SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ending September 30, 1997
------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________________ to ______________________
Commission File Number: 1-10104
United Capital Corp.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2294493
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9 Park Place, Great Neck, New York 11021
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
516-466-6464
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.10 par value 5,285,047 shares outstanding
as of November 5, 1997.
Page 1 of 17
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income for
the Three Months Ended September 30, 1997 and
1996 4
Consolidated Statements of Income for
the Nine Months Ended September 30, 1997 and
1996 5
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1997 and
1996 6 - 7
Notes to Consolidated Financial Statements 8 - 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 - 16
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
Page 2 of 17
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,636,582 $ 3,177,878
Marketable securities 378,720 313,294
Notes and accounts receivable, net 17,609,287 22,443,743
Inventories 7,005,013 7,853,229
Prepaid expenses and other current assets 724,389 801,639
Deferred income taxes 1,947,250 1,831,768
---------- ----------
Total current assets 31,301,241 36,421,551
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, net 7,742,276 7,694,438
REAL PROPERTY HELD FOR RENTAL, net 56,413,305 63,842,891
NONCURRENT NOTES RECEIVABLE 7,441,783 5,931,744
OTHER ASSETS 11,269,097 5,912,647
DEFERRED INCOME TAXES 2,749,911 2,017,247
------------ ------------
Total assets $116,917,613 $121,820,518
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ------------------------------------ ---- ----
CURRENT LIABILITIES:
<S> <C> <C>
Current maturities of long-term debt $ 5,611,104 $ 7,711,408
Borrowings under credit facility 6,900,000 10,031,000
Accounts payable and accrued liabilities 16,912,957 17,286,927
Income taxes payable 10,738,118 7,212,520
------------ ------------
Total current liabilities 40,162,179 42,241,855
------------ ------------
LONG-TERM LIABILITIES:
Borrowings under credit facility 5,600,000 9,789,000
Long-term debt 27,727,630 31,670,258
Other long-term liabilities 8,272,243 8,544,581
------------ ------------
Total liabilities 81,762,052 92,245,694
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 528,505 534,612
Additional paid-in capital 6,815,345 7,415,664
Retained earnings 27,659,744 21,515,762
Net unrealized gain on marketable securities, net of tax 151,967 108,786
------------ ------------
Total stockholders' equity 35,155,561 29,574,824
------------ ------------
Total liabilities and stockholders' equity $116,917,613 $121,820,518
============ ============
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE BALANCE SHEETS.
Page 3 of 17
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
September 30, 1997 September 30, 1996
------------------ ------------------
REVENUES:
<S> <C> <C>
Net sales $13,669,790 $14,765,953
Rental revenues from real estate operations 5,890,116 6,482,497
--------- -----------
Total revenues 19,559,906 21,248,450
---------- -----------
COSTS AND EXPENSES:
Costs of sales 9,624,991 11,613,678
Real estate operations -
Mortgage interest expense 746,655 944,740
Depreciation expense 1,442,198 1,516,912
Other operating expenses 1,859,725 2,133,374
General and administrative expenses 1,767,746 1,923,111
Selling expenses 1,530,694 1,622,313
--------- -----------
Total costs and expenses 16,972,009 19,754,128
---------- -----------
Operating income 2,587,897 1,494,322
--------- -----------
OTHER INCOME (EXPENSE):
Interest income 445,808 273,930
Interest expense (339,335) (220,501)
Other income and expense 120,779 350,497
------- -----------
Total other income (expense) 227,252 403,926
------- -----------
Income before income taxes 2,815,149 1,898,248
Provision for income taxes 1,296,000 912,000
--------- -----------
Net income $ 1,519,149 $ 986,248
=========== ===========
Earnings per share:
Net income $ .28 $ .18
=========== ==========
Weighted average number of common shares outstanding 5,353,851 5,517,245
=========== ==========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 4 of 17
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1997 September 30, 1996
------------------ ------------------
REVENUES:
<S> <C> <C>
Net sales $43,312,206 $45,465,910
Rental revenues from real estate operations 17,978,497 18,309,379
---------- ----------
Total revenues 61,290,703 63,775,289
---------- ----------
COSTS AND EXPENSES:
Costs of sales 31,747,415 35,438,022
Real estate operations -
Mortgage interest expense 2,335,656 2,878,948
Depreciation expense 4,362,341 4,762,807
Other operating expenses 5,016,537 6,023,164
General and administrative expenses 5,672,808 6,428,323
Selling expenses 4,523,623 4,959,316
--------- ---------
