SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ending June 30, 2000
----------------------------------------------
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 4,730,915 shares outstanding
as of August 8, 2000.
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 June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the
Three Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Income for the
Six Months Ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 6 - 7
Notes to Consolidated Financial Statements 8 - 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 - 17
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 17
Page 2 of 17
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(In Thousands)
2000 1999
---- ----
Assets
Current assets:
Cash and cash equivalents $ 13,146 $ 13,575
Marketable securities 36,759 27,296
Notes and accounts receivable, net 12,425 5,626
Inventories 4,069 4,207
Prepaid expenses and other current assets 354 254
-------- --------
Total current assets 66,753 50,958
-------- --------
Property, plant and equipment, net 4,764 5,077
Real property held for rental, net 60,568 66,939
Noncurrent notes receivable 254 270
Other assets 11,115 10,488
-------- --------
Total assets $143,454 $133,732
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 5,756 $ 5,990
Borrowings under credit facilities 700 700
Accounts payable and accrued liabilities 9,563 9,835
Income taxes payable 8,540 5,000
Deferred income taxes 1,220 1,019
-------- --------
Total current liabilities 25,779 22,544
-------- --------
Borrowings under credit facilities 875 1,225
Long-term debt 24,474 27,316
Other long-term liabilities 24,594 22,917
Deferred income taxes 862 674
-------- --------
Total liabilities 76,584 74,676
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock 473 474
Retained earnings 62,113 54,671
Accumulated other comprehensive income, net of tax 4,284 3,911
-------- --------
Total stockholders' equity 66,870 59,056
-------- --------
Total liabilities and stockholders' equity $143,454 $133,732
======== ========
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
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(In Thousands, Except Per Share Data)
2000 1999
---- ----
Revenues:
Net sales $ 9,091 $ 7,912
Rental revenues from real estate operations 6,979 6,801
-------- --------
Total revenues 16,070 14,713
-------- --------
Costs and expenses:
Cost of sales 6,479 5,478
Real estate operations:
Mortgage interest expense 567 753
Depreciation expense 1,257 1,380
Other operating expenses 1,629 1,653
General and administrative expenses 1,362 1,438
Selling expenses 1,052 993
-------- --------
Total costs and expenses 12,346 11,695
-------- --------
Operating income 3,724 3,018
-------- --------
Other income (expense):
Interest income 584 455
Interest expense (134) (165)
Other income and expense, net 2,482 1,183
-------- --------
Total other income 2,932 1,473
-------- --------
Income before income taxes 6,656 4,491
Provision for income taxes 2,835 1,915
-------- --------
Net income $ 3,821 $ 2,576
======== ========
Earnings per share:
Basic $ .81 $ .51
======== ========
Diluted $ .81 $ .51
======== ========
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
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(In Thousands, Except Per Share Data)
2000 1999
---- ----
Revenues:
Net sales $ 17,288 $ 15,565
Rental revenues from real estate operations 13,880 13,323
-------- --------
Total revenues 31,168 28,888
-------- --------
Costs and expenses:
Cost of sales 12,486 11,138
Real estate operations:
Mortgage interest expense 1,162 1,356
Depreciation expense 2,555 2,747
Other operating expenses 3,349 3,661
General and administrative expenses 2,718 2,976
Selling expenses 2,025 1,984
-------- --------
Total costs and expenses 24,295 23,862
-------- --------
Operating income 6,873 5,026
-------- --------
Other income (expense):
Interest income 1,168 765
Interest expense (313) (328)
Other income and expense, net 5,164 5,184
-------- --------
Total other income 6,019 5,621
-------- --------
Income before income taxes 12,892 10,647
Provision for income taxes 5,390 4,485
-------- --------
Net income $ 7,502 $ 6,162
======== ========
Earnings per share:
Basic $ 1.58 $ 1.22
======== ========
Diluted $ 1.58 $ 1.21
======== ========
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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 7,502 $ 6,162
