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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
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or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 1-10104
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UNITED CAPITAL CORP.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2294493
- - - -------------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
111 Great Neck Road, Great Neck, New York 11021
- - - -------------------------------------------- ------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (516) 466-6464
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- - - -------------------------------------------- ------------------------------
Common Stock (Par Value $.10 Per Share) American Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K /X/.
The aggregate market value of the shares of the voting stock held by
nonaffiliates of the Registrant as of March 18, 1994 was approximately
$27,050,000.
The number of shares of the Registrant's $.10 par value common stock outstanding
as of March 18, 1994 was 6,091,561.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of Form 10-K will be incorporated by
reference to certain portions of a definitive proxy statement which is expected
to be filed by the Registrant pursuant to Regulation 14A within 120 days after
the close of its fiscal year.
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PART I
ITEM 1. BUSINESS
GENERAL
United Capital Corp. (the "Registrant"), incorporated in 1980 in the State of
Delaware, has four industry segments:
1. Real Estate Investment and Management.
2. Manufacture and Sale of Resilient Vinyl Flooring.
3. Manufacture and Sale of Antenna Systems.
4. Manufacture and Sale of Engineered Products.
The Registrant also invests excess available cash in marketable securities and
other financial instruments.
DESCRIPTION OF BUSINESS
REAL ESTATE INVESTMENT AND MANAGEMENT
The Registrant is engaged in the business of investing in real estate
properties. Most real estate properties owned by the Registrant are leased
under net leases pursuant to which the tenants are responsible for all expenses
relating to the leased premises, including taxes, utilities, insurance and
maintenance. The Registrant also owns properties that it manages which are
operated by the City of New York as day-care centers and offices and other
properties leased as department stores or shopping centers around the country.
In addition, the Registrant owns properties available for sale and lease with
the assistance of a consultant or a realtor working in the locale of the
premises.
The majority of properties are leased to single tenants. Approximately 98% of
the total square footage of the Registrant's properties are currently leased.
RESILIENT VINYL FLOORING
In March 1994 the Registrant purchased substantially all of the operating assets
of Kentile Floors, Inc., a major manufacturer and supplier of resilient vinyl
flooring. This acquisition was completed through a new wholly-owned subsidiary
of the Registrant known as Kentile, Inc. ("Kentile").
Kentile's operations are conducted from a 315,000 square foot manufacturing
facility located in Chicago, Illinois and numerous regional sales offices
strategically located throughout the United States. Kentile's products include
resilient vinyl tile for use in the commercial flooring industry, a
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line of vinyl wall base products marketed under the Kencove brandname and other
supporting products which include adhesives, cleaners and waxes. These products
are sold through a nationwide network of distributors which service the regional
markets in which they are located.
The acquisition of the operating assets of Kentile will be accounted for by the
purchase method of accounting and, accordingly, the results of operations of
Kentile will be included with those of the Registrant for periods subsequent to
the date of acquisition. Also see Item 7 "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources" and Note 17 of Notes to Consolidated Financial Statements.
ANTENNA SYSTEMS
The Registrant designs and manufactures antenna systems marketed internationally
under the Dorne & Margolin trade name. Its products include airborne and
ground-based navigation, communication and satellite communication antennas for
military, commercial transport and general aviation aircraft. These products
are sold internationally to military, commercial and general aviation original
equipment manufacturers as well as to the end user as replacement and spare
antenna systems.
In April 1992, the Registrant acquired the operating assets of Chu Associates,
Inc. ("Chu Associates") and affiliated companies to broaden the scope of its
antenna systems segment. This addition, which is now known as D&M/Chu
Technology, Inc. ("D&M/Chu"), has manufacturing facilities in Littleton,
Massachusetts where it designs and manufactures communication and navigation
antenna systems for land and naval based applications. D&M/Chu's product line,
which is marketed internationally, complements Dorne & Margolin's speciality in
airborne communication and navigation antenna systems.
During 1993, the Registrant began to consolidate the operations of D&M/Chu with
that of its Dorne & Margolin subsidiary in its Bohemia, New York facility. Many
aspects of this consolidation have been completed to date; the remainder will
occur prior to the end of the third quarter of 1994 when an expansion facility
at the site is expected to be completed.
Approximately 71% and 67% of the antenna systems sold by the Registrant in 1993
and 1992, respectively, were for use by the United States Government and
purchased by the United States Government or its contractors.
ENGINEERED PRODUCTS
The Registrant's engineered products are manufactured through the Technical
Products Division of Metex Corporation ("Metex") and AFP Transformers, Inc.,
wholly-owned subsidiaries of the Registrant. The knitted wire products and
components manufactured by Metex must function in adverse environments and meet
rigid performance requirements. The principal areas in which these products
have application are as high temperature gaskets, seals, components for use in
airbags, shock and vibration isolators, noise reduction elements and air, liquid
and solid filtering devices.
-3-
Metex has been an original equipment manufacturer for the automobile industry
since 1974 and presently supplies several automobile manufacturers with exhaust
seals and components for use in exhaust emission control devices.
The Registrant's transformer products are marketed under several brandnames
including Field Transformer, ISOREG and EPOXYCAST for a wide variety of
industrial and research applications. AFP Transformers also provides a full
line of power conditioners and uninterruptible power supplies, as well as its
Spectrum line of speciality transformers for high powered ultraviolet lamps used
in the printing and chemical industries.
Sales by the Engineered Products segment to its two largest customers (each in
excess of 10% of the segment's net sales) accounted for approximately 26% and
29% of the segment's sales for 1993 and 1992, respectively.
FINANCIAL INFORMATION
The following table sets forth the revenues, income from operations and
identifiable assets of each business segment of the Registrant for 1993, 1992
and 1991.
1993 1992 1991
------- ------- -------
(in thousands)
REAL ESTATE INVESTMENT AND MANAGEMENT-
Rental revenues $20,815 $19,543 $16,123
======= ======= =======
Income from operations $ 3,946 $ 3,033 $ 1,149
======= ======= =======
Identifiable assets $86,668 $88,453 $96,843
======= ======= =======
ANTENNA SYSTEMS-
Net sales $21,098 $24,513 $22,033
======= ======= =======
Income from operations $ 769 $ 3,259 $ 3,595
======= ======= =======
Identifiable assets $17,686 $18,899 $ 9,980
======= ======= =======
ENGINEERED PRODUCTS-
Net sales $27,643 $26,819 $24,701
======= ======= =======
Income from operations $ 1,585 $ 2,687 $ 2,412
======= ======= =======
Identifiable assets $10,528 $ 9,497 $ 8,978
======= ======= =======
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DISTRIBUTION
The Registrant's manufactured products are distributed by a direct sales force
and through distributors to dealers, contractors, industrial consumers, original
equipment manufacturers and the United States Government.
PRODUCT METHODS AND SOURCES OF RAW MATERIALS
The Registrant's products are manufactured at its own facilities. The
Registrant purchases raw materials, including resins, drawn wire, castings and
electronic components from a wide range of suppliers of such materials. Most
raw materials purchased by the Registrant are available from several suppliers.
The Registrant has not had and does not expect to have any problems fulfilling
its raw material requirements during 1994.
PATENTS AND TRADEMARKS
The Registrant owns several patents, patent licenses and trademarks including
the Kentile trademark which is significant to the Registrant's resilient vinyl
flooring operations. The loss of this trademark could have a material adverse
effect on such operations.
While the Registrant considers that in the aggregate its other patents and
trademarks used in the resilient vinyl flooring, antenna systems and engineered
products operations are significant to those businesses, it does not believe
that any of these patents or trademarks are of such importance that the loss of
one or more of such patents or trademarks would materially affect its business.
EMPLOYEES
At March 18, 1994, the Registrant employed approximately 890 persons. Certain
of the Registrant's employees are represented by unions. The Registrant
believes that its relationships with its employees are good.
COMPETITION
The Registrant competes with at least six other companies in the sale of
resilient floor tile; at least 19 other companies in the sale of antenna
systems; and at least 18 other companies in the sale of engineered products.
The Registrant stresses product performance and service in connection with the
sale of resilient floor tile, antenna systems, and engineered products. The
principal competition faced by the Registrant results from the sales price of
the products sold by its competitors.
BACKLOG
The dollar value of unfilled orders of the Registrant's antenna systems segment
was approximately $10,324,000 at December 31, 1993, as compared with $10,695,000
at December 31, 1992. The Registrant anticipates that approximately 90% of the
1993 year-end backlog will be filled in 1994.
The dollar value of unfilled orders of the Registrant's engineered products
segment was approximately $2,141,000 at December 31, 1993, as compared with
$2,119,000 at December 31, 1992. It is anticipated that substantially all
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such backlog will be filled in 1994. The order backlog referred to above does
not include any order backlog with respect to sales of knitted wire mesh
components for exhaust emission control devices or exhaust seals because of the
manner in which customer orders are received.
ENVIRONMENTAL REGULATIONS
Federal, state and local requirements regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment, have
had and will continue to have a significant impact upon the operations of the
Registrant. It is the policy of the Registrant to manage, operate and maintain
its facilities in compliance, in all material respects, with applicable
standards for the prevention, control and abatement of environmental pollution
to prevent damage to the quality of air, land and resources.
The Registrant has undertaken the completion of environmental studies and/or
remedial action at Metex' two New Jersey facilities.
The process of remediation has begun at one facility pursuant to a plan filed
with the New Jersey Department of Environmental Protection and Energy
("NJDEPE"). Environmental experts engaged by the Registrant currently estimate
that under the most probable remediation scenario the remediation of this site
is anticipated to require initial expenditures of $860,000, including the cost
of capital equipment, and $86,000 in annual operating and maintenance costs over
a 15-year period.
Environmental studies at the second facility indicate that remediation may be
necessary. Based upon the facts presently available, environmental experts have
advised the Registrant that under the most probable remediation scenario, the
estimated cost to remediate this site is anticipated to require $2.3 million in
initial costs, including capital equipment expenditures, and $258,000 in annual
operating and maintenance costs over a 10-year period. The Registrant may
revise such estimates in the future due to the uncertainty regarding the nature,
timing and extent of any remediation efforts that may be required at this site,
should an appropriate regulatory agency deem such efforts to be necessary.
The foregoing estimates may also be revised by the Registrant as new or
additional information in these matters become available or should the NJDEPE or
other regulatory agencies require additional or alternative remediation efforts
in the future. It is not currently possible to estimate the range or amount of
any such liability.
Although the Registrant believes that it is entitled to full defense and
indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the Registrant's insurers have denied such
coverage. Accordingly, the Registrant has filed an action against certain
insurance carriers seeking defense and indemnification with respect to all prior
and future costs incurred in the investigation and remediation of these sites
(see Item 3, "Legal Proceedings"). Upon the advice of counsel, the
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Registrant believes that based upon a present understanding of the facts and the
present state of the law in New Jersey, it is probable that the Registrant will
prevail in the pending litigation and thereby access all or a very substantial
portion of the insurance coverage it claims; however, the ultimate outcome of
litigation cannot be predicted.
As a result of the foregoing, the Registrant has not recorded a charge to
operations for the environmental remediation, noted above, in the consolidated
financial statements, as anticipated proceeds from insurance recoveries are
expected to offset such liabilities. Although the Registrant has reached a
settlement with two insurance carriers, it has not recognized any significant
recoveries to date.
In the opinion of management, these matters will be resolved favorably and such
amounts, if any, not recovered under the Registrant's insurance policies will be
paid gradually over a period of years and, accordingly, should not have a
material adverse effect upon the business, liquidity or financial position of
the Registrant. However, adverse decisions or events, particularly as to the
merits of the Registrant's factual and legal basis could cause the Registrant to
change its estimate of liability with respect to such matters in the future.
Effective January 1, 1994 the Registrant will reflect the provisions of Staff
Accounting Bulletin 92 and will record the expected liability associated with
remediation efforts and the anticipated insurance recoveries separately in the
Registrant's consolidated financial statements.
