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 March 31, 1999
------------------------------------------------
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number: 1-10104
United Capital Corp.
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(Exact name of Company as specified in its charter)
Delaware 04-2294493
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9 Park Place, Great Neck, New York 11021
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(Address of principal executive offices) (Zip Code)
516-466-6464
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(Company's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the 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
5,010,147 shares outstanding
as of May 10, 1999.
Page 1 of 18
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UNITED CAPITAL CORP. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of March 31, 1999 and December 31, 1998 3
Consolidated Statements of Income for
the Three Months Ended March 31, 1999 and
1998 4 - 5
Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1999 and
1998 6 - 7
Notes to Consolidated Financial Statements 8 - 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 - 17
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 18
Page 2 of 18
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UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1999 (UNAUDITED)
AND DECEMBER 31, 1998
(In Thousands)
ASSETS 1999 1998
- ------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents $16,771 $8,154
Marketable securities 13,083 14,290
Notes and accounts receivable, net 7,134 7,819
Inventories 4,490 4,339
Prepaid expenses and other current assets 315 209
Deferred income taxes 258 0
------- ------
Total current assets 42,051 34,811
------- ------
PROPERTY, PLANT & EQUIPMENT, net 4,838 4,686
REAL PROPERTY HELD FOR RENTAL, net 68,949 71,437
NONCURRENT NOTES RECEIVABLE 583 593
OTHER ASSETS 8,531 11,296
DEFERRED INCOME TAXES 3,118 3,289
--------- --------
Total assets $128,070 $126,112
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- ------------------------------------ ---- ----
CURRENT LIABILITIES:
Current maturities of long-term debt $5,801 $5,875
Current portion of borrowings under credit facilities 1,400 1,400
Accounts payable and accrued liabilities 10,698 10,821
Income taxes payable 7,004 6,355
Deferred income taxes 0 152
------ ------
Total current liabilities 24,903 24,603
------ ------
LONG-TERM LIABILITIES:
Borrowings under credit facilities 3,500 3,850
Long-term debt 28,446 26,929
Other long-term liabilities 18,312 18,312
------ ------
Total liabilities 75,161 73,694
------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 502 515
Additional paid-in capital 1,251 3,536
Retained earnings 49,015 45,429
Accumulated other comprehensive income, net of tax 2,141 2,938
------ ------
Total stockholders' equity 52,909 52,418
------ ------
Total liabilities and stockholders' equity $128,070 $126,112
======== ========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE BALANCE SHEETS.
Page 3 of 18
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UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(In Thousands, Except Per Share Data)
1999 1998
---- ----
REVENUES:
Net sales $7,653 $8,306
Rental revenues from real estate operations 6,522 6,242
------ -----
Total revenues 14,175 14,548
------ ------
COSTS AND EXPENSES:
Cost of sales 5,660 5,884
Real estate operations-
Mortgage interest expense 603 693
Depreciation expense 1,367 1,399
Other operating expenses 2,008 711
General and administrative expenses 1,538 1,123
Selling expenses 991 937
------ ------
Total costs and expenses 12,167 10,747
------ ------
Operating income 2,008 3,801
------ ------
OTHER INCOME (EXPENSE):
Interest income 310 395
Interest expense (163) (223)
Other income and expense, net 4,001 177
------ ------
Total other income 4,148 349
------ ------
Income from continuing operations before income taxes 6,156 4,150
Provision for income taxes 2,570 1,736
------ ------
Income from continuing operations 3,586 2,414
------ ------
Page 4 of 18
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UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Continued)
(UNAUDITED)
(In Thousands, Except Per Share Data)
1999 1998
---- ----
DISCONTINUED OPERATIONS:
Gain on disposal of discontinued operations,
net of tax provision of $3,700 $0 $4,849
---- ------
Income from discontinued operations, net of tax 0 4,849
---- ------
Net income $3,586 $7,263
====== ======
BASIC EARNINGS PER COMMON SHARE:
Income from continuing operations $.70 $.46
Discontinued operations .00 .92
---- ----
Net income per common share $.70 $1.38
==== =====
DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations $.70 $.45
Discontinued operations .00 .90
---- ----
Net income per common share assuming dilution $.70 $1.35
==== =====
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 5 of 18
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UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
(In Thousands)
1999 1998
---- ----
Cash Flows From Operating Activities:
Net income $3,586 $7,263
