FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
------------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from --------------- to ------------------------------
Commission file number 1-10104
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UNITED CAPITAL CORP.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2294493
- ----------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 Park Place, Great Neck, New York 11021
- ----------------------------------------- ------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (516) 466-6464
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------------------------- -----------------------------------------
Common Stock (Par Value $.10 Per Share) American Stock Exchange
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. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K /X/.
The aggregate market value of the shares of the voting stock held by
nonaffiliates of the Registrant as of March 21, 1997 was approximately
$21,339,000.
The number of shares of the Registrant's $.10 par value common stock outstanding
as of March 21, 1997 was $5,279,723.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of Form 10-K will be incorporated by
reference to certain portions of a definitive proxy statement which is expected
to be filed by the Registrant pursuant to Regulation 14A within 120 days after
the close of its fiscal year.
<PAGE>
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PART I
ITEM 1. BUSINESS
GENERAL
United Capital Corp. (the "Registrant"), incorporated in 1980 in the State of
Delaware, currently has three industry segments:
1. Real Estate Investment and Management.
2. Manufacture and Sale of Antenna Systems.
3. Manufacture and Sale of Engineered Products.
The Registrant also invests excess available cash in marketable securities and
other financial instruments.
DESCRIPTION OF BUSINESS
REAL ESTATE INVESTMENT AND MANAGEMENT
The Registrant is engaged in the business of investing in and managing real
estate properties and the making of high-yield, short-term loans secured by
desirable properties. Most real estate properties owned by the Registrant are
leased under net leases pursuant to which the tenants are responsible for all
expenses relating to the leased premises, including taxes, utilities, insurance
and maintenance. The Registrant also owns properties that it manages which are
operated by the City of New York as day-care centers and offices and other
properties leased as department stores, hotels and shopping centers around the
country. In addition, the Registrant owns properties available for sale and
lease with the assistance of a consultant or a realtor working in the locale of
the premises.
The majority of properties are leased to single tenants. Approximately 97% of
the total square footage of the Registrant's properties are currently leased.
ANTENNA SYSTEMS
The Registrant designs and manufactures antenna systems marketed internationally
under the Dorne & Margolin trade name. Its products include airborne, naval and
ground-based navigation, weather tracking, air traffic control, communication
and satellite communication antennas for military, commercial transport and
general aviation aircraft. These products are sold internationally to military,
commercial and general aviation original equipment manufacturers as well as to
the end user as replacement and spare antenna systems. Additionally, the
Registrant's products address a number of commercial nonaviation markets,
including global positioning systems (GPS) and personal communication systems
(PCS).
Approximately 51% and 59% of the antenna systems sold by the Registrant in 1996
and 1995, respectively, were for use by the United States Government and
purchased by the United States Government or its contractors.
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ENGINEERED PRODUCTS
The Registrant's engineered products are manufactured through the Technical
Products Division of Metex Corporation ("Metex") and AFP Transformers, Inc.
("AFP Transformers"), wholly-owned subsidiaries of the Registrant. The knitted
wire products and components manufactured by Metex must function in adverse
environments and meet rigid performance requirements. The principal areas in
which these products have application are as high temperature gaskets, seals,
components for use in airbags, shock and vibration isolators, noise reduction
elements and air, liquid and solid filtering devices.
Metex has been an original equipment manufacturer for the automobile industry
since 1974 and presently supplies many automobile manufacturers with exhaust
seals and components for use in exhaust emission control devices.
The Registrant's transformer products are marketed under several brandnames
including Field Transformer, ISOREG and EPOXYCAST for a wide variety of
industrial and research applications including machine power transformers,
rectifier and inverter transformers and transformers for heating.
Sales by the Engineered Products segment to its three largest customers (each in
excess of 10% of the segment's net sales) accounted for approximately 40% of the
segment's sales for 1996. During 1995 sales to its three largest customers
accounted for approximately 35% of the segment's sales.
SUMMARY FINANCIAL INFORMATION
The following table sets forth the revenues, operating income (loss) and
identifiable assets of each continuing business segment of the Registrant for
1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(in thousands)
Real Estate Investment and Management-
<S> <C> <C> <C>
Rental revenues $ 23,936 $ 22,652 $ 21,988
======== ======== ========
Operating income $ 6,342 $ 5,129 $ 5,009
======== ======== ========
Identifiable assets $ 98,044 $ 88,954 $ 92,479
======== ======== ========
Antenna Systems-
Net sales $ 18,883 $ 20,307 $ 19,495
======== ======== ========
Operating loss ($ 2,258) ($ 1,103) ($ 1,527)
======== ======== ========
Identifiable assets $ 11,603 $ 15,291 $ 15,580
======== ======== ========
Engineered Products-
Net sales $ 42,055 $ 41,687 $ 35,511
======== ======== ========
Operating income $ 3,792 $ 3,779 $ 2,477
======== ======== ========
Identifiable assets $ 12,174 $ 12,955 $ 14,365
======== ======== ========
</TABLE>
<PAGE>
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DISTRIBUTION
The Registrant's manufactured products are distributed by a direct sales force
and through distributors to industrial consumers, original equipment
manufacturers and the United States Government.
PRODUCT METHODS AND SOURCES OF RAW MATERIALS
The Registrant's products are manufactured at its own facilities. The Registrant
purchases raw materials, including drawn wire, castings and electronic
components from a wide range of suppliers of such materials. Most raw materials
purchased by the Registrant are available from several suppliers. The Registrant
has not had and does not expect to have any problems fulfilling its raw material
requirements during 1997.
PATENTS AND TRADEMARKS
The Registrant owns several patents, patent licenses and trademarks. While the
Registrant considers that in the aggregate its patents and trademarks used in
the antenna systems and engineered products operations are significant to those
businesses, it does not believe that any of these patents or trademarks are of
such importance that the loss of one or more of such patents or trademarks would
materially affect its consolidated financial condition or results of operations.
EMPLOYEES
At March 21, 1997, the Registrant employed approximately 575 persons. Certain of
the Registrant's employees are represented by unions. The Registrant believes
that its relationships with its employees are good.
COMPETITION
The Registrant competes with at least 25 other companies in the sale of antenna
systems; and at least 21 other companies in the sale of engineered products. The
Registrant stresses product performance and service in connection with the sale
of antenna systems and engineered products. The principal competition faced by
the Registrant results from the sales price of the products sold by its
competitors.
BACKLOG
The dollar value of unfilled orders of the Registrant's antenna systems segment
was approximately $13,000,000 at December 31, 1996, as compared with $12,945,000
at December 31, 1995. The Registrant anticipates that approximately 85% of the
1996 year-end backlog will be filled in 1997.
The dollar value of unfilled orders of the Registrant's engineered products
segment was approximately $2,197,000 at December 31, 1996, as compared with
$2,190,000 at December 31, 1995. It is anticipated that substantially all such
backlog will be filled in 1997. The order backlog referred to above does not
include any order backlog with respect to sales of knitted wire mesh components
for exhaust emission control devices or exhaust seals because of the manner in
which customer orders are received.
<PAGE>
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ENVIRONMENTAL REGULATIONS
Federal, state and local requirements regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment, have
had and will continue to have a significant impact upon the operations of the
Registrant. It is the policy of the Registrant to manage, operate and maintain
its facilities in compliance, in all material respects, with applicable
standards for the prevention, control and abatement of environmental pollution
to prevent damage to the quality of air, land and resources.
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
(see Item 3, "Legal Proceedings"). 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.
<PAGE>
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At December 31, 1996 and 1995 a total of $2.9 million in anticipated insurance
recoveries is recorded in the accompanying consolidated financial statements,
and is included in other assets. Additionally, in 1995 the Company received $4.1
million of insurance recoveries. The remaining balance of $2.9 million at
December 31, 1996 (from a total of $7 million) is in dispute with the
Registrant's insurance carriers as more fully discussed in Item 3 "Legal
Proceedings" and Note 18 to Consolidated Financial Statements, "Contingencies."
Management believes that recoveries in excess of the amounts reflected in the
accompanying Consolidated Financial Statements 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.
ITEM 2. PROPERTIES
REAL PROPERTY HELD FOR RENTAL
As of March 21, 1997 the Registrant owned 205 properties strategically located
throughout the United States. The properties are primarily leased under
long-term net leases. The Registrant's classification and gross carrying value
of its properties at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Gross Carrying Number of
Description Value Percentage Properties
------------ ---------- ------------
<S> <C> <C> <C>
Shopping centers and retail outlets $ 74,809,508 60.0% 32
Commercial properties 30,228,786 24.2 142
Day-care centers and offices 7,561,636 6.1 12
Hotel properties 2,915,795 2.3 2
Other 9,252,575 7.4 19
------------ ------- ---
Total $124,768,300 100.0% 207
============ ======= ===
</TABLE>
SHOPPING CENTERS AND RETAIL OUTLETS
Shopping centers and retail outlets include 23 department stores and other
properties which are primarily leased under net leases. Taxes, maintenance of
the properties and all other expenses are the responsibility of the tenants. The
leases for certain shopping centers and retail outlets provide for additional
rents based on sales volume and renewal options at higher rents. The department
stores include 11 K-Mart stores, three Macy's stores, an IKEA store and an
Office Depot with a total of approximately 1,064,000, 538,000, 160,000 and
111,000 square feet, respectively. The K-Mart stores are primarily located in
the Midwest region of the United States. The Macy's and IKEA stores are
primarily located in the Pacific Coast and Southwest regions of the United
States.
<PAGE>
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COMMERCIAL PROPERTIES
Commercial properties consist of properties leased as 100 restaurants, 29 Midas
Muffler Shops, three convenience stores, seven office buildings and
miscellaneous other properties. Commercial properties are primarily leased under
net leases which in certain cases, have renewal options at higher rents. Certain
of these leases also provide for additional rents based on sales volume. The 100
restaurants, located throughout the United States, include properties leased as
Boston Market, Roy Rogers, Pizza Hut, Hardee's, Wendy's and Kentucky Fried
Chicken.
DAY-CARE CENTERS AND OFFICES
The 12 day-care centers and offices are located in New York City and are leased
to the City of New York. The Registrant has been negotiating with the City of
New York to extend, on a long-term basis, many of these leases which expired in
years through 1993. To date, 11 new leases have been signed and the remaining
lease has been extended. Although there can be no assurance that the Registrant
will in fact enter into the remaining lease, the Registrant believes that with
continued negotiations with the City of New York, such lease should be
forthcoming.
HOTEL PROPERTIES
The Registrant's two hotel properties are located in Georgia and California
which are managed through a local on-site management company that is responsible
for all day-to-day operations of the hotels.
The following summarizes real property held for rental by geographic area at
December 31, 1996:
Gross
Number of Carrying
Properties Value
----------- ------------
Northeast 92 $32,140,018
Southeast 42 24,446,946
Midwest 44 27,624,471
Southwest 9 9,810,790
Pacific Coast 8 25,142,886
Pacific Northwest 6 2,098,197
Rocky Mountain 6 3,504,992
----------- ------------
207 $124,768,300
=========== ============
MANUFACTURING FACILITIES
The Registrant maintains facilities located at 2950 Veterans Memorial Highway,
Bohemia, New York, on a ten-acre site approximately two miles from MacArthur
Airport on Long Island for use in its antenna systems business. This site
contains four one-story buildings aggregating approximately 90,000 square feet
of floor space, an outdoor antenna testing area, several pattern ranges and
airframe mock-ups. Approximately 30,000 square feet was added during 1994 to
accommodate the consolidation of the D&M/Chu operations into this facility. The
Registrant owns the site together with the structures.
