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, 1999
-------------------------------------------------
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 Company 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
- --------------------------------------------------------------------------------
(Company'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 Company (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 Company 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 4,735,915 shares outstanding
as of November 8, 1999.
Page 1 of 21
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for
the Three Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Income for the Nine
Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1999 and 1998 6 - 7
Notes to Consolidated Financial Statements 8 - 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13 - 20
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 21
Page 2 of 21
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999
(UNAUDITED) AND DECEMBER 31, 1998
---------------------------------
(In Thousands)
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $24,858 $8,154
Marketable securities 17,176 14,290
Notes and accounts receivable, net 6,133 7,819
Inventories 3,999 4,339
Prepaid expenses and other current assets 392 209
Deferred income taxes 720 0
-------- --------
Total current assets 53,278 34,811
-------- --------
PROPERTY, PLANT & EQUIPMENT, net 4,822 4,686
REAL PROPERTY HELD FOR RENTAL, net 66,576 71,437
NONCURRENT NOTES RECEIVABLE 209 593
OTHER ASSETS 8,100 11,296
DEFERRED INCOME TAXES 1,825 3,289
-------- --------
Total assets $134,810 $126,112
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------------------------------ ---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $6,069 $5,875
Current portion of borrowings under credit facilities 1,400 1,400
Accounts payable and accrued liabilities 9,499 10,821
Income taxes payable 8,909 6,355
Deferred income taxes 0 152
------ ------
Total current liabilities 25,877 24,603
------ ------
LONG-TERM LIABILITIES:
Borrowings under credit facilities 2,800 3,850
Long-term debt 28,718 26,929
Other long-term liabilities 20,468 18,312
-------- --------
Total liabilities 77,863 73,694
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 501 515
Additional paid-in capital 748 3,536
Retained earnings 54,507 45,429
Accumulated other comprehensive income, net of tax 1,191 2,938
-------- --------
Total stockholders' equity 56,947 52,418
-------- --------
Total liabilities and stockholders' equity $134,810 $126,112
======== ========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
Page 3 of 21
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
REVENUES:
Net sales $7,458 $7,487
Rental revenues from real estate operations 6,881 6,396
------ ------
Total revenues 14,339 13,883
------ ------
COSTS AND EXPENSES:
Cost of sales 5,246 5,084
Real estate operations -
Mortgage interest expense 644 664
Depreciation expense 1,314 1,348
Other operating expenses 1,654 1,574
General and administrative expenses 1,419 1,218
Selling expenses 966 926
------ ------
Total costs and expenses 11,243 10,814
------ ------
Operating income 3,096 3,069
------ ------
OTHER INCOME (EXPENSE):
Interest and dividend income 625 390
Interest expense (146) (202)
Other income and expense, net 1,466 212
------ ------
Total other income 1,945 400
------ ------
Income before income taxes 5,041 3,469
Provision for income taxes 2,125 1,508
------ ------
Net income $2,916 $1,961
====== ======
EARNINGS PER COMMON SHARE:
Basic $.58 $.38
Diluted $.58 $.37
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 4 of 21
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
REVENUES:
Net sales $ 23,023 $ 24,427
Rental revenues from real estate operations 20,204 19,000
-------- --------
Total revenues 43,227 43,427
-------- --------
COSTS AND EXPENSES:
Cost of sales 16,384 16,965
Real estate operations -
Mortgage interest expense 2,000 2,018
Depreciation expense 4,061 4,143
Other operating expenses 5,315 3,952
General and administrative expenses 4,395 4,393
Selling expenses 2,950 2,824
-------- --------
Total costs and expenses 35,105 34,295
-------- --------
Operating income 8,122 9,132
-------- --------
OTHER INCOME (EXPENSE):
Interest and dividend income 1,390 1,137
Interest expense (474) (631)
Other income and expense, net 6,650 3,996
-------- --------
Total other income 7,566 4,502
-------- --------
Income from continuing operations before income taxes 15,688 13,634
Provision for income taxes 6,610 5,836
-------- --------
Income from continuing operations 9,078 7,798
-------- --------
DISCONTINUED OPERATIONS:
Gain on disposal of discontinued operations, net of tax provision of $3,700 0 4,849