------ ------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on disposal of investments in affiliates (1,989) 0
Gain on sale of discontinued operations, net of tax 0 (4,849)
Purchase of trading securities 0 (5,891)
Proceeds from sale of trading securities 0 5,966
Depreciation and amortization 1,664 1,604
Loss from equity investments 0 126
Gain on sale of trading securities 0 (75)
Changes in assets and liabilities(A) 4,619 (4,217)
------ -------
Total adjustments 4,294 (7,336)
------ -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 7,880 (73)
------ -------
Cash Flows From Investing Activities:
Proceeds from disposal of investments in affiliates 2,450 0
Proceeds from sale of discontinued operations 0 16,000
Acquisition of property, plant and equipment (479) (401)
Investment in and advances to affiliates (29) (231)
----- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,942 15,368
----- ------
Cash Flows From Financing Activities:
Principal payments on mortgage commitments,
notes and loans (1,657) (1,257)
Proceeds from mortgage commitments, notes and loans 3,100 0
Net borrowings under credit facilities (350) (4,950)
Purchase and retirement of common shares (2,298) (1,740)
------ -------
NET CASH USED IN FINANCING ACTIVITIES (1,205) (7,947)
------ -------
Net increase in cash and cash equivalents 8,617 7,348
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 8,154 5,250
------- -------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $16,771 $12,598
======= =======
Page 6 of 18
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UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Continued)
(UNAUDITED)
(In Thousands)
1999 1998
---- ----
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period For:
Interest $742 $908
Taxes 1,730 828
====== =====
Supplemental Schedule of Noncash Investing
and Financing Activities:
See Notes to Consolidated Financial Statements
(A) Changes in assets and liabilities for the three months ended March 31, 1999
and 1998, are as follows:
Notes and accounts receivable, net $ 684 $ 707
Inventories (151) 404
Prepaid expenses and other current assets (106) (134)
Deferred income taxes 170 (13)
Real property held for rental, net 1,152 (1,911)
Noncurrent notes receivable 10 19
Other assets 2,333 23
Accounts payable and accrued liabilities (122) (3,690)
Income taxes payable 649 439
Other long-term liabilities 0 (61)
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Total $ 4,619 ($4,217)
======= =======
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS
Page 7 of 18
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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 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
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The components of inventory are as follows:
(In Thousands) March 31, 1999 December 31, 1998
-------------- -----------------
Raw materials $2,187 $1,851
Work in process 367 403
Finished goods 1,936 2,085
------ ------
$4,490 $4,339
====== ======
CONTINGENCIES
- -------------
The Company 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 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.
Page 8 of 18
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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
$2.3 million 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 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. 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.
Amounts recorded as anticipated insurance recoveries in the
accompanying Consolidated Financial Statements are in dispute with the Company'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 Company 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 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 for a discussion of
ROSATELLI VS. UNITED CAPITAL CORP., et al. 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.
Page 9 of 18
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EARNINGS PER SHARE
- ------------------
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months
Ended March 31,
---------------
(In Thousands, Except Per Share Data) 1999 1998
---- ----
Numerator:
Income from continuing operations $3,586 $2,414
------ ------
Denominator:
Denominator for basic earnings per
share-weighted-average shares
outstanding
5,096 5,250
Effect of dilutive securities:
Employee stock options 44 139
------ ------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions
5,140 5,389
------ ------
Basic earnings per share $ .70 $.46
====== ======
Diluted earnings per share $ .70 $.45
====== ======
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:
Three Months
Ended March 31,
---------------
(In Thousands) 1999 1998
---- ----
Net income $ 3,586 $ 7,263
Other comprehensive income, net of tax:
Unrealized holding losses, on
available-for-sale securities net of tax
benefits of $411 and $1, respectively
(797) (3)
------- -------
Comprehensive income $ 2,789 $ 7,260
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Page 10 of 18
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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.