<PAGE>
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The Registrant's engineered products are manufactured at 970 New Durham Road,
Edison, New Jersey, in a one-story building having approximately 53,000 square
feet of floor space and also in a second facility at 206 Talmadge Road in
Edison, New Jersey which has approximately 54,500 square feet of space. The
Registrant owns these facilities together with the sites.
ITEM 3. 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, payment under his employment
contract, and indemnification for claims against him by the Internal Revenue
Service and other matters in connection with his tenure. 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 the
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.
METEX CORPORATION VS. AFFILIATED FM INSURANCE CO., ET AL.
On June 27, 1990, Metex filed an action in the Superior Court of New Jersey,
Chancery Division, Middlesex County, against several insurance companies that
provided Metex with liability insurance between 1967 and 1986. To date, Metex
has reached settlements with several carriers. The action seeks both declaratory
relief and monetary damages in connection with reimbursement of the costs
incurred and to be incurred by Metex in connection with the completion of
environmental studies and remedial action required at its two Edison, New Jersey
facilities. The declaratory relief sought is a determination that the terms of
the liability insurance policies at issue obligate the defendants to defend and
indemnify Metex with respect to all costs and expenses related to these
environmental matters. Metex also seeks monetary damages in an unspecified
amount for breach of the defendants' duty to indemnify Metex.
In June 1995 the court dismissed, without prejudice, the New Durham site from
this action. The court ruled that without a governmental directive to remediate
the site no third-party liability exists and accordingly no coverage is
available under the policies. The Registrant appealed the decision to the New
Jersey Appellate Division which heard the case in February 1996. In April 1996,
the Appellate Division issued a published ruling in favor of the Registrant
reinstating the action as to the general liability insurance policies regarding
both sites and remanded to the trial court to determine whether the umbrella and
excess insurance policies should be similarly reinstated as to the New Durham
Road site. In November 1996, the umbrella and excess insurance companies once
again moved to dismiss the New Durham site. The motion to dismiss was argued and
denied by the trial court on January 24, 1997. Pretrial discovery is not yet
complete. The Registrant intends to continue to vigorously pursue this action.
<PAGE>
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OTHER LITIGATION
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 the foregoing is expected to result in a judgment having a material
adverse effect on the Registrant's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The Registrant's Common Stock is traded on the American Stock Exchange under the
symbol AFP. The table below shows the high and low sales prices as reported in
the composite transactions for the American Stock Exchange.
High Low
---- ---
1996 First quarter $7-3/8 $6-1/2
- ---- Second quarter 8-3/4 7-1/8
Third quarter 10 7-1/2
Fourth quarter 9-5/8 8-1/2
1995 First quarter $9-1/4 $8-3/8
- ---- Second quarter 9-7/8 9-1/8
Third quarter 9-1/2 7-5/8
Fourth quarter 8-1/8 6-5/8
As of March 21, 1997, there were approximately 590 record holders of the
Registrant's Common Stock. The closing sales price for the Registrant's Common
Stock on such date was $12-3/8. The Registrant has never paid any cash dividends
on its Common Stock. The payment of dividends is within the discretion of the
Registrant's Board of Directors, however in view of potential working capital
needs and in order to finance future growth and as a result of certain
restrictions in the Registrant's Revolving Credit Agreement, it is unlikely that
the Registrant will pay any cash dividends on its Common Stock in the near
future.
<PAGE>
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with, and is qualified in its entirety by reference to, the
Consolidated Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 (2)
---------- ---------- ---------- ---------- ----------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Total revenues (1) $ 84,874 $ 84,646 $ 76,994 $ 69,556 $ 70,875
========== ========== ========== ========== ==========
Income from continuing operations $ 5,837 $ 3,569 $ 3,621 $ 4,367 $ 2,866
========== ========== ========== ========== ==========
Income from continuing operations
per common share $ 1.06 $ .61 $ .59 $ .70 $ .44
========== ========== ========== ========== ==========
Total assets, end of year $ 121,821 $ 117,200 $ 127,714 $ 114,882 $ 116,849
Total liabilities, end of year 92,246 90,971 94,933 84,704 89,684
Stockholders' equity, end of year 29,575 26,229 32,781 30,178 27,165
========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding 5,510,891 5,893,246 6,169,031 6,267,540 6,569,215
========== ========== ========== ========== ==========
</TABLE>
Notes to Selected Consolidated Financial Data
(1) Certain reclassifications have been reflected in the financial data
to conform prior years' data to the current classifications.
(2) Operating results for 1992 include the results of D&M/Chu
Technology, Inc. and AFP Transformers, Inc. since April 2, and
October 23, 1992, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1996 AND 1995
GENERAL
The following discussion of the Registrant's financial condition and results of
operations should be read in conjunction with the description of the
Registrant's business and properties contained in Items 1 and 2 of Part I and
the consolidated financial statements and notes thereto, included elsewhere in
this report.
Total revenues generated by the Registrant during 1996 were $84,874,000 an
increase of $228,000 from total 1995 revenues of $84,646,000. Income from
continuing operations for the period was $5,837,000 or $1.06 per share as
compared to income from continuing operations of $3,569,000 or $.61 per share
for 1995. Net loss in the prior year period was ($1,904,000) or ($.32) per share
as this period included both losses from the Registrant's discontinued resilient
vinyl flooring operations as well as the write-off of its investment in Kentile,
Inc. See Note 2 to consolidated financial statements, "Acquisition and Disposal
of Operating Companies."
<PAGE>
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REAL ESTATE OPERATIONS
Rental revenues from real estate operations during 1996 increased $1,284,000 or
6% over those of the prior year primarily as a result of additional revenues
related to existing real estate properties and 1995 property acquisitions.
Mortgage interest expense for 1996 decreased by $747,000 as compared to such
expense incurred during 1995. This decrease of 17% results from the continuing
amortization of mortgages which approximated $10.4 million during the current
year, including repayments associated with properties sold.
Depreciation expense associated with real properties held for rental decreased
approximately $81,000 or approximately 1% from such expense incurred in the
preceding year. This decrease is primarily attributable to properties sold in
1996 and 1995.
Other operating expenses associated with the management of real properties
increased approximately $1,692,000 during 1996 versus such expenses incurred in
1995. This increase primarily results from the operating costs of additional
properties added by the Registrant in the current year, the reclassification of
prior manufacturing facilities to real property held for rental and operating
costs associated with existing real estate properties.
ANTENNA SYSTEMS
The operating results of the antenna systems segment for the years ended
December 31, 1996 and 1995 are as follows-
<TABLE>
<CAPTION>
1996 1995
------------- -----------------
(in thousands)
<S> <C> <C>
Net sales $18,883 $20,307
============= =================
Cost of sales $16,207 $16,658
============= =================
Selling, general and administrative expenses $4,934 $4,752
============= =================
Loss from operations ($2,258) ($1,103)
============= =================
</TABLE>
Net sales of the antenna systems segment decreased approximately $1,424,000 or
7% during 1996 as compared to such sales in 1995. This decrease is primarily
attributable to a decrease in net sales of approximately $2,100,000 during the
six months ended June 30, 1996 as compared with the comparable period in 1995,
while net sales for the six months ended December 31, 1996 actually increased by
approximately $700,000 compared to such sales in 1996. Reductions in sales for
the six months ended June 30, 1996 was the result of lower manufacturing output.
Cost of sales as a percentage of net sales of the antenna systems segment
increased approximately 4% from that of 1995. This increase results primarily
from additional costs resulting from lower factory absorption caused by
manufacturing output below planned levels and a shift in product mix.
Selling, general and administrative expenses of the antenna systems segment
increased by approximately $182,000 during 1996 as compared to such costs
incurred in the previous year. This increase is primarily due to increased
selling expenses, primarily salary and salary related expenses.
<PAGE>
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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 years ended December 31, 1996 and 1995 are as follows-
<TABLE>
<CAPTION>
1996 1995
------------- -----------------
(in thousands)
<S> <C> <C>
Net sales $42,055 $41,687
============= =================
Cost of sales $30,891 $31,237
============= =================
Selling, general and administrative expenses $7,372 $6,671
============= =================
Income from operations $3,792 $3,779
============= =================
</TABLE>
Net sales of the engineered products segment were $42,055,000, an increase of
$368,000 versus such sales in 1995. This growth resulted primarily from
increased transformer sales as sales of knitted wire products were consistent
with prior year levels.
Cost of sales as a percentage of net sales decreased approximately 1% between
1996 and 1995. This decline is primarily a result of the mix of product sales.
Selling, general and administrative expenses ("SG&A") of the engineered products
segment increased $701,000 or 11% during 1996, as compared to such costs in
1995. This increase primarily results from additional selling related expenses,
principally salary and travel related expenses, associated with new product
development and business development.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the manufacturing
operations decreased approximately $408,000 during 1996 as compared to such
expenses incurred in the preceding year. This decrease is primarily due to the
reclassification, 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.
OTHER INCOME AND EXPENSE, NET
Other income and expense, net for 1996 of approximately $4.8 million is
comprised of approximately $3,919,000 in gains from the sales of real estate
assets and approximately $1.4 million in settlement of all claims from an
investment that was principally written off in 1990. These amounts were
partially offset by $561,000 of miscellaneous other expense.
The 1995 components of other income and expense, net were as follows: $865,000
in gains from the sale of real estate assets, $230,000 from realized gains on
the sale of marketable securities and approximately $549,000 in miscellaneous
other income.
<PAGE>
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RESULTS OF OPERATIONS 1995 AND 1994
Total revenues generated by the Registrant during 1995 were $84,646,000 an
increase of $7,652,000 from total 1994 revenues of $76,994,000. Net loss for
1995 was ($1,904,000) or ($.32) per share versus net income of $2,933,000 or
$.48 per share for 1994. The 1995 results include losses from discontinued
operations of ($5,473,000) on a net of tax basis or ($.93) per share. See Note 2
to Consolidated Financial Statements, "Acquisition and Disposal of Operating
Companies."
REAL ESTATE OPERATIONS
Rental revenues from real estate operations during 1995 increased $664,000 or 3%
over those of the prior year primarily as a result of additional revenues
generated from the operations of the Registrant's existing real estate
properties, and the signing of leases on properties acquired during 1995.
Mortgage interest expense for 1995 decreased by $531,000 as compared to such
expense incurred during 1994. This decrease of 11% results from the continuing
amortization of mortgages which approximated $6.7 million during the current
year. No new encumbrances were added to the Registrant's real estate portfolio
during 1995.
Depreciation expense associated with real properties held for rental increased
approximately $18,000 or less than 1% from such expense incurred in 1994. This
increase primarily results from depreciation associated with additional
properties purchased and improvements to existing properties added during 1995
and is offset by depreciation associated with the sale of several properties in
1995 and 1994.
Other operating expenses associated with the management of real properties
increased approximately $483,000 or 8% during 1995 versus such expenses incurred
during 1994. This increase primarily results from additional operating costs
incurred in connection with the operation of the Registrant's existing real
estate properties of approximately $358,000 and the balance from the operating
costs of additional properties added by the Registrant in 1995.
ANTENNA SYSTEMS
The operating results of the antenna systems segment for the years ended
December 31, 1995 and 1994 are as follows-
<TABLE>
<CAPTION>
1995 1994
------------- -----------------
(in thousands)
<S> <C> <C>
Net sales $20,307 $19,495
============= =================
Cost of sales $16,658 $15,665
============= =================
Selling, general and administrative expenses $4,752 $5,357
============= =================
Loss from operations ($1,103) ($1,527)
============= =================
</TABLE>
Net sales of the antenna systems segment increased approximately $812,000 or 4%
during 1995 as compared to such sales in 1994. Increased emphasis on commercial
product applications and exploring new market niches, have favorably impacted
this segment of the Registrant's business.