-------- --------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,207 3,334
Gain on sale of real estate assets (3,544) (3,957)
Gain on sale of available-for-sale securities (1,643) 0
Gain from equity investments (496) (1,264)
Changes in assets and liabilities (A) (2,150) 2,489
-------- --------
Total adjustments (4,626) 602
-------- --------
Net cash provided by operating activities 2,876 6,764
-------- --------
Cash flows from investing activities:
Acquisition of real estate assets (450) (314)
Proceeds from sale of real estate assets 7,865 5,800
Purchase of available-for-sale securities (14,947) (5,205)
Proceeds from sale of available-for-sale securities 7,699 0
Acquisition of property, plant and equipment (355) (689)
Investments in and advances to affiliates 369 369
Proceeds from sale of equity investments 0 1,300
-------- --------
Net cash provided by investing activities 181 1,261
-------- --------
Cash flows from financing activities:
Principal payments on mortgage commitments, notes
and loans (3,076) (3,123)
Proceeds from mortgage commitments, notes and loans 0 6,560
Net repayments under credit facilities (350) (700)
Purchase and retirement of common shares (60) (2,943)
Proceeds from the exercise of stock options 0 142
-------- --------
Net cash used in financing activities (3,486) (64)
-------- --------
Net (decrease) increase in cash and cash equivalents (429) 7,961
Cash and cash equivalents, beginning of period 13,575 8,154
-------- --------
Cash and cash equivalents, end of period $ 13,146 $ 16,115
======== ========
</TABLE>
Page 6 of 17
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (CONTINUED)
(UNAUDITED)
(A) Changes in assets and liabilities for the six months ended June 30,
2000 and 1999 are as follows:
2000 1999
---- ----
Notes and accounts receivable, net ($6,799) ($144)
Inventories 138 107
Prepaid expenses and other current assets (100) (184)
Deferred income taxes 189 891
Noncurrent notes receivable 16 9
Other assets (539) 2,214
Accounts payable and accrued liabilities (272) (1,179)
Income taxes payable 3,540 780
Other long-term liabilities 1,677 (5)
------- -------
Total ($2,150) $2,489
======== ======
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
(In Thousands, Except Share And Per Share Data)
(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, 1999.
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.
MARKETABLE SECURITIES
The aggregate market value of marketable securities, which are all
classified as available-for-sale, was $36,759 and $27,296 at June 30, 2000 and
December 31, 1999, respectively, while accumulated unrealized holding gains were
$4,284 and $3,911 on a net of tax basis, respectively. Marketable securities
consist of the following:
June 30, 2000 December 31, 1999
------------- -----------------
Available-For-Sale Securities:
Corporate equities $35,736 $21,685
Corporate debts 1,023 5,611
------- -------
$36,759 $27,296
======= =======
Corporate debt securities have contractual maturities of approximately
four years.
INVENTORIES
The components of inventory are as follows:
June 30, 2000 December 31, 1999
------------- -----------------
Raw materials $2,221 $2,369
Work in process 504 334
Finished goods 1,344 1,504
------ ------
$4,069 $4,207
====== ======
Page 8 of 17
<PAGE>
CONTINGENCIES
The Company has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities. The Company has
recorded a liability in the Consolidated Financial Statements for the estimated
potential remediation costs at these facilities.
The process of remediation has begun at one facility pursuant to a plan
filed with the New Jersey Department of Environmental Protection ("NJDEP").
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 including the cost of capital equipment,
and $86 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 in initial costs, including capital equipment expenditures, and $258 in
annual operating and maintenance costs over a 10 year period. These estimated
costs of future expenses for environmental remediation obligations are not
discounted to their present value. 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 NJDEP 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 believed that it was entitled to full defense and
indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the Company's insurers denied such coverage.
Accordingly, the Company 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. Settlements have
been reached with all carriers in this matter.