Total costs and expenses 53,658,380 60,490,580
---------- ----------
Operating income 7,632,323 3,284,709
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 1,997,698 766,158
Interest expense (1,226,224) (781,762)
Other income and expense 2,766,185 3,393,405
--------- ---------
Total other income (expense) 3,537,659 3,377,801
--------- ---------
Income before income taxes 11,169,982 6,662,510
Provision for income taxes 5,026,000 2,830,000
--------- ---------
Net income $6,143,982 $3,832,510
========== ==========
Earnings per share:
Net income $ 1.15 $ .69
========== ==========
Weighted average number of common shares outstanding 5,345,476 5,546,888
========== ==========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 5 of 17
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income $6,143,982 $3,832,510
---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,374,377 5,989,480
Loss from equity investments 238,155 -
Changes in assets and liabilities (A) 9,257,622 2,366,499
--------- ---------
Total adjustments 14,870,154 8,355,979
---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,014,136 12,188,489
---------- ----------
Cash Flows from Investing Activities:
Purchase of marketable securities - (101,962)
Investment in and advances to joint venture (5,526,494) -
Acquisition of property, plant and equipment (548,216) (544,506)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (6,074,710) (646,468)
----------- ---------
Cash Flows from Financing Activities:
Principal payments on mortgage commitments, notes and loans (6,554,297) (9,467,664)
Net borrowings under credit facility (7,320,000) (685,000)
Purchase and retirement of common shares (665,927) (2,858,450)
Proceeds from exercise of stock options 59,502 906,250
---------- -----------
NET CASH USED IN FINANCING ACTIVITIES (14,480,722) (12,104,864)
------------ ------------
Net increase (decrease) in cash and cash equivalents 458,704 (562,843)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,177,878 3,527,925
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,636,582 $2,965,082
========== ==========
</TABLE>
Page 6 of 17
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (Continued)
(UNAUDITED)
1997 1996
----- -----
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period For:
Interest $3,757,000 $3,802,000
Taxes 2,300,000 897,000
=========== ==========
Supplemental Schedule of Noncash Investing
and Financing Activities:
Noncash Investing Activities:
Capital Lease Obligations $511,000 -
==========
(A) Changes in assets and liabilities for the nine months
ended September 30, 1997 and 1996, are as follows:
Decrease in notes and accounts receivable, net $4,834,456 $1,099,155
Decrease (increase) in inventories 848,216 (703,615)
Decrease (increase) in prepaid expenses
and other current assets 77,250 (2,237)
Increase in deferred income taxes (870,391) (801,614)
Decrease in real property held for rental, net 3,066,951 2,613,468
Decrease (increase) in noncurrent notes receivable (1,510,039) 1,524
Increase in other assets (68,110) (932,156)
Decrease in accounts payable and
accrued liabilities (373,970) (1,257,335)
Increase in income taxes payable 3,525,597 2,067,527
Increase (decrease) in other long-term liabilities (272,338) 281,782
----------- -----------
Total $9,257,622 $2,366,499
========== ==========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS
Page 7 of 17
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q used for quarterly
reports under Section 13 or 15(d) of the Securities Exchange Act of 1934, and
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles.
The consolidated financial information included in this report has been
prepared in conformity with the accounting principles and methods of applying
those accounting principles, reflected in the consolidated financial statements
included in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1996.
All adjustments necessary for a fair statement of the results for the
interim periods presented have been recorded.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
INVENTORIES
The components of inventory are as follows:
September 30, 1997 December 31, 1996
------------------ -----------------
Raw materials $3,553,424 $3,893,865
Work in process 1,709,030 2,126,849
Finished goods 1,742,559 1,832,515
---------- ----------
$7,005,013 $7,853,229
========== ==========
Page 8 of 17
<PAGE>
CONTINGENCIES
The Registrant has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities.
The process of remediation has begun at one facility pursuant to a plan
filed with the New Jersey Department of Environmental Protection and Energy
("NJDEPE"). Environmental experts engaged by the Registrant estimate that under
the most probable remediation scenario, the remediation of this site is
anticipated to require initial expenditures of $860,000, including the cost of
capital equipment, and $86,000 in annual operating and maintenance costs over a
15-year period.