Cost of sales as a percentage of net sales of the antenna systems segment
increased approximately 2% from that of 1994. This increase results primarily
from additional costs incurred as the Registrant moved to consolidate production
of its two manufacturing facilities.
<PAGE>
-13-
SG&A of the antenna systems segment decreased by approximately $605,000 during
1995 as compared to such costs incurred in the previous year. Continuing savings
from the consolidation of D&M/Chu's operations into Dorne & Margolin principally
accounted for this reduction. The integration of D&M/Chu into Dorne & Margolin
has been substantially completed and further reductions in SG&A costs are not
anticipated from this consolidation.
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 years ended December 31, 1995 and 1994 are as follows-
<TABLE>
<CAPTION>
1995 1994
------------- -----------------
(in thousands)
<S> <C> <C>
Net sales $41,687 $35,511
============= =================
Cost of sales $31,237 $27,043
============= =================
Selling, general and administrative expenses $6,671 $5,991
============= =================
Income from operations $3,779 $2,477
============= =================
</TABLE>
Net sales of the engineered products segment were $41,687,000, an increase of
$6,176,000 or 17% versus such sales in 1994. This growth is a result of stronger
demand and increased marketing efforts which produced an 18% increase in the
sale of knitted wire products and a 13% increase in the sale of transformer
products.
Cost of sales as a percentage of net sales decreased approximately 1% between
1995 and 1994. This decline is primarily a result of the mix of product sales.
SG&A expenses of the engineered products segment increased $680,000 or 11%
during 1995, as compared to such costs in 1994. This increase primarily results
from additional selling related expenses associated with the 17% rise in sales
noted above and from additional administrative personnel in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the manufacturing
operations increased approximately $719,000 during 1995 as compared to such
expenses incurred in the preceding year. This represents less than 1% of
consolidated revenues and is primarily a result of additional salaries and
professional fees incurred in 1995.
OTHER INCOME AND EXPENSE, NET
Other income and expense, net for 1995 of approximately $1.6 million is
comprised of approximately $865,000 in gains from the sales of real estate
assets, $230,000 from realized gains on the sale of marketable securities and
approximately $549,000 in miscellaneous other income.
The 1994 components of other income and expense, net were as follows: $1.4
million in gains from the sales of real estate assets, $1.2 million from
realized gains on the sale of marketable securities, $46,000 in income from
equity investments which represents nonrecurring cash distributions, and
$171,000 in miscellaneous other income.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Registrant's current liabilities exceeded current
assets by approximately $5.8 million. This shortfall in working capital results
from financing the purchase of long-term assets utilizing short-term
<PAGE>
-14-
borrowings and from the classification of current mortgage obligations without
the benefit of a corresponding current asset for such properties. Management is
confident that through cash flow generated from operations, together with
borrowings available under the line of credit discussed below and the sale of
select assets, all obligations will be satisfied as they become due.
The Registrant maintained an unsecured line of credit arrangement with a bank
which provided for borrowings up to $15,000,000. Effective November 19, 1996
this line was temporarily increased to $20 million. At December 31, 1996,
approximately $19.8 million was outstanding under this facility at the Bank's
prime rate of interest ("Prime"). At December 31, 1996, the Registrant
classified $9,789,000 of borrowings outstanding under this facility as long-term
debt as the Registrant has both the ability and the intent to refinance these
amounts on a long-term basis under the new credit facility. Effective January
15, 1997, the Registrant entered into a Revolving Credit Agreement ("Revolver")
with two banks that provides for borrowings of up to $40 million and which
expires on January 15, 2000. Amounts outstanding under the previously existing
line of credit were converted to borrowings under the Revolver. Borrowings under
the Revolver, at the Registrant's option, bear interest at Prime or LIBOR plus
1.75%. Under the terms of the Revolver, the Registrant will be provided with
eligibility based upon the sum of (i) 50% of the aggregate annualized and
normalized year-to-date net operating income of eligible properties, as defined,
capitalized at 11.5% and (ii) the lesser of $12 million or the sum of 75% of
eligible accounts receivable and 50% of eligible inventory, as defined. The
terms of the Revolver contain certain financial and restrictive covenants,
including minimum consolidated equity, interest coverage, debt service coverage
and capital expenditures (other than for real estate). At March 21, 1997,
approximately $24 million was available to be borrowed under the Revolver.
The Registrant has undertaken the completion of environmental studies and
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.
At December 31, 1996 and 1995 a total of $2.9 million in anticipated insurance
recoveries is recorded in the accompanying Consolidated Financial Statements,
and is included in other assets. Additionally, in 1995 the Company received
approximately $4.1 million of insurance proceeds. The remaining balance of $2.9
million at December 31, 1996 (from a total of $7 million) is in dispute with the
Registrant's insurance carriers as more fully discussed in Item 3 "Legal
Proceedings" and Note 18 to Consolidated Financial Statements "Contingencies."
Management believes that recoveries in excess of the amounts reflected in the
accompanying Consolidated Financial Statements 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.
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 on the Revolver. The primary source of capital to fund
additional real estate acquisitions and to make additional high yield mortgage
loans will come from the sale, financing and refinancing of the Registrant's
properties and from third party mortgages and purchase money notes obtained in
connection with specific acquisitions.
In addition to the acquisition of properties for consideration consisting of
cash and mortgage financing proceeds, the Registrant may acquire real properties
in exchange for the issuance of the Registrant's equity securities. The
Registrant may also finance acquisitions of other companies in the future with
borrowings from institutional lenders and/or the public or private offerings of
debt or equity securities.
<PAGE>
-15-
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, other financial instruments,
certificates of deposit and government securities.
BUSINESS TRENDS
Total 1996 revenues of the Registrant increased approximately $228,000 from 1995
levels to $84.9 million. Net income increased by $7,742,000 to $5,837,000 during
1996 as compared to 1995 levels.
The results of the Registrant's real estate operations reflect a 6% increase in
sales. Operating income from this segment was $6.3 million, up 24% from the
prior year. Continuing lease renewals and mortgage amortization will continue to
have a positive effect upon the revenues and operating profit of this segment.
Sales in the Registrant's engineered products segment increased less than 1% in
1996, after posting 17% growth in the prior year, principally due to increased
sales of transformers. Knitted wire product sales were consistent with prior
year levels. Operating income from this segment was up slightly from the prior
year and the transformer component of this segment was again profitable this
year. Sales in 1997 are anticipated to approximate 1996 levels due to increased
competition in a number of markets for knitted wire product sales. Management
continues to invest in new product development and in new markets for its
products and believes there is future opportunity for growth in this segment.
The results of the Registrant's antenna systems segment reflect a 7% decrease in
sales during 1996 and the loss from operations increased to $2.3 million from
$1.1 million in the prior year. The sales reduction is principally attributable
to operational problems experienced in the first half of the year as sales for
the second half of 1996 exceeded the comparable period in 1995. The increased
operating loss resulted from lower factory overhead absorption caused by
manufacturing output below planned levels and a shift in product mix. Management
is concentrating on maintaining or increasing the sales volume, reducing both
direct and indirect costs and increasing the margins on all products.
<PAGE>
-16-
FORWARD LOOKING STATEMENTS
This Form 10-K 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 including without limitation the
statements expressed under "Business Trends" above. 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-K 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary information filed as part of this
Item 8 are listed under Part IV, Item 14, "Exhibits, Financial Statements and
Schedules and Reports on Form 8-K" and are contained in this Form 10-K at page
F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information will be contained in the Proxy Statement of the Registrant for
the 1997 Annual Meeting of Stockholders under the captions "Election of
Directors" and "Executive Officers" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information will be contained in the Proxy Statement of the Registrant for
the 1997 Annual Meeting of Stockholders under the caption "Executive
Compensation and Compensation of Directors" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be contained in the Proxy Statement of the Registrant for
the 1997 Annual Meeting of Stockholders under the captions "Security Ownership"
and "Election of Directors" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the Proxy Statement of the Registrant for
the 1997 Annual Meeting of Stockholders under the caption "Certain Relationships
and Related Transactions" and is incorporated herein by reference. Also see Note
13, "Transactions with Related Parties," of Notes to Consolidated Financial
Statements, contained elsewhere in this report.
<PAGE>
-17-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) CONSOLIDATED FINANCIAL STATEMENTS. The following Consolidated
Financial Statements and Consolidated Financial Statement Schedules
of the Registrant are included in this Form 10-K at the pages
indicated:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
Consolidated Statements of Operations for the Years F-3
Ended December 31, 1996, 1995 and 1994 to
F-4
Consolidated Statements of Stockholders' Equity for F-5
the Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the F-6
Years Ended December 31, 1996, 1995 and 1994 to
F-8
Notes to Consolidated Financial Statements F-9
to
F-27
(2) Consolidated Financial Statement Schedules
Schedule II -- Allowance for Doubtful Accounts F-28
Schedule III -- Real Property Held for Rental and F-29
Accumulated Depreciation
Schedule IV -- Mortgage Loans on Real Estate F-30
(3) Supplementary Data
Quarterly Financial Data (Unaudited) F-31
Schedules not listed above are omitted as not applicable or the
information is presented in the financial statements or related notes.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last quarter of
fiscal 1996.
(c) Exhibits
3.1. Amended and restated Certificate of Incorporation of the
Registrant (incorporated by reference to exhibit 3.1 filed with the Registrant's
report on Form 10-K for the fiscal year ended December 31, 1993).
3.2. By-laws of the Registrant (incorporated by reference to exhibit
3 filed with the Registrant's report on Form 10-K for the fiscal year ended
December 31, 1980).
10.1. 1988 Incentive Stock Option Plan of the Registrant, as amended
(incorporated by reference to exhibit 10.1 filed with the Registrant's report on
Form 10-K for the fiscal year ended December 31, 1994).
<PAGE>
-18-
10.2. 1988 Joint Incentive and Non-Qualified Stock Option Plan, as
amended (incorporated by reference to exhibit 10.2 filed with the Registrant's
report on Form 10-K for the fiscal year ended December 31, 1994).
10.3. Employment Agreement dated as of January 1, 1990 by and
between the Registrant and A. F. Petrocelli (incorporated by reference to
exhibit 10.9 filed with the Registrant's report on Form 10-K for the fiscal year
ended December 31, 1989).
10.4. Amendment dated as of December 3, 1990 to Employment Agreement
dated as of January 1, 1990, by and between the Registrant and A. F. Petrocelli
(incorporated by reference to exhibit 10.10 filed with the Registrant's report
on Form 10-K for the fiscal year ended December 31, 1990).
10.5. Amendment dated as of June 8, 1993 to Employment Agreement
dated as of January 1, 1990 by and between the Registrant and A. F. Petrocelli
(incorporated by reference to exhibit 10.5 filed with the Registrant's report on
Form 10-K for the fiscal year ended December 31, 1993).
*21. Subsidiaries of the Registrant
*23. Accountants' consent to the incorporation by reference in
Registrant's Registration Statements on Form S-8 of the Report of Independent
Public Accountants included herein.