ITEM 2. PROPERTIES
REAL PROPERTY HELD FOR RENTAL
As of March 18, 1994 the Registrant owned 224 properties strategically located
throughout the United States. The properties are primarily leased under
long-term net leases. The Registrant's classification and gross carrying value
of its properties at December 31, 1993 are as follows:
Gross Number of
Description Carrying Value Percentage Properties
----------- -------------- ---------- ----------
Shopping centers and retail
outlets $ 78,815,399 65.9% 32
Commercial properties 29,020,183 24.2 162
Day-care centers and offices 6,527,191 5.5 12
Hotel properties 2,867,703 2.4 2
Other 2,419,954 2.0 16
------------ ------ ---
Total $119,650,430 100.0% 224
============ ====== ===
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SHOPPING CENTERS AND RETAIL OUTLETS
Shopping centers and retail outlets include 25 department stores and other
properties which are primarily leased under net leases. Taxes, maintenance of
the properties and all other expenses are the responsibility of the tenants.
The leases for certain shopping centers and retail outlets provide for
additional rents based on sales volume and renewal options at higher rents. The
department stores include 16 K-Mart stores and six Carter Hawley Hale stores
with a total of approximately 1,600,000 and 1,000,000 square feet, respectively.
The K-Mart stores are primarily located in the Midwest region of the United
States. The Carter Hawley Hale stores are primarily located in the Pacific
Coast and Southwest regions of the United States.
COMMERCIAL PROPERTIES
Commercial properties consist of properties leased as 105 restaurants, 32 Midas
Muffler Shops, four convenience stores, six office buildings and miscellaneous
other properties. Commercial properties are primarily leased under net leases
which in certain cases, have renewal options at higher rents. Certain of these
leases also provide for additional rents based on sales volume. The 105
restaurants, located throughout the United States, include properties leased as
Roy Rogers, Pizza Huts, Hardee's, Wendy's and Kentucky Fried Chicken.
DAY-CARE CENTERS AND OFFICES
The 12 day-care centers and offices are located in New York City and are leased
to the City of New York. The Registrant has been negotiating with the City of
New York to extend, on a long-term basis, many of these leases which expired in
years through 1993. To date, one such long-term lease has been signed and the
remainder have received numerous short-term extensions. Although there can be
no assurance that the Registrant will in fact receive such leases the Registrant
believes that with continued negotiations with the City of New York, such leases
should be forthcoming.
HOTEL PROPERTIES
The Registrant's two hotel properties are located in Georgia and California. In
February 1992, upon the expiration of an existing lease, the Registrant began
operating its California hotel and in May 1992 the Registrant began operating
its Georgia hotel. The Registrant's hotel properties are managed through a
local on-site management company which is responsible for all day-to-day
operations of the hotels.
-8-
The following summarizes real property held for rental by geographic area at
December 31, 1993:
Number of
Properties Gross Carrying Value
---------- --------------------
Northeast 98 $ 22,949,730
Southeast 46 24,552,490
Midwest 49 26,177,406
Southwest 10 9,930,284
Pacific Coast 9 30,437,330
Pacific Northwest 6 2,098,198
Rocky Mountain 6 3,504,992
--- ------------
224 $119,650,430
=== ============
MANUFACTURING FACILITIES
The Registrant's resilient vinyl flooring operations, which were acquired in
March 1994, are located on 12.4 acres in Chicago, Illinois. This facility is
comprised of seven contiguous one and two story buildings totaling approximately
309,000 square feet and an adjacent building of approximately 6,000 square feet.
The Registrant maintains facilities located at 2950 Veterans Memorial Highway,
Bohemia, New York, on a ten-acre site approximately two miles from MacArthur
Airport on Long Island for use in its antenna systems business. This site
contains three one story buildings aggregating approximately 60,000 square feet
of floor space, an outdoor antenna testing area, several pattern ranges and
airframe mock-ups. The Registrant owns the site together with the structures.
The operations of D&M/Chu are being consolidated with those of Dorne & Margolin
in its Bohemia, New York facility. The Registrant intends to lease the D&M/Chu
facilities at market rates, which will be sufficient to cover the carrying costs
of the properties, and is exploring possibilities to develop the unused land at
the Whitcomb Avenue facility.
D&M/Chu has two manufacturing facilities in Littleton, Massachusetts. The
Whitcomb Avenue facility is comprised of four structures encompassing 60,000
square feet and is located on 95 acres of land. The Taylor Street facility is a
one-story building having approximately 35,000 square feet of floor space. The
Taylor Street facility is subject to a first mortgage of approximately
$1,158,000.
The Registrant's engineered products are manufactured at 970 New Durham Road,
Edison, New Jersey, in a one-story building having approximately 53,000 square
feet of floor space and also in a second facility at 206 Talmadge Road in
Edison, New Jersey which has approximately 54,500 square feet of space. The
Registrant owns these facilities together with the sites.
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ITEM 3. LEGAL PROCEEDINGS
CARUSO VS. METEX CORP., UNITED CAPITAL CORP., ET AL.
On July 29, 1993, in a unanimous jury decision, the Registrant, Metex
Corporation and certain past and current directors of the Registrant and Metex,
who were named in this class action civil suit, were cleared of all allegations
in the matter.
The action was brought by the former shareholders of Metex and alleged that
certain of the defendants violated certain Federal securities laws and breached
their common law fiduciary duties.
METEX CORPORATION VS. AFFILIATED FM INSURANCE CO., ET AL.
On June 27, 1990, Metex filed an action in the Superior Court of New Jersey,
Chancery Division, Middlesex County, against several insurance companies that
provided Metex with liability insurance between 1967 and 1986. These companies
are: Affiliated FM Insurance Co., Atlanta International Insurance Co., The
Camden Fire Insurance Association, Cigna Property and Casualty Company,
Continental Casualty Company, Eric Reinsurance Company, Federal Insurance Co.,
General Accident Insurance Company of America, Hudson Insurance Company,
Insurance Company of North America, New Jersey Manufacturers Insurance Co., The
North River Insurance Company, North Star Reinsurance Corporation, and Puritan
Insurance Company. During 1992 and 1993 Metex reached a settlement with Atlanta
International Insurance Co. and New Jersey Manufacturers Insurance Co.,
respectively. The action seeks both declaratory relief and monetary damages in
connection with reimbursement of the costs incurred and to be incurred by Metex
in connection with the completion of environmental studies and remedial action
required at its two Edison, New Jersey facilities. The declaratory relief
sought is a determination that the terms of the liability insurance policies at
issue obligate the defendants to defend and indemnify Metex with respect to all
costs and expenses related to these environmental matters. Metex also seeks
monetary damages in an unspecified amount for breach of the defendants' duty to
indemnify Metex. This action is in the final stages of pretrial discovery. It
is anticipated that this matter will go to trial in September, 1994. The
Registrant intends to continue to vigorously pursue this action.
DAVISON VS. FIRST PENNCO, ET AL.
On March 24, 1991, plaintiffs, including 55 investors and limited partners in
three limited partnerships, commenced a civil action in United States District
Court for the Southern District of New York against 31 defendants, including the
Registrant, asserting causes of action under the Racketeer Influenced and
Corrupt Organizations Act. The action seeks actual, punitive and treble damages
in a total unspecified amount. On July 16, 1991, plaintiffs filed an amended
complaint that did not substantially alter the claims made against the
Registrant or the recovery sought.
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In December 1991 the Registrant filed a motion to dismiss the complaint on the
grounds that, among other things, the claims are the subject of a release
granted in the Registrant's favor and also that the complaint was filed outside
the statute of limitations. In August 1992 the Court granted the motion to
dismiss on the grounds that the complaint failed to set out sufficient detail in
regard to the acts alleged to have been engaged in by the defendants. The
dismissal was "without prejudice" and allowed the plaintiffs to file an amended
complaint setting out more detail concerning the alleged acts.
In January 1993 two separate amended complaints were filed on behalf of two
separate groups of the same plaintiffs. The Registrant filed motions to dismiss
each of the amended complaints. In October 1993 the Court again granted the
motion to dismiss these complaints on the grounds that the complaints failed to
state a legal claim against the Registrant but again granted plaintiff's the
right to file an amended complaint against the Registrant. In December 1993 the
plaintiffs filed new amended complaints. In February 1994 the Registrant filed
a motion to dismiss all claims set out in the amended complaints. The
Registrant continues to believe that the material allegations in this matter are
without merit and intends to vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The Registrant's Common Stock is traded on the American Stock Exchange under the
symbol AFP. The table below shows the high and low sales prices as reported in
the composite transactions for the American Stock Exchange.
High Low
------- ------
1993 First quarter $ 7-1/2 $3-1/4
- - - ---- Second quarter 11-1/2 6-1/2
Third quarter 10 8-3/4
Fourth quarter 11 8-3/4
1992 First quarter $ 4-5/8 $2-1/2
- - - ---- Second quarter 4-1/8 3-3/4
Third quarter 4 3-1/8
Fourth quarter 3-3/8 3-1/16
As of March 18, 1994, there were approximately 760 record holders of the
Registrant's Common Stock. The closing sales price for the Registrant's Common
Stock on such date was $10.75. The Registrant has never paid any cash dividends
on its Common Stock. The payment of dividends is within the discretion of the
Registrant's Board of Directors, however in view of potential working capital
needs and in order to finance future growth, it is unlikely that the Registrant
will pay any cash dividends on its Common Stock in the near future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with, and is qualified in its entirety by reference to, the
Consolidated Financial Statements and the Notes thereto.
Years Ended December 31
------------------------------------------------
1993 (6) 1992 (5) 1991 1990 1989 (4)
-------- -------- -------- -------- --------
(in thousands except per share amounts)
Total revenues (1) $ 69,556 $ 70,875 $ 62,857 $ 65,929 $ 52,818
======== ======== ======== ======== ========
Net income (loss) (2) $ 5,069 $ 2,866 $ 3,481 ($ 4,161) $ 2,798
======== ======== ======== ======== ========
Net income (loss) per common
share (3) $.81 $.44 $.40 ($.39) $.26
==== ==== ==== ==== ====
Total assets, end of year $114,882 $116,849 $115,801 $112,778 $130,231
Total liabilities, end of year 84,704 89,684 90,396 73,304 86,824
Stockholders' equity, end of year 30,178 27,165 25,405 39,474 43,407
======== ======== ======== ======== ========
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Certain reclassifications have been reflected in the financial data to
conform prior years' data to the current classifications.
(2) Included in the 1990 net loss is approximately $10,949,000 of realized
losses from the sale of substantially all of the Registrant's holdings in
General Development Corporation.
(3) The weighted average number of common shares outstanding was 10,783,321 in
1989, 10,744,477 in 1990, 8,645,416 in 1991, 6,569,215 in 1992 and
6,267,540 in 1993.
(4) Operating results for 1989 include the results of Metex since acquisition
(March 3, 1989).
(5) Operating results for 1992 include the results of D&M/Chu Technology, Inc.
and AFP Transformers, Inc. since April 2, and October 23, 1992,
respectively.
(6) The 1993 financial results include the cumulative effect of an accounting
change of $702,000 or $.11 per share resulting from the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1993 AND 1992
GENERAL
The following discussion of the Registrant's financial condition and results of
operations should be read in conjunction with the description of the
Registrant's business and properties contained in Items 1 and 2 of Part I and
the Consolidated Financial Statements and Notes thereto, included elsewhere in
this report.
Total revenues generated by the Registrant during 1993 were $69,556,000, a
decrease of $1,319,000 from total 1992 revenues of $70,875,000. Net income for
the current year increased to $5,069,000 or $.81 per share versus $2,866,000 or
$.44 per share for 1992.
REAL ESTATE OPERATIONS
Rental revenues from real estate operations increased $1,272,000 or 7% during
1993 primarily as a result of additional revenues generated from two hotel
properties that the Registrant began operating in February and May 1992,
respectively. Of the total increase in revenues, $950,000 is from additional
hotel related revenues while the remaining increase of $322,000 results from the
renewal of existing leases at higher rents, increased percentage rents and
additional revenues associated with mid-1992 property acquisitions.
1992 rental revenues include approximately $520,000 in percentage rents
collected by the Registrant in 1992 as a result of a favorable arbitration
award. These amounts were earned over a four-year period but not previously
accrued.