-------- --------
Net income $ 9,078 $ 12,647
======== ========
EARNINGS PER COMMON SHARE:
Basic- continuing operations $ 1.80 $ 1.49
Basic- discontinued operations .00 .93
-------- --------
Net income per basic common share $ 1.80 $ 2.42
======== ========
Diluted- continuing operations $ 1.79 $ 1.46
Diluted- discontinued operations .00 .91
-------- --------
Net income per diluted common share $ 1.79 $ 2.37
======== ========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 5 of 21
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---- -----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 9,078 $ 12,647
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of discontinued operations, net of tax 0 (4,849)
Purchase of trading securities (700) (5,891)
Proceeds from sale of trading securities 844 5,966
Depreciation and amortization 4,937 4,678
(Gain) loss from equity investments (838) 392
Gain on sale of trading securities (144) (75)
Changes in assets and liabilities (A) 10,811 (4,399)
-------- --------
Total adjustments 14,910 (4,178)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 23,988 8,469
-------- --------
Cash Flows From Investing Activities:
Purchase of available-for-sale securities (5,505) (4,596)
Proceeds from sale of equity investments 1,300 0
Proceeds from sale of discontinued operations 0 16,000
Acquisition of property, plant and equipment (1,154) (930)
Investment in and advances to affiliates (56) (26)
-------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (5,415) 10,448
-------- --------
Cash Flows From Financing Activities:
Principal payments on mortgage commitments, notes and loans (4,578) (3,969)
Proceeds from mortgage commitments, notes and loans 6,560 5,138
Net borrowings under credit facilities (1,050) (5,650)
Purchase and retirement of common shares (2,943) (1,990)
Proceeds from exercise of stock options 142 18
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (1,869) (6,453)
-------- --------
Net increase in cash and cash equivalents 16,704 12,464
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 8,154 5,250
-------- --------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 24,858 $ 17,714
======== ========
</TABLE>
Page 6 of 21
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
1999 1998
---- ----
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest $2,390 $2,641
====== ======
Taxes $3,411 $5,202
====== ======
Supplemental Schedule of Noncash Investing
and Financing Activities:
See Notes to Consolidated Financial Statements
(A) Changes in assets and liabilities for the nine months ended September 30,
1999 and 1998, are as follows:
Notes and accounts receivable, net $1,686 $2,736
Inventories 340 (285)
Prepaid expenses and other current assets (183) 12
Deferred income taxes 1,464 226
Real property held for rental, net 941 (5,234)
Noncurrent notes receivable 384 (55)
Other assets 2,791 (175)
Accounts payable and accrued liabilities (1,322) (2,190)
Income taxes payable 2,554 625
Other long-term liabilities 2,156 (59)
----- ----
Total $10,811 ($4,399)
======= ========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS
Page 7 of 21
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
- ---------------------
The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with the instructions to Form 10-Q used for quarterly
reports under Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, and therefore, do not include all information and footnotes necessary
for a fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
The consolidated financial information included in this report has been
prepared in conformity with the accounting principles and methods of applying
those accounting principles, reflected in the Consolidated Financial Statements
included in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1998.
All adjustments necessary for a fair presentation of the results for
the interim periods 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.
MARKETABLE SECURITIES
- ---------------------
The aggregate market value of marketable securities, which are all
classified as available-for-sale, was $17,176,000 and $14,290,000 at September
30, 1999 and December 31, 1998, respectively, while unrealized holding gains
were $1,191,000 and $2,938,000 on a net of tax basis, respectively. Marketable
securities consist of the following:
(In Thousands) September 30, 1999 December 31, 1998
------------------ -----------------
Available-For-Sale Securities:
Corporate equities $11,966 $14,290
Corporate debts 5,210 0
------- -------
$17,176 $14,290
======= =======
Corporate debt securities have contractual maturities ranging from approximately
one to nine years, with the majority of the maturities being five years or less.