*27. Financial Data Schedule
- -----------------
* Filed herewith
<PAGE>
-19-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 21, 1997 By: /s/ A.F. Petrocelli
-------------- -------------------
A. F. Petrocelli
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Dated: March 21, 1997 By: /s/ A.F. Petrocelli
-------------- -------------------
A. F. Petrocelli
Chairman, President and
Chief Executive Officer
Dated: March 21, 1997 By: /s/ Howard M. Lorber
-------------- --------------------
Howard M. Lorber
Director
Dated: March 21, 1997 By: /s/ Anthony J. Miceli
-------------- ---------------------
Anthony J. Miceli
Chief Financial Officer,
Chief Accountant, Secretary and Director
Dated: March 21, 1997 By: /s/ Arnold S. Penner
-------------- --------------------
Arnold S. Penner
Director
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
United Capital Corp.:
We have audited the accompanying consolidated balance sheets of United Capital
Corp. (a Delaware Corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These consolidated financial statements and the schedules referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Capital Corp. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
consolidated financial statements and schedules are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 14, 1997
F-1
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,177,878 $ 3,527,925
Marketable securities 313,294 83,760
Notes and accounts receivable, net of allowance for doubtful
accounts of $501,406 and $471,406, respectively 22,443,743 16,253,100
Inventories 7,853,229 7,764,873
Prepaid expenses and other current assets 801,639 687,535
Deferred income taxes 1,831,768 1,893,205
------------ ------------
Total current assets 36,421,551 30,210,398
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, net 7,694,438 9,957,648
REAL PROPERTY HELD FOR RENTAL, net 63,842,891 68,063,502
NONCURRENT NOTES RECEIVABLE 5,931,744 3,624,188
OTHER ASSETS 5,912,647 4,387,064
DEFERRED INCOME TAXES 2,017,247 956,991
------------ ------------
Total assets $121,820,518 $117,199,791
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------------------------------ ---- ----
CURRENT LIABILITIES:
Current maturities of long-term debt $ 7,711,408 $ 10,085,227
Current portion of borrowings under revolving credit facilities 10,031,000 7,785,000
Accounts payable and accrued liabilities 17,286,927 19,144,363
Income taxes payable 7,212,520 3,680,639
------------- -------------
Total current liabilities 42,241,855 40,695,229
LONG-TERM LIABILITIES:
Borrowings under revolving credit facilities 9,789,000 0
Long-term debt 31,670,258 41,899,690
Other long-term liabilities 8,544,581 8,375,643
------------- -------------
Total liabilities 92,245,694 90,970,562
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock $.10 par value, authorized 7,500,000 shares;
issued and outstanding 5,346,123 and 5,606,079 shares, respectively 534,612 560,608
Additional paid-in capital 7,415,664 10,101,147
Retained earnings 21,515,762 15,678,511
Minimum pension liability, net of tax 0 (165,659)
Net unrealized gain on marketable securities, net of tax 108,786 54,622
------------- -------------
Total stockholders' equity 29,574,824 26,229,229
------------- -------------
Total liabilities and stockholders' equity $ 121,820,518 $ 117,199,791
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-2
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Net sales $ 60,938,306 $ 61,994,021 $ 55,005,965
Rental revenues from real estate operations 23,935,997 22,652,430 21,987,956
------------ ------------ ------------
Total revenues 84,874,303 84,646,451 76,993,921
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 47,098,729 47,895,213 42,737,647
Real estate operations-
Mortgage interest expense 3,671,034 4,417,574 4,948,591
Depreciation expense 6,299,110 6,379,775 6,362,426
Other operating expenses 7,623,883 5,932,051 5,449,007
General and administrative expenses 7,709,876 8,295,515 7,128,586
Selling expenses 6,519,155 6,253,362 6,021,789
------------ ------------ ------------
Total costs and expenses 78,921,787 79,173,490 72,648,046
------------ ------------ ------------
Operating income 5,952,516 5,472,961 4,345,875
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 1,205,508 709,967 567,615
Interest expense (1,125,779) (1,145,076) (1,099,985)
Other income and expense, net 4,801,006 1,644,856 2,819,493
------------ ------------ ------------
Total other income (expense) 4,880,735 1,209,747 2,287,123
------------ ------------ ------------
Income from continuing operations before
income taxes 10,833,251 6,682,708 6,632,998
Provision for income taxes 4,996,000 3,114,000 3,012,000
------------ ------------ ------------
Income from continuing operations 5,837,251 3,568,708 3,620,998
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
DISCONTINUED OPERATIONS:
Operating loss, net of tax benefit of $780,000
and $360,000, respectively $ 0 ($1,512,961) ($ 688,354)
Provision for disposition, net of tax benefit
of $2,040,000 0 (3,960,000) 0
----------- ----------- -----------
Loss from discontinued operations,
net of tax 0 (5,472,961) (688,354)
----------- ----------- -----------
Net income (loss) $ 5,837,251 ($1,904,253) $ 2,932,644
=========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ 1.06 $ .61 $ .59
Loss from discontinued operations, net of tax 0 (.93) (.11)
----------- ----------- -----------
Net income (loss) per common share $ 1.06 ($ .32) $ .48
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,510,891 5,893,246 6,169,031
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-4
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Net
Unrealized
Minimum Gain on
Common Stock Issued Additional Pension Marketable Total
-------------------- Paid-in Retained Liability, Securities, Stockholders'
Shares Amount Capital Earnings Net of Tax Net of Tax Equity
------ ------ ------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- January 1, 1994 6,063,261 $ 606,326 $ 14,921,406 $ 14,650,120 $ 0 $ 0 $ 30,177,852
Purchase and retirement
of common shares (124,916) (12,491) (1,009,548) 0 0 0 (1,022,039)
Proceeds from the
exercise of stock
options 112,921 11,292 619,462 0 0 0 630,754
Cumulative effect of
change in accounting
principle 0 0 0 0 0 346,825 346,825
Change in net
unrealized gain on
marketable securities,
net of tax 0 0 0 0 0 (284,962) (284,962)
Net income 0 0 0 2,932,644 0 0 2,932,644
---------- --------- ------------ ------------ --------- --------- ------------
BALANCE -- December 31, 1994 6,051,266 605,127 14,531,320 17,582,764 0 61,863 32,781,074
---------- --------- ------------ ------------ --------- --------- ------------
Purchase and retirement
of common shares (445,887) (44,589) (4,433,603) 0 0 0 (4,478,192)
Proceeds from the
exercise of stock
options 700 70 3,430 0 0 0 3,500
Change in net
unrealized gain on
marketable securities,
net of tax 0 0 0 0 0 (7,241) (7,241)
Change in minimum
pension liability,
net of tax 0 0 0 0 (165,659) 0 (165,659)
Net loss 0 0 0 (1,904,253) 0 0 (1,904,253)
---------- --------- ------------ ------------ --------- --------- ------------
BALANCE -- December 31, 1995 5,606,079 560,608 10,101,147 15,678,511 (165,659) 54,622 26,229,229
---------- --------- ------------ ------------ --------- --------- ------------
Purchase and retirement
of common shares (425,206) (42,521) (3,575,208) 0 0 0 (3,617,729)
Proceeds from the
exercise of stock
options 165,250 16,525 889,725 0 0 0 906,250
Change in net
unrealized gain on
marketable securities,
net of tax 0 0 0 0 0 54,164 54,164
Change in minimum
pension liability,
net of tax 0 0 0 0 165,659 0 165,659
Net income 0 0 0 5,837,251 0 0 5,837,251
---------- --------- ------------ ------------ --------- --------- ------------
BALANCE-- December 31, 1996 5,346,123 $ 534,612 $ 7,415,664 $ 21,515,762 $ 0 $ 108,786 $ 29,574,824
========== ========= ============ ============ ========= ========= ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 5,837,251 ($ 1,904,253) $ 2,932,644
------------ ------------ ------------
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities-
Depreciation and amortization 7,751,939 7,938,095 7,493,571
Disposal of discontinued operations 0 1,868,597 0
Net realized gains on marketable securities 0 (229,979) (1,203,463)
Changes in assets and liabilities
net of effects from business
acquisitions and disposals (A) (9,515,871) 5,228,219 (3,410,232)
------------ ------------ ------------
Total adjustments (1,763,932) 14,804,932 2,879,876
------------ ------------ ------------
Net cash provided by operating
activities 4,073,319 12,900,679 5,812,520
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (147,467) 0 (558,584)
Proceeds from sale of marketable
securities 0 729,318 2,979,985
Acquisition of property, plant and
equipment (996,169) (2,520,169) (2,075,975)
Cash paid in acquisition of operating business 0 0 (2,688,565)
Investing activities of discontinued operations 0 0 (1,384,920)
------------ ------------ ------------
Net cash used in investing
activities (1,143,636) (1,790,851) (3,728,059)
------------ ------------ ------------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on mortgage
commitments, notes and loans ($13,628,197) ($ 9,626,955) ($ 8,487,381)
Proceeds from mortgage commitments,
notes and loans 1,024,946 3,150,000 0
Net borrowings under revolving credit
facilities 12,035,000 1,785,000 6,000,000
Purchase and retirement of common
shares (3,617,729) (4,478,192) (1,022,039)
Proceeds from the exercise of stock options 906,250 3,500 630,754
Financing activities of discontinued operations 0 0 (1,370,352)
------------ ------------ ------------
Net cash used in financing
activities (3,279,730) (9,166,647) (4,249,018)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (350,047) 1,943,181 (2,164,557)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,527,925 1,584,744 3,749,301
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 3,177,878 $ 3,527,925 $ 1,584,744
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for-
Interest $ 4,847,000 $ 5,423,000 $ 5,918,000
Taxes 2,876,000 1,874,000 2,756,000
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
<TABLE>
<CAPTION>
(A) Changes in assets and liabilities for the
years ended December 31, 1996, 1995 and
1994, net of effects from business
acquisitions and disposals in 1995 and 1994
are as follows:
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Increase in notes and accounts
receivable, net ($6,190,643) ($ 107,014) ($2,464,223)
Decrease (increase) in inventories (88,356) 1,190,224 (885,822)
Decrease (increase) in prepaid
expenses and other current assets (114,104) 3,876,776 (4,017,518)
Increase in deferred income taxes (1,112,060) (1,571,542) (128,477)
Increase in real property held for
rental, net (271,950) (2,362,858) (5,321,617)
Decrease (increase) in noncurrent
notes receivable (2,307,556) (274,462) 126,313
Decrease (increase) in other assets (1,314,335) 366,281 (2,933,952)
Increase (decrease) in accounts payable
and accrued liabilities (1,817,686) 4,076,255 2,425,119
Increase (decrease) in income
taxes payable 3,531,881 (38,931) (635,612)
Increase (decrease) in other
long-term liabilities 168,938 73,490 6,850,316
Discontinued operations - noncash
charges and working capital changes 0 0 3,575,241
----------- ----------- -----------
Total ($9,515,871) $ 5,228,219 ($3,410,232)
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-8
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
NATURE OF BUSINESS-
United Capital Corp. (the "Registrant") and its subsidiaries are
currently engaged in the investment and management of real estate
and in the manufacture and sale of antenna systems and engineered
products.
PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of the
Registrant and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The
equity method of accounting is used for investments in 50% or less
owned companies over which the Registrant has the ability to
exercise significant influence.
INCOME RECOGNITION --
REAL ESTATE OPERATIONS-
The Registrant leases substantially all of its properties to tenants
under net leases. Under this type of lease, the tenant is obligated
to pay all operating costs of the property including real estate
taxes, insurance, repairs and maintenance. Rental income is
recognized based on the terms of the leases. Certain lease
agreements provide for additional rent based on a percentage of
tenants' sales. Such additional rents are recorded as income when
they can be reasonably estimated. Gains on sales of real estate
assets are recorded when the gain recognition criteria under
generally accepted accounting principles have been met.
