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, 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.
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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
incorporation or organization) Identification No.)
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 4,730,915 shares outstanding
as of November 10, 2000.
Page 1 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the
Three Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Income for the
Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 6 - 7
Notes to Consolidated Financial Statements 8 - 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13 - 18
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 18
Page 2 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(In Thousands)
2000 1999
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 15,813 $ 13,575
Marketable securities 38,816 27,296
Notes and accounts receivable, net 9,729 5,626
Inventories 4,986 4,207
Prepaid expenses and other current assets 434 254
-------- --------
Total current assets 69,778 50,958
-------- --------
Property, plant and equipment, net 4,678 5,077
Real property held for rental, net 58,359 66,939
Noncurrent notes receivable 247 270
Other assets 11,151 10,488
-------- --------
Total assets $144,213 $133,732
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 5,633 $ 5,990
Borrowings under credit facilities 700 700
Accounts payable and accrued liabilities 9,929 9,835
Income taxes payable 6,562 5,000
Deferred income taxes 232 1,019
-------- --------
Total current liabilities 23,056 22,544
-------- --------
Borrowings under credit facilities 700 1,225
Long-term debt 23,046 27,316
Other long-term liabilities 26,893 22,917
Deferred income taxes 941 674
-------- --------
Total liabilities 74,636 74,676
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock 473 474
Retained earnings 66,785 54,671
Accumulated other comprehensive income, net of tax 2,319 3,911
-------- --------
Total stockholders' equity 69,577 59,056
-------- --------
Total liabilities and stockholders' equity $144,213 $133,732
======== ========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these balance sheets.
Page 3 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(In Thousands, Except Per Share Data)
2000 1999
------- --------
Revenues:
Net sales $ 8,354 $ 7,458
Rental revenues from real estate operations 7,235 6,881
-------- --------
Total revenues 15,589 14,339
-------- --------
Costs and expenses:
Cost of sales 5,967 5,246
Real estate operations:
Mortgage interest expense 539 644
Depreciation expense 1,250 1,314
Other operating expenses 1,918 1,654
General and administrative expenses 1,443 1,419
Selling expenses 981 966
-------- --------
Total costs and expenses 12,098 11,243
-------- --------
Operating income 3,491 3,096
-------- --------
Other income (expense):
Interest and dividend income 508 625
Interest expense (130) (146)
Other income and expense, net 3,813 1,466
-------- --------
Total other income 4,191 1,945
-------- --------
Income before income taxes 7,682 5,041
Provision for income taxes 3,010 2,125
-------- --------
Net income $ 4,672 $ 2,916
======== ========
Earnings per share:
Basic $ .99 $ .58
======== ========
Diluted $ .97 $ .58
======== ========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
Page 4 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(In Thousands, Except Per Share Data)
2000 1999
--------- --------
Revenues:
Net sales $ 25,642 $ 23,023
Rental revenues from real estate operations 21,115 20,204
-------- --------
Total revenues 46,757 43,227
-------- --------
Costs and expenses:
Cost of sales 18,453 16,384
Real estate operations:
Mortgage interest expense 1,701 2,000
Depreciation expense 3,805 4,061
Other operating expenses 5,267 5,315
General and administrative expenses 4,161 4,395
Selling expenses 3,006 2,950
-------- --------
Total costs and expenses 36,393 35,105
-------- --------
Operating income 10,364 8,122
-------- --------
Other income (expense):
Interest and dividend income 1,676 1,390
Interest expense (443) (474)
Other income and expense, net 8,977 6,650
-------- --------
Total other income 10,210 7,566
-------- --------
Income before income taxes 20,574 15,688
Provision for income taxes 8,400 6,610
-------- --------
Net income $ 12,174 $ 9,078
======== ========
Earnings per share:
Basic $ 2.57 $ 1.80
======== ========
Diluted $ 2.56 $ 1.79
======== ========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