Page 8 of 21
<PAGE>
The following represents proceeds received from the sale of trading securities
and the resulting gross realized gains included in the determination of net
income for the nine months ended September 30:
(In Thousands) 1999 1998
---- ----
Proceeds $844 $5,966
Realized gains $144 $ 75
INVENTORIES
- -----------
The components of inventory are as follows:
(In Thousands) September 30, 1999 December 31, 1998
------------------ -----------------
Raw materials $2,214 $1,851
Work in process 462 403
Finished goods 1,323 2,085
----- -----
$3,999 $4,339
====== ======
CONTINGENCIES
- -------------
The Company has undertaken the completion of environmental studies
and/or remedial action at two of Metex' 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 Company 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 Company that, under the most probable remediation
scenario, the estimated cost to remediate this site is anticipated to require
$2,300,000 in initial costs, including capital equipment expenditures, and
$258,000 in annual operating and maintenance costs over a 10-year period. The
Company 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 Company as new or
additional information in these matters becomes 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 Company believes that it is entitled to full defense and
indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the
Page 9 of 21
<PAGE>
Company's insurers have denied such coverage. Accordingly, the Company 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. To date, settlements have been reached with all but
one carrier in this matter. Upon the advice of counsel, the Company 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 Company 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.
In the opinion of management, these matters will be resolved favorably
and such amounts, if any, not recovered under the Company'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 Company. However, adverse decisions or events, particularly as to the merits
of the Company's factual and legal basis could cause the Company to change its
estimate of liability with respect to such matters in the future.
The Company is involved in various other litigation and legal matters
which are being defended and handled in the ordinary course of business. See
Part II Other Information - Item 1. Legal Proceedings. None of these matters are
expected to result in a judgment having a material adverse effect on the
Company's consolidated financial position or results of operations.
EARNINGS PER SHARE
- ------------------
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
<S> <C> <C> <C> <C>
(In Thousands, Except Per Share Data) 1999 1998 1999 1998
------ ------ ------ ------
Numerator:
Income from continuing operations $2,916 $1,961 $9,078 $7,798
------ ------ ------ ------
Denominator:
Denominator for basic earnings per share -
weighted-average shares 5,014 5,203 5,040 5,219
Effect of dilutive securities:
Employee stock options 49 103 33 120
------ ------ ------ ------
Denominator for diluted earnings per share -
adjusted weighted-average shares and assumed
conversions 5,063 5,306 5,073 5,339
------ ------ ------ ------
Basic earnings per share - continuing operations $ .58 $ .38 $ 1.80 $ 1.49
====== ====== ====== ======
Diluted earnings per share - continuing operations $ .58 $ .37 $ 1.79 $ 1.46
====== ====== ====== ======
</TABLE>
Page 10 of 21
<PAGE>
COMPREHENSIVE INCOME
- --------------------
The Company's comprehensive income consists of unrealized gains and losses from
investments in available-for-sale securities. The components of other
comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
<S> <C> <C> <C> <C>
(In Thousands) 1999 1998 1999 1998
---- ---- ---- ----
Net income $ 2,916 $ 1,961 $ 9,078 $ 12,647
Other comprehensive income, net of tax:
Unrealized holding losses on available-for-sale
securities, net of tax benefit of $1,358 and $252,
and $872 and $258, respectively (2,522) (490) (1,747) (501)
-------- -------- -------- --------
Comprehensive income $ 394 $ 1,471 $ 7,331 $ 12,146
======== ======== ======== ========
</TABLE>
BUSINESS SEGMENTS
- -----------------
The Company operates through two business segments: real estate
investment and management and engineered products. The real estate investment
and management segment 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. Engineered products are manufactured through wholly-owned
subsidiaries of the Company and primarily consist of knitted wire products and
components and transformer products.
Page 11 of 21
<PAGE>
Operating results of the Company's business segments are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In Thousands)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues and sales-
Real estate investment and management $6,881 $6,396 $20,204 $19,000
Engineered products 7,458 7,487 23,023 24,427
------- --------- -------- --------
$14,339 $13,883 $43,227 $43,427
======= ======= ======= =======
Operating income-
Real estate investment and management $3,269 $2,810 $8,828 $8,887
Engineered products 487 792 1,459 2,528
-------- -------- ------- ---------
3,756 3,602 10,287 11,415
General corporate expenses (660) (533) (2,165) (2,283)
Other income, net 1,945 400 7,566 4,502
------- -------- -------- ---------
Income from continuing
operations before income taxes $5,041 $3,469 $15,688 $13,634
====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Identifiable assets -
Real estate investment and management $122,743 $114,406
Engineered products 12,067 11,706
-------- --------
$134,810 $126,112
======== ========
</TABLE>
SUBSEQUENT EVENT
- ----------------
In August 1999, the Company's Board of Directors authorized a "Dutch
Auction" self-tender offer for up to 500,000 shares of the Company's common
stock, or approximately 10% of its outstanding shares. Under the terms of this
offer, which expired on September 30, 1999, the Company invited shareholders to
tender shares at prices between $15.00 and $17.50 per share.