REVENUE RECOGNITION --
MANUFACTURING OPERATIONS-
Generally, sales are recorded when products are shipped to the
customer. In the antenna systems segment, sales and gross profits on
contracts with relatively few deliverable units, when produced over
an extended period, usually in excess of 12 months, are recognized
on a percentage-of-completion basis. For such projects, sales and
gross profit are adjusted prospectively for revisions in estimated
total contract costs and contract values. Estimated losses are
recorded when identified. Sales also include royalties received in
connection with the licensing of certain of the Registrant's
products.
F-9
<PAGE>
MARKETABLE SECURITIES-
Investments in debt securities are classified as held-to-maturity
and measured at amortized cost in the consolidated balance sheets
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 Registrant adopted Statement of Financial Accounting Standard
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115") effective January 1, 1994. The effect of
the adoption increased stockholders' equity by $346,825, net of tax,
at such date.
CASH AND CASH EQUIVALENTS-
The Registrant considers all highly liquid investments with a
maturity, at the purchase date, of three months or less to be cash
equivalents.
INVENTORIES-
Inventories are stated at the lower of cost or market and include
material, labor and manufacturing overhead. The first-in, first-out
(FIFO) method is used to determine the cost of inventories in each
of the Registrant's business segments.
The components of inventory at December 31, 1996 and 1995 are as
follows-
1996 1995
--------------- ------------------
Raw materials $3,893,865 $3,948,129
Work in process 2,126,849 2,125,044
Finished goods 1,832,515 1,691,700
--------------- ------------------
$7,853,229 $7,764,873
=============== ==================
DEPRECIATION AND AMORTIZATION-
Depreciation and amortization are provided on a straight-line basis
over the estimated useful lives of the related assets as follows-
Real property held for rental-
Buildings 5 to 39 years
Equipment 5 to 7 years
Property, plant and equipment-
Buildings and improvements 18 to 40 years
Machinery and equipment 3 to 10 years
F-10
<PAGE>
REAL PROPERTY HELD FOR RENTAL-
Real property held for rental is carried at cost less accumulated
depreciation. Major renewals and betterments are capitalized.
Maintenance and repairs are expensed as incurred.
Certain mortgage obligations assumed by the Registrant contain
provisions whereby the mortgage holder may acquire, under certain
conditions, an interest in the properties securing the obligation,
for a nominal amount. The Registrant considers any costs incurred as
a result of these provisions to be a cost of acquisition and the
basis in such properties is adjusted accordingly.
RESEARCH AND DEVELOPMENT-
The Registrant expenses research, development and product
engineering costs as incurred. Approximately $543,000, $403,000 and
$641,000 of such costs were incurred by the Registrant in 1996, 1995
and 1994, respectively. Provisions for losses are made for research
and development contracts when the estimated costs under such
contracts exceed the proceeds.
COMMON STOCK-BASED COMPENSATION-
The Registrant accounts for stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related
Interpretations (APB No. 25). Under APB No. 25, when the exercise
price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation
cost is recognized.
NET INCOME (LOSS) PER COMMON SHARE-
Net income (loss) per common share is computed based upon the
weighted average number of common and dilutive common equivalent
shares outstanding during the period. Fully diluted and primary
earnings per common share are approximately the same amounts for
each of the periods presented.
PRIOR YEAR FINANCIAL STATEMENTS-
Certain amounts have been reclassified in the December 31, 1995 and
1994 financial statements and notes thereto to present them on a
basis consistent with the current year.
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.
F-11
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS-
During 1996, the Registrant adopted the new Statement of Financial
Accounting Standards (SFAS) No. 121-"Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. The adoption thereof had
no material effect on the Registrant's financial position or
operating results.
(2) ACQUISITION AND DISPOSAL OF OPERATING COMPANIES:
On March 14, 1994, the Registrant, through a new wholly-owned
subsidiary known as Kentile, Inc. ("Kentile"), purchased substantially
all of the operating assets of Kentile Floors, Inc. ("Kentile Floors")
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.
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 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 operations
include operating losses of Kentile during 1995, incurred prior to its
closure, of approximately $2.3 million, on a pre-tax basis.
(3) REAL PROPERTY HELD FOR RENTAL:
The Registrant is the lessor of real estate under operating leases
which expire in various years through 2071.
The following is a summary of real property held for rental at December
31-
1996 1995
-------------- --------------
Land $12,406,082 $12,094,596
Buildings 112,362,218 113,888,625
-------------- -------------
124,768,300 125,983,221
Less- Accumulated depreciation (60,925,409) (57,919,719)
-------------- -------------
$63,842,891 $68,063,502
============== ==============
F-12
<PAGE>
As of December 31, 1996, total minimum future rentals to be received
under noncancellable leases for each of the next five years and
thereafter are as follows-
Year Ended December 31-
1997 $16,476,000
1998 13,974,000
1999 11,527,000
2000 9,928,000
2001 8,198,000
Thereafter 53,175,000
-----------------
Total Minimum Future Rental $113,278,000
=================
Minimum future rentals do not include additional rentals that may be
received under certain leases which provide for such rentals based upon
a percentage of lessees' sales. Percentage rents included in the
determination of income from operations in 1996, 1995 and 1994 were
approximately $1,045,000, $1,029,000 and $915,000, respectively.
(4) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is principally used in the Registrant's
manufacturing operations and consists of the following at December 31-
1996 1995
--------------- -----------------
Land $92,950 $992,950
Buildings and improvements 2,945,339 4,143,125
Machinery and equipment 11,760,344 10,865,986
--------------- -----------------
14,798,633 16,002,061
Less- Accumulated depreciation (7,104,195) (6,044,413)
--------------- -----------------
$7,694,438 $9,957,648
=============== =================
At December 31, 1995, property, plant and equipment includes
approximately $2.3 million of land and buildings used in the
Registrant's D&M/Chu antenna business. The Registrant ceased operations
at D&M/Chu, Massachusetts in 1996 and reclassified such property to
real property held for rental.
(5) MARKETABLE SECURITIES:
The aggregate market value of marketable securities, which are all
equity securities and available-for-sale, was $313,294 and $83,760 at
December 31, 1996 and 1995, respectively, while gross unrealized
holding gains were $108,786 and $54,622 on a net of tax basis,
respectively.
F-13
<PAGE>
There were no sales of marketable securities in 1996. Proceeds from the
sales of securities, which were designated as available-for-sale in all
years presented and the resulting gross realized gains and losses
included in the determination of net income for the years ended
December 31, 1995 and 1994 are as follows-
1995 1994
----------- -----------
Proceeds $ 729,318 $ 2,979,985
=========== ===========
Realized gains $ 229,979 $ 1,233,389
=========== ===========
Realized losses $ 0 ($ 29,926)
=========== ===========
(6) NOTES RECEIVABLE:
Notes receivable consist of the following at December 31-
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
High yield mortgage loans (a) $13,498,773 $2,997,000
Mortgage note receivable (b) 3,248,497 2,958,229
Mortgage notes receivable (c) 665,406 695,530
Due from related party (Note 13) 468,000 415,000
Other 299,158 81,394
----------- ----------
18,179,834 7,147,153
Less- Current portion included in notes
and accounts receivable 12,248,090 3,522,965
----------- ----------
$ 5,931,744 $3,624,188
=========== ==========
</TABLE>
(a) In 1996, the Registrant participated in several high yield
mortgage loans which in certain instances, may include related
party participants (see Note 13). At December 31, 1996 there
are nine notes outstanding with balances ranging from $50,000
to $6,500,000, with varying terms, from January 1997 to
October 1998. The notes are secured by a first or second
mortgage lien against the property which is generally fully
leased with a substantial value-to-loan ratio. Management
believes that sufficient collateral exists to satisfy the
obligation. The notes are interest bearing and in most cases,
the Registrant receives a commitment fee of 4%. The effective
yields on these notes vary from 10% to 18%. High yield
mortgage loans at December 31, 1995 consisted of two notes
(see Note 13), which were fully satisfied in 1996.
(b) In February 1994, the Registrant acquired the underlying
mortgage secured by Kentile Floors' South Plainfield, New
Jersey facility for $2.25 million plus the assumption of
certain liabilities in connection with operating and
maintaining the property. The mortgage note has a face amount
outstanding of approximately $6.5 million plus delinquent
accrued interest. Included in the carrying value of the
mortgage note receivable are costs associated with readying
the underlying property for rental in 1998. Management
believes that the fair value of the property exceeds the
carrying value of the mortgage note.
F-14
<PAGE>
(c) As partial consideration in the sale of several properties,
the Registrant received mortgage notes in the aggregate amount
of $1,880,000. The notes, which are secured by the properties
sold, bore interest in 1996 and 1995 at various rates ranging
between 9% and 10.25% and bear interest in future periods at
rates ranging between 9% and 11%. Interest under the notes is
due monthly. Principal repayment terms vary with periodic
installments through December 2008.
In accordance with generally accepted accounting principles,
the gains from the sales of certain of these properties are
being recognized under the installment method, and
accordingly, the carrying value of noncurrent notes receivable
has been reduced by deferred gains of approximately $849,000
and $896,000 at December 31, 1996 and 1995, respectively. The
deferred gains are being recognized as income as payments are
received under the note.
(7) OTHER ASSETS:
Other assets consist of the following at December 31-
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Anticipated insurance recoveries (a) $2,893,000 $2,943,000
Deposits 852,491 810,805
Pension (Note 16) 572,359 0
Covenants not to compete 37,500 204,889
Cash surrender value of life insurance policies, net 313,549 295,410
Patents, net of accumulated amortization 156,862 176,134
Investments in and advances to affiliate (b) 1,306,581 0
Other 575,476 644,361
---------- ----------
6,707,818 5,074,599
Less- Amounts included in prepaid expenses and
other current assets 795,171 687,535
---------- ----------
Total other assets $5,912,647 $4,387,064
========== ==========
</TABLE>
(a) In accordance with Staff Accounting Bulletin 92, the
Registrant has recorded the anticipated recoveries from its
insurance carriers in connection with the environmental
investigation and remediation costs to be incurred at two of
its manufacturing sites in New Jersey. See Note 18,
"Contingencies."
(b) Through its subsidiaries, the Registrant owns a 50% interest
in Indian Creek Hotel, LLP, a Miami, Florida hotel operated as
a Holiday Inn. The hotel began operations in January 1997 and,
accordingly, through December 31, 1996, the Registrant's
equity in the results of operations have been immaterial (See
Note 13).
F-15
<PAGE>
(8) ACCOUNTS PAYABLE
AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following at
December 31-
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accounts payable $ 5,857,202 $ 8,658,096
Accrued wages and benefits 2,748,281 2,477,483
Liabilities for discontinued operations 2,815,674 3,236,311
Other accrued expenses 5,865,770 4,772,473
----------- -----------
$17,286,927 $19,144,363
=========== ===========
</TABLE>
(9) LONG-TERM DEBT:
Long-term debt consists of the following at December 31-
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
First mortgages on real property (a) $34,366,355 $43,816,859
Second mortgages on real property (b) 316,186 355,431
Loan payable to bank (c) 740,827 2,010,832
Loan payable to bank (d) 393,750 1,575,000
Loan payable to bank (e) 2,362,500 2,992,500
Note payable (f) 1,200,000 1,200,000
Other 2,048 34,295
----------- -----------
39,381,666 51,984,917
Less- Current maturities 7,711,408 10,085,227
----------- -----------
$31,670,258 $41,899,690
=========== ===========
</TABLE>
(a) First mortgages bearing interest at rates ranging from 4% to
10.5% per annum are collateralized by the related real
property. Such amounts are scheduled to mature at various
dates from May 1997 through February 2010.