In the opinion of management, amounts recovered from its insurance
carriers should be sufficient to address these matters and amounts needed in
excess, if any, will be paid gradually over a period of years. Accordingly, they
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. 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 17
<PAGE>
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Numerator:
<S> <C> <C> <C> <C>
Net income $3,821 $2,576 $7,502 $6,162
====== ====== ====== ======
Denominator:
Denominator for basic earnings per
share--weighted-average shares 4,731 5,011 4,734 5,053
Effect of dilutive securities:
Employee stock options 13 20 18 23
------ ------ ------ ------
Denominator for diluted earnings per
share--adjusted weighted-average shares
and assumed conversions 4,744 5,031 4,752 5,076
====== ====== ====== ======
Basic earnings per share $ .81 $ .51 $ 1.58 $ 1.22
====== ====== ====== ======
Diluted earnings per share $ .81 $ .51 $ 1.58 $ 1.21
====== ====== ====== ======
</TABLE>
COMPREHENSIVE INCOME
The Company's comprehensive income consists of net income and changes
in net unrealized gains from investments in available-for-sale securities. The
components of comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $3,821 $2,576 $7,502 $6,162
Other comprehensive income, net of tax:
Change in net unrealized gain on
available-for-sale securities, net of tax
provisions of $1,292, $896, $201
and $486, respectively
2,313 1,572 373 775
------ ------ ------ ------
Comprehensive income $6,134 $4,148 $7,875 $6,937
====== ====== ====== ======
</TABLE>
Page 10 of 17
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Net revenues and sales:
<S> <C> <C> <C> <C>
Real estate investment and management $ 6,979 $ 6,801 $ 13,880 $ 13,323
Engineered products 9,091 7,912 17,288 15,565
-------- -------- -------- --------
$ 16,070 $ 14,713 $ 31,168 $ 28,888
======== ======== ======== ========
Operating income:
Real estate investment and management $ 3,526 $ 3,015 $ 6,814 $ 5,559
Engineered products 831 685 1,274 972
-------- -------- -------- --------
4,357 3,700 8,088 6,531
General corporate expenses (633) (682) (1,215) (1,505)
Other income, net 2,932 1,473 6,019 5,621
-------- -------- -------- --------
Income before income taxes $ 6,656 $ 4,491 $ 12,892 $ 10,647
======== ======== ======== ========
</TABLE>
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.
Page 11 of 17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Revenues for the three month period ended June 30, 2000 were $16.1
million, an increase of $1.4 million or 9.2% from comparable 1999 revenues.
Operating income during this period was $3.7 million versus $3.0 million for the
comparable 1999 period, a 23.4% increase. Net income for the second quarter was
$3.8 million or $.81 per basic share compared to net income of $2.6 million or
$.51 per basic share for the same period in 1999. This represents a 58.8%
increase in earnings per basic share over the prior year.
Total revenues for the first six months of 2000 were $31.2 million
resulting in operating income of $6.9 million versus revenues of $28.9 million
and operating income of $5.0 million during the comparable 1999 period. Net
income for the six month period was $7.5 million or $1.58 per basic share in
2000 versus $6.2 million or $1.22 per basic share in 1999, an increase of 29.5%
in basic earnings per share.
REAL ESTATE OPERATIONS
Rental revenues from real estate operations increased by $178,000 or
2.6% for the three months and $557,000 or 4.2% for the six months ended June 30,
2000 when compared to the corresponding periods in 1999. These increases result
primarily from an increase in the Company's hotel revenues.
Mortgage interest expense decreased $186,000 for the three months and
$194,000 for the six months ended June 30, 2000 compared to the corresponding
1999 periods, due to continuing mortgage amortization which approximated $5.3
million during the last 12 months.
Depreciation expense associated with rental properties decreased
$123,000 or 8.9% for the three months ended June 30, 2000 and $192,000 or 7.0%
for the six months ended June 30, 2000 compared to the same periods in 1999.
These decreases are primarily due to reduced depreciation expense associated
with properties sold in 2000 and 1999.
Operating expenses associated with the management of real properties
decreased $24,000 for the current quarter and $312,000 for the first six months
of 2000 compared to the corresponding periods in 1999. These decreases are
principally due to increased expenses in 1999 associated with the maintenance of
properties acquired in 1998.
Page 12 of 17
<PAGE>
ENGINEERED PRODUCTS
The Company's engineered products segment includes Metex Mfg.