In October 1999, the Company purchased and retired all of the
approximately 278,000 shares validly tendered at a price of $17.50 per share.
The $4.9 million of shares repurchased in connection with this self-tender offer
represents approximately 5.5% of the Company's outstanding shares as of
September 30, 1999. The purchase was funded through the Company's available cash
resources. This repurchase is consistent with management's goal of increasing
shareholder value and represents an attractive investment that should benefit
the Company and its shareholders over the long-term.
As a result of the repurchase of the approximately 278,000 shares in
October 1999, the Company's additional paid-in capital will be reduced to zero
and the Company's retained earnings will
Page 12 of 21
<PAGE>
be reduced by approximately $4.1 million. These adjustments will be reflected in
the Company's December 31, 1999 financial statements.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which establishes
accounting and reporting standards for derivative instruments. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement. In June 1999, FASB issued Statement of Financial Accounting Standards
No. 137 "Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB Statement No. 133," which changes the effective
date to all fiscal quarters of all fiscal years beginning after June 15, 2000.
SFAS No. 133 cannot be applied retroactively to financial statements of prior
periods. The Company is in the process of evaluating the accounting and
reporting requirements and believes that SFAS No. 133 will not have a material
impact on the consolidated results of operations, financial position or cash
flows.
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 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
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- -------------------------------------------------------
Revenues for the three month period ended September 30, 1999 were $14.3
million, which resulted in pretax income of $5.0 million versus revenues of
$13.9 million and pretax income of $3.5 million during the comparable period in
1998. Net income during this quarter was $2.9 million or $.58 per basic share
versus $2.0 million or $.38 per basic share during the comparable period in
1998.
Revenues for the nine month period ended September 30, 1999 were $43.2
million resulting in income from continuing operations of $9.1 million, or $1.80
per basic share versus revenues of $43.4
Page 13 of 21
<PAGE>
million and income from continuing operations of $7.8 million, or $1.49 per
basic share during the comparable 1998 period. In 1998, the Company sold its
antenna business, resulting in a pretax gain from discontinued operations of
approximately $8.6 million or $.93 per basic share on an after tax basis. Net
income was $9.1 million or $1.80 per basic share in 1999 versus $12.6 million or
$2.42 per basic share for the same period in 1998.
REAL ESTATE OPERATIONS
- ----------------------
Rental revenues from real estate operations increased approximately
$485,000, or 8% for the three months and $1.2 million, or 6% for the nine months
ended September 30, 1999, compared to the corresponding periods in 1998. These
increases are primarily attributable to revenues generated from properties
acquired in 1998.
Mortgage interest expense decreased approximately $20,000 or 3% during
the current quarter and less than 1% for the nine month period ended September
30, 1999, compared to the corresponding periods in 1998. These decreases are due
to lower interest expense on mortgages refinanced in 1998 and 1999 and
continuing mortgage amortization, including repayments associated with
properties sold.
Depreciation expense associated with rental properties decreased
approximately $34,000, or 3% during the three month period ended September 30,
1999, and approximately $82,000, or 2%, during the nine month period ended
September 30, 1999, compared to the corresponding periods in 1998. These
decreases are primarily due to reduced depreciation expense associated with
properties sold in 1999 and 1998.
Operating expenses associated with the management of real properties
increased approximately $80,000 for the current quarter and approximately $1.4
million for the nine month period ended September 30, 1999, compared to the
corresponding periods in 1998. The increase in the current quarter is primarily
due to expenses incurred for the maintenance of properties acquired in 1998. The
increase for the nine month period was principally due to 1998 expenses having
been reduced by a non-recurring real estate tax abatement of approximately $1.0
million. The remainder of the nine month period increase was principally due to
expenses incurred for the maintenance of properties acquired in 1998.