(b) Second mortgages bearing interest at rates of approximately
10.125% per annum are collateralized by the related real
property. Such amounts are scheduled to mature at various
dates from October 2001 through November 2002.
(c) In July 1992, the Registrant borrowed $6,350,000 from a bank
to refinance a note to a former shareholder which was issued
in connection with the merger of BMG Equities, Corp. ("BMG").
This note bore interest at the bank's prime lending rate plus
1/4% until April 1993 when it was converted to a fixed rate
note at 6.2% for the remainder of the term. The note is due in
60 equal principal installments, together with accrued
interest thereon, through July 1997. The loan agreement
contains, among other things, several financial covenants
regarding net worth and debt-to-equity ratios.
F-16
<PAGE>
(d) In connection with the acquisition of the operating assets of
Chu Associates, Inc., the Registrant entered into a $4,725,000
loan agreement with a bank. The loan bore interest at the
bank's prime lending rate plus 1/4% until April 1993 when it
was converted to a fixed rate note at 6.3% for the remainder
of the term. The note is payable monthly, with 48 equal
monthly principal installments beginning in May 1993. The loan
agreement contains several financial covenants regarding
working capital, net worth, capital expenditures and debt-
to-equity ratios.
(e) In August 1995, the Registrant converted $3.15 million
outstanding under its revolving credit facility to a fixed
rate note at 7.94% per annum. The note is due in 60 equal
principal installments, together with accrued interest
thereon, through September 2000. The loan agreement contains,
among other things, several financial covenants regarding net
worth and debt-to-equity ratios.
(f) As partial consideration in the acquisition of D&M/Chu the
Registrant issued a $1,200,000 note to the sellers. The note
bore interest at 8.25% between May 1996 and December 1996. The
interest rate is adjusted annually by no more than a 1%
increase or decrease from the rate of the immediately
preceding twelve-month period to the published prime rate
charged by U. S. banks. The rate during the twelve months
ended May 1996, 1995 and 1994 was 7.75%, 6.75% and 6.5%
respectively. The note requires quarterly interest payments
and matures in May 1997. Under certain conditions, the
Registrant may offset certain amounts against this note.
The approximate aggregate maturities of these obligations at December
31, 1996 are as follows-
1997 $7,711,408
1998 5,140,773
1999 4,877,984
2000 4,619,947
2001 3,950,060
Thereafter 13,081,494
-------------
$39,381,666
=============
(10) REVOLVING CREDIT FACILITIES:
The Registrant maintained an unsecured line of credit arrangement
with a bank which provided for borrowings up to $15,000,000.
Effective November 19, 1996 this line was temporarily increased to
$20 million. In conjunction with the negotiation of the new credit
facility discussed below, this line was terminated effective January
15, 1997. Advances under this facility accrued interest at the
bank's prime lending rate ("Prime"), which was 8.25% and 8.5% at
December 31, 1996 and 1995, respectively, or at the London Interbank
Offered Rate ("LIBOR") plus 2%, at the Registrant's option. At
December 31, 1996 approximately $19.8 million was outstanding under
this facility at Prime. At December 31, 1996, the Registrant
classified $9,789,000 of borrowings outstanding under this facility
as long-term debt as the Registrant has both the ability and the
intent to refinance these amounts on a long-term basis under the new
credit facility discussed below. At December 31, 1995, $1.8 million
was outstanding at Prime and $6 million at approximately 7.25%.
F-17
<PAGE>
Effective January 15, 1997, the Registrant entered into a Revolving
Credit Agreement ("Revolver") with two banks that provides for
borrowings of up to $40 million and which expires on January 15,
2000. Amounts outstanding under the previously existing line of
credit were converted to borrowings under the Revolver. Borrowings
under the Revolver, at the Registrant's option, bear interest at
Prime or LIBOR plus 1.75%. Under the terms of the Revolver, the
Registrant will be provided with eligibility based upon the sum of
(i) 50% of the aggregate annualized and normalized year-to-date net
operating income of eligible properties, as defined, capitalized at
11.5% and (ii) the lesser of $12 million or the sum of 75% of
eligible accounts receivable and 50% of eligible inventory, as
defined.
The terms of the Revolver contain certain financial and restrictive
covenants, including minimum consolidated equity, interest coverage,
debt service coverage and capital expenditures (other than for real
estate). The Revolver also contains provisions which allow the
lenders to perfect a security interest in certain operating and real
estate assets in the event of a default, as defined under the terms
of the Revolver. At January 15, 1997 the Registrant was in
compliance with all covenants. At January 15, 1997, approximately
$20.2 million was available to be borrowed under the Revolver.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company has limited involvement with financial instruments and
does not use them for trading purposes. The following methods and
assumptions were used by the Registrant in estimating its fair value
disclosures for financial instruments-
The carrying amount reported in the consolidated balance sheets
for cash and cash equivalents and accounts receivable approximate
their fair value.
The fair value of fixed rate notes receivable are estimated using
discounted cash flow analyses, with interest rates comparable on
loans with similar terms and borrowers of similar credit quality.
The carrying amounts of notes receivable approximate fair value.
Marketable securities held for investment purposes are carried at
fair value based on quoted market prices or dealer quotes. If a
quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Carrying amounts of borrowings under the revolving credit
facilities approximate their fair value. The fair value of the
long-term debt was calculated based on interest rates available
for debt with terms and due dates similar to the Company's
existing debt arrangements. The fair value of long-term debt at
December 31, 1996 and 1995 was approximately $39,598,000 and
$51,640,000 respectively, while the carrying value was
$39,380,000 and $51,950,000 for the same periods.
F-18
<PAGE>
(12) STOCKHOLDERS' EQUITY:
Stock Options-
The Registrant has two stock option plans under which qualified
and nonqualified options may be granted to key employees to
purchase the Registrant's common stock at the fair market value
at the date of grant. Under both plans, the options typically
become exercisable in three equal installments, beginning one
year from the date of grant. The 1988 Incentive Stock Option Plan
(the "Incentive Plan") provides for the granting of incentive
stock options not to exceed 325,000 options in the aggregate. The
1988 Joint Incentive and Non-Qualified Stock Option Plan (the
"Joint Plan") provides for the granting of incentive or
nonqualified stock options, also not to exceed 325,000 options in
the aggregate.
At December 31, 1996, there were 118,367 and 51,061 options
outstanding under the Joint Plan and Incentive Plan,
respectively. At December 31, 1995, 117,193 and 47,733 options
were outstanding under the Joint Plan and Incentive Plan,
respectively.
In addition to options outstanding under the Joint Plan and
Incentive Plan, at December 31, 1995 and 1994 there were 180,000
options outstanding at $5.50 per share. Such options were granted
to Directors and certain officers of the Registrant at $5.50 per
share, which price was equal to the market value per share on the
date of grant. During 1996, all such options were exercised.
Approximately $490,000 of compensation expense was recognized in
1996 resulting from the exercise and repurchase of such options
by two Directors of the Registrant.
A summary of the Registrant's stock options as of December 31,
1996, 1995 and 1994, and changes during the years then ended are
summarized below-
<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Shares Price
------ ---------
<S> <C> <C>
Outstanding at January 1, 1994 506,328 $ 7.40
Granted 0
Exercised (112,921) $ 5.59
Forfeited (44,297) $ 11.03
--------
Outstanding at December 31, 1994 349,110 $ 7.53
Granted 0
Exercised (700) $ 5.00
Forfeited (3,484) $ 10.51
--------
Outstanding at December 31, 1995 344,926 $ 7.51
Granted 20,000 $ 7.25
Exercised (185,250) $ 5.48
Forfeited (10,248) $ 7.49
--------
Outstanding at December 31, 1996 169,428 $ 9.45
========
</TABLE>
F-19
<PAGE>
The following table summarizes information about options outstanding
and exercisable at December 31, 1996-
<TABLE>
<CAPTION>
Options Outstanding and Weighted-Average
Exercisable at December Remaining Contractual Weighted-Average
Range of Exercise Price 31, 1996 Life Exercise Price
----------------------- -------------------------- --------------------- -----------------
<S> <C> <C> <C>
$5.00-$7.25 51,200 5.4 years $5.88
$10.875-$11.00 118,228 6.8 years $11.00
-----------------
169,428 6.4 years $9.45
=================
</TABLE>
For purposes of estimating the fair value of each option on the date
of grant, the Registrant utilized the Black-Scholes option-pricing
model with the following assumptions for 1996; risk-free interest
rates of 5.84%; no dividend yield, expected life of three years; and
an expected volatility of 40%. There were no options granted in
1995, the earliest year for which adoption of Statement of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation
to Employees" (SFAS No. 123) is required. Pro forma compensation
costs for the Registrant's stock option plans determined based on
the fair value at the grant date for 1996 awards under those plans,
consistent with the method of SFAS No. 123, were not material.
(13) TRANSACTIONS WITH RELATED PARTIES:
In September 1996, the Registrant purchased a 50% interest in a
limited partnership that owns and operates a hotel in Miami Beach,
Florida. Through December 31, 1996, the Registrant has invested
approximately $624,000 for its equity interest. In September 1996,
the Registrant participated in a $2.5 million loan transaction to
the limited partnership secured by a mortgage lien against the
property. The Registrant advanced approximately $682,500 in
connection with this note. The remaining amounts were advanced by
the following: a Director of the Registrant, $250,000; the wife of
the Board Chairman, $1 million; an officer of the Registrant
$100,000; and the balance by unrelated parties. All amounts invested
in and advanced to the partnership by the Registrant have been
classified as investments in and advances to affiliate and are
included in other assets in the consolidated financial statements.
The note bears interest at 14% per annum payable monthly and matures
in September 1997. The participants also received a commitment fee
of 4%. Upon maturity the note may be extended for a one year term in
consideration of 4% of the outstanding balance.
In 1996, in order to effectively manage the cost to the Registrant
of the remediation efforts at Metex' two New Jersey facilities (see
Note 18), the Registrant sold approximately a 2% interest for
$22,000 in a subsidiary that manages the Registrant's environmental
remediation efforts to an Officer and Director of the Registrant and
other employees. These shares contain certain restrictions on
transfer and, under certain circumstances, are redeemable at the net
book value of the subsidiary.
F-20
<PAGE>
In May 1995, the Registrant participated in a $4.5 million loan
transaction secured by an assignment of a mortgage note covering a
commercial office building in New York City. The Registrant advanced
approximately $2.5 million in connection with this loan. The
remaining amounts were advanced by the following: a Director of the
Registrant, $500,000; the wife of the Board Chairman, $1.45 million;
and the balance by unrelated parties. The note bore interest at 14%
per annum, and was fully satisfied together with accrued interest in
August 1996. The participants also received a commitment fee of 4%
in connection with the loan. A Director of the Registrant was a
shareholder of the borrower and also a guarantor under the note.
The Registrant's two hotel properties are managed by a publicly
traded company for which the Board Chairman and another Director of
the Registrant are directors. Fees paid for the management of these
properties is based upon a percentage of revenue and were
approximately $159,000, $120,000 and $103,000 for 1996, 1995 and
1994, respectively.
In May 1994, the Registrant participated in a $2,650,000 loan
transaction secured by a first mortgage covering a leasehold estate.
The Registrant advanced $265,000 in connection with this loan. The
remaining amount was advanced by a company in which a Director of
the Registrant owns a substantial interest. The note bore interest
at 15% per annum, payable monthly and was fully satisfied together
with accrued interest in May 1995. In addition, the participants
received a commitment fee of 3% on their advances from the borrower.