Mortgage interest expense associated with the Registrant's real estate portfolio
decreased by $543,000 during 1993 versus that incurred during 1992. This
decrease of 9% results from current year mortgage amortization of approximately
$5,000,000 as well as the maturity of certain mortgages and is offset by a full
year of interest associated with mortgages secured by properties acquired by the
Registrant in mid-1992.
Depreciation expense for 1993 decreased by approximately $165,000 or 3% from
such expense in the preceding year. This decrease results from the
reclassification of depreciation on the Registrant's hotel properties to
operating expenses and from the sale of several properties in the current and
prior year.
Other operating expenses associated with those properties managed by the
Registrant increased by approximately $1,068,000 during 1993 versus such
expenses incurred in 1992. This increase primarily results from a full year of
operating costs incurred in connection with the leasing of two hotel properties
which accounts for $880,000 of this increase, while the timing of certain
maintenance costs and additional lease renewal costs incurred in the current
year account for the remaining increase of approximately $188,000.
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ANTENNA SYSTEMS
The Registrant's antenna systems segment includes Dorne & Margolin, Inc. and
D&M/Chu Technology, Inc. The operating results of D&M/Chu have been included
here and in the accompanying consolidated statements of income since its
acquisition by the Registrant in April 1992. See Note 2 of Notes to
Consolidated Financial Statements, contained elsewhere in this report, for pro
forma results of operations.
The operating results of the antenna systems segment for the years ended
December 31, 1993 and 1992 are as follows:
1993 1992
------- -------
(in thousands)
Net sales $21,098 $24,513
======= =======
Cost of sales $14,290 $16,197
======= =======
Selling, general and administrative
expenses $ 6,039 $ 5,057
======= =======
Income from operations $ 769 $ 3,259
======= =======
Net sales of the antenna systems segment decreased by $3,415,000 or 14% during
1993 as compared to such sales of the preceding year. This decrease is the
result of continued weakness in the U. S. Military and commercial aviation
markets. Sales by Dorne & Margolin during 1993 were 23% lower than those of
1992. As a result of the mid-1992 acquisition of D&M/Chu by the Registrant and
therefore a full year of sales in 1993, sales of D&M/Chu increased by 9% during
this period. The reductions in military and commercial sales continue to
seriously effect the Registrant's antenna systems segment and management is
concentrating on reversing this trend.
Cost of sales as a percentage of net sales of the antenna systems segment
increased in 1993 by approximately 2% from 1992 levels. This increase is
primarily the result of changes in the mix of product sales and differences in
the gross margins of Dorne & Margolin and D&M/Chu product lines.
Selling, general and administrative expenses ("SG&A") of the antenna systems
segment have increased by $982,000 in the current year. This is a result of a
full year of SG&A costs associated with D&M/Chu in 1993 versus only nine months
of such costs in 1992 and from approximately $365,000 in costs incurred in 1993
as a result of the decision to consolidate the operations of D&M/Chu into that
of Dorne & Margolin.
ENGINEERED PRODUCTS
The Registrant's engineered products segment includes Metex Corporation and AFP
Transformers, Inc. The operating results of AFP Transformers have been included
here and in the accompanying consolidated statements of income since October
1992. Pro forma results of operations have not been separately disclosed as
amounts are not material.
-14-
The operating results of the engineered products segment for the years ended
December 31, 1993 and 1992 are as follows:
1993 1992
------- -------
(in thousands)
Net sales $27,643 $26,819
======= =======
Cost of sales $20,958 $19,412
======= =======
Selling, general and administrative
expenses $ 5,100 $ 4,720
======= =======
Income from operations $ 1,585 $ 2,687
======= =======
Net sales generated by the engineered products segment increased by $824,000
during 1993 versus that of the previous year. Sales of Metex decreased by
$1,540,000 during this period, while sales of AFP Transformers increased
$2,364,000. This increase in the sales of AFP Transformers is primarily the
result of the Registrant's acquisition of the operating assets of Isoreg
Corporation, a manufacturer of Epoxycast transformers, in October 1992.
Cost of sales as a percentage of net sales increased approximately 3% during the
current year. This increase is primarily the result of lower profit margins on
knitted wire sales resulting from lower automotive and European sales.
Selling, general and administrative expenses of the engineered products segment
increased $380,000 during 1993, as compared to such costs in the preceding year.
This increase of approximately 1% as a percentage of net sales results from
additional SG&A costs of AFP Transformers including the costs associated with
the relocation of operations of Isoreg, which was acquired in October 1992, from
Massachusetts to New Jersey.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the manufacturing
operations decreased $270,000 in 1993 from a year earlier. This decrease is
primarily the result of lower professional fees incurred in the current year and
represents a change of less than 1% of consolidated revenues.
OTHER INCOME AND EXPENSE, NET
Other income and expense, net for 1993 of approximately $4.1 million is
comprised of $1.1 million in gains from the sale of real estate, the recovery of
$744,000 in previously recorded unrealized losses on marketable securities,
$578,000 in income from equity investments which represent nonrecurring cash
distributions and $1.7 million in other income. The Registrant received a $2
million settlement in 1993 from Metex' insurance carrier in connection with the
class action civil suit brought by the former shareholders of Metex. This
settlement is included in other income in 1993, net of approximately $450,000 of
current year costs incurred in the defense of this action. All defense costs
incurred prior to 1993 were included in general and administrative expenses.
-15-
The components of other income and expense, net in 1992 include approximately
$449,000 in gains from the sale of real estate, $723,000 in unrealized losses on
marketable securities, $142,000 in income from equity investments and $249,000
in other income.
RESULTS OF OPERATIONS 1992 AND 1991
REAL ESTATE OPERATIONS
Rental revenues from real estate operations in 1992 increased by $3,420,000 or
21% from such revenues in 1991. This increase is primarily derived from two
hotel properties which the Registrant began operating in 1992 and the collection
of percentage rents awarded in an arbitration settlement.
Upon the termination of existing leases, the Registrant began operating its
hotel properties in California and Georgia through the use of a local on-site
management company. Revenues generated by these hotels since the inception of
operation by the Registrant in February and May 1992, respectively, totaled
$1,890,000 for 1992.
Approximately $520,000 in percentage rents were collected by the Registrant in
1992 as a result of a favorable arbitration award. These amounts were earned
over a four-year period and not previously accrued. The remaining increase in
rental revenues over the previous year results from rents derived from property
acquisitions in 1992 and 1991 and the renewal of existing leases at higher
rents.
Mortgage interest expense for 1992 decreased by approximately $80,000 from such
expenses in 1991. This decrease results primarily from continuing mortgage
amortization which accounted for approximately $8,159,000 and $6,992,000 in
mortgage principal repayments during 1992 and 1991, respectively, and is offset
by interest expense incurred in connection with mortgages secured by properties
acquired in 1992 and 1991.
Depreciation expense for 1992 decreased by approximately $319,000 or 5% from
such expense in the preceding year. This decrease results from the acquisition
and disposal of properties in 1992 and 1991 and from the reclassification to
operating expenses of depreciation associated with the Registrant's two hotel
properties which it began operating in 1992.
Operating expenses associated with the management of real estate properties
increased approximately $1,935,000 in 1992 when compared to such expenses
incurred in the prior year. This is primarily a result of the change from the
leasing of two hotel properties to the management of these facilities, as noted
above. Increases in insurance costs and the need for greater repairs and
maintenance on real estate properties also contributed to the increase in real
estate operating costs from a year earlier.
-16-
ANTENNA SYSTEMS
The Registrant's antenna systems segment includes Dorne & Margolin, Inc. and
D&M/Chu Technology, Inc. The operating results of D&M/Chu have been included
here and in the accompanying consolidated statements of income since its
acquisition by the Registrant in April 1992. See Note 2 of Notes to
Consolidated Financial Statements, contained elsewhere in this report, for pro
forma results of operations.
The operating results of the antenna systems segment for the years ended
December 31, 1992 and 1991 are as follows:
1992 1991
------- -------
(in thousands)
Net sales $24,513 $22,033
======= =======
Cost of sales $16,197 $14,584
======= =======
Selling, general and administrative
expenses $ 5,057 $ 3,854
======= =======
Income from operations $ 3,259 $ 3,595
======= =======
Net sales generated by the antenna systems segment increased by $2,480,000
during 1992 from such sales generated in 1991. This increase is the result of
revenues derived from the acquisition of the operating assets of Chu Associates,
a leader in the development and manufacture of navigation and communication
antenna systems for land and naval based applications, into a new wholly-owned
subsidiary known as D&M/Chu Technology, Inc. Since this acquisition in April
1992, D&M/Chu has generated approximately $6,841,000 in net sales during 1992
which offset a decline in revenues of the Dorne & Margolin subsidiary caused by
a continuing decline in the levels of U. S. military defense spending.
Cost of sales as a percentage of net sales is virtually unchanged from that of
1991. Higher cost of sales percentages on products sold by D&M/Chu have offset
cost containment measures implemented by Dorne & Margolin which reduced their
cost of sales percentage by approximately 2%. Increases in the cost of sales
level are the result of overall increases in the sales volume of the antenna
systems segment.
Selling, general and administrative expenses ("SG&A") of the antenna systems
segment have increased by $1,203,000 from those of 1991. This increase is the
result of additional SG&A costs due to the acquisition of D&M/Chu, offset by a
decline in such expenses for Dorne & Margolin as a result of lower sales
volumes, noted above. Intensified marketing efforts implemented to generate
orders with the highest potential for placement have also caused the increase in
SG&A spending as a percentage of net sales over that of the previous year.
-17-
ENGINEERED PRODUCTS
The Registrant's engineered products segment includes Metex Corporation and AFP
Transformers, Inc. The operating results of AFP Transformers have been included
here and in the accompanying consolidated statements of income since October 23,
1992. Pro forma results of operations have not been separately disclosed as
amounts are not material.
The operating results of the engineered products segment for the years ended
December 31, 1992 and 1991 are as follows:
1992 1991
------- -------
(in thousands)
Net sales $26,819 $24,701
======= =======
Cost of sales $19,412 $18,391
======= =======
Selling, general and administrative
expenses $ 4,720 $ 3,898
======= =======
Income from operations $ 2,687 $ 2,412
======= =======
Net sales of the engineered products segment increased by $2,118,000 in 1992
over such sales generated during 1991. This increase is primarily the result of
$1,447,000 in additional sales generated by Metex' knitted wire business and
$490,000 in sales generated from the acquisition of the operating assets of
Isoreg, a manufacturer of EPOXYCAST coil transformers, power conditioners and
uninterruptible power supplies. The Registrant, through a new wholly-owned
subsidiary known as AFP Transformers, Inc., acquired the operating assets of
Isoreg in October 1992. The Field Transformer division of Metex has been
combined into AFP Transformers to provide a full line of specialty transformers.
Cost of sales as a percentage of net sales for the engineered products segment
decreased by 2% from that of 1991. This improvement has been brought about
through cost containment programs, material cost reductions and a more favorable
mix of product sales.
Selling, general and administrative expenses have increased by $822,000 or 1.8%
of net sales. This increase is the result of increased marketing efforts and
selling costs associated with the mix of products sold and additional SG&A costs
from the expanded transformer business.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the manufacturing
operations were $2,831,000 in 1992, a decrease of $93,000 from such expenses in
1991. This change represents a decrease of less than 1% of consolidated
revenues.
-18-
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON MARKETABLE SECURITIES
Marketable securities are stated at the lower of aggregate cost or quoted market
value at the balance sheet date. At December 31, 1992 the aggregate cost of
marketable securities exceeded their aggregate market value by $743,636.
Accordingly, an allowance for unrealized losses has been established and is
included in the results of operations for the year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1993, the Registrant's cash resources were in excess of business
requirements and current assets exceeded current liabilities by approximately
$3,810,000.