Corporation ("Metex") and AFP Transformers, LLC ("AFP Transformers"). The
operating results of the engineered products segment are as follows:
Three Months Six Months
(In Thousands) Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Net Sales $9,091 $ 7,912 $17,288 $15,565
====== ======= ======= =======
Cost of Sales $6,479 $ 5,478 $12,486 $11,138
====== ======= ======= =======
Selling, General and
Administrative Expenses $1,781 $ 1,749 $ 3,528 $ 3,455
====== ======= ======= =======
Income from Operations $ 831 $ 685 $ 1,274 $ 972
====== ======= ======= =======
Net sales of the engineered products segment increased $1.2 million or
14.9% for the three month period ended June 30, 2000 and $1.7 million or 11.0%
for the six month period ended June 30, 2000 compared to the same periods in
1999. These increases are primarily the result of higher sales in the engineered
products and European automotive markets at Metex' Technical Products Division
and higher sales generated by AFP Transformers.
Cost of sales as a percentage of sales increased approximately 2.0% and
less than 1.0% for the three and six months ended June 30, 2000 respectively,
compared to the corresponding periods in 1999 principally due to the mix of
products sold.
Selling, general and administrative expenses of the engineered products
segment increased $32,000 or 1.8% during the current quarter and $73,000 or 2.1%
for the first six months of 2000 versus the comparable 1999 periods. These
increases are primarily due to additional selling costs associated with the
higher sales volume noted above.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the
manufacturing operations decreased by $49,000 or 7.2% and $290,000 or 19.3%
respectively, for the three and six months ended June 30, 2000 compared to the
same periods in 1999. These decreases are principally due to a reduction in
professional fees.
Page 13 of 17
<PAGE>
OTHER INCOME AND EXPENSE, NET
The components of other income and expense, net in the accompanying
Consolidated Statements of Income are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
(In Thousands) Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gain on sale of real estate assets $ 878 $ 835 $ 3,544 $ 3,957
Gain from equity investments 0 0 0 838
Gain on sale of available-for-sale securities 1,619 0 1,643 0
Other (15) 348 (23) 389
------- ------- ------- -------
$ 2,482 $ 1,183 $ 5,164 $ 5,184
======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company's cash and marketable securities were
$49.9 million and working capital was approximately $41.0 million. Management
continues to believe the real estate market is overvalued and accordingly recent
acquisitions have been limited to those select properties that meet the
Company's stringent financial requirements. Management believes the available
working capital along with the $60.0 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 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 $36.8 million at June 30, 2000, reflecting pretax
unrealized holding gains of approximately $6.6 million. Included in marketable
securities at June 30, 2000 was $23.6 million of common stock in a publicly
traded company which represents approximately 5.6% of such company's outstanding
shares. In April 2000, the Company purchased 1,245,000 shares of this company's
common stock. The Company's Chairman of the Board, Chief Executive Officer and
President is Chairman, President and a director of this company and another
Director of the Company is also a director of this company.
Page 14 of 17
<PAGE>
Effective December 31, 1999, the Company entered into a credit
agreement with three banks which provides for both a $60.0 million revolving
credit facility ("Revolver") and a $1.9 million term loan ("Term Loan"). Each of
the three banks participates in the Revolver while only one of the banks
participates in the Term Loan.
Under the Revolver, the Company will be provided with eligibility based
upon the sum of (i) 60.0% of the aggregate annualized and normalized
year-to-date net operating income of unencumbered eligible properties, as
defined, capitalized at 10.5%, (ii) the lesser of $6.0 million or 60.0% of the
aggregate annualized and normalized year-to-date net operating income of
unencumbered eligible hotel properties, as defined, capitalized at 10.5%, (iii)
the lesser of $10.0 million or 50.0% of the aggregate annualized and normalized
year-to-date net operating income of encumbered eligible properties, as defined,
capitalized at 12.0%, and (iv) the lesser of $10.0 million or the sum of 75.0%
of eligible accounts receivable and 50.0% of eligible inventory, as defined. At
June 30, 2000, eligibility under the Revolver was $60.0 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 June 30, 2000. The credit
agreement also contains provisions, which allow the banks to perfect a security
interest in certain operating and real estate assets in the event of 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 2.0%. The Revolver expires on December 31,
2002. At June 30, 2000, there were no amounts outstanding under the Revolver.
The Term Loan bears interest at 90 day LIBOR plus 1.4% and is payable
in quarterly principal installments of $175,000, with the final payment due on
September 30, 2002. At June 30, 2000, there was approximately $1.6 million
outstanding on the Term Loan.