Page 5 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,174 $ 9,078
-------- --------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 4,819 4,937
Gain on sale of real estate assets (4,451) (5,296)
Gain on sale of available-for-sale securities (4,513) 0
Gain from equity investments (744) (1,479)
Purchase of trading securities 0 (700)
Proceeds from sale of trading securities 0 844
Gain on sale of trading securities 0 (144)
Changes in assets and liabilities (A) 1,426 9,373
-------- --------
Total adjustments (3,463) 7,535
-------- --------
Net cash provided by operating activities 8,711 16,613
-------- --------
Cash flows from investing activities:
Acquisition of real estate assets (690) (510)
Proceeds from sale of real estate assets 8,957 7,244
Purchase of available-for-sale securities (24,170) (5,505)
Proceeds from sale of available-for-sale securities 14,712 0
Acquisition of property, plant and equipment (607) (1,154)
Investments in and advances to affiliates 537 585
Proceeds from sale of equity investments 0 1,300
-------- --------
Net cash (used in) provided by investing activities (1,261) 1,960
-------- --------
Cash flows from financing activities:
Principal payments on mortgage commitments, notes
and loans (4,627) (4,578)
Proceeds from mortgage commitments, notes and loans 0 6,560
Net repayments under credit facilities (525) (1,050)
Purchase and retirement of common shares (60) (2,943)
Proceeds from the exercise of stock options 0 142
-------- --------
Net cash used in financing activities (5,212) (1,869)
-------- --------
Net increase in cash and cash equivalents 2,238 16,704
Cash and cash equivalents, beginning of period 13,575 8,154
-------- --------
Cash and cash equivalents, end of period $ 15,813 $ 24,858
======== ========
</TABLE>
Page 6 of 18
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (CONTINUED)
(UNAUDITED)
(In Thousands)
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,
2000 and 1999 are as follows:
2000 1999
---------- --------
Notes and accounts receivable, net ($4,103) $1,561
Inventories (779) 340
Prepaid expenses and other current assets (180) (183)
Deferred income taxes 338 1,464
Noncurrent notes receivable 22 12
Other assets (517) 2,791
Accounts payable and accrued liabilities 94 (1,322)
Income taxes payable 1,562 2,554
Other long-term liabilities 4,989 2,156
-------- -------
Total $1,426 $9,373
======== =======
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
Page 7 of 18
<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 $38,816 and $27,296 at September 30, 2000
and December 31, 1999, respectively, while accumulated unrealized holding gains
were $2,319 and $3,911 on a net of tax basis, respectively. Marketable
securities consist of the following:
September 30, 2000 December 31, 1999
------------------ -----------------
Available-for-sale securities:
Corporate equities $38,816 $21,685
Corporate debts 0 5,611
------- -------
$38,816 $27,296
======= =======
Page 8 of 18
<PAGE>
Proceeds received from the sale of available-for-sale and trading securities and
the resulting gross realized gains included in the determination of net income
are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Available-for-sale securities:
Proceeds $7,013 $0 $14,712 $0
============= ========== ============ ========
Realized gains $2,870 $0 $4,513 $0
============= ========== ============ ========
Trading securities:
Proceeds $0 $844 $0 $844
============= ========== ============ ========
Realized gains $0 $144 $0 $144
============= ========== ============ ========
</TABLE>
INVENTORIES
The components of inventory are as follows:
September 30, 2000 December 31, 1999
------------------ -----------------
Raw materials $2,816 $2,369
Work in process 471 334
Finished goods 1,699 1,504
-------- -------
$4,986 $4,207
======== =======
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.
Page 9 of 18
<PAGE>
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 full 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, the
environmental remediation 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.
In 1998, the Company acquired a property subject to certain contingent
liabilities which were estimated and capitalized at the time of acquisition.
During 2000, these liabilities were resolved for approximately $1.0 million less
than originally estimated. As a result, real property held for rental and other
long-term liabilities were reduced accordingly.
