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 June 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
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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 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
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(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 5,525,779 shares outstanding
as of August 2, 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 June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income for
the Three Months Ended June 30, 1996 and
1995 4
Consolidated Statements of Income for the Six
Months Ended June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1996 and
1995 6 - 7
Notes to Consolidated Financial Statements 8 - 11
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 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 JUNE 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,167,529 $ 3,527,925
Marketable securities 137,554 83,760
Notes and accounts receivable, net 15,987,218 16,253,100
Inventories 8,096,237 7,764,873
Prepaid expenses and other current assets 810,897 687,535
Deferred income taxes 1,874,915 1,893,205
------------- -------------
Total current assets 30,074,350 30,210,398
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, net 7,602,412 9,957,648
REAL PROPERTY HELD FOR RENTAL, net 64,227,105 68,063,502
NONCURRENT NOTES RECEIVABLE 3,610,030 3,624,188
OTHER ASSETS 4,201,422 4,387,064
DEFERRED INCOME TAXES 1,525,981 956,991
------------- -------------
Total assets $ 111,241,300 $ 117,199,791
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ------------------------------------ ---- ----
CURRENT LIABILITIES:
Current maturities of long-term debt $ 10,682,536 $ 10,085,227
Borrowings under revolving credit facilities 6,500,000 7,785,000
Accounts payable and accrued liabilities 17,989,908 19,144,363
Income taxes payable 5,517,659 3,680,639
------------- -------------
Total current liabilities 40,690,103 40,695,229
------------- -------------
LONG-TERM LIABILITIES:
Long-term debt 34,012,530 41,899,690
Other long-term liabilities 8,635,673 8,375,643
------------- -------------
Total liabilities 83,338,306 90,970,562
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 550,578 560,608
Additional paid-in capital 8,903,176 10,101,147
Retained earnings 18,524,773 15,678,511
Minimum pension liability, net of tax (165,659) (165,659)
Net unrealized gain on marketable securities, net of tax 90,126 54,622
------------- -------------
Total stockholders' equity 27,902,994 26,229,229
------------- -------------
Total liabilities and stockholders' equity $ 111,241,300 $ 117,199,791
============= =============
</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
June 30, 1996 June 30, 1995
------------ ------------
<S> <C> <C>
REVENUES:
Net sales $ 15,055,604 $ 16,545,722
Rental revenues from real estate operations 5,909,434 5,598,489
------------ ------------
Total revenues 20,965,038 22,144,211
------------ ------------
COSTS AND EXPENSES:
Cost of sales 11,801,065 12,161,493
Real estate operations -
Mortgage interest expense 861,552 1,065,129
Depreciation expense 1,607,170 1,586,458
Other operating expenses 1,901,239 1,394,235
General and administrative expenses 2,422,095 1,985,812
Selling expenses 1,761,537 1,431,742
------------ ------------
Total costs and expenses 20,354,658 19,624,869
------------ ------------
Operating income 610,380 2,519,342
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 276,502 148,685
Interest expense (287,667) (248,685)
Other income and expense, net 2,544,295 229,909
------------ ------------
Total other income (expense) 2,533,130 129,909
------------ ------------
Income from continuing operations before income taxes 3,143,510 2,649,251
Provision for income taxes 1,243,000 1,219,000
------------ ------------
Income from continuing operations 1,900,510 1,430,251
DISCONTINUED OPERATIONS:
Operating loss, net of tax benefit of $0
and $176,000, respectively -- (341,509)
------------ ------------
Loss from discontinued operations, net of tax -- (341,509)
------------ ------------
Net income $ 1,900,510 $ 1,088,742
============ ============
Earnings (loss) per share:
Income from continuing operations $ .34 $ .24
Loss from discontinued operations, net of tax -- (.06)
------------ ------------
Net income $ .34 $ .18
============ ============
Weighted average number of common shares outstanding 5,543,363 5,898,255
============ ============
</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 INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996 June 30, 1995
------------ ------------
<S> <C> <C>
REVENUES:
Net sales $ 30,699,957 $ 32,443,593
Rental revenues from real estate operations 11,826,882 11,047,124
------------ ------------
Total revenues 42,526,839 43,490,717
------------ ------------
COSTS AND EXPENSES:
Cost of sales 23,824,344 24,105,901
Real estate operations -
Mortgage interest expense 1,934,208 2,278,852
Depreciation expense 3,245,895 3,170,611
Other operating expenses 3,889,790 2,694,346
General and administrative expenses 4,505,212 3,989,153
Selling expenses 3,337,003 2,999,342
------------ ------------
Total costs and expenses 40,736,452 39,238,205
------------ ------------
Operating income 1,790,387 4,252,512
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 492,228 280,506
Interest expense (561,261) (523,010)
Other income and expense, net 3,042,908 1,306,241
------------ ------------
Total other income (expense) 2,973,875 1,063,737
------------ ------------
Income from continuing operations before income taxes 4,764,262 5,316,249
Provision for income taxes 1,918,000 2,324,000
------------ ------------
Income from continuing operations 2,846,262 2,992,249
DISCONTINUED OPERATIONS:
Operating loss, net of tax benefit of $0
and $555,000, respectively -- (1,076,884)
------------ ------------
Loss from discontinued operations, net of tax -- (1,076,884)
------------ ------------
Net income $ 2,846,262 $ 1,915,365
============ ============
Earnings (loss) per share:
Income from continuing operations $ .51 $ .50
Loss from discontinued operations, net of tax -- (.18)
------------ ------------
Net income $ .51 $ .32
============ ============
Weighted average number of common shares outstanding 5,572,755 6,006,982
============ ============
</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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,846,262 $ 1,915,365
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,079,152 3,946,275
Net realized and unrealized (gains) losses
on marketable securities -- (229,979)
Changes in assets and liabilities (A) 2,862,845 734,305
----------- -----------
Total adjustments 6,941,997 4,450,601
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,788,259 6,365,966
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sales of marketable securities -- 729,318
Acquisition of property, plant and equipment (365,804) (834,345)
Investing activities of discontinued operations -- (223,742)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (365,804) (328,769)
----------- -----------
Cash Flows From Financing Activities:
Principal payments on mortgage commitments, notes and loans (7,289,851) (4,621,387)
Proceeds from mortgage commitments, notes and loans -- 3,150,000
Net borrowings under revolving credit facilities (1,285,000) --
Purchase and retirement of common shares (2,003,000) (4,330,556)
Proceeds from exercise of stock options 795,000 2,500
Financing activities of discontinued operations -- 533,928
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (9,782,851) (5,265,515)
----------- -----------
Net increase (decrease) in cash and cash equivalents (360,396) 771,682
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,527,925 1,584,744
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,167,529 $ 2,356,426
=========== ===========
</TABLE>
Page 6 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 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 $2,607,000 $2,719,000
Taxes 821,000 1,302,000
========== ==========
Supplemental Schedule of Noncash Investing
and Financing Activities:
See Notes to Consolidated Financial Statements
(A) Changes in assets and liabilities for the
six months ended June 30, 1996 and 1995 are as follows:
Decrease (increase) in notes and accounts receivable, net $ 265,882 ($ 232,574)
Decrease (increase) in inventories (331,364) 845,457
Decrease (increase) in prepaid expenses
and other current assets (123,362) 3,920,741
Increase in deferred income taxes (568,990) (423,544)
Decrease (increase) in real property held for rental, net 2,478,284 (239,850)
Decrease in noncurrent notes receivable 14,158 15,364
Decrease in other assets 185,642 234,436
Decrease in accounts payable and accrued liabilities (1,154,455) (2,908,478)
Increase in income taxes payable 1,837,020 706,340
Increase in other long-term liabilities 260,030 95,580
Discontinued operations - noncash charges and working
capital changes -- (1,279,167)
----------- -----------
Total $ 2,862,845 $ 734,305
=========== ===========
</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, as amended, 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
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 $342,000 and $1,077,000, on an after tax basis, for the three and
six month periods ended June 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, 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
equity securities and available-for-sale, was $137,554 and $83,760 at June 30,
1996 and December 31, 1995, respectively, while gross unrealized holding gains
of the Registrant's marketable security portfolio were $90,126 and $54,622 on a
net of tax basis, respectively.
DEFERRED TAXES
The components of the net deferred tax asset (liability) at June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Realization allowances related to accounts receivable and inventories $ 585,046
Net unrealized (gain) loss on marketable securities (46,428)
Basis differences relating to real property held for rental 2,815,118
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 & equipment (579,619)
Pensions 7,959
Other, net 15,399
-----------
Net deferred tax asset (liability) 3,400,896
Less-Current portion 1,874,915
-----------
Noncurrent portion $ 1,525,981
===========
</TABLE>
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.
Page 9 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. 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 June 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.
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.
Page 10 of 18
<PAGE>
COMMON STOCK
During the first six months of 1996, the Registrant purchased and
retired 245,300 shares of its common stock at a cost of $2,003,000. In addition,
during this period 145,000 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, 427,183 shares of the Registrant's common stock
were purchased and retired at a cost of $4,330,556. In addition, 500 shares of
the Registrant's common shares were issued pursuant to the exercise of options
during the first six 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.
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 Company
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 Company or any other person that the objectives and plans
of the Company will be achieved.
RECLASSIFICATIONS
Certain amounts have been reclassified in the prior year
consolidated financial statements and notes thereto to present them on a basis
consistent with the current year.