The Registrant has an unsecured line of credit with a bank which provides for
borrowings up to $7,000,000 at the bank's prime lending rate. At December 31,
1993 there were no amounts outstanding under this facility. The maximum amount
outstanding under this facility during 1993 was $2,300,000. All borrowings
during the year were repaid together with accrued interest. During the first
quarter of 1994, the Registrant borrowed $4 million under this facility, the
proceeds of which were used in the acquisition of the operating assets of
Kentile Floors, Inc. ("Kentile") and also to fund the working capital
requirements of the Registrant and its subsidiaries. This demand facility is
reviewed by the bank annually on May 31.
On March 14, 1994, the Registrant, through a new wholly-owned subsidiary known
as Kentile, Inc., purchased substantially all of the operating assets of Kentile
for approximately $14 million. Kentile is a major manufacturer and supplier of
resilient vinyl flooring and is expected to generate approximately $40 million
in revenues during 1994. The purchase price was comprised of approximately $6.1
million in new bank financing, approximately $5.4 million in cash and the
assumption of approximately $2.5 million in operating liabilities. The $5.4
million cash payment includes $775,000 that was advanced to Kentile by the
Registrant during 1993 and was also partially derived from a total of $4 million
in short-term borrowings by the Registrant during the first quarter of 1994.
The proceeds from this sale were used by Kentile to repay amounts outstanding
under its asset-based lending agreement, thereby relieving the Registrant of its
obligation under the letter of credit, discussed below.
In November 1992, Kentile filed for protection under Chapter 11 of the United
States Bankruptcy Code. Subsequent thereto, the Registrant acquired a one-third
equity interest in Kentile together with an option to purchase an additional
interest in the future. In consideration for this interest and option in
Kentile, the Registrant provided a $2 million letter of credit to partially
guarantee borrowings under Kentile's asset-based lending agreement. This letter
of credit arrangement was made pursuant to Bankruptcy Court approval on a
priority basis. In light of the uncertain outcome of Kentile's bankruptcy
proceedings, no value was assigned to the stock acquired by the Registrant.
The acquisition of the operating assets of Kentile will be accounted for by the
purchase method and, accordingly, the results of operations of Kentile, Inc.
will be included with that of the Registrant for periods subsequent to the date
of the acquisition.
-19-
The Registrant has undertaken the completion of environmental studies and
remedial action at Metex' two New Jersey facilities and has filed an action
against certain insurance carriers seeking recovery of costs incurred and to be
incurred in these matters. Based upon the advice of counsel, management
believes such recovery is probable and therefore should not have a material
effect on the liquidity or capital resources of the Registrant. See Item 1,
"Business-Environmental Regulations," Item 3, "Legal Proceedings" and Note 16 to
Consolidated Financial Statements, "Contingencies."
The cash needs of the Registrant have been satisfied from funds generated by
current operations and additional borrowings. It is expected that future
operational cash needs will also be satisfied from ongoing operations and
additional borrowings. The primary source of capital to fund additional real
estate acquisitions will come from the sale, financing and refinancing of the
Registrant's properties and from third party mortgages and purchase money notes
obtained in connection with specific acquisitions.
In addition to the acquisition of properties for consideration consisting of
cash and mortgage financing proceeds, the Registrant may acquire real properties
in exchange for the issuance of the Registrant's equity securities. The
Registrant may also finance acquisitions of other companies in the future with
borrowings from institutional lenders and/or the public or private offerings of
debt or equity securities.
Funds of the Registrant in excess of that needed for working capital, purchasing
real estate and arranging financing for real estate acquisitions are invested by
the Registrant in corporate equity securities, corporate notes, certificates of
deposit and government securities.
BUSINESS TRENDS
The 1993 decline in the Registrant's antenna systems revenues continues to
reflect the overall weakened economy and reduced government defense spending.
These factors have prompted a consolidation in the operations of the
Registrant's two antenna system businesses and a reexamination of the current
products produced and markets served by these companies. Management is
exploring opportunities in two rapidly expanding markets that require antennas;
cellular telephones and wireless cable television. Although it remains to be
determined whether the Registrant can successfully develop products to compete
profitably in these markets, management is committed to reversing the declining
revenue trend by identifying new markets and applications, such as these, for
its products rather than waiting for an improved overall economy or increased
military spending.
The Registrant's engineered products business has also implemented a strategy to
identify new markets and new applications for its products and technologies.
This is evidenced by the increasing sales of knitted wire mesh components used
in automobile airbags. Sales in this area have increased to over $3 million in
1993 from virtually zero only three years ago. Metex is also developing a flex
coupling device that will be used in place of existing coupling devices which
require an exhaust seal manufactured by the company. This change will occur as
a result of changing environmental laws and the need for tighter controls on the
release of pollutants from automobile engines.
-20-
The Registrant's real estate portfolio continues to perform well with an
increase of $1,272,000 in revenues during the current year. Future growth is
expected in the Registrant's real estate operations through opportunities to
re-lease properties at higher rents or through the acquisition of similar
properties that have long-term leases in place and generate positive cash flow.
Since many of the properties in the Registrant's real estate portfolio are
generating rents under leases that were implemented ten to twenty years earlier,
they provide an excellent opportunity to increase revenues in the future. With
primarily self-liquidating mortgages covering the portfolio, most of which fully
amortize over the next ten years, increases in cash flow from the existing
portfolio can be expected to provide opportunities to expand the current
portfolio of properties or operating companies.
Although there can be no assurance as to how the events discussed above, or
other changes in the economy, will impact the future financial condition or
results of operations of the Registrant, management continues to monitor such
developments and has implemented measures to minimize any possible negative
effects they may have upon these businesses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary information filed as part of this
Item 8 are listed under Part IV, Item 14, "Exhibits, Financial Statements and
Schedules and Reports on Form 8-K" and are contained in this Form 10-K at page
F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information will be contained in the Proxy Statement of the Registrant for
the 1994 Annual Meeting of Stockholders under the captions "Election of
Directors" and "Executive Officers" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information will be contained in the Proxy Statement of the Registrant for
the 1994 Annual Meeting of Stockholders under the caption "Executive
Compensation and Compensation of Directors" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be contained in the Proxy Statement of the Registrant for
the 1994 Annual Meeting of Stockholders under the captions "Security Ownership"
and "Election of Directors" and is incorporated herein by reference.
-21-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the Proxy Statement of the Registrant for
the 1994 Annual Meeting of Stockholders under the caption "Certain Relationships
and Related Transactions" and is incorporated herein by reference. Also see
Note 11, "Transactions with Related Parties," of Notes to Consolidated Financial
Statements, contained elsewhere in this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND
REPORTS ON FORM 8-K
(a) (1) CONSOLIDATED FINANCIAL STATEMENTS. The following Consolidated
Financial Statements and Consolidated Financial Statement Schedules of the
Registrant are included in this Form 10-K at the pages indicated:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1993 and 1992 F-2
Consolidated Statements of Income for the Years F-3
Ended December 31, 1993, 1992 and 1991 to
F-4
Consolidated Statements of Stockholders' Equity for F-5
the Years Ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the F-6
Years Ended December 31, 1993, 1992 and 1991 to
F-8
Notes to Consolidated Financial Statements F-9
to
F-28
(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II -- Amounts Receivable from Related Parties F-29
Schedule VIII -- Allowance for Doubtful Accounts F-30
Schedule X -- Supplementary Statement of Operations F-31
Information
Schedule XI -- Real Property Held for Rental and F-32
Accumulated Depreciation to
F-33
Schedule XII -- Mortgage Loans on Real Estate F-34
to
F-35
(3) SUPPLEMENTARY DATA
Quarterly Financial Data (Unaudited) F-36
Schedules not listed above are omitted as not applicable or the
information is presented in the financial statements or related notes.
-22-
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last quarter of
fiscal 1993.
(c) Exhibits
*3.1. Amended and restated Certificate of Incorporation of
the Registrant.
3.2. By-laws of the Registrant (incorporated by reference to
exhibit 3 filed with the Registrant's report on Form 10-K for the fiscal year
ended December 31, 1980).
10.1. 1988 Incentive Stock Option Plan of the Registrant
(incorporated by reference to Annex C to the Proxy Statement contained in the
Registrant's Registration Statement on Form S-4 (File No. 33-26324)).
10.2. 1988 Joint Incentive and Non-Qualified Stock Option
Plan of the Registrant (incorporated by reference to Annex D to the Proxy
Statement contained in the Registrant's Registration Statement on Form S-4 (File
No. 33-26324)).
10.3. Employment Agreement dated as of January 1, 1990 by and
between the Registrant and A.F. Petrocelli (incorporated by reference to exhibit
10.9 filed with the Registrant's report on Form 10-K for the fiscal year ended
December 31, 1989).
10.4. Amendment dated as of December 3, 1990 to Employment
Agreement dated as of January 1, 1990, by and between the Registrant and A. F.
Petrocelli (incorporated by reference to exhibit 10.10 filed with the
Registrant's report on Form 10-K for the fiscal year ended December 31, 1990).
*10.5. Amendment dated as of June 8, 1993 to Employment
Agreement dated as of January 1, 1990 by and between the Registrant and A.F.
Petrocelli.
10.6. Employment Agreement dated as of May 1, 1991 by and
between the Registrant and Bernard Turiel (incorporated by reference to Exhibit
10.9 filed with the Registrant's report on Form 10-K for the fiscal year ended
December 31, 1991).
10.7. Employment Agreement dated as of July 1, 1991 by and
between the Registrant and Dennis S. Rosatelli (incorporated by reference to
Exhibit 10.10 filed with the Registrant's report on Form 10-K for the fiscal
year ended December 31, 1991).
10.8. Option Agreement dated May 1, 1991 between the
Registrant and Bernard Turiel (incorporated by reference to Exhibit 10.11 filed
with the Registrant's report on Form 10-K for the fiscal year ended December 31,
1991).
-23-
10.9. Option Agreement dated June 20, 1991 between the
Registrant and A. F. Petrocelli (incorporated by reference to Exhibit 10.12
filed with the Registrant's report on Form 10-K for the fiscal year ended
December 31, 1991).
10.10. Form of Option Agreements dated July 17, 1991 between
the Registrant and Mason N. Carter, Robert L. Frome, Howard M. Lorber, Arnold S.
Penner, Dennis S. Rosatelli and Bernard Turiel (incorporated by reference to
Exhibit 10.13 filed with the Registrant's report on Form 10-K for the fiscal
year ended December 31, 1991).
*10.11. Amendment dated as of April 16, 1993 to Option
Agreement dated as of July 17, 1991 by and between the Registrant and Robert L.
Frome.
10.12. Agreement and Plan of Merger dated June 28, 1991 by and
among the Registrant, BMG Transitory Corp., BMG Equities Corp. and A. F.
Petrocelli, Pearl H. Hack and W. S. Hack (incorporated by reference to exhibit
28(b) filed with the Registrant's Current Report on Form 8-K dated June 28,
1991).
10.13. Amended and Restated Asset Purchase Agreement dated as
of July 9, 1993 by and between the Registrant and Kentile Floors, Inc.
(incorporated by reference to Exhibit 99(a) filed with the Registrant's Current
Report on Form 8-K dated March 28, 1994).
*21. Subsidiaries of the Registrant
*23. Accountants' consent to the incorporation by reference
in Registrant's Registration Statements on Form S-8 of the Report of Independent
Public Accountants included herein.
- - - ------------------
* Filed herewith
-24-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED CAPITAL CORP.
Dated: March 18, 1994 By: /s/A. F. Petrocelli
-------------- -------------------------
A. F. Petrocelli
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated. Each of the undersigned officers
and directors of United Capital Corp. hereby constitutes and appoints A. F.