Environmental studies at the second facility indicate that remediation
may be necessary. Based upon the facts presently available, environmental
experts have advised the Registrant that under the most probable remediation
scenario, the estimated cost to remediate this site is anticipated to require
$2.3 million in initial costs, including capital equipment expenditures, and
$258,000 in annual operating and maintenance costs over a 10-year period. The
Registrant may revise such estimates in the future due to the uncertainty
regarding the nature, timing and extent of any remediation efforts that may be
required at this site, should an appropriate regulatory agency deem such efforts
to be necessary.
The foregoing estimates may also be revised by the Registrant as new or
additional information in these matters become available or should the NJDEPE or
other regulatory agencies require additional or alternative remediation efforts
in the future. It is not currently possible to estimate the range or amount of
any such liability.
Although the Registrant believes that it is entitled to full defense
and indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the Registrant's insurers have denied such
coverage. Accordingly, the Registrant has filed an action against certain
insurance carriers seeking defense and indemnification with respect to all prior
and future costs incurred in the investigation and remediation of these sites.
Upon the advice of counsel, the Registrant believes that based upon a present
understanding of the facts and the present state of the law in New Jersey, it is
probable that the Registrant will prevail in the pending litigation and thereby
access all or a very substantial portion of the insurance coverage it claims;
however, the ultimate outcome of litigation cannot be predicted.
As a result of the foregoing, the Registrant has not recorded a charge
to operations for the environmental remediation, noted above, in the
consolidated financial statements, as anticipated proceeds from insurance
recoveries are expected to offset such liabilities. The Registrant has reached
settlements with several insurance carriers in this matter.
At September 30, 1997 and December 31, 1996, a total of $2.9 million in
anticipated insurance recoveries was 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 September 30, 1997 (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 insurance policies but
have not been recorded. There can be no assurance, however, that the Registrant
will prevail in its efforts to obtain amounts at or in excess of the estimated
recoveries.
Page 9 of 17
<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.
NET INCOME PER COMMON SHARE
Net income per share computations for each quarterly period presented
are based on the weighted average number of common shares and dilutive common
equivalent shares outstanding during the period. Fully diluted and primary
earnings per common share are approximately the same amounts for each of the
periods presented. Earnings per share data is neither restated nor adjusted
currently to obtain quarterly amounts which equal the amount computed for the
year-to-date.
In February 1997, Statement of Financial Accounting Standard No. 128,
Earnings Per Share ("SFAS #128") was issued. SFAS #128 changes the methodology
utilized to compute earnings per share and replaces primary EPS with basic EPS,
which does not include any dilution for potentially dilutive securities. Fully
diluted EPS, which is now called diluted EPS under SFAS #128, is still required.
This standard is effective for periods ending after December 15, 1997 and early
application is prohibited. If EPS had been determined consistent with SFAS #128,
earnings per share would have been the proforma amounts indicated below:
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months ended September 30
-------------------------------- ------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary EPS, as reported $.28 $ .18 $1.15 $ .69
Pro Forma Basic EPS $.29 $ .18 $1.16 $ .69
Fully Diluted EPS, as reported $.28 $ .18 $1.14 $ .69
Pro Forma Diluted EPS $.28 $ .18 $1.15 $ .69
</TABLE>
CREDIT FACILITY
Effective September 30, 1997, the Registrant amended its existing
Revolving Credit Agreement ("Credit Agreement") with two banks to provide for
both a $7 million term loan ("Term Loan") and a $40 million revolving credit
facility ("Revolver") and converted $7 million of amounts outstanding under the
Revolver to borrowings under the Term Loan. Under the terms of the Credit
Agreement, 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. Eligibility is also limited by amounts
outstanding under the Term Loan. At September 30, 1997 the Registrant's
eligibility under the Revolver was $40 million, based upon the above terms. The
Credit Agreement also contains certain financial and restrictive covenants,
including minimum consolidated equity, interest coverage, debt service coverage
and capital expenditures (other than for real estate). Borrowings under the
Revolver, at the Registrant's option, bear interest at Prime or LIBOR plus 1.75%
while borrowings under the Term Loan bear interest at 90 day LIBOR plus 1.4%.
The Term Loan is payable in quarterly principal installments of $350,000, with
final payment on September 30, 2002. Effective September 30, 1997, the
Registrant entered into an interest-rate swap agreement to effectively convert
its floating rate term loan to a fixed rate basis, thus reducing the impact of
interest rate changes on future expense. Under the swap agreement, the
Registrant agreed to exchange with the counterparty (a commercial bank) the
difference between the fixed and floating rate interest amounts. The
differential to be paid or
Page 10 of 17
<PAGE>
received on the interest rate swap is recognized over the term of the agreement
as an adjustment to interest expense. The fair value of the swap agreement is
not recognized in the financial statements.