Page 11 of 18
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues for the six month period ended June 30, 1996 were
$42,527,000 versus $43,491,000 during the comparable period in 1995. Net income
for the period was $2,846,000 or $.51 per share as compared to net income of
$1,915,000 or $.32 per share for the same period in 1995.
Revenues for the three month period ended June 30, 1996 were
$20,965,000 versus $22,144,000 during the comparable period in 1995. Net income
for the second quarter of 1996 was $1,901,000 or $.34 per share as compared to
$1,089,000 or $.18 per share during the comparable 1995 period.
REAL ESTATE OPERATIONS
Rental revenues from real estate operations increased $311,000 or
6%, for the three month period ended June 30, 1996 as compared to the same
period in 1995. Rental revenues for the six month period ended June 30, 1996
rose to $11,827,000, an increase of $780,000 or 7% versus such revenues of the
comparable 1995 period. These increases are primarily the result of a 34% and
39% increase in revenues from the Registrant's hotel operations during the three
and six month periods ended June 30, 1996, respectively, versus the same periods
in 1995.
Mortgage interest expense decreased $203,000 or 19% during the
current quarter and $345,000 or 15% during the six month period ended June 30,
1996, versus such expense of the corresponding periods in 1995. These decreases
result from continuing mortgage amortization which approximated $9.4 million
during the last 12 months, including repayments associated with properties sold
during the period.
Depreciation expense associated with rental properties increased
$21,000 or 1% during the three month period ended June 30, 1996 and $75,000 or
2%, during the first six months of 1996 as compared to such costs during the
corresponding periods of 1995. These increases are primarily the result of
additional depreciation associated with mid-1995 property additions.
Operating expenses associated with the management of real estate
properties increased $507,000 or 36% for the three month period ending June 30,
1996 as compared to the same period in 1995. On a year-to-date basis such costs
increased $1.2 million or 44% versus such costs incurred during the first six
months of 1995. Operating costs associated with mid-1995 property acquisitions
as well as the reclassification of prior manufacturing facilities to real
property held for rental are the primary cause of these increases.
Page 12 of 18
<PAGE>
ANTENNA SYSTEMS
The operating results of the antenna systems segment for the three
and six month periods ended June 30, 1996 and 1995 are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
(In thousands) 1996 1995 1996 1995
------- ------- ------- -------
Net Sales $ 4,073 $ 5,797 $ 8,667 $10,789
======= ======= ======= =======
Cost of Sales $ 3,741 $ 4,205 $ 7,479 $ 7,974
======= ======= ======= =======
Selling, General and Administrative
Expenses $ 1,177 $ 1,274 $ 2,460 $ 2,466
======= ======= ======= =======
Income (Loss) from Operations ($ 845) $ 318 ($1,272) $ 349
======= ======= ======= =======
Net sales of the antenna systems segment decreased $1.7 million or
30% during the second quarter and $2.1 million or 20% for the six month period
ended June 30, 1996 versus such sales generated during the respective 1995
periods. Reductions in sales are primarily the result of lower manufacturing
output, while backlog remains at approximately $15 million.
Cost of sales as a percentage of net sales increased dramatically
during the three and six month periods ended June 30, 1996 from such results of
the corresponding 1995 periods. These increases are primarily caused by
manufacturing inefficiencies resulting in lower output and higher allocations of
overhead.
Selling, general and administrative costs of the antenna systems
segment decreased approximately $97,000 and $6,000, respectively, during the
current quarter and year-to-date periods just ended, versus that of the
corresponding prior year periods. In each of these periods selling expenses
declined as a result of lower sales volumes, as noted above, while
administrative costs rose primarily as a result of additional salaries and
related expenses.
Page 13 of 18
<PAGE>
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, 1996 and
1995 are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
(In thousands) 1996 1995 1996 1995
------- ------- ------- -------
Net Sales $10,983 $10,749 $22,033 $21,655
======= ======= ======= =======
Cost of Sales $ 8,060 $ 7,957 $16,345 $16,132
======= ======= ======= =======
Selling, General and
Administrative Expenses $ 1,960 $ 1,500 $ 3,722 $ 3,225
======= ======= ======= =======
Income from Operations $ 963 $ 1,292 $ 1,966 $ 2,298
======= ======= ======= =======
Net sales of the engineered products segment increased $234,000 and
$378,000, respectively for the three and six month periods ended June 30, 1996
versus such results of the corresponding prior year periods. These increases are
primarily the result of higher automotive related sales at Metex' Technical
Products Division.
Cost of sales as a percentage of net sales was virtually unchanged
between the current quarter and year-to-date periods versus the corresponding
periods in 1995.