Petrocelli and Dennis Rosatelli and each of them singly, as true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him in his name in any and all capacities, to sign any and all amendments to
this report and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission and to
prepare any and all exhibits thereto, and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done to enable United Capital Corp. to comply with the provisions of the
Securities Exchange Act of 1934, as amended, and all requirements of the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Dated: March 18, 1994 By: /s/A. F. Petrocelli
-------------- -------------------------
A. F. Petrocelli
Chairman, President and
Chief Executive Officer
Dated: March 18, 1994 By: /s/Mason N. Carter
-------------- -------------------------
Mason N. Carter
Director
Dated: March 18, 1994 By: /s/Howard M. Lorber
-------------- -------------------------
Howard M. Lorber
Director
Dated: March 18, 1994 By: /s/Arnold S. Penner
-------------- -------------------------
Arnold S. Penner
Director
Dated: March 18, 1994 By: /s/Dennis S. Rosatelli
-------------- -------------------------
Dennis S. Rosatelli
Chief Financial Officer,
Chief Accountant and
Director
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
United Capital Corp.:
We have audited the accompanying consolidated balance sheets of United Capital
Corp. (a Delaware Corp.) and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements and the schedules referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Capital Corp. and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index of
financial statements are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not a part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
March 14, 1994
F-1
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1993 AND 1992
ASSETS 1993 1992
------ ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 3,749,301 $ 2,271,889
Marketable securities 1,718,277 667,635
Notes and accounts receivable, net of
allowance for doubtful accounts of
$285,545 and $241,000, respectively 13,681,863 12,197,708
Inventories 8,069,275 8,134,983
Prepaid expenses and other current assets 634,056 494,737
Deferred income taxes 609,078 516,168
------------ ------------
Total current assets 28,461,850 24,283,120
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, net 8,913,186 9,168,918
REAL PROPERTY HELD FOR RENTAL, net 74,392,684 80,835,202
NONCURRENT NOTES RECEIVABLE 822,541 790,410
OTHER ASSETS 2,030,641 1,771,482
DEFERRED INCOME TAXES 261,062 -
------------ ------------
Total assets $114,881,964 $116,849,132
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY 1993 1992
------------------------------------ ------------ ------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,414,052 $ 6,436,009
Loans payable to banks 1,895,000 2,561,667
Accounts payable and accrued
liabilities 11,987,590 8,348,285
Income taxes payable 4,355,182 2,894,808
------------ ------------
Total current liabilities 24,651,824 20,240,769
LONG-TERM LIABILITIES:
Long-term debt 58,640,201 66,061,322
Other long-term liabilities 1,412,087 1,880,688
Deferred income taxes - 1,501,546
------------ ------------
Total liabilities 84,704,112 89,684,325
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock $.10 par value,
authorized 7,500,000 and 15,000,000
shares, respectively; issued
6,063,261 and 9,766,144 shares,
respectively 606,326 976,614
Additional paid-in capital 14,921,406 27,208,317
Retained earnings 14,650,120 9,580,748
Less - Common stock held in treasury
at cost -- 3,392,279 shares - ( 10,600,872)
------------ ------------
Total stockholders' equity 30,177,852 27,164,807
------------ ------------
Total liabilities and
stockholders' equity $114,881,964 $116,849,132
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-2
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
----------- ----------- -----------
REVENUES:
Net sales $48,740,541 $51,332,283 $46,733,672
Rental revenues from real estate
operations 20,815,113 19,542,737 16,122,922
----------- ----------- -----------
Total revenues 69,555,654 70,875,020 62,856,594
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 35,247,622 35,608,915 32,975,437
Real estate operations
Mortgage interest expense 5,384,332 5,927,741 6,008,263
Depreciation expense 6,328,192 6,492,761 6,811,953
Other operating expenses 5,157,170 4,089,095 2,154,018
General and administrative expenses 8,709,238 7,533,190 6,664,836
Selling expenses 4,989,382 5,075,225 4,010,155
----------- ----------- -----------
Total costs and expenses 65,815,936 64,726,927 58,624,662
----------- ----------- -----------
Income from operations 3,739,718 6,148,093 4,231,932
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net of dividend
and interest income ( 441,443) ( 460,691) ( 114,503)
Other income and expense, net 4,113,097 117,510 2,195,079
----------- ----------- -----------
Total other income (expense) 3,671,654 ( 343,181) 2,080,576
----------- ----------- -----------
Income before income taxes 7,411,372 5,804,912 6,312,508
Provision for income taxes 3,044,000 2,939,000 2,832,000
----------- ----------- -----------
Income before cumulative effect of
change in accounting principle 4,367,372 2,865,912 3,480,508
Cumulative effect of change in
accounting principle 702,000 - -
----------- ----------- -----------
Net income $ 5,069,372 $ 2,865,912 $ 3,480,508
=========== =========== ===========
(Continued)
F-3
1993 1992 1991
--------- --------- ---------
EARNINGS PER SHARE:
Income before cumulative effect of
change in accounting principle $.70 $.44 $.40
Cumulative effect of change in
accounting principle .11 - -
---- ---- ----
Net income per common share $.81 $.44 $.40
==== ==== ====
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,267,540 6,569,215 8,645,416
========= ========= =========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Common Stock Issued Additional Total
------------------------- Paid-in Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
----------- ----------- ------------ ------------ ---------- ------------
BALANCE -- January 1, 1991 10,551,980 $1,055,198 $35,184,669 $ 3,234,328 $ - $39,474,195
Purchase and retirement of common shares ( 472,675) ( 47,267) ( 1,506,855) - - ( 1,554,122)
Effect of merger with BMG Equities Corp.
and related treasury stock transaction - - ( 4,894,368) - ( 10,600,872) ( 15,495,240)
Effect of property acquisition from related
parties - - ( 500,000) - - ( 500,000)
Net income - - - 3,480,508 - 3,480,508
---------- ---------- ----------- ----------- ----------- -----------
BALANCE -- December 31, 1991 10,079,305 1,007,931 28,283,446 6,714,836 ( 10,600,872) 25,405,341
Purchase and retirement of common shares ( 313,161) ( 31,317) ( 1,075,129) - - ( 1,106,446)
Net income - - - 2,865,912 - 2,865,912
---------- ---------- ----------- ----------- ----------- -----------
BALANCE -- December 31, 1992 9,766,144 976,614 27,208,317 9,580,748 ( 10,600,872) 27,164,807
Purchase and retirement of common shares ( 3,703,583) ( 370,358) ( 12,290,341) - 10,600,872 ( 2,059,827)
Proceeds from the exercise of stock options 700 70 3,430 - - 3,500
Net income - - - 5,069,372 - 5,069,372
---------- ---------- ----------- ----------- ----------- -----------
BALANCE -- December 31, 1993 6,063,261 $ 606,326 $14,921,406 $14,650,120 $ - $30,177,852
========== ========== =========== =========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,069,372 $ 2,865,912 $ 3,480,508
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by
operating activities
Depreciation and amortization 7,913,406 7,815,440 7,567,066
Cumulative effect of change in
accounting principle ( 702,000) - -
Net realized and unrealized
(gains) losses on marketable
securities ( 743,636) 723,040 ( 671,283)
Changes in assets and liabilities
net of effects from business
acquisitions (A) 1,445,967 ( 522,622) 2,825,806
----------- ----------- -----------
Total adjustments 7,913,737 8,015,858 9,721,589
----------- ----------- -----------
Net cash provided by operating
activities 12,983,109 10,881,770 13,202,097
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities ( 307,006) ( 318,955) ( 1,460,063)
Proceeds from sale of marketable
securities - 1,005 2,362,836
Acquisition of property, plant and
equipment ( 1,032,619) ( 1,336,823) ( 931,089)
Cash paid in business acquisitions,
net of cash acquired (B) - ( 3,043,075) -
----------- ----------- -----------
Net cash used in investing
activities ( 1,339,625) ( 4,697,848) ( 28,316)
----------- ----------- -----------
(Continued)
F-6
1993 1992 1991
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage
commitments, notes and loans ($13,309,745) ($22,624,906) ($ 8,716,712)
Proceeds from mortgage commitments,
notes and loans 5,200,000 17,814,426 3,600,000
Purchase and retirement of common
shares ( 2,059,827) ( 1,106,446) ( 1,554,122)
Proceeds from the exercise of
stock options 3,500 - -
Cash paid in acquisition of property
from related parties - - ( 500,000)
Cash paid in connection with BMG
Equities Corp. merger (C) - - ( 5,750,000)
----------- ----------- -----------
Net cash used in financing
activities ( 10,166,072) ( 5,916,926) ( 12,920,834)
----------- ----------- -----------
Net increase in cash and cash
equivalents 1,477,412 266,996 252,947
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 2,271,889 2,004,893 1,751,946
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 3,749,301 $ 2,271,889 $ 2,004,893
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for
Interest $ 6,232,273 $ 7,179,036 $ 6,489,699
Taxes 2,415,213 4,474,294 3,325,674
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES (B):
Acquisition of businesses and real
properties held for rental
Purchase price $ - $ 5,807,500 $10,242,440
Cash paid - ( 3,635,526) ( 1,606,700)
----------- ----------- -----------
Assumption of debt $ - $ 2,171,974 $ 8,635,740
=========== =========== ===========
(Continued)
F-7
(A) Changes in assets and liabilities, net of effects
from business acquisitions for the years ended
December 31, 1993, 1992 and 1991 are as follows:
1993 1992 1991
------------ ----------- -----------
Decrease (increase) in notes
and accounts receivable, net ($ 1,484,155) $ 2,135,313 $ 718,432
Decrease (increase) in
inventories 65,708 1,340,038 ( 1,659,251)
Decrease (increase) in prepaid
expenses and other current assets ( 139,319) 136,960 ( 77,174)
Increase in deferred income taxes ( 1,153,518) ( 672,806) ( 61,200)
Increase in real property held for
rental, net ( 182,537) ( 106,371) ( 1,237,684)
Decrease (increase) in noncurrent
notes receivable ( 32,131) ( 511,505) 721,095
Decrease (increase) in other
assets ( 259,159) 632,869 ( 408,595)
Increase (decrease) in accounts
payable and accrued liabilities 3,639,305 ( 2,823,652) 2,214,467
Increase (decrease) in income
taxes payable 1,460,374 ( 680,611) 2,973,733
Increase (decrease) in other
long-term liabilities ( 468,601) 27,143 ( 358,017)
----------- ----------- -----------
Total $ 1,445,967 ($ 522,622) $ 2,825,806
=========== =========== ===========
(B) Acquisition of Chu Associates, Inc. and Isoreg
Corporation in 1992 -- See Note 2 to
Consolidated Financial Statements.
(C) Merger with BMG Equities Corp. -- See Note 11
to Consolidated Financial Statements.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-8
UNITED CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 and 1991
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
NATURE OF BUSINESS-
United Capital Corp. (the "Registrant") and its subsidiaries are
currently engaged in the investment and management of real estate and
in the manufacture and sale of antenna systems, and engineered
products.
PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of the
Registrant and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
INCOME RECOGNITION --
REAL ESTATE OPERATIONS-
The Registrant leases substantially all of its properties to tenants
under net leases. Under this type of lease, the tenant is obligated
to pay all operating costs of the property including real estate
taxes, insurance, repairs and maintenance. Rental income is
recognized based on the terms of the leases. Certain lease
agreements provide for additional rent based on a percentage of
tenants' sales. Such additional rents are recorded as income when
they can be reasonably estimated. Gains on sales of real estate
assets are recorded when the gain recognition criteria under
generally accepted accounting principles have been met.
MARKETABLE SECURITIES-
Marketable securities are stated at the lower of aggregate cost or
quoted market value.
Unrealized losses resulting from fluctuations in the market value of
the current securities portfolio are reflected as a component of net
realized and unrealized gains (losses) on marketable securities.
Unrealized gains are recognized only to the extent that previously
unrealized losses have been recognized. For the purpose of
calculating realized gains and losses, the cost of investments sold
is determined using the first-in, first-out method.
F-9
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). This
standard requires, among other things, that investments in debt and
equity securities be classified as either held-to-maturity, trading,
or available for sale. Investments in debt securities will be
classified as held-to-maturity and measured at amortized cost in the
consolidated balance sheet only if the Registrant has the positive
intent and ability to hold those securities to maturity. Debt and
equity securities that are purchased and held principally for the
purpose of selling in the near term will be measured at fair value
and classified as trading securities. Unrealized gains and losses on
trading securities will be included in current earnings. All
securities not classified as trading or held-to-maturity will be
classified as available for sale and measured at fair value.
Unrealized gains and losses on securities available for sale will be
recorded net, as a separate component of stockholders' equity until
realized.