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.
RECLASSIFICATIONS
Certain amounts have been reclassified in the prior year consolidated
financial statements and notes thereto to present them on a basis consistent
with the current year.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues for the three month period ended September 30, 1997 were
$19,560,000 versus $21,248,000 during the comparable period in 1996. Net income
for the third quarter of 1997 was $1,519,000 or $.28 per share as compared to
$986,000 or $.18 per share during the comparable 1996 period.
Revenues for the nine month period ended September 30, 1997 were
$61,291,000 versus $63,775,000 during the comparable period in 1996. Net income
for the period was $6,144,000 or $1.15 per share as compared to net income of
$3,833,000 or $.69 per share for the same period in 1996.
REAL ESTATE OPERATIONS
Rental revenues from real estate operations decreased 9% and 2%,
respectively, for the three month and nine month periods ended September 30,
1997 as compared to the comparable periods in 1996. These decreases are
primarily attributable to revenues associated with properties sold in the
current and prior year for significant gains.
Mortgage interest expense decreased $198,000 or 21% during the current
quarter and $543,000 or 19% during the nine month period ended September 30,
1997, versus such expense of the corresponding periods in 1996. These decreases
result from continuing mortgage amortization which approximated $6.1 million
during the last 12 months, including repayments associated with properties sold
during the period.
Depreciation expense associated with rental properties decreased
$75,000 or 5% during the three month period ended September 30, 1997 and
$400,000 or 8%, during the first nine months of 1997 as compared to such costs
during the corresponding periods of 1996. These decreases are primarily due to
the impact of properties sold in 1996.
Operating expenses associated with the management of real estate
properties decreased $274,000 or 13% during the current quarter and $1,007,000
or 17% during the nine month period ending September 30, 1997 as compared to the
same periods in 1996. The implementation of certain capital improvements in 1996
and the timing of certain maintenance projects contributed to these reductions.
Page 11 of 17
<PAGE>
ENGINEERED PRODUCTS
The Registrant's engineered products segment includes Metex Corporation
and AFP Transformers, Inc. The operating results of the engineered products
segment are as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In thousands) 1997 1996 1997 1996
---- ---- ---- ----
Net Sales $8,488 $ 10,336 $ 27,692 $32,369
====== ======== ======== =======
Cost of Sales $6,020 $ 7,617 $ 19,919 $23,962
====== ======== ======== =======
Selling, General and
Administrative Expenses $1,695 $ 1,858 $ 5,271 $ 5,580
====== ======== ======== =======
Income from Operations $ 773 $ 861 $ 2,502 $ 2,827
======= ======== ======== =======
Net sales of the engineered products segment decreased $1,848,000 and
$4,677,000, respectively for the three and nine month periods ended September
30, 1997 versus such results of the corresponding prior year periods. These
decreases from the prior year's record revenues are primarily the result of
increased price competition and declining worldwide automotive sales.
Cost of sales as a percentage of net sales decreased by approximately
3% and 2% for the three and nine month periods ended September 30, 1997,
respectively, versus the corresponding periods in 1996. These decreases were due
to continued management focus on cost containment as well as product mix.
Selling, general and administrative expenses of the engineered products
segment decreased $163,000 and $309,000, respectively, during the quarter and
nine month periods ended September 30, 1997 versus such costs of the comparable
1996 periods. These reductions are principally due to reduced selling expenses,
primarily salary and salary related expenses.
Page 12 of 17
<PAGE>
ANTENNA SYSTEMS
The operating results of the antenna systems segment are as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In thousands) 1997 1996 1997 1996
---- ---- ---- ----
Net Sales $5,182 $ 4,430 $15,620 $ 13,097
====== ======= ======= ========
Cost of Sales $3,605 $ 3,997 $11,829 $ 11,476
====== ======= ======= ========
Selling, General and
Administrative Expenses $1,135 $ 1,193 $ 3,264 $ 3,653
====== ======== ======== ========
Income (Loss) from Operations $ 442 ($ 760) $ 527 ($ 2,032)
======= ========== ========= ==========
Net sales of the antenna systems segment increased $752,000 or 17%
during the third quarter and $2,523,000 or 19% for the nine month period ended
September 30, 1997 versus such sales generated during the respective 1996
periods. The 1996 sales levels were the result of significant operational
problems that included manufacturing output well below planned levels in spite
of available backlog to ship. Actions initiated by senior management in 1996
increased the sales volume in the second half of 1996 to a level consistent with
the nine months ended September 30, 1997.