Selling, general and administrative expenses of the engineered
products segment increased $460,000 and $497,000, respectively during the
quarter and year-to-date periods just ended versus such costs of the comparable
1995 periods. These increases are primarily the result of additional salary
related costs and from the reclassification of additional royalty income in the
current year periods.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses not associated with the
manufacturing operations increased by $403,000 and $363,000 for the three and
six month periods ended June 30, 1996, respectively versus that of the same
periods in 1995. These increases primarily result from additional salary related
costs incurred in the current year periods.
Page 14 of 18
<PAGE>
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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------- --------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gain on sale of real estate assets $ 3,134,362 $ 66,485 $ 3,612,849 $ 844,257
Net realized and unrealized gains
(losses) on marketable securities -- 163,424 -- 229,979
Income from equity investments -- -- -- 3,676
Other (590,067) -- (569,941) 228,329
----------- ----------- ----------- -----------
$ 2,544,295 $ 229,909 $ 3,042,908 $ 1,306,241
=========== =========== =========== ===========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 the Registrant's current liabilities exceeded
current assets by approximately $10.6 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
June 30, 1996 there was $6.5 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.
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.
Page 15 of 18
<PAGE>
Management believes that recoveries in excess of the amounts
reflected in the accompanying consolidated financial statements, which were $2.9
million at June 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 decreased $964,000 or 2% for the
first half of 1996 versus such results of the comparable 1995 period. Net income
for the first six months of 1996 was $2,846,000 or $.51 per share versus
$1,915,000 or $.32 per share during the same period in 1995. The 1995 results
include operating losses from discontinued operations of $1,077,000, net of tax
during the first half of 1995. No such costs were incurred in the 1996 period.
The results of the Registrant's real estate operations reflect a 7%
increase in revenues for the first six months of 1996, primarily as a result of
a 39% increase in revenues from the Registrant's hotel operations. This segment
was also favorably impacted by a 15% reduction in mortgage interest expense
resulting from the repayment of $9.4 million in mortgage indebtedness during the
last 12 months. Continuing mortgage amortization will continue to have a
favorable impact on these operations and will reduce current mortgage
obligations to virtually zero in less than 10 years.
The results of the Registrant's engineered products segment reflect
a 2% increase in revenues during the first six months of 1996 versus comparable
1995 results. This is due primarily to additional sales of the knitted wire
component of this segment, offset by a slight decline in the transformer
component revenues. With continued increases in automobile demand and as more
vehicles are outfitted with air bags, demand for these products should continue.
The results of the Registrant's antenna systems segment reflect
lower sales during the first half of 1996 than during the comparable 1995
period. Such reductions are primarily the result of lower manufacturing output.
Management is concentrated on reversing this trend. Backlog of the segment is
approximately $15 million as of June 30, 1996.
Page 16 of 18
<PAGE>
Although there can be no assurances as to how such 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 PROCEEDING
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 11, 1996, the Registrant held its Annual Meeting of Stockholders (the
"Meeting"), whereby the stockholders elected Directors and approved proposals to
(i) provide performance criteria for the payment of bonuses to the Chief
Executive Officer of the Company, and (ii) ratify the appointment of Arthur
Andersen LLP as the Company's independent auditors for the year ending December
31, 1996. The vote on such matters was as follows:
1. ELECTION OF DIRECTORS:
For Withheld
--- --------
Howard M. Lorber 4,082,479 15,703
Arnold S. Penner 4,082,479 15,703
A.F. Petrocelli 4,082,479 15,703
2. BONUS CRITERIA: To approve the proposal to provide performance
criteria for the payment of a bonus to the Chief Executive Officer.
For Against Abstain
--- ------- -------
3,465,648 98,334 13,879
3. RATIFICATION OF APPOINTMENT OF AUDITORS: To ratify the appointment
of Arthur Andersen LLP as the independent auditors of the Registrant
for the year ending December 31, 1996.
For Against Abstain
--- ------- -------
4,100,410 1,726 21,150
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: August 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 UNITED
CAPITAL CORP.'S FORM 10-Q FOR THE QUARTER ENDED JUNE 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> JUN-30-1996
<CASH> 3,168
<SECURITIES> 138
<RECEIVABLES> 16,444
<ALLOWANCES> 457
<INVENTORY> 8,096
<CURRENT-ASSETS> 30,074
<PP&E> 14,172
<DEPRECIATION> 6,570
<TOTAL-ASSETS> 111,241
<CURRENT-LIABILITIES> 40,690
<BONDS> 0
0
0
<COMMON> 551
<OTHER-SE> 27,352
<TOTAL-LIABILITY-AND-EQUITY> 111,241
<SALES> 15,056
<TOTAL-REVENUES> 20,965
<CGS> 11,801
<TOTAL-COSTS> 20,355
<OTHER-EXPENSES> (2,544)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 288
<INCOME-PRETAX> 3,144
<INCOME-TAX> 1,243
<INCOME-CONTINUING> 1,901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,901
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