The Registrant intends to adopt SFAS 115 effective January 1, 1994.
Such adoption is expected to result in an increase in the
Registrant's stockholders' equity of approximately $350,000 on a net
of tax basis. This change in accounting principle is not expected to
have a material effect upon the consolidated financial results of the
Registrant given the current market value and cost basis of
securities available for sale.
INVENTORIES-
Inventories are stated at the lower of cost (first-in, first-out) or
market and include material, labor and manufacturing overhead.
The components of inventory at December 31, 1993 and 1992 are as
follows-
1993 1992
---------- ----------
Raw materials $4,261,991 $4,680,614
Work in process 2,195,927 1,617,612
Finished goods 1,611,357 1,836,757
---------- ----------
$8,069,275 $8,134,983
========== ==========
DEPRECIATION AND AMORTIZATION-
Depreciation and amortization are provided on a straight-line basis
over the estimated useful lives of the related assets as follows-
Real property held for rental-
Buildings 5 to 39 years
Equipment 3 to 10 years
Property, plant and equipment-
Buildings and improvements 18 to 40 years
Machinery and equipment 3 to 10 years
F-10
REAL PROPERTY HELD FOR RENTAL-
Real property held for rental is carried at cost less accumulated
depreciation. Major renewals and betterments are capitalized.
Maintenance and repairs are expensed as incurred.
Certain mortgage obligations assumed by the Registrant contain
provisions whereby the mortgage holder may acquire, under certain
conditions, an interest in the properties securing the obligation,
for a nominal amount. The Registrant considers any costs incurred as
a result of these provisions to be a cost of acquisition and the
basis in such properties is adjusted accordingly.
RESEARCH AND DEVELOPMENT-
The Registrant expenses research, development and product engineering
costs as incurred. Approximately $618,000, $713,000 and $424,000 of
such costs were incurred by the Registrant in 1993, 1992, and 1991,
respectively. Provisions for losses are made for research and
development contracts when the estimated costs under such contracts
exceed the proceeds.
NET INCOME (LOSS) PER COMMON SHARE-
Net income (loss) per common share is computed based upon the weighted
average number of common and dilutive common equivalent shares
outstanding during the period. Fully diluted and primary earnings
per common share are the same amounts for each of the periods
presented.
PRIOR YEAR FINANCIAL STATEMENTS
Certain amounts have been reclassified in the December 31, 1992 and
1991 financial statements and notes thereto to present them on a
basis consistent with the current year.
(2) ACQUISITION OF OPERATING COMPANIES:
As of April 2, 1992, the Registrant, through a wholly-owned subsidiary
of Metex Corporation ("Metex"), purchased the net operating assets of
Chu Associates, Inc. and affiliated companies, a manufacturer of
antenna systems for naval and land-based applications, now known as
D&M/Chu Technology, Inc. ("D&M/Chu"), for $3,675,000. The purchase
price was satisfied by $2,475,000 in cash and a $1,200,000 note to the
sellers. The $2,475,000 cash payment was derived from a total of
$4,750,000 in bank borrowings by the Registrant in connection with the
acquisition and the refinancing of certain of the existing debt of Chu
Associates, Inc.
F-11
The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the purchase price, including associated
costs of the acquisition, was allocated to assets acquired and
liabilities assumed based on their fair value at the date of
acquisition as follows (in thousands)-
Net current assets and liabilities ($ 157)
Property, plant and equipment 5,181
Noncurrent assets 860
Long-term liabilities ( 2,054)
------
Allocated purchase price $3,830
======
The results of operations of D&M/Chu have been included in the
accompanying consolidated statements of income from the date of
acquisition.
The following unaudited pro forma consolidated results of operations of
the Registrant assume that the merger with D&M/Chu had occurred at the
beginning of each period presented. In addition to combining
historical results of operations of the two companies, the pro forma
calculations include adjustments to historical assets, liabilities and
results of operations which occur in a purchase.
UNAUDITED PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
December 31
---------------------
1992 1991
------- -------
Revenues $73,083 $75,983
======= =======
Net income $ 2,758 $ 2,959
======= =======
Net income per common share $ .42 $ .34
======= =======
The above financial information is not necessarily indicative of the
actual results that would have occurred had the acquisition of D&M/Chu
been consummated at the beginning of the periods presented or of future
operations of the combined companies.
In October 1992, AFP Transformers, Inc., a wholly-owned subsidiary of
the Registrant, purchased the operating assets of Isoreg Corporation in
a foreclosure sale from a bank for approximately $761,000, including
all costs associated with the acquisition. The results of operations
of AFP Transformers have been included in the accompanying consolidated
statements of income from the date of acquisition. Pro forma results
have not been separately disclosed as amounts are not material.
F-12
(3) REAL ESTATE ACQUISITIONS:
In January 1992, after foreclosure proceedings, the Registrant, through
wholly-owned subsidiaries, acquired title to fifteen properties. The
properties had served as collateral for mortgage notes due from an
unrelated third party to a group of lenders including the Chairman of
the Board and two directors of the Registrant. Prior to foreclosure,
all interests in the mortgage notes had been acquired by the Registrant
(see Note 11).
(4) REAL PROPERTY HELD FOR RENTAL:
The Registrant is the lessor of real estate under operating leases
which expire in various years through 2057.
The following is a summary of real property held for rental at
December 31-
1993 1992
------------ ------------
Land $ 11,703,007 $ 11,699,447
Buildings 107,947,423 108,078,553
------------ ------------
Total 119,650,430 119,778,000
Less - Accumulated depreciation ( 45,257,746) ( 38,942,798)
------------ ------------
$ 74,392,684 $ 80,835,202
============ ============
As of December 31, 1993, total minimum future rentals to be received
under noncancellable leases for each of the next five years and
thereafter are as follows-
Year Ended December 31-
1994 $14,675,000
1995 12,507,000
1996 11,383,000
1997 10,156,000
1998 8,912,000
Thereafter 36,759,000
-----------
Total Minimum Future Rentals $94,392,000
===========
Minimum future rentals do not include additional rentals that may be
received under certain leases which provide for such rentals based upon
a percentage of lessees' sales. Percentage rents included in the
determination of net income in 1993, 1992 and 1991 were approximately
$1,037,000, $1,271,000, and $804,000, respectively.
Included in 1992 percentage rents are approximately $520,000 collected
from a tenant as a result of an arbitration award. These amounts were
earned over a four-year period but not previously accrued.
F-13
(5) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is principally used in the Registrant's
manufacturing operations and consists of the following at December 31-
1993 1992
----------- -----------
Land $ 1,132,950 $ 1,132,950
Buildings and improvements 3,888,953 3,753,521
Machinery and equipment 7,731,628 6,853,815
----------- -----------
12,753,531 11,740,286
Less - Accumulated depreciation ( 3,840,345) ( 2,571,368)
----------- -----------
$ 8,913,186 $ 9,168,918
=========== ===========
Property, plant and equipment, noted above, includes approximately $3.6
million of land and buildings used in the Registrant's D&M/Chu antenna
business. These operations are being consolidated with those of the
Registrant's Dorne & Margolin subsidiary. The Registrant intends to
lease the D&M/Chu facilities at market rates, which will be sufficient
to cover the carrying costs of the properties, and is exploring
possibilities to develop the unused land at the Whitcomb Avenue
facility.
(6) MARKETABLE SECURITIES:
At December 31, 1993 and 1991, the aggregate market value of current
marketable securities exceeded their aggregate cost by $578,041 and
$79,368, respectively. At December 31, 1992, the aggregate cost of
current marketable securities exceeded their aggregate market value by
$743,636.
Realized gains and losses on the sales of marketable securities included
in the determination of net income for the years ended December 31,
1993, 1992 and 1991 are as follows-
1993 1992 1991
------- ------- --------
Realized gains $ - $20,596 $321,538
======= ======= ========
Realized losses $ - $ - $133,565
======= ======= ========
Net realized gains (losses) $ - $20,596 $187,973
======= ======= ========
F-14
(7) NOTES RECEIVABLE:
Notes receivable consist of the following at December 31-
1993 1992
---------- ----------
Mortgage notes receivable (a) $ 908,509 $ 886,473
Advances to affiliate (b) 775,000 -
Due from related party (see Note 11) 628,494 230,000
Loan receivable (see Note 11) 88,333 -
---------- ----------
2,400,336 1,116,473
Less - Current portion included in notes
and accounts receivable 1,577,795 326,063
---------- ----------
$ 822,541 $ 790,410
========== ==========
(a) As partial consideration in the sale of several properties, the
Registrant received mortgage notes in the aggregate amount of
$2,080,000. The notes, which are secured by the properties sold,
bore interest in 1992 and 1993 at various rates ranging between 8%
and 14% and bear interest in future periods at rates ranging between
9% and 16%. Interest under the notes is due monthly. Principal
repayment terms vary with periodic installments through December
2008.
In accordance with generally accepted accounting principles, the
gains from the sales of certain of these properties are being
recognized under the installment method, and accordingly, the
carrying value of noncurrent notes receivable has been reduced by
deferred gains of approximately $991,000 and $807,000 at December 31,
1993 and 1992, respectively. The deferred gains are being recognized
as income as payments are received under the note.
(b) During 1993 the Registrant advanced $775,000 to Kentile Floors, Inc.
("Kentile"). Such advances were made on a priority basis pursuant to
Bankruptcy Court approval granted in this matter. In 1992 the
Registrant acquired a one-third interest in Kentile subsequent to
Kentile's filing for protection under Chapter 11 of the U. S.
Bankruptcy Code. In March 1994 the Registrant acquired the operating
assets of Kentile. See Note 17, "Subsequent Events."
F-15
(8) LONG-TERM DEBT AND LOANS
PAYABLE TO BANKS:
Long-term debt and loans payable to banks consist of the following at
December 31-
1993 1992
----------- -----------
First mortgages on real property (a) $55,044,727 $59,984,402
Second mortgages on real property (b) 585,074 631,509
Loan payable to bank (c) - 875,000
Loan payable to bank (d) 4,550,832 5,820,834
Loan payable to bank (e) 3,937,501 4,725,000
Note payable (f) 1,200,000 1,200,000
Note payable (g) 1,158,335 1,233,751
Other 472,784 588,502
----------- -----------
66,949,253 75,058,998
Less - Current maturities 8,309,052 8,997,676
----------- -----------
$58,640,201 $66,061,322
=========== ===========
(a) First mortgages bearing interest at rates ranging from 7.875% to 11%
per annum are collateralized by the related real property. Such
amounts are scheduled to mature at various dates from August 1994
through February 2010.
(b) Second mortgages bearing interest at rates ranging from 4% to 10.25%
per annum are collateralized by the related real property. Such
amounts are scheduled to mature at various dates from June 1994
through December 2008.
(c) In connection with the merger of BMG Equities, Corp. ("BMG") in 1991,
the Registrant entered into a $3,000,000 loan agreement with a bank.
The loan was due in 24 equal monthly principal installments beginning
August 1, 1991, together with accrued interest at the bank's prime
lending rate plus 1/4%. The loan matured and was fully satisfied in
July 1993.
(d) In July 1992, the Registrant borrowed $6,350,000 from a bank to
refinance a note to a former shareholder which was issued in
connection with the merger of BMG. This note bore interest at the
bank's prime lending rate plus 1/4% until April 1993 when it was
converted to a fixed rate note at 6.2% for the remainder of the term.
The note is due in 60 equal principal installments, together with
accrued interest thereon, through July 1997. The loan agreement
contains several financial covenants regarding working capital, net
worth, capital expenditures and debt to equity ratios.
F-16
(e) In connection with the acquisition of the operating assets of Chu
Associates, Inc., the Registrant entered into a $4,725,000 loan
agreement with a bank. The loan bore interest at the bank's prime
lending rate plus 1/4% until April 1993 when it was converted to a
fixed rate note at 6.3% for the remainder of the term. The note is
payable monthly, with 48 equal monthly principal installments
beginning in May 1993. The loan agreement contains several financial
covenants regarding working capital, net worth, capital expenditures
and debt to equity ratios.