Page 14 of 21
<PAGE>
ENGINEERED PRODUCTS
- -------------------
The Company's engineered products segment includes Metex Mfg.
Corporation and AFP Transformers, LLC. The operating results of the engineered
products segment are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
<S> <C> <C> <C> <C>
(In Thousands) 1999 1998 1999 1998
---- ---- ---- ----
Net Sales $7,458 $7,487 $23,023 $24,427
====== ====== ======= =======
Cost of Sales $5,246 $5,084 $16,384 $16,965
====== ====== ======= =======
Selling, General and Administrative
Expenses $1,725 $1,611 $ 5,180 $ 4,934
====== ====== ======= =======
Income from Operations $ 487 $ 792 $ 1,459 $ 2,528
====== ====== ======= =======
</TABLE>
Net sales of the engineered products segment decreased less than 1% for
the current quarter and $1.4 million, or 6% for the nine month period ended
September 30, 1999 compared to the same periods in 1998. These decreases are
primarily attributable to continued price competition and reduced demand for
certain of the Company's products.
Cost of sales as a percentage of net sales increased approximately 2%
for the three and nine month periods ended September 30, 1999 compared to the
same periods in 1998. These increases are primarily due to continued price
competition, non-recurring costs associated with a labor strike and subsequent
union settlement in the first quarter of 1999, start up operations in Mexico and
the mix of products sold.
Selling, general and administrative expenses of the engineered products
segment increased $114,000 or 7% and $246,000 or 5%, respectively, during the
quarter and nine month period ended September 30, 1999 versus such costs of the
comparable 1998 periods. These increases are primarily due to amounts invested
to expand the Company's product offerings and improve competitiveness.
Page 15 of 21
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative ("G&A") expenses not associated with
manufacturing operations increased by approximately $127,000 for the three month
period ended September 30, 1999 versus the same period in 1998 principally due
to an increase in professional fees. For the nine months ended September 30,
1999, G&A expenses not associated with manufacturing operations decreased
approximately $118,000 due to non-recurring charges recorded in the
corresponding prior year period, offset by an increase in professional fees.
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,
------------------- -------------------
<S> <C> <C> <C> <C>
(In Thousands) 1999 1998 1999 1998
---- ---- ---- ----
Gain on sale of real estate assets $1,304 $546 $5,261 $4,420
Gain (loss) from equity investments 0 (216) 838 (392)
Gain on sale of trading securities 144 0 144 75
Other, net 18 (118) 407 (107)
------- ---- ------ ------
$1,466 $212 $6,650 $3,996
====== ==== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1999, the Company's cash and marketable securities were
$42.0 million and working capital was approximately $27.4 million. Management
believes that the real estate market continues to be overvalued and the
Company's recent acquisitions have been limited to those select properties that
meet its financial requirements. Management believes that the available working
capital along with the $40 million of availability on the revolving credit
facility discussed below, puts it in an opportune position to fund acquisitions
and grow the portfolio as attractive long-term opportunities become available.
The current liabilities of the Company have historically exceeded its current
assets principally due to the financing of the purchase of long-term assets
utilizing short-term borrowings and from the classification of current mortgage
obligations without the corresponding current asset for such properties. Future
financial statements may reflect current liabilities in excess of current
assets. Management is confident that through cash flow generated from
operations, together with borrowings available under the revolving credit
facility discussed below and the sale of select assets, all obligations will be
satisfied as they come due.
Page 16 of 21
<PAGE>
The Company's portfolio of available-for-sale securities had a fair
market value of $17.2 million at September 30, 1999, reflecting pretax
unrealized holding gains of approximately $1.8 million.
The Company's Credit Agreement with two banks provides for both a $7
million term loan ("Term Loan") and a $40 million revolving credit facility
("Revolver"). Under the terms of the Credit Agreement, the Company 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, 1999, eligibility under the Revolver was $40 million,
based upon the above terms. The Credit Agreement contains certain financial and
restrictive covenants, including minimum consolidated equity, interest coverage,
debt service coverage and capital expenditures (other than for real estate). The
Company was in compliance with all covenants at September 30, 1999. The Credit
Agreement 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 in the Credit Agreement. Borrowings under the Revolver, at the
Company's option, bear interest at the bank's prime lending rate or at the
London Interbank Offered Rate ("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 the final payment due on
September 30, 2002. The Revolver expires on January 15, 2000. The Company is
currently in discussion with several banks to expand and extend its' present
credit facility and management is confident that such arrangements will be in
place prior to the expiration of the Revolver. At September 30, 1999, there were
no amounts outstanding under the Revolver and approximately $4.2 million was
outstanding on the Term Loan.