The Company has an interest-rate swap agreement (the "Swap") 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,
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 Swap is recognized over the term of
the agreement as an adjustment to interest expense. The fair value of the Swap
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 had filed an
action against certain insurance carriers seeking recovery of costs incurred and
to be incurred in these matters. Settlements have been reached with all carriers
in this matter. See Notes to Consolidated Financial Statements for further
discussion on this matter.
In October 1999, the Company purchased and retired approximately
278,000 shares in connection with its "Dutch Auction" self-tender offer. As a
result of this repurchase the Company's additional paid-in capital was reduced
to zero and the Company's retained earnings was reduced by approximately $4.1
million. Future repurchases of the Company's common stock will also reduce
retained earnings by amounts in excess of the par value. During the first six
months of 2000 the Company purchased and retired 5,000 shares for approximately
$60,000.
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
Page 15 of 17
<PAGE>
repurchase the Company's common stock will also be satisfied from existing cash
balances, ongoing operations and borrowings under 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, borrowings
under the Revolver, 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, certificates of deposit, government
securities and other financial instruments.
BUSINESS TRENDS
Total revenues of the Company were $31.2 million for the first half of
2000, an increase of $2.3 million or 7.9% from the comparable 1999 period
principally due to a $1.7 million increase in net sales from the engineered
products segment and an increase in rental revenues of $557,000 from real estate
operations. Net income during this period was $7.5 million or $1.58 per basic
share compared to net income of $6.2 million or $1.22 per basic share for the
same period in 1999.
The results of the Company's real estate operations reflect a 4.2%
increase in revenues for the first six months of 2000. Operating income from
this segment increased $1.3 million or 22.6% over the prior year period
principally due to increased rental revenues, reduced interest expense resulting
from continued mortgage amortization and a reduction in real estate operating
expenses. Lower depreciation expense associated with properties sold in 2000 and
1999 also contributed favorably to this segment's operating results.
Operating profit from the engineered products segment increased
$302,000 or 31.1% compared to the corresponding 1999 period primarily due to an
11.1% increase in net sales. This increase is the result of increased sales in
the engineered products and European automotive markets at Metex' Technical
Products Division as well as higher sales generated by AFP Transformers.
Management remains committed to growing these businesses and has continued to
aggressively pursue new sales opportunities, including new geographical markets
for its existing products and new applications for its core technologies.
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 uncertainties, including without limitation, general economic
Page 16 of 17
<PAGE>
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 7, 2000, the Company held its Annual Meeting of Stockholders, whereby
the stockholders elected Directors and approved a proposal to amend the
Company's 1988 Incentive Stock Option Plan. The vote on such matters was as
follows:
1. ELECTION OF DIRECTORS:
For Withheld
--- --------
A.F. Petrocelli 4,390,777 9,515
Howard M. Lorber 4,390,777 9,515
Anthony J. Miceli 4,390,777 9,515
Arnold S. Penner 4,390,777 9,515
2. APPROVAL OF AMENDMENTS TO THE 1988 INCENTIVE STOCK OPTION PLAN:
To adopt amendments to the plan which (i) provide for the grant of
non-qualified stock options under the plan, (ii) enable the holders of
10% or more of the total combined voting power of the Company to
receive non-qualified options under the plan at fair market value with
a term of ten years and (iii) provide for the grant of options under
the plan to non-employees.
For Against Abstain Note Voted
--- ------- ------- ----------
3,881,456 51,819 8,519 458,498
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: August 10, 2000 By: /s/Anthony J. Miceli
------------------------
Anthony J. Miceli
Vice President, Chief Financial Officer
and Secretary of the Company
Page 17 of 17