(f) As partial consideration in the acquisition of D&M/Chu the Registrant
issued a $1,200,000 note to the sellers. The note bears interest at
6.5% between May 1992 and May 1994. Thereafter the interest rate is
adjusted annually by no more than a 1% increase or decrease from the
rate of the immediately preceding twelve-month period to the
published prime rate charged by U. S. banks. The note requires
quarterly interest payments and matures in May 1997. Under certain
conditions, the Registrant may offset certain amounts against this
note.
(g) In connection with the acquisition of D&M/Chu the Registrant assumed
a note held by the Massachusetts Industrial Finance Agency which is
secured by one of D&M/Chu's manufacturing facilities. The note bears
interest at 8.75% and is due in varying monthly installments of
principal and interest through November 2007.
The approximate aggregate maturities of these obligations at December
31, 1993 are as follows-
1994 $ 8,309,052
1995 9,152,884
1996 9,429,346
1997 7,383,452
1998 4,817,462
Thereafter 27,857,057
-----------
$66,949,253
===========
(9) REVOLVING CREDIT FACILITY:
The Registrant maintains an unsecured line of credit arrangement with a
bank which provides for borrowings up to $7,000,000 at the bank's prime
lending rate, which was 6.0% at December 31, 1993 and 1992. This
demand facility is reviewed by the bank annually on May 31.
There were no borrowings outstanding under this facility at December 31,
1993 or 1992. The maximum amounts outstanding under this arrangement
during 1993 and 1992 was $2,300,000 and $3,000,000, respectively. All
borrowings were repaid together with accrued interest. The weighted
average amount outstanding during 1993 was approximately $1,460,000.
The weighted average interest rate on such borrowings was 6.0%.
F-17
Borrowings under this facility are jointly and severally guaranteed by
both the Registrant and its subsidiaries. Unless extended, any amounts
outstanding are due and payable within 30 days of the expiration of
this facility.
(10) STOCKHOLDERS' EQUITY:
AUTHORIZED CAPITAL AND TREASURY STOCK-
The stockholders of the Registrant ratified a plan during the 1993
Annual Meeting of Stockholders to reduce the authorized capital of
the Registrant to 7,500,000 shares of $.10 par value common stock. In
addition, the Registrant has retired all shares of common stock
previously held in treasury.
STOCK OPTIONS-
The Registrant has two stock option plans under which qualified and
nonqualified options may be granted to key employees to purchase the
Registrant's common stock at the fair market value at the date of
grant. Under both plans, the options become exercisable in three
equal installments, beginning one year from the date of grant. The
1988 Incentive Stock Option Plan (the "Incentive Plan") provides for
the granting of incentive stock options not to exceed 125,000 options
in the aggregate. The 1988 Joint Incentive and Non-Qualified Stock
Option Plan (the "Joint Plan") provides for the granting of incentive
or nonqualified stock options, also not to exceed 125,000 options in
the aggregate.
During 1993 employees of the Registrant were granted 83,000 and 43,000
options pursuant to the Joint Plan and Incentive Plan, respectively.
Such options are exercisable at $11 per share subject to the vesting
period noted above. Included in the 1993 grants are 70,000 and
30,000 options granted to the Chairman of the Board pursuant to the
Joint Plan and Incentive Plan, respectively. Of the 70,000 options
granted to the Chairman of the Board pursuant to the Joint Plan,
45,000 options are subject to shareholder approval of an increase in
the number of available options under the Plans which is to be acted
upon at the 1994 Annual Meeting of Stockholders.
At December 31, 1993, there were 149,088 and 117,240 options
outstanding under the Joint Plan and Incentive Plan, respectively,
including those subject to shareholder approval, noted above. At
December 31, 1992, 66,588 and 84,429 options were outstanding under
the Joint Plan and Incentive Plan, respectively.
In addition to options outstanding under the Joint Plan and Incentive
Plan, 240,000 options were outstanding at December 31, 1993 and 1992.
Such options were previously granted to Directors and certain
officers of the Registrant and are presently exercisable at $5.50 per
share, which price was equal to or greater than the market value per
share on the date of grant. If unexercised, these options expire 30
days after the end of a Director's term.
F-18
Transactions involving stock options are summarized below
1993 1992
------------ ------------
Outstanding, beginning of year 391,017 392,378
Granted 126,000 -
Canceled ( 9,989) ( 1,361)
Exercised ( 700) -
------- -------
Outstanding, end of year 506,328 391,017
======= =======
Exercisable, end of year 380,328 391,017
======= =======
Price range of options outstanding $5.00-$16.38 $5.00-$16.38
============ ============
(11) TRANSACTIONS WITH RELATED PARTIES:
In February 1993, the Registrant participated in a $7,500,000 loan
transaction secured by a second mortgage covering the leasehold estate
on a prime hotel property in New York City. During 1993 a total of
$6,250,000 had been advanced, including approximately $1,652,000 by the
Registrant, $2,532,000 by certain Directors, $200,000 by the wife of
the Board Chairman, $100,000 by two adult daughters of a director,
$100,000 by a trust under will in which a Director has a partial
remainder interest and approximately $1,666,000 by unrelated parties.
In connection with this loan, a commitment fee in the net amount of
$270,000 was prorated among the participants in relation to the
principal amount advanced and committed to be advanced by each
participant. The note bore interest at 15% per annum, payable monthly
and was fully satisfied together with accrued interest in December
1993.
In June 1993 the Registrant advanced approximately $89,000 in connection
with a $265,000 loan transaction secured by a first mortgage on a
Brooklyn, New York property. The loan bears interest at 15% per annum,
payable monthly, and matures in June 1994. A Director of the
Registrant and an unrelated party also hold 1/3 interests in this loan.
Until June 28, 1991, the Registrant was a majority-owned subsidiary of
BMG Equities Corp. ("BMG"). BMG's primary asset was a 65% interest
(6,784,559 shares) in the outstanding common stock of the Registrant.
BMG was owned equally by the Registrant's Chairman of the Board and the
wife of the former Board Chairman ("Shareholder").
F-19
On June 28, 1991, BMG merged with and into a wholly-owned subsidiary of
the Registrant. Immediately following the merger, the subsidiary was
merged with and into the Registrant. Pursuant to the merger agreement,
the Registrant acquired the net assets of BMG, including the 6,784,559
shares of the Registrant's common stock. In consideration for their
interests in BMG, the Chairman of the Board received 3,392,280 shares
of the Registrant's common stock and the Shareholder received a
$5,750,000 cash payment and a note in the amount of $6,342,112. The
note was satisfied in July 1992 together with accrued interest thereon
with proceeds from a bank loan (see Note 8).
The acquired assets of BMG exceed the liabilities assumed on a fair
value basis; however due to the related party nature of the
transaction, the acquired net assets have been recorded by the
Registrant at historical cost, and accordingly additional paid-in
capital was reduced by approximately $4,894,000.
The results of operations of BMG have been included with that of the
Registrant for the period subsequent to acquisition. Pro forma results
of operations have not been separately disclosed as amounts are not
material.
In June 1991, the Registrant entered into an agreement with the wife of
the former Board Chairman ("Shareholder") which required the Registrant
to purchase 91,704 shares of the Registrant's common stock owned by the
Shareholder. In January 1993 the Registrant purchased these shares
from the Shareholder for approximately $396,000.
In January 1991, the Registrant purchased for $420,000, from an unrelated
third party, a 35% participation interest in a $1,200,000 loan secured
by first mortgages on seven parcels of real property, six of which are
located in New York City. The borrower had defaulted on the loan which
was due on August 31, 1990, and interest accrued at a default rate of
20% per annum. The Registrant's Chairman of the Board acted as agent
for the lenders and held a 25% participation interest in such loan. A
director and the children of another director of the Registrant also
held, in the aggregate, a 22.5% participation interest in such loan.
In January 1992, after foreclosure proceedings, the Registrant, through
wholly-owned subsidiaries, received title to six of the seven
properties, which interests in such title together with interests in
the foreclosure bid were previously assigned to the Registrant by the
lenders. In addition, the Registrant also received title to another
nine properties as additional collateral for the loan. In February
1992, the Registrant purchased, for cash and notes, the remaining 65%
interest in the loan that it did not already own for the face amount of
the note together with past due interest. The purchase price was
satisfied by approximately $201,000 in cash and the balance with notes
in the amounts of approximately $377,000 to the Chairman of the Board,
$198,000 to a director and $198,000 to an unrelated third party. The
notes bear interest at 10% beginning February 1, 1992. The note to the
Chairman of the Board matured and was paid in June 1992. Portions of
the remaining notes were paid in November 1992 and the balance of these
notes are due in February 1995.
F-20
During 1993 and 1992 the Registrant advanced, in the aggregate,
$3,411,833 and $230,000, respectively, to the Chairman of the Board.
Such advances bore interest at varying rates of 1% and 2% over the
Registrant's borrowing rate under its revolving credit facility which
bore interest at 6% at December 31, 1993 and 1992. Amounts outstanding
at December 31, 1993 and 1992 of $628,494 and $230,000, respectively,
together with accrued interest thereon were repaid in January 1994 and
1993, respectively.
(12) INCOME TAXES:
Effective January 1, 1993 the Registrant adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). In prior years, the Registrant accounted for income taxes using
Accounting Principles Board Opinion No. 11 ("APB 11"). Under SFAS 109,
deferred tax assets and liabilities are determined based on the
difference between the tax basis of an asset or liability and its
reported amount in the consolidated financial statements using enacted
tax rates. Future tax benefits attributable to these differences are
recognized to the extent that realization of such benefits is more
likely than not.
Under the provisions of SFAS 109, the Registrant has elected not to
restate prior years' consolidated financial statements. The cumulative
effect of this accounting change on years prior to 1993 resulted in a
benefit of $702,000, or $.11 per share. In addition, the effect of
this change on income before cumulative effect of an accounting change
in the current year was an increase of approximately $700,000 or $.11
per share.
The cumulative benefit recorded by the Registrant primarily arises from
basis differences of real properties held for rental for financial
statement and income tax purposes. Based upon the Registrant's
historical and projected levels of pretax income, management believes
it is more likely than not that the Registrant will realize such
benefits in the future and accordingly no valuation reserve has been
recorded.
F-21
The components of the net deferred tax asset (liability) at December 31,
1993 and 1992, under SFAS 109 and APB 11, respectively, are as follows-
1993 1992
---------- ----------
Realization allowances related to
marketable securities, accounts
receivable and inventories $ 433,199 $ 270,470
Basis differences relating to real
property held for rental 1,250,538 -
Accrued expenses, deductible when paid 1,496,393 814,538
Deferred revenue and profit (for tax
purposes) ( 247,422) ( 274,059)
Basis differences relating to certain
investments obtained in the BMG
merger ( 1,642,060) ( 1,624,000)
Property, plant and equipment ( 199,685) ( 145,279)
Pensions ( 199,465) -
Other, net ( 21,358) ( 27,048)
---------- ----------
Net deferred tax asset (liability) 870,140 ( 985,378)
Less - Current portion 609,078 516,168
---------- ----------
Noncurrent portion $ 261,062 ($1,501,546)
========== ==========
Income tax provision (benefit) reflected in the accompanying
consolidated statements of income for the years ended December 31,
1993, 1992 and 1991, is summarized as follows-
1993 1992 1991
---------- ---------- ----------
Current-
Federal $2,511,000 $2,390,000 $3,225,000
State 770,000 705,000 485,000
Deferred ( 237,000) ( 156,000) ( 878,000)
---------- ---------- ----------
$3,044,000 $2,939,000 $2,832,000
========== ========== ==========
F-22
A reconciliation of tax provision computed at statutory rates to the
amounts shown in the accompanying consolidated statements of income for
the years ended December 31, 1993, 1992 and 1991 is as follows-
1993 1992 1991
---------- ---------- ----------
Computed Federal income
tax provision
at statutory rates $2,520,000 $1,974,000 $2,146,000
State income taxes, net of
Federal income tax benefit 508,000 465,000 320,000
Effect of basis differences
arising from APB0-16
adjustments on pretax
income - 572,000 371,000
Effect of difference between
tax and book basis of
properties sold - ( 106,000) -
Other, net 16,000 34,000 ( 5,000)
---------- ---------- ----------
$3,044,000 $2,939,000 $2,832,000
========== ========== ==========
(13) OTHER INCOME AND EXPENSE:
The components of other income and expense in the accompanying
consolidated statements of income for the years ended December 31,
1993, 1992 and 1991 are as follows-
1993 1992 1991
---------- -------- ----------
Gain on sales of real estate
assets $1,109,591 $449,408 $ 259,261
Net realized and unrealized
gains (losses) on
marketable securities 743,636 ( 723,040) 671,283
Income from equity
investments (a) 578,382 142,059 226,706
Royalty income (b) - - 500,000
Other (c) 1,681,488 249,083 537,829
---------- -------- ----------
$4,113,097 $117,510 $2,195,079
========== ======== ==========
(a) Income from equity investments principally represents nonrecurring
cash distributions received by the Registrant in connection with
interests held in certain real estate ventures which were acquired in
the 1991 merger with BMG. Such investments were valued at historical
cost at the date of acquisition.
