales in the
six months ended June 30, 1996 as compared with the prior year and the strong
backlog which remains at approximately $14 million management prioritized
increasing manufacturing output during the quarter ended September 30, 1996.
While sales were increased over both the prior quarter and the comparable period
in the prior year, the segment still experienced a loss from operations. This is
primarily the result of significant increases in cost of sales as a percentage
of sales during the nine month period ended September 30, 1996 as compared with
the results of the corresponding 1995 period. This increase is the result of
cost increases resulting from lower factory overhead absorption caused by
manufacturing output below planned levels and a shift in product mix to
commercial products with lower margins.
Page 13 of 18
<PAGE>
Selling, general and administrative costs of the antenna systems
segment increased approximately $18,000 and $12,000, respectively during the
current quarter and year-to-date periods ended September 30, 1996, versus that
of the corresponding prior year periods. These increases are primarily due to
increased administrative costs related to additional salary expenses.
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 nine month periods ended September 30, 1996 and 1995
are as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In thousands) 1996 1995 1996 1995
---- ---- ---- ----
Net Sales $10,336 $ 9,484 $32,369 $31,139
======= ======= ======= =======
Cost of Sales $ 7,617 $ 7,207 $23,962 $23,339
======= ======= ======= =======
Selling, General and
Administrative Expenses $ 1,858 $ 1,516 $ 5,580 $ 4,741
======= ======= ======= =======
Income from Operations $ 861 $ 761 $ 2,827 $ 3,059
======= ======= ======= =======
Net sales of the engineered products segment increased $852,000 and
$1,230,000, respectively for the three and nine month periods ended September
30, 1996, as compared to the results of the corresponding prior year periods.
These increases are primarily the result of higher automotive related sales at
Metex' Technical Products Division as well as higher sales generated by AFP
Transformers.
Cost of sales as a percentage of net sales decreased by 2% and 1% in
the three and nine month periods ended September 30, 1996, respectively, as
compared to the corresponding periods in 1995. This decrease was due to
continued management focus on cost containment as well as product mix.
Selling, general and administrative expenses of the engineered products
segment increased $342,000 and $839,000 during the quarter and year-to-date
periods ended September 30, 1996 versus such costs of the comparable 1995
periods. These increases are primarily the result of additional salary related
costs and from the reclassification of royalty income to net sales in the
current year periods.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses not associated with the
manufacturing operations decreased by $310,000 for the three month period ended
September 30, 1996, while there was a slight increase in the nine month period
ending September 30, 1996, versus the same periods in 1995. The decrease in the
current quarter is primarily due to the reclass, in the current year, of costs
associated with prior manufacturing facilities to real estate operations. Such
costs were included in general and administrative expenses in the prior year
period.
Page 14 of 18
<PAGE>
Included in general and administrative expenses for the nine months ended
September 30, 1996 is $490,000 of expense recorded in connection with the
repurchase of stock options from two Directors of the Registrant.
OTHER INCOME AND EXPENSE
The components of other income and expense in the accompanying
consolidated statements of income for the three and nine month periods ended
September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In thousands) 1996 1995 1996 1995
-------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Gain on sale of real estate assets $ 341,590 $ 10,338 $ 3,954,439 $ 854,595
Net realized gains
(losses) on marketable securities -- -- -- 229,979
Income from equity investments -- -- -- 3,676
Other 8,907 190,000 (561,034) 418,329
----------- ----------- ----------- -----------
$ 350,497 $ 200,338 $ 3,393,405 $ 1,506,579
=========== =========== =========== ===========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996 the Registrant's current liabilities exceeded
current assets by approximately $11.5 million. This shortfall in working capital
results from financing the purchase of long-term assets utilizing short-term
borrowings and from the classification of current mortgage obligations without
the benefit of a corresponding current asset for such properties. Management
believes that through cash flow generated from operations, the sale of select
assets and the refinancing of certain current liabilities on a long-term basis,
all obligations will be satisfied as they become due.
The Registrant has an unsecured line of credit with a bank which
provides for borrowings up to $15 million at the bank's prime lending rate or
LIBOR (London Inter-Bank Offered Rate) plus 2%, at the Registrant's option. At
September 30, 1996 there was $7.1 million outstanding under this facility. This
demand facility is reviewed by the bank annually on May 31.
In August 1995 the operations of the Registrant's Kentile subsidiary
ceased when its raw material stocks were exhausted resulting from an
unwillingness of major trade suppliers of Kentile to extend further credit. See
Notes to consolidated financial statements.
Page 15 of 18
<PAGE>
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. However, the
ultimate outcome of litigation cannot be predicted. To date settlements have
been reached with several carriers in this matter. See Notes to consolidated
financial statements.