Cost of sales as a percentage of net sales decreased 21% and 12%,
respectively, during the three and nine month periods ended September 30, 1997
from the corresponding 1996 periods principally due to the continued increase in
productivity associated with higher shipment levels.
Selling, general and administrative costs of the antenna systems
segment decreased approximately $58,000 and $389,000, respectively, during the
current quarter and year-to-date periods ended September 30, 1997, versus that
of the corresponding prior year periods. This reduction is principally due to
reduced salary and salary related expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses not associated with the
manufacturing operations decreased by $26,000 and $495,000 for the three and
nine month periods ended September 30, 1997, respectively versus that of the
same periods in 1996 principally due to lower salary and related expenses.
Page 13 of 17
<PAGE>
OTHER INCOME AND EXPENSE
The components of other income and expense in the accompanying
consolidated statements of income are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Gain on sale of real estate assets $144,614 $341,590 $2,966,014 $3,954,439
Loss from equity investments (25,650) - (238,155) -
Other 1,815 8,907 38,326 (561,034)
-------- -------- ---------- -----------
$120,779 $350,497 $2,766,185 $3,393,405
======== ======== ========== ==========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 the Registrant's current liabilities exceeded
current assets by approximately $8.9 million. This shortfall in working capital
results from financing the purchase of long-term assets utilizing short-term
borrowings and from the classification of current mortgage obligations without
the benefit of a corresponding current asset for such properties. Management 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.
Effective September 30, 1997, the Registrant amended its existing
Revolving Credit Agreement ("Credit Agreement") with two banks to provide for
both a $7 million term loan ("Term Loan") and a $40 million revolving credit
facility ("Revolver") and converted $7 million of amounts outstanding under the
Revolver to borrowings under the Term Loan. Under the terms of the Credit
Agreement, 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. Eligibility is also limited by amounts
outstanding under the Term Loan. At September 30, 1997 the Registrant's
eligibility under the Revolver was $40 million, based upon the above terms. The
Credit Agreement also contains certain financial and restrictive covenants,
including minimum consolidated equity, interest coverage, debt service coverage
and capital expenditures (other than for real estate). Borrowings under the
Revolver, at the Registrant's option, bear interest at Prime or LIBOR plus 1.75%
while borrowings under the Term Loan bear interest at 90 day LIBOR plus 1.4%.
The Term Loan is payable in quarterly principal installments of $350,000, with
final payment on September 30, 2002. Effective September 30, 1997, the
Registrant entered into an interest-rate swap agreement to effectively convert
its floating rate term loan to a fixed rate basis, thus reducing the impact of
interest rate changes on future expense. Under the swap agreement, the
Registrant agreed to exchange with the counterparty (a commercial bank) the
difference between the fixed and floating rate interest amounts. The
differential to be paid or received on the interest rate swap is recognized over
the term of the agreement as an adjustment to interest expense. The fair value
of the swap agreement is not recognized in the financial statements. At
September 30, 1997, approximately $34.5 million was available to be borrowed
under the Revolver.
Page 14 of 17
<PAGE>
The Registrant has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities and has filed an
action against certain insurance carriers seeking recovery of costs incurred and
to be incurred in these matters. Based upon the advice of counsel, management
believes such recovery is probable and therefore should not have a material
effect on the liquidity or capital resources of the Registrant. However, the
ultimate outcome of litigation cannot be predicted. To date settlements have
been reached with several carriers in this matter. See Notes to consolidated
financial statements.
At September 30, 1997 and December 31, 1996 a total of $2.9 million in
anticipated insurance recoveries has been recorded in the accompanying
consolidated financial statements and is included in other assets. Additionally,
in 1995 the Registrant received approximately $4.1 million of insurance
recoveries. The remaining balance of $2.9 million at September 30, 1997 (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 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 will come from the sale, financing and
refinancing of the Registrant's properties and from the third party mortgages
and purchase money notes obtained in connection with specific acquisitions.