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 10 of 18
<PAGE>
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Nine Months
(Share Data in Thousands) Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
------ -------- ------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income $4,672 $ 2,916 $12,174 $ 9,078
====== ======= ======= =======
Denominator:
Denominator for basic earnings per
share--weighted-average shares 4,731 5,014 4,733 5,040
Effect of dilutive securities:
Employee stock options 64 49 22 33
------ ------- ------ --------
Denominator for diluted earnings per
share--adjusted weighted-average shares
and assumed conversions 4,795 5,063 4,755 5,073
====== ======= ======= =======
Basic earnings per share $ .99 $ .58 $ 2.57 $ 1.80
====== ======= ======= =======
Diluted earnings per share $ .97 $ .58 $ 2.56 $ 1.79
====== ======= ======= =======
</TABLE>
COMPREHENSIVE INCOME
The Company's comprehensive income consists of net income and changes
in net unrealized gain from investments in available-for-sale securities. The
components of comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
------ ------ ------- --------
<S> <C> <C> <C> <C>
Net income $4,672 $2,916 $12,174 $9,078
Other comprehensive income, net of tax:
Change in net unrealized gain on
available-for-sale securities (3,830) (2,616) (4,525) (1,841)
Reclassification adjustment for realized gains
included in net income 1,865 94 2,933 94
------- ------ ------- ------
Comprehensive income $2,707 $394 $10,582 $7,331
======= ====== ======= ======
</TABLE>
Page 11 of 18
<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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- ------ ----
Net revenues and sales:
<S> <C> <C> <C> <C>
Real estate investment and management $ 7,235 $ 6,881 $ 21,115 $ 20,204
Engineered products 8,354 7,458 25,642 23,023
-------- -------- -------- --------
$ 15,589 $ 14,339 $ 46,757 $ 43,227
======== ======== ======== ========
Operating income:
Real estate investment and management $ 3,528 $ 3,269 $ 10,342 $ 8,828
Engineered products 581 487 1,855 1,459
-------- -------- -------- --------
4,109 3,756 12,197 10,287
General corporate expenses (618) (660) (1,833) (2,165)
Other income, net 4,191 1,945 10,210 7,566
-------- -------- -------- --------
Income before income taxes $ 7,682 $ 5,041 $ 20,574 $ 15,688
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
Identifiable assets:
<S> <C> <C>
Real estate investment and management $131,172 $122,112
Engineered products 13,041 11,620
------------------ -----------------
$144,213 $133,732
================== =================
</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.
Page 12 of 18
<PAGE>
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, 2000 AND 1999
Revenues for the three month period ended September 30, 2000 were $15.6
million, an increase of approximately $1.3 million or 8.7% from comparable 1999
revenues. Operating income during this period was $3.5 million versus $3.1
million for the comparable 1999 period, an increase of $395,000 or 12.8%. Other
income for the quarter ended September 30, 2000 increased approximately $2.3
million compared to the corresponding quarter in 1999, primarily due to gains on
the sale of marketable securities. Net income for the third quarter was $4.7
million or $.99 per basic share compared to net income of $2.9 million or $.58
per basic share for the same period in 1999, a 70.7% increase in earnings per
basic share over the prior year.
Total revenues for the first nine months of 2000 were $46.8 million,
resulting in operating income of $10.4 million, versus revenues of $43.2 million
and operating income of $8.1 million during the comparable 1999 period. Net
income for the nine month period was $12.2 million or $2.57 per basic share in
2000 versus $9.1 million or $1.80 per basic share in 1999, an increase of 42.8%
in basic earnings per share.
REAL ESTATE OPERATIONS
Rental revenues from real estate operations increased by $354,000 or
5.1% for the three months and $911,000 or 4.5% for the nine months ended
September 30, 2000 compared to the corresponding periods in 1999. These
increases result primarily from an increase in the Company's hotel revenues.
Mortgage interest expense decreased $105,000 for the three months and
$299,000 for the nine months ended September 30, 2000 compared to the
corresponding 1999 periods, due to continuing mortgage amortization which
approximated $5.4 million during the last 12 months.
Depreciation expense associated with rental properties decreased
$64,000 or 4.9% for the three months ended September 30, 2000 and $256,000 or
6.3% for the nine months ended September 30, 2000 compared to the corresponding
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
increased $264,000 for the current quarter and decreased $48,000 for the first
nine months of 2000 compared to the corresponding periods in 1999. The increase
for the current quarter is primarily the result of higher hotel operating costs
associated with the increase in hotel revenues. The decrease for the nine month
period is principally due to increased expenses in 1999 associated with the
maintenance of properties acquired in 1998.