The Company has 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 Company
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.
The Company has undertaken the completion of environmental studies
and/or remedial action at two of Metex' New Jersey facilities and has filed an
action against certain insurance carriers seeking recovery of costs incurred and
to be incurred in these matters. To date settlements have been reached with all
but one carrier in this matter. Based upon the advice of counsel, management
believes further recovery is probable and therefore should not have a material
effect on the liquidity or capital resources of the Company. However, the
ultimate outcome of litigation cannot be predicted. See Notes to Consolidated
Financial Statements -- Contingencies.
In August 1999, the Company's Board of Directors authorized a "Dutch
Auction" self-tender offer for up to 500,000 shares of the Company's common
stock, or approximately 10% of its outstanding shares. Under the terms of this
offer, which expired on September 30, 1999, the Company invited shareholders to
tender shares at prices between $15.00 and $17.50 per share.
Page 17 of 21
<PAGE>
In October 1999, the Company purchased and retired all of the
approximately 278,000 shares validly tendered at a price of $17.50 per share.
The $4.9 million of shares repurchased in connection with this self-tender offer
represents approximately 5.5% of the Company's outstanding shares as of
September 30, 1999. The purchase was funded through the Company's available cash
resources. This repurchase is consistent with management's goal of increasing
shareholder value and represents an attractive investment that should benefit
the Company and its shareholders over the long-term.
As a result of the repurchase of the approximately 278,000 shares in
October 1999, the Company's additional paid-in capital will be reduced to zero
and the Company's retained earnings will be reduced by approximately $4.1
million. These adjustments will be reflected in the Company's December 31, 1999
financial statements.
Repurchases of the Company's common stock will be made from time to
time in the open market at prevailing market prices and may be made in privately
negotiated transactions, subject to available resources. Funds of the Company in
excess of that needed for working capital, purchasing real estate and arranging
financing for real estate acquisitions are invested by the Company in corporate
equity securities, corporate notes, other financial instruments, certificates of
deposit and government securities.
The cash needs of the Company have been satisfied from funds generated
by current operations and additional borrowings. It is expected that future
operational cash needs and the cash required to repurchase the Company's common
stock will also be satisfied from existing cash balances, 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 existing funds, the sale, financing and refinancing of the
Company'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 Company may acquire real
properties in exchange for the issuance of the Company's equity securities. The
Company 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.
BUSINESS TRENDS
- ---------------
Total revenues for the first nine months of 1999 were $43.2 million, a
decrease of approximately $200,000, or less than 1% from the comparable 1998
period principally due to a decline in revenues from the Company's engineered
products segment, which was offset by increased revenues from the Company's real
estate operations of $1.2 million. Income from continuing operations for this
period was $9.1 million or $1.80 per basic share versus $7.8 million or $1.49
per basic share during the same period in 1998.
Page 18 of 21
<PAGE>
The results of the Company's real estate operations reflect a 6%
increase in revenues for the first nine months of 1999, primarily due to
revenues generated from properties acquired in 1998. Operating profit from real
estate operations for this period was consistent with the corresponding 1998
period. Increased rental revenues of $1.2 million were offset by higher real
estate operating expenses resulting from 1998 expenses having been reduced by a
non-recurring real estate tax abatement of approximately $1.0 million, and an
increase in expenses incurred for the maintenance of properties acquired in
1998.
Revenues for nine month period ended September 30, 1999 from the
engineered products segment decreased 6% from the prior year principally due to
continuing price competition and weakened demand for certain of the Company's
products. Income from operations of this segment decreased approximately $1.1
million for the nine months ended September 30, 1999 as compared to the
corresponding prior year period, primarily due to the reduction in sales and
amounts invested to expand the Company's product offerings and improve
competitiveness. Management remains committed to growing these businesses and is
aggressively pursuing new sales opportunities, including new geographical
markets for its existing products and new applications for its core
technologies.