Management believes that recoveries in excess of the amounts reflected
in the accompanying consolidated financial statements, which were $2.9 million
at September 30, 1996 and December 31, 1995, are available under the insurance
policies but have not been recorded. There can be no assurances, however, that
the Registrant will prevail in its efforts to obtain amounts at or in excess of
the estimated recoveries.
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,
other financial instruments, certificates of deposit and government securities.
BUSINESS TRENDS
Total revenues of the Registrant increased $977,000 or 1.5% for the
first nine months of 1996 versus such results of the comparable 1995 period.
Income from continuing operations for the first nine months of 1996 was
$3,833,000 or $.69 per share versus $3,486,000 or $.59 per share during the same
period in 1995.
The results of the Registrant's real estate operations reflect an
increase in revenues for the first nine months of 1996, primarily as a result of
additional revenues related to 1995 acquisitions as well as a 48% increase in
revenues from the Registrant's hotel operations. The real estate segment was
also favorably impacted by a 16% reduction in mortgage interest expense
resulting from the repayment of $8 million in mortgage indebtedness during the
last twelve months. Continuing mortgage amortization will continue to have
favorable impact on this segment and will reduce current mortgage indebtedness
to virtually zero in less than ten years.
The Registrant's engineered products segment posted a 4% increase in
revenues during the first nine months of 1996 versus comparable 1995 results.
With continued increases in automobile purchases, demand for these products
should continue. In addition, the results of this segments' transformer
operations reflect improvements over the prior year and management is hopeful to
continue this trend.
Page 16 of 18
<PAGE>
The results of the Registrant's antenna systems segment reflect lower
sales during the first nine months of 1996 than during the comparable 1995
period. U.S. military sales, as well as commercial sales remain below prior year
levels and management is focused on reversing this trend, while attempting to
increase the efficiency of its manufacturing operations. Backlog of this segment
is approximately $14 million as of September 30, 1996.
Although there can be no assurances as to how much 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 1. LEGAL PROCEEDINGS
ROSATELLI VS. UNITED CAPITAL CORP.
In August 1996, Dennis Rosatelli, the Registrant's former Chief Financial
Officer commenced an action in Superior Court of New Jersey, Law Division,
Bergen County, seeking, among other things, indemnification for (i) claims
against him by the Internal Revenue Service and (ii) other matters in connection
with his tenure, as well as (iii) payment under his employment contract. The
Registrant believes that as a result of Mr. Rosatelli's gross negligence,
recklessness and/or willful disregard of his duties and responsibilities, Mr.
Rosatelli is not entitled to the recoveries he seeks. Mr. Rosatelli's employment
was terminated by the Registrant in May, 1996 for cause. The matter has been
removed to United States District Court, District of New Jersey. This action is
in the early stages of pretrial discovery. The Registrant intends to vigorously
defend this action and has asserted counterclaims against Mr. Rosatelli for,
among other things, the set off of amounts by which he has damaged the
Registrant against his claims under his employment contract.
DAVISON VS. FIRST PENNCO, ET AL.
In March 1991, plaintiffs, including 55 investors and limited partners
in three limited partnerships, commenced a civil action in the United States
District Court for the Southern District of New York against 31 defendants,
including the Registrant, asserting causes of action under the Racketeer
Influenced and Corrupt Organizations Act. The action sought actual, punitive and
treble damages in a total unspecified amount. In addition, several amended
complaints were subsequently filed by the plaintiffs.
While management continues to believe that the allegations of the
action are false and without merit, as a result of escalating defense costs and
the continued likelihood of extended litigation, the Registrant settled this
matter in April 1996 for approximately $425,000, after taxes. This charge has
been recorded by the Registrant in the second quarter of 1996.
Page 17 of 18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
none
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.
Dated: November 14, 1996 By: /s/ Anthony J. Miceli
-------------------------------------------
Anthony J. Miceli
Vice President, Chief Financial Officer and
Secretary of the Registrant
Page 18 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNITED
CAPITAL CORP.'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES,
THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,965
<SECURITIES> 236
<RECEIVABLES> 15,715
<ALLOWANCES> 561
<INVENTORY> 8,468
<CURRENT-ASSETS> 29,389
<PP&E> 14,351
<DEPRECIATION> 6,921
<TOTAL-ASSETS> 110,053
<CURRENT-LIABILITIES> 40,887
<BONDS> 0
0
0
<COMMON> 543
<OTHER-SE> 27,600
<TOTAL-LIABILITY-AND-EQUITY> 110,053
<SALES> 14,766
<TOTAL-REVENUES> 21,248
<CGS> 11,614
<TOTAL-COSTS> 19,754
<OTHER-EXPENSES> (351)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> 1,898
<INCOME-TAX> 912
<INCOME-CONTINUING> 986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 986
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