Operating results of the Company's business segments are as follows:
Three Months
Ended March 31
--------------
(In Thousands)
1999 1998
---- ----
Net revenues and sales-
Real estate investment and management $ 6,522 $ 6,242
Engineered products 7,653 8,306
-------- --------
$ 14,175 $ 14,548
======== ========
Operating income-
Real estate investment and management $ 2,545 $ 3,439
Engineered products 286 800
-------- --------
2,831 4,239
General corporate expenses (822) (438)
Other income, net 4,147 349
-------- --------
Income from continuing
operations before income taxes $ 6,156 $ 4,150
======== ========
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In June 1998, the Financial Accounting Standards Board 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. This
statement is effective for fiscal years beginning after June 15, 1999 and 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.
Page 11 of 18
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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 MONTHS ENDED MARCH 31, 1999 AND 1998
- ------------------------------------------
Revenues for the three month period ended March 31, 1999 were $14.2
million, a decrease of $373,000 or 3% from comparable 1998 revenues. Income from
continuing operations during this period was $3.6 million or $.70 per basic
share versus $2.4 million or $.46 per basic share during the comparable period
in 1998. In 1998, the Company sold its antenna business, resulting in a pretax
gain from discontinued operations of approximately $8.6 million or $.92 per
basic share on an after tax basis in the first quarter of 1998. Net income was
$3.6 million or $.70 per basic share as compared to net income of $7.3 million
or $1.38 per basic share for the same period in 1998.
REAL ESTATE OPERATIONS
- ----------------------
Rental revenues from real estate operations increased by $280,000 or 4%
for the three months ended March 31, 1999 compared to the same period in 1998.
The increase is primarily attributable to revenues generated from properties
acquired in 1998.
Mortgage interest expense decreased $90,000 or 13% for the three months
ended March 31, 1999, compared to the same period in 1998. This decrease is due
to lower mortgage 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
$32,000 for the three months ended March 31, 1999 compared to the same period in
1998. This decrease is primarily due to reduced depreciation expense associated
with properties sold in 1998.
Operating expenses associated with the management of real properties
increased $1.3 million for the quarter ended March 31, 1999 compared to the same
period in 1998 principally due to 1998 expenses having been reduced by a
non-recurring real estate tax abatement of approximately $1
Page 12 of 18
<PAGE>
million. The remainder of the increase was principally due to expenses incurred
for the maintenance of properties acquired in 1998.
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:
Three Months
(In Thousands) Ended March 31,
---------------
1999 1998
---- ----
Net Sales $7,653 $8,306
====== ======
Cost of Sales $5,660 $5,884
====== ======
Selling, General and
Administrative Expenses $1,707 $1,622
====== ======
Income from Operations $ 286 $ 800
====== ======
Net sales of the engineered products segment decreased $653,000 or 8%
for the three month period ended March 31, 1999 as compared to the same period
in 1998. This decrease is primarily attributable to continued price competition
and declining worldwide automotive sales for knitted wire products.
Cost of sales as a percentage of sales increased to 74.0% for the three
months ended March 31, 1999 from 70.9% in the corresponding period of 1998. This
increase is principally due to non-recurring costs associated with the labor
strike and subsequent union settlement, start up operations in Mexico and the
product mix.
Selling, general and administrative expenses of the engineered products
segment increased $85,000 or 5% during the quarter ended March 31, 1999 versus
the comparable 1998 period. This increase is due to additional expenses focused
on increasing both market share and future sales and non-recurring costs
associated with the labor strike in the first quarter.