In addition to the acquisition of properties for consideration
consisting of cash and mortgage financing proceeds, the Registrant may acquire
real properties in exchange for the issuance of the Registrant's equity
securities. The Registrant may also finance acquisitions of other companies in
the future with borrowings from institutional lenders and/or the public or
private offerings of debt or equity securities.
Funds of the Registrant in excess of that needed for working capital,
purchasing real estate and arranging financing for real estate acquisitions are
invested by the Registrant in corporate equity securities, corporate notes,
other financial instruments, certificates of deposit and government securities.
BUSINESS TRENDS
Total revenues of the Registrant decreased $2,485,000 or 4% for the
first nine months of 1997 versus such results of the comparable 1996 period. Net
income for the first nine months of 1997 was $6,144,000 or $1.15 per share
versus $3,833,000 or $.69 per share during the same period in 1996. The increase
in net income is primarily attributable to the registrant's real estate
operations and to a significant turnaround in the antenna systems segment.
The results of the Registrant's real estate operations reflect a 2%
decrease in revenues for the first nine months of 1997, primarily as a result of
revenues associated with properties sold in 1996. Operating profit of this
segment for the nine months ended September 30, 1997 increased $1,620,000 or 35%
over the prior year. This segment was favorably impacted by a 19% reduction in
mortgage interest expense resulting from the repayment of $6.1 million in
mortgage indebtedness during the last 12 months. Continuing mortgage
amortization will continue to have a favorable impact on these operations and
will reduce current mortgage obligations to virtually zero in less than nine
years.
The results of the Registrant's engineered products segment reflect a
14% decrease in revenues during the first nine months of 1997 versus comparable
1996 results. With the continued decrease in world wide automobile sales,
management is focused on new sales opportunities including new geographical
markets for its existing products and new applications for its core
technologies. Operating profits as a percentage of sales for the nine months
ended September 30, 1997 increased over the prior year principally due to an
ongoing emphasis on cost reductions and productivity improvements.
Page 15 of 17
<PAGE>
The results of the Registrant's antenna systems segment reflect a
significant turnaround from the prior year, which is primarily attributable to
increased sales levels and to actions taken by senior management in 1996.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. All forward-looking statements
involve risks and uncertainty, including without limitation, general economic
conditions, competition, potential technology changes and potential changes in
customer spending and purchasing policies and procedures. Although the
Registrant believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included in this Form 10-Q will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Registrant or any other person that the objectives and
plans of the Registrant will be achieved.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ROSATELLI VS. UNITED CAPITAL CORP., ET AL.
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. In March 1997, Mr.
Rosatelli amended his complaint to include Bank of America Illinois, Metex
Corporation, Kentile Inc., A.F. Petrocelli and another officer of Kentile as
additional defendants. The Registrant believes that as a result of Mr.
Rosatelli's gross negligence, recklessness and/or willful disregard of his
duties and responsibilities, Mr. Rosatelli is not entitled to the recoveries he
seeks. Mr. Rosatelli's employment was terminated by the Registrant in May, 1996
for cause. The matter has been removed to United States District Court, District
of New Jersey. This action is in the early stages of pretrial discovery. The
Registrant intends to vigorously defend this action and has asserted
counterclaims against Mr. Rosatelli for, among other things, the set off of
amounts by which he has damaged the Registrant against his claims under his
employment contract.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
none
Page 16 of 17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED CAPITAL CORP.
Dated: November 14, 1997 By: /s/ Anthony J. Miceli
---------------------
Anthony J. Miceli
Vice President, Chief Financial Officer and
Secretary of the Registrant
Page 17 of 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
CAPITAL CORP.'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES,
THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,637
<SECURITIES> 379
<RECEIVABLES> 18,169
<ALLOWANCES> 560
<INVENTORY> 7,005
<CURRENT-ASSETS> 31,301
<PP&E> 15,883
<DEPRECIATION> 8,141
<TOTAL-ASSETS> 116,918
<CURRENT-LIABILITIES> 40,162
<BONDS> 0
0
0
<COMMON> 529
<OTHER-SE> 34,627
<TOTAL-LIABILITY-AND-EQUITY> 116,918
<SALES> 13,670
<TOTAL-REVENUES> 19,560
<CGS> 9,625
<TOTAL-COSTS> 16,972
<OTHER-EXPENSES> (121)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 339
<INCOME-PRETAX> 2,815
<INCOME-TAX> 1,296
<INCOME-CONTINUING> 1,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,519
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