In April 1994, the Registrant participated in a $5,000,000 loan
transaction secured by a second mortgage covering a leasehold
estate. The Registrant advanced $2,253,000 in connection with this
loan. The remaining amounts were advanced by the following:
Directors of the Registrant, $830,000; the wife of the Board
Chairman, $1 million; Officers of the Registrant, $39,000; and
$878,000 by unrelated parties. The note bore interest at 15% per
annum, payable monthly and was fully satisfied together with accrued
interest in February 1995. In addition, the participants received a
commitment fee of 3% on their advances from the borrower.
In connection with the purchase of an interest in a real estate loan
from a Director in 1992, the Registrant issued a note in the amount
of $198,000. The note bore interest at 10% and was fully satisfied
in February 1995.
During 1996 and 1995 the Registrant advanced, in the aggregate,
$468,000 and $415,000, respectively, to the Chairman of the Board.
Such advances bore interest at the Registrant's borrowing rate under
its revolving credit facility which was 8.25% and 8.5% at December
31, 1996 and 1995, respectively. Amounts outstanding at December 31,
1996 and 1995 of $468,000 and $415,000, respectively, together with
accrued interest thereon were repaid in January 1997 and 1996,
respectively.
(14) INCOME TAXES:
Deferred income taxes are determined on the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, 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.
F-21
<PAGE>
Deferred tax assets primarily arose from basis differences of real
properties held for rental for financial statement and income tax
purposes. Based upon the Registrant's historical and projected
levels of pretax 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 December
31, 1996 and 1995, are as follows-
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Realization allowances related to
accounts receivable and inventories $ 627,464 $ 585,046
Net unrealized gain on marketable securities (56,041) (28,138)
Basis differences relating to real
property held for rental 3,291,925 2,246,128
Accrued expenses, deductible when paid 2,786,802 2,683,819
Deferred revenue and profit (for tax purposes) (163,307) (221,486)
Basis differences relating to business acquisitions (1,858,912) (1,858,912)
Property, plant and equipment (649,087) (579,619)
Pensions (200,160) 7,959
Other, net 70,331 15,399
----------- -----------
Net deferred tax asset 3,849,015 2,850,196
Less- Current portion 1,831,768 1,893,205
----------- -----------
Noncurrent portion $ 2,017,247 $ 956,991
=========== ===========
</TABLE>
Income tax provision (benefit) reflected in the accompanying
consolidated statements of operations for the years ended December
31, 1996, 1995 and 1994, is summarized as follows-
1996 1995 1994
------------ -------------- ---------------
Current-
Federal $4,083,000 $2,572,000 $2,286,000
State 1,928,000 1,337,000 1,131,000
Deferred (1,015,000) (795,000) (405,000)
------------ -------------- ---------------
$4,996,000 $3,114,000 $3,012,000
============ ============== ===============
F-22
<PAGE>
A reconciliation of the tax provision computed at statutory rates to
the amounts shown in the accompanying consolidated statements of operations for
the years ended December 31, 1996, 1995 and 1994 is as follows-
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Computed Federal income
tax provision at statutory rates $ 3,683,000 $ 2,272,000 $ 2,255,000
State income taxes, net of
Federal income tax benefit 1,326,000 903,000 767,000
Other, net (13,000) (61,000) (10,000)
----------- ----------- -----------
$ 4,996,000 $ 3,114,000 $ 3,012,000
=========== =========== ===========
</TABLE>
(15) OTHER INCOME AND EXPENSE:
The components of other income and expense in the accompanying
consolidated statements of operations for the years ended December
31, 1996, 1995 and 1994 are as follows-
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Gain on sales of real estate assets $ 3,919,158 $ 865,490 $1,399,495
Net realized gains on marketable
securities 0 229,979 1,203,463
Income from equity investments (a) 0 3,676 46,029
Settlement income (b) 1,443,263 0 0
Other, net (c) (561,415) 545,711 170,506
----------- ---------- ----------
$ 4,801,006 $1,644,856 $2,819,493
=========== ========== ==========
</TABLE>
(a) Income from equity investments principally represents
nonrecurring cash distributions received by the
Registrant in connection with interests held in certain
real estate ventures which were acquired in the 1991
merger with BMG. Such investments were valued at
historical cost at the date of acquisition.
(b) In December 1996, the Registrant received approximately
$1.4 million in settlements of all claims from an
investment that was principally written off in 1990.
(c) In March 1991, the Registrant was named as a defendant
in a suit by certain investors and limited partners
seeking actual, punitive and treble damages in a total
unspecified amount. While management continued to
believe that the allegations of the action were 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.
(16) RETIREMENT PLAN:
The Registrant has a noncontributory defined benefit pension plan
that covers substantially all full-time employees of the engineered products
segment and the former employees of the Registrant's discontinued resilient
vinyl flooring segment.
F-23
<PAGE>
The following table sets forth the funded status of the plan and
amounts recognized in the Registrant's consolidated financial
statements as of December 31, 1996 and 1995. Amounts presented for
1995 have been reclassified to conform to the current year
presentation.
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 8,659,000 $ 9,088,000
Nonvested 171,000 141,000
------------ ------------
$ 8,830,000 $ 9,229,000
============ ============
Plan assets at fair value, primarily U. S. bonds,
government-backed mortgage obligations
and stocks $ 12,904,000 $ 13,123,000
Projected benefit obligation (8,983,000) (9,403,000)
------------ ------------
Plan assets in excess of projected benefit obligation 3,921,000 3,720,000
Effect of purchase accounting (156,000) (156,000)
Unrecognized net gain, net of amortization (3,192,000) (3,353,000)
Adjustment required to recognize minimum
liability 0 (251,000)
------------ ------------
Prepaid (accrued) pension obligation $ 573,000 ($ 40,000)
============ ============
</TABLE>
At December 31, 1995, in accordance with the Statement of Financial
Accounting Standard No. 87, "Employers' Accounting for Pensions," an
additional minimum liability of approximately $251,000 was
recognized for the sum of the excess of the accumulated benefit
obligation over the fair value of the plan assets plus prepaid
pension contributions. The liability was offset by intangible assets
to the extent possible and the balance was charged as a separate
component of stockholders' equity, net of tax benefits. At December
31, 1996, no additional minimum liability was required.
Net periodic pension (income) expense for 1996, 1995 and 1994
includes the following components-
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost $ 230,000 $ 197,000 $ 182,000
Interest cost 643,000 145,000 132,000
Actual return on plan assets (883,000) (199,000) 61,000
Net amortization and deferral (102,000) 63,000 (222,000)
--------- --------- ---------
Net periodic pension (income)
expense ($112,000) $ 206,000 $ 153,000
========= ========= =========
</TABLE>
In determining the projected benefit obligation for 1996 and 1995,
the weighted average assumed discount rate was 7.5%, while the rate
of expected increases in future salary levels was 3.5%. The expected
long-term rate of return on assets used in determining net periodic
pension cost for all years presented was 9%. No contributions were
made during 1996 or 1995.
F-24
<PAGE>
(17) BUSINESS SEGMENTS:
At December 31, 1996, the Registrant had three business segments:
real estate investment and management, the manufacture and sale of
antenna systems and the manufacture and sale of engineered products.
Information on the Registrant's business segments for 1996, 1995 and
1994 is as follows-
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Net revenues and sales-
Real estate investment and management $ 23,936 $ 22,652 $ 21,988
Antenna systems 18,883 20,307 19,495
Engineered products 42,055 41,687 35,511
--------- --------- ---------
$ 84,874 $ 84,646 $ 76,994
========= ========= =========
Operating income (loss)-
Real estate investment and management $ 6,342 $ 5,129 $ 5,009
Antenna systems (2,258) (1,103) (1,527)
Engineered products 3,792 3,779 2,477
--------- --------- ---------
7,876 7,805 5,959
General corporate expenses (1,924) (2,332) (1,613)
Other income, net 4,881 1,210 2,287
--------- --------- ---------
Income from continuing
operations before income taxes $ 10,833 $ 6,683 $ 6,633
========= ========= =========
Identifiable assets-
Real estate investment and management $ 98,044 $ 88,954 $ 92,479
Antenna systems 11,603 15,291 15,580
Engineered products 12,174 12,955 14,365
Discontinued operations 0 0 5,290
--------- --------- ---------
$ 121,821 $ 117,200 $ 127,714
========= ========= =========
</TABLE>
Through the Registrant's antenna systems segment, approximately 11%,
16% and 17% of consolidated revenues were derived from sales to the
United States Government or its contractors in 1996, 1995 and 1994,
respectively.
Sales by the Registrant's engineered products segment to automobile
original equipment manufacturers accounted for approximately 25%,
23% and 23% of 1996, 1995 and 1994 consolidated revenues,
respectively.
Included in the identifiable assets of the real estate investment
and management segment for 1996 and 1995 are approximately
$13,449,000 and $2,997,000, respectively, of high yield mortgage
notes receivable (see Note 6). Income generated by these notes
receivable is included in interest income.
F-25
<PAGE>
(18) 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.
At December 31, 1996 and 1995, a total of $2.9 million in
anticipated insurance recoveries is recorded in the accompanying
consolidated financial statements and is included in other assets.
Additionally, in 1995 the Company received approximately $4.1
million of insurance recoveries. The remaining balance of $2.9
million at December 31, 1996 (from a total of $7 million) is in
dispute with the Registrant's insurance carriers. Management
believes that recoveries in excess of the amounts reflected in the
accompanying consolidated financial statements 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.
F-26
<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.
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.
F-27
<PAGE>
SCHEDULE II
UNITED CAPITAL CORP. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
Write-offs
Net of
Recoveries
Balance Charged of Accounts Balance
at to Previously at
Beginning Costs and Written End of
of Period Expenses Off Period
----------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996 $471,406 $48,100 $18,100 $501,406
Year ended December 31, 1995 542,545 54,133 125,272 471,406
Year ended December 31, 1994 285,545 257,000 0 542,545
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these schedules.