Page 13 of 18
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GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses not associated with the
manufacturing operations increased by $384,000 for the three month period ended
March 31, 1999, versus the same period in 1998. This increase is principally due
to a one-time expense reduction in 1998 and 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:
Three Months
(In Thousands) Ended March 31,
----------------
1999 1998
---- ----
Gain on disposal of investments in affiliates $1,989 $ 0
Gain on sale of real estate assets 1,971 221
Income (loss) from investment in affiliates 0 (126)
Gain on sale of marketable securities 0 75
Other, net 41 7
------ ------
$4,001 $ 177
====== ======
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1999, the Company's cash and marketable securities
approximated $30 million and working capital exceeded $17 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 if and when the real estate market is no longer
overvalued. 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
Page 14 of 18
<PAGE>
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.
The Company's portfolio of available-for-sale securities had a fair
market value of approximately $13.1 million at March 31, 1999, reflecting pretax
unrealized holding gains of approximately $3.2 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 March 31, 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 March 31, 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. At March 31, 1999,
there were no amounts outstanding under the Revolver and $4.9 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 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 Company. 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--Contingencies.
Amounts recorded as anticipated insurance recoveries in the
accompanying Consolidated Financial Statements are in dispute with the Company'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 Company will prevail in its efforts to obtain
amounts at or in excess of the estimated recoveries.
Page 15 of 18
<PAGE>
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.
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.
BUSINESS TRENDS
- ---------------
Total revenues of the Company were $14,175,000 for the first quarter of
1999, a decrease of $373,000 or 3% from the comparable 1998 period principally
due to a decline in revenues from the Company's engineered products segment.
Income from continuing operations for this period was approximately $3.6 million
or $.70 per basic share versus $2.4 million or $.46 per basic share during the
same period in 1998.
The results of the Company's real estate operations reflect a 4%
increase in revenues for the first three months of 1999, primarily due to
revenues generated from properties acquired in 1998. Pretax income of the real
estate operations increased approximately $2.7 million over the prior year
period. This increase is principally due to increased gains on the sale of real
estate assets and other real estate investments and lower mortgage interest
expense principally resulting from the lower interest cost associated with
mortgages refinanced in 1998. These amounts were partially 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 million. Mortgage
amortization will continue to have a favorable impact on this segment and will
reduce current mortgage indebtedness to zero in less than eight years.
Page 16 of 18
<PAGE>
Revenues for the engineered products segment decreased 8% from the
prior year principally due to continuing price competition and declining
worldwide automobile sales. Operating profit from this segment decreased
$514,000 primarily from the reduction in sales, non-recurring costs associated
with a labor strike in the first quarter, start up operations in Mexico and
additional selling, general and administrative expenses focused on gaining
market share and increasing sales. 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
have a material adverse impact on its business.
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.
Page 17 of 18
<PAGE>
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 compliant 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 are unchanged. This action is in the early
stages of pretrial discovery. The Company 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 Company 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.
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: May 10, 1999 By: /s/ Anthony J. Miceli
---------------------
Anthony J. Miceli
Vice President,
Chief Financial
Officer and Secretary
of the Company
Page 18 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
CAPITAL CORP.'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES,
THERETO.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
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<SECURITIES> 13,083
<RECEIVABLES> 7,524
<ALLOWANCES> 390
<INVENTORY> 4,490
<CURRENT-ASSETS> 42,051
<PP&E> 10,078
<DEPRECIATION> 5,240
<TOTAL-ASSETS> 128,070
<CURRENT-LIABILITIES> 24,903
<BONDS> 0
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<COMMON> 502
<OTHER-SE> 52,407
<TOTAL-LIABILITY-AND-EQUITY> 128,070
<SALES> 7,653
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<TOTAL-COSTS> 12,167
<OTHER-EXPENSES> (4,001)
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<INTEREST-EXPENSE> 163
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