YEAR 2000 CONVERSION
- --------------------
The Company currently believes that its essential processes, systems
and business functions will be ready for the millennium transition and is taking
the necessary steps to accomplish this objective. The Company has undertaken the
implementation in its manufacturing operations of a fully integrated Enterprise
Resource Planning (ERP) software package. Although the ERP package was
implemented for purposes other than remediating the Year 2000 issue, the ERP
package is certified as Year 2000 compliant. As part of this implementation,
which was completed in December 1998, the Company also believes that it has
identified and addressed all its related Year 2000 hardware issues. The Company
believes that the costs, if any, directly associated with Year 2000 compliance
will not be material to its financial condition or results of operations. Year
2000 issues are not significant to the Company's real estate operations.
Substantially all third parties (banks, suppliers, customers) for which the
Company has a business relationship are among the largest and most sophisticated
companies in the country and the Company is providing the data necessary for
these companies to evaluate their Year 2000 issues.
The Company believes that it has taken reasonable steps in preparing
for the Year 2000 issue, but cannot ensure that all of its Year 2000 issues or
those of its significant third parties will be resolved or addressed
satisfactorily before the Year 2000 commences. Any resulting disruption could
materially and adversely affect the Company's results of operations, liquidity
and financial condition. Due to the general uncertainty inherent in the Year
2000 problem, resulting in part from the uncertainty of the Year 2000 readiness
of third parties, the Company is unable to determine at this time whether the
consequences of failing to adequately address all Year 2000 concerns will have a
material impact on the Company's results of operations, liquidity or financial
position. The Company is not in a position to assess or evaluate the impact of a
worst case scenario.
Page 19 of 21
<PAGE>
FORWARD-LOOKING STATEMENTS
- --------------------------
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, 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, interest rates, competition, potential technology changes and
potential changes in customer spending and purchasing policies and procedures.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Form 10-Q will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ROSATELLI VS. UNItED CAPITAL CORP.
- ----------------------------------
In August 1996, Dennis Rosatelli, the Company's former Chief Financial
Officer commenced an action in Superior Court of New Jersey, Law Division,
Bergen County ("Superior Court"), 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 Company 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 Company in May, 1996 for cause. The
matter was removed to United States District Court, District of New Jersey in
October 1996. In March 1998 the U.S. District Court dismissed certain of Mr.
Rosatelli's claims and remanded the remainder of the action back to Superior
Court. In May 1998, Mr. Rosatelli amended his complaint to include Kentile's
assignee for the benefit of creditors as an additional defendant and to remove
the officer of Kentile previously named as a defendant from this action. The
material allegations of the complaint were unchanged. The Company asserted
counterclaims against Mr. Rosatelli for, among other things, breach of fiduciary
duty and set off of the amounts by which he has damaged the Company against his
claims under his employment contract. While management continues to believe that
the allegations are false and without merit, as a result of escalating defense
costs and the uncertainty present in any litigation the Company settled such
litigation in September 1999. The costs of such litigation, including amounts
paid in settlement, were not material to the Company's consolidated results of
operations or financial position and had been previously recorded by the
Company.
Page 20 of 21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K. None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNITED CAPITAL CORP.
Dated: November 10, 1999 By: /s/ Anthony J. Miceli
---------------------------------------
Anthony J. Miceli
Vice President, Chief Financial Officer
and Secretary of the Company
Page 21 of 21
<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, 1999 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 24,858
<SECURITIES> 17,176
<RECEIVABLES> 6,523
<ALLOWANCES> 390
<INVENTORY> 3,999
<CURRENT-ASSETS> 53,278
<PP&E> 10,746
<DEPRECIATION> 5,924
<TOTAL-ASSETS> 134,810
<CURRENT-LIABILITIES> 25,877
<BONDS> 0
0
0
<COMMON> 501
<OTHER-SE> 56,446
<TOTAL-LIABILITY-AND-EQUITY> 134,810
<SALES> 7,458
<TOTAL-REVENUES> 14,339
<CGS> 5,246
<TOTAL-COSTS> 11,243
<OTHER-EXPENSES> (1,466)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 5,041
<INCOME-TAX> 2,125
<INCOME-CONTINUING> 2,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,916
<EPS-BASIC> .58
<EPS-DILUTED> .58
</TABLE>