Page 13 of 18
<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 Nine Months
(In Thousands) Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
------ ------- ------- -------
Net Sales $8,354 $ 7,458 $25,642 $23,023
====== ======= ======= =======
Cost of Sales $5,967 $ 5,246 $18,453 $16,384
====== ======= ======= =======
Selling, General and
Administrative Expenses $1,806 $ 1,725 $ 5,334 $ 5,180
====== ======= ======= =======
Income from Operations $ 581 $ 487 $ 1,855 $ 1,459
====== ======= ======= =======
Net sales of the engineered products segment increased $896,000 or
12.0% for the three month period ended September 30, 2000 and $2.6 million or
11.4% for the nine month period ended September 30, 2000 compared to the same
periods in 1999. These increases are primarily the result of higher sales of
transformer products and increased sales in the European automotive and
engineered products markets for knitted wire products.
Cost of sales as a percentage of sales increased approximately 1.1% and
less than 1.0% for the three and nine months ended September 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 $81,000 or 4.7% during the current quarter and $154,000 or
3.0% for the first nine months of 2000 versus the comparable 1999 periods. These
increases are due to an increase in professional expenses as well as 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 $42,000 or 6.4% and $332,000 or 15.3%
respectively, for the three and nine months ended September 30, 2000 compared to
the same periods in 1999. These decreases are principally due to a reduction in
professional fees.
Page 14 of 18
<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 Nine Months
(In Thousands) Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Gain on sale of real estate assets $ 907 $ 1,339 $ 4,451 $ 5,296
Gain from equity investments 0 0 0 838
Gain on sale of available-for-sale securities 2,870 0 4,513 0
Gain on sale of trading securities 0 144 0 144
Other 36 (17) 13 372
------- ------- ------- -------
$ 3,813 $ 1,466 $ 8,977 $ 6,650
======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company's cash and marketable securities
were $54.6 million and working capital was approximately $46.7 million. 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 $38.8 million at September 30, 2000, reflecting
pretax unrealized holding gains of approximately $3.6 million. Included in
marketable securities at September 30, 2000 was $25.3 million of common stock of
a publicly-traded company, which represents approximately 5.6% of such company's
outstanding 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 15 of 18
<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
September 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 September 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 September 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, maturing on September 30, 2002.
At September 30, 2000, there was approximately $1.4 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 Swap 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 of Common Stock 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 nine months of 2000, the Company purchased and retired
5,000 shares for approximately $60,000.
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<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
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 $46.8 million for the first nine
months of 2000, an increase of $3.5 million or 8.2% from the comparable 1999
period. Operating income during this period was $10.4 million, versus $8.1
million for the comparable 1999 period, an increase of $2.3 million or 27.6%.
Net income for the nine months ended September 30, 2000 was $12.2 million or
$2.57 per basic share compared to net income of $9.1 million or $1.80 per basic
share for the same period in 1999.
The results of the Company's real estate operations reflect a 4.5%
increase in revenues for the first nine months of 2000. Operating income from
this segment increased $1.5 million or 17.1% over the prior year period
principally due to increased rental revenues, reduced interest expense resulting
from continued mortgage amortization and lower depreciation expense associated
with properties sold in 2000 and 1999.
Operating profit from the engineered products segment increased
$396,000 or 27.1% compared to the corresponding 1999 period primarily due to an
11.4% increase in net sales. This increase is the result of higher sales of
transformer products as well as increased sales in the European automotive and
engineered products markets for knitted wire products. Management remains
committed to growing these businesses and has continued to pursue new sales
opportunities, including new geographical markets for its existing products and
new applications for its core technologies.
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<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 uncertainties, 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.
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, 2000 By: /s/ Anthony J. Miceli
------------------------------------
Anthony J. Miceli
Vice President, Chief Financial Officer
and Secretary of the Company
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