F-28
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES SCHEDULE III
REAL PROPERTY HELD FOR RENTAL AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Mortgage Initial Cost To Registrant Costs Capitalized
Loans -------------------------- Subsequent to
Payable Building and Acquisition/
Description (Gross) Land Improvements Improvements
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shopping Centers and Retail Outlets-
Culver, CA $ 5,008,567 $ 841,811 $ 7,576,296 $ 0
Northbrook, IL 5,489,242 897,246 8,075,215 0
Miscellaneous Investments 20,040,015 5,766,432 50,723,169 929,339
------------ ------------ ------------ ------------
30,537,824 7,505,489 66,374,680 929,339
------------ ------------ ------------ ------------
Commercial Properties-
Miscellaneous Investments 2,460,869 3,061,917 27,166,869 0
Day Care Centers and Offices-
Miscellaneous Investments 605,893 642,895 5,786,058 1,132,683
Hotel Properties-
Miscellaneous Investments 77,615 0 2,867,703 48,092
Other-
Miscellaneous Investments 1,000,340 1,195,781 7,473,489 583,305
------------ ------------ ------------ ------------
$ 34,682,541 $ 12,406,082 $109,668,799 $ 2,693,419
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Depreciation
Gross Amount at Which in Latest
Carried at Close of Period Statement of
--------------------------------------- Accumulated Operations is
Building and Total Depreciation Date of Date Computed
Description Land Improvements (a) (c) (b) Construction Acquired (Years)
----------- ----------- ------------ ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers and Retail Outlets-
Culver, CA $ 841,811 $ 7,576,296 $ 8,418,107 $ 4,213,256 N/A 1986 18
Northbrook, IL 897,246 8,075,215 8,972,461 4,331,579 N/A 1987 18
Miscellaneous Investments 5,766,432 51,652,508 57,418,940 28,127,667 N/A 1986-96 10-39
----------- ------------ ------------ ------------
7,505,489 67,304,019 74,809,508 36,672,502
----------- ------------ ------------ ------------
Commercial Properties-
Miscellaneous Investments 3,061,917 27,166,869 30,228,786 14,478,197 N/A 1986-94 12-39
Day Care Centers and Offices-
Miscellaneous Investments 642,895 6,918,741 7,561,636 5,707,192 N/A 1986-91 7-39
Hotel Properties-
Miscellaneous Investments 0 2,915,795 2,915,795 2,868,755 N/A 1986-96 10-39
Other-
Miscellaneous Investments 1,195,781 8,056,794 9,252,575 1,198,763 N/A 1986-96 10-39
----------- ------------ ------------ ------------
$12,406,082 $112,362,218 $124,768,300 $ 60,925,409
=========== ============ ============ ============
</TABLE>
Notes:
(a) Reconciliations of the carrying value of real property held for rental for
the three years ended December 31, 1996 are as follows-
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Real property held for rental at beginning of period $ 125,983,221 $ 126,640,338 $ 119,650,430
Additions during the period-
Acquisitions and improvements 3,523,466 2,679,878 6,643,880
Transfers from property, plant and equipment 2,195,352 0 1,420,927
Transfer to noncurrent notes receivable 0 (2,682,563) 0
------------- ------------- -------------
131,702,039 126,637,653 127,715,237
Deductions during period-
Cost of real estate sold 6,933,739 654,432 1,074,899
------------- ------------- -------------
$ 124,768,300 $ 125,983,221 $ 126,640,338
============= ============= =============
</TABLE>
(b) Reconciliations of accumulated depreciation for the three years ended
December 31, 1996 are as follows-
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Accumulated depreciation at beginning of period $ 57,919,719 $ 51,569,038 $ 45,257,746
Additions during the period-
Provision for depreciation 6,523,058 6,717,161 6,660,537
Transfers from property, plant and equipment 158,928 0 134,065
Transfer to noncurrent notes receivable 0 (29,065) 0
------------ ------------ ------------
64,601,705 58,257,134 52,052,348
Deductions during period-
Accumulated depreciation of real estate sold 3,676,296 337,415 483,310
------------ ------------ ------------
$ 60,925,409 $ 57,919,719 $ 51,569,038
============ ============ ============
</TABLE>
(c) The aggregate cost for Federal income tax purposes is approximately
$178,000,000
The accompanying notes to consolidated financial statements are an integral part
of these schedules.
F-29
<PAGE>
SCHEDULE IV
UNITED CAPITAL CORP. AND SUBSIDIARIES
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Description Interest Rate Final Maturity Date
----------- ------------- -------------------
<S> <C> <C>
Mortgage loans secured by Commercial Property-
Staten Island, NY 14% August 1997
New York, NY 18% May 1997
Other Varies from 9% - 14% From August 1997-December 2008
Mortgage loans secured by Hotels-
Ontario, Canada 14% October 1998
McAfee, NJ 14% From January 1997-April 1997
Other Varies from 10% - 11% From November 2001-February 2002
Construction Loans secured by Commercial Property-
Mt. Laurel, NJ 14% August 1997
Mortgage loans secured by Residential Property-
Pond Ridge, NY 10% September 1997
Other 15% June 1997
</TABLE>
<TABLE>
Description Periodic Payment Terms
----------- ----------------------
<S> <C>
Mortgage loans secured by Commercial Property-
Staten Island, NY Interest due monthly; with principal due at maturity
New York, NY Interest due monthly; with principal due at maturity
Other Principal and interest due monthly
Mortgage loans secured by Hotels-
Ontario, Canada Interest due monthly; with principal due at maturity
McAfee, NJ Interest due monthly; with principal due at maturity
Other Principal and interest due monthly; in addition,
there is a principal payment of $150,000 due in
November 1998 and $773,000 due in February 2002
Construction Loans secured by Commercial Property-
Mt. Laurel, NJ Interest due monthly, with principal due at maturity
Mortgage loans secured by Residential Property-
Pond Ridge, NY Interest due monthly, with principal due at maturity
Other Interest due monthly, with principal due at maturity
</TABLE>
<TABLE>
Principal Amount
Carrying of Loans Subject
Prior Face Amount of Amount of to Delinquent Principal
Description Liens Mortgages Mortgages (b) or Interest
----------- ----- --------- ------------- -----------
<S> <C> <C> <C> <C>
Mortgage loans secured by Commercial Property-
Staten Island, NY $14,660,000 $ 2,500,000 $ 2,500,000 $0
New York, NY 0 6,500,000 6,500,000 0
Other 3,550,000 670,000 377,895 0
----------- ----------- ----------- --
18,210,000 9,670,000 9,377,895 0
----------- ----------- ----------- --
Mortgage loans secured by Hotels-
Ontario, Canada 0 1,800,000 1,800,000 0
McAfee, NJ 4,000,000 935,000 935,000 0
Other 0 1,510,000 587,511 0
----------- ----------- ----------- --
4,000,000 4,245,000 3,322,511 0
----------- ----------- ----------- --
Construction Loans secured by Commercial Property-
Mt. Laurel, NJ 4,500,000 843,773 843,773 0
----------- ----------- ----------- --
Mortgage loans secured by Residential Property-
Pond Ridge, NY 0 570,000 570,000 0
Other 0 50,000 50,000 0
----------- ----------- ----------- --
0 620,000 620,000 0
----------- ----------- ----------- --
$26,710,000 $15,378,773 $14,164,179 $0
=========== =========== =========== ==
</TABLE>
NOTES:
(a) A reconciliation of mortgage loans on real estate for the year ended
December 31, 1996 is as follows-
Balance at beginning of period $ 3,692,530
Additions during period-
New mortgage loans 13,498,773
Deductions during period-
Collection of principal (3,027,124)
------------
Balance at end of period $ 14,164,179
============
(b) In accordance with generally accepted accounting principles certain gains
from the sale of real property are being recognized under the installment method
and, accordingly, notes receivable have been reduced by the following deferred
gains at December 31, 1996:
Mortgage note receivable in connection with sale of property in-
Montgomery, Alabama $240,015
Beaumont, Texas 450,651
Waterbury, Connecticut 132,890
Augusta, Georgia 25,715
--------
$849,271
========
(c) The carrying value for Federal income tax purposes is substantially equal to
the carrying amount for book purposes.
The accompanying notes to consolidated financial statements are an integral part
of these schedules.
F-30
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(unaudited)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
FOR THE YEAR 1996:
Revenues $21,562 $20,965 $21,248 $21,099
======= ======= ======= =======
Costs and expenses $20,382 $20,355 $19,754 $18,431
======= ======= ======= =======
Other income $ 441 $ 2,533 $ 404 $ 1,503
======= ======= ======= =======
Net income $ 946 $ 1,901 $ 986 $ 2,004
======= ======= ======= =======
Per share data:
Net income per common share $ .17 $ .34 $ .18 $ .37
======= ======= ======= =======
FOR THE YEAR 1995:
Revenues $21,347 $22,144 $19,308 $21,847
======= ======= ======= =======
Costs and expenses $19,613 $19,625 $18,687 $21,248
======= ======= ======= =======
Other income (expenses) $ 934 $ 130 $ 134 $ 12
======= ======= ======= =======
Income from continuing operations $ 1,562 $ 1,430 $ 494 $ 83
======= ======= ======= =======
Loss from discontinued operations, net of tax ($ 735) ($ 342) ($4,396) $ 0
======= ======= ======= =======
Net income (loss) $ 827 $ 1,088 ($3,902) $ 83
======= ======= ======= =======
Per share data:
Income from continuing operations $ .26 $ .24 $ .08 $ .01
Loss from discontinued operations,
net of tax (.12) (.06) (.77) .0
------- ------- ------- -------
Net income (loss) per common share $ .14 $ .18 ($ .69) $ .01
======= ======= ======= =======
</TABLE>
F-31
140 Corporation EKM Corporation
147 Corporation Fern Corporation
150 Corporation Franklin 850 Corporation
1690 Lex. Corp. Greenvale Enterprises Corp.
2911 Corporation Hadley Corporation
47 Boundary Corp. HHKM Realty Corp.
521 W. 146 Corp. HJA Realty Corporation
627 Second Corp. HJB Corporation
629 Second Corp. HJM Corporation
747 Middleneck Corp. HJSC Corporation
860 Franklin Associates, Inc HR-Twenty Corp.
9 Park Place Corp. Ives Corporation
95 Perry Corp. JKM Corporation
AFP Financial Corp. K-South Corp.
AFP Five Corp. Kentile Inc.
AFP Four Corp. Kings County Corp.
AFP One Corp. L C Corporation
AFP Realty Corp. Land & Leases Corp.
AFP Six Corp. Madison Corporation
AFP Technologies, Inc. Melancon Corporation
AFP Three Corp. Metex Corporation
AFP Transformers, Inc. Metex Enviroco Corp.
AFP Two Corp. Metex Export Corporation
AKM Corp. Metex International Sales Corp.
Alba Corporation Metex Liquidation Co., Inc.
Ancom Electromagnetique, Ltd. Nemo Acquisition Corp.
Atwill Corporation Northbrook Entereprises Corp.
Avalon Corp. Northwood Corporation
Beekman Corp. PDK Corporation
Belmont Corporation Pine Equities Corporation
BKM Corp. Prospect Center Corp.
BPI Corp. RBS Realty Corporation
Busch Realty Corp. Schuller Corporation
C.P. Manufacturing, Inc. Second CEW Properties, Inc.
Cambreleng Corp. Sunrise Equities Corp.
Cedar Enterprises Corp. Sutton Realty Corporation
CEW Properties, Inc. Third CEW Properties, Inc.
Cleethorpes Properties, Inc. Toledo Corporation
Clinton-Bush Corp. Tri-Mart Corporation
Cortland Enterprises Corp. Twenty-M Corporation
Culver Corporation Twin II Realty Corporation
D&M/Chu Technology, Inc. Various Equities Corp.
Dallas Enterprises Corp. Waverly Corporation
Del-Metex Corporation Wellford Corporation
Dorne & Margolin, Inc. West 145 Corporation
Eastside Corporation
EBMO Corporation
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 14, 1997, which is included in this Form
10-K for the year ended December 31, 1996, into United Capital Corp.'s
previously filed Registration Statements, File Numbers 33-28045 and 33-65140.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
CAPITAL CORP.'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES,
THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,179
<SECURITIES> 313
<RECEIVABLES> 22,945
<ALLOWANCES> 501
<INVENTORY> 7,853
<CURRENT-ASSETS> 36,422
<PP&E> 14,799
<DEPRECIATION> 7,104
<TOTAL-ASSETS> 121,821
<CURRENT-LIABILITIES> 42,242
<BONDS> 0
0
0
<COMMON> 535
<OTHER-SE> 29,040
<TOTAL-LIABILITY-AND-EQUITY> 121,821
<SALES> 60,938
<TOTAL-REVENUES> 84,874
<CGS> 47,099
<TOTAL-COSTS> 78,922
<OTHER-EXPENSES> (4,801)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,126
<INCOME-PRETAX> 10,833
<INCOME-TAX> 4,996
<INCOME-CONTINUING> 5,837
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,837
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
</TABLE>