(b) In October 1991, Metex granted a Japanese company a license to
manufacture in the United States certain patented products and to
sell these products to certain customers. As partial consideration
for this license, Metex received a one time payment of $500,000.
F-23
(c) In 1993, the Registrant received a $2 million settlement from Metex'
insurance carrier in connection with the class action civil suit
brought by the former shareholders of Metex. This settlement is
reflected in other income, net of approximately $450,000 of current
year costs incurred in defense of this action. All defense costs
incurred prior to 1993 were included in general and administrative
expenses.
(14) RETIREMENT PLAN:
The Registrant's Metex subsidiary has a noncontributory pension plan
that covers substantially all full-time employees of the engineered
products segment.
The following table sets forth the plan's funded status and amounts
recognized in the Registrant's consolidated financial statements as of
December 31, 1993 and 1992-
1993 1992
---------- ----------
Actuarial present value of benefit
obligation-
Accumulated benefit obligation,
including vested benefits of
$1,565,000 and $1,281,000,
respectively $1,696,000 $1,401,000
========== ==========
Plan assets at fair value, primarily
U. S. bonds and government-backed
mortgage obligations $2,055,000 $1,999,000
Projected benefit obligation for
services rendered to date ( 1,845,000) ( 1,519,000)
---------- ----------
Plan assets in excess of projected
benefit obligation 210,000 480,000
Adjustments to reflect the net pension
asset at date of acquisition of Metex,
recorded net of tax in 1992, and other
adjustments, in accordance with
APB0-16 ( 156,000) ( 441,000)
Unrecognized net loss from past
experience different from that
assumed, and effects of changes in
assumptions, net of amortization 516,000 372,000
---------- ----------
Pension benefit included
in other assets $ 570,000 $ 411,000
========== ==========
F-24
Net pension expense for 1993 and 1992 includes the following components
1993 1992
-------- --------
Service cost earned during the year $171,000 $160,000
Interest cost on projected benefit obligation 122,000 113,000
Actual return on plan assets ( 142,000) ( 96,000)
Net amortization and deferral ( 25,000) ( 73,000)
-------- --------
Net pension expense $126,000 $104,000
======== ========
In determining the projected benefit obligation for 1993 and 1992, the
weighted average assumed discount rate used was 7.5% and 8.25%,
respectively, while the rate of expected increases in future salary
levels was 3.5%. The expected long-term rate of return on assets used
in determining net periodic pension cost was 9%.
(15) BUSINESS SEGMENTS:
At December 31, 1993, the Registrant had three principal business
segments: real estate investment and management, the manufacture and
sale of engineered products and the manufacture and sale of antenna
systems. Information on the Registrant's business segments for 1993,
1992 and 1991 is as follows
1993 1992 1991
-------- -------- --------
(in thousands)
Net revenues and sales
Rental revenues $ 20,815 $ 19,543 $ 16,123
Antenna systems 21,098 24,513 22,033
Engineered products 27,643 26,819 24,701
-------- -------- --------
$ 69,556 $ 70,875 $ 62,857
======== ======== ========
Operating income
Real estate investment
and management $ 3,946 $ 3,033 $ 1,149
Antenna systems 769 3,259 3,595
Engineered products 1,585 2,687 2,412
-------- -------- --------
6,300 8,979 7,156
General corporate expenses ( 2,561) ( 2,831) ( 2,924)
Other income (expense), net 3,672 ( 343) 2,081
-------- -------- --------
Income before
income taxes $ 7,411 $ 5,805 $ 6,313
======== ======== ========
F-25
1993 1992 1991
-------- -------- --------
(in thousands)
Identifiable assets-
Real estate investment
and management $ 86,668 $ 88,453 $ 96,843
Antenna systems 17,686 18,899 9,980
Engineered products 10,528 9,497 8,978
-------- -------- --------
$114,882 $116,849 $115,801
======== ======== ========
Through the Registrant's antenna systems segment, approximately 21%,
23% and 22% of consolidated revenues were derived from sales to the
United States Government or its contractors in 1993, 1992 and 1991,
respectively.
Sales by the Registrant's engineered products segment to automobile
original equipment manufacturers accounted for approximately 20%, 23%
and 26% of 1993, 1992 and 1991 consolidated revenues, respectively.
(16) CONTINGENCIES:
The Registrant has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities.
The process of remediation has begun at one facility pursuant to a plan
filed with the New Jersey Department of Environmental Protection and
Energy ("NJDEPE"). Environmental experts engaged by the Registrant
currently estimate that under the most probable remediation scenario
the remediation of this site is anticipated to require initial
expenditures of $860,000, including the cost of capital equipment, and
$86,000 in annual operating and maintenance costs over a 15-year
period.
Environmental studies at the second facility indicate that remediation
may be necessary. Based upon the facts presently available,
environmental experts have advised the Registrant that under the most
probable remediation scenario, the estimated cost to remediate this
site is anticipated to require $2.3 million in initial costs, including
capital equipment expenditures, and $258,000 in annual operating and
maintenance costs over a 10-year period. The Registrant may revise
such estimates in the future due to the uncertainty regarding the
nature, timing and extent of any remediation efforts that may be
required at this site, should an appropriate regulatory agency deem
such efforts to be necessary.
F-26
The foregoing estimates may also be revised by the Registrant as new or
additional information in these matters become available or should the
NJDEPE or other regulatory agencies require additional or alternative
remediation efforts in the future. It is not currently possible to
estimate the range or amount of any such liability.
Although the Registrant believes that it is entitled to full defense
and indemnification with respect to environmental investigation and
remediation costs under its insurance policies, the Registrant's
insurers have denied such coverage. Accordingly, the Registrant has
filed an action against certain insurance carriers seeking defense and
indemnification with respect to all prior and future costs incurred in
the investigation and remediation of these sites. Upon the advice of
counsel, the Registrant believes that based upon a present
understanding of the facts and the present state of the law in New
Jersey, it is probable that the Registrant will prevail in the pending
litigation and thereby access all or a very substantial portion of the
insurance coverage it claims; however, the ultimate outcome of
litigation cannot be predicted.
As a result of the foregoing, the Registrant has not recorded a charge
to operations for the environmental remediation, noted above, in the
consolidated financial statements, as anticipated proceeds from
insurance recoveries are expected to offset such liabilities. Although
the Registrant has reached a settlement with two insurance carriers, it
has not recognized any significant recoveries to date.
In the opinion of management, these matters will be resolved favorably
and such amounts, if any, not recovered under the Registrant's
insurance policies will be paid gradually over a period of years and,
accordingly, should not have a material adverse effect upon the
business, liquidity or financial position of the Registrant. However,
adverse decisions or events, particularly as to the merits of the
Registrant's factual and legal basis could cause the Registrant to
change its estimate of liability with respect to such matters in the
future.
Effective January 1, 1994 the Registrant will reflect the provisions of
Staff Accounting Bulletin 92 and will record the expected liability
associated with remediation efforts and the anticipated insurance
recoveries separately in the Registrant's consolidated financial
statements.
The Registrant is involved in various other litigation and legal
matters which are being defended and handled in the ordinary course of
business. None of these matters are expected to result in a judgment
having a material adverse effect on the Registrant's consolidated
financial position or results of operations.
F-27
(17) SUBSEQUENT EVENT:
On March 14, 1994 the Registrant, through a new wholly-owned subsidiary
known as Kentile, Inc., purchased substantially all of the operating
assets of Kentile Floors, Inc. ("Kentile") for approximately $14
million. Kentile is a major manufacture and supplier of resilient
vinyl flooring and is expected to generate approximately $40 million in
revenues during 1994. The purchase price was comprised of
approximately $6.1 million in new bank financing, approximately $5.4
million in cash and the assumption of approximately $2.5 million in
operating liabilities.
The $5.4 million cash payment includes $775,000 that was advanced to
Kentile by the Registrant during 1993 and was also partially derived
from a total of $4 million in short-term borrowings by the Registrant
during the first quarter of 1994. The proceeds from this sale were
used by Kentile to repay amounts outstanding under its asset-based
lending agreement, thereby relieving the Registrant of its obligation
under the letter of credit, discussed below.
In November 1992, Kentile filed for protection under Chapter 11 of the
United States Bankruptcy Code. Subsequent thereto, the Registrant
acquired a one-third equity interest in Kentile together with an option
to purchase an additional interest in the future. In consideration for
this interest and option in Kentile, the Registrant provided a $2
million letter of credit to partially guarantee borrowings under
Kentile's asset-based lending agreement. The letter of credit
arrangement was made pursuant to Bankruptcy Court approval on a
priority basis. In light of the uncertain outcome of Kentile's
bankruptcy proceedings, no value was assigned to the stock acquired by
the Registrant.
The acquisition of the operating assets of Kentile will be accounted for
by the purchase method and, accordingly, the results of operations of
Kentile, Inc. will be included with that of the Registrant for periods
subsequent to the date of the acquisition.
F-28
SCHEDULE II
UNITED CAPITAL CORP. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES
Deductions
------------------- Balance at
Balance at Amounts End of Period
Beginning Amounts Written ----------------------
Name of Debtor of Period Additions Collected Off Current Noncurrent
- - - -------------- ---------- ---------- ---------- ------- --------- ----------
Year Ended December 31, 1993:
Chairman of the Board (a) $230,000 $3,411,833 $3,013,339 $ - $628,494 $ -
======== ========== ========== === ======== ===
Year Ended December 31, 1992:
Chairman of the Board (a) $413,519 $ 230,000 $ 413,519 $ - $230,000 $ -
======== ========== ========== === ======== ===
Year Ended December 31, 1991:
Chairman of the Board (a) $675,454 $ 801,000 $1,062,935 $ - $413,519 $ -
======== ========== ========== === ======== ===
(a) Advances to the Chairman of the Board are included in notes and accounts
receivable in the accompanying consolidated balance sheets. The advances
outstanding at December 31, 1993, 1992 and 1991, together with accrued
interest were repaid in January 1994, 1993 and 1992, respectively. These
advances bore interest at varying rates of 1% and 2% over the
Registrant's borrowing rate under its revolving credit facility.
The accompanying notes to consolidated financial statements
are an integral part of these schedules.
F-29
SCHEDULE VIII
UNITED CAPITAL CORP. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Write-offs
Net of
Charged Recoveries
Balance at to of Accounts
Beginning Costs and Previously Balance at
of Period Expenses Written Off End of Period
---------- --------- ----------- -------------
Allowance for doubtful accounts
receivable:
Year ended
December 31, 1993 $241,000 $44,545 $ - $285,545
======== ======= ======= ========
Year ended
December 31, 1992 $228,000 $13,000 $ - $241,000
======== ======= ======= ========
Year ended
December 31, 1991 $216,000 $ - $12,000 $228,000
======== ======= ======= ========
The accompanying notes to consolidated financial statements
are an integral part of these schedules.
F-30
SCHEDULE X
UNITED CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
Charged to Costs and Expenses
---------------------------------
1993 1992 1991
---------- ---------- ----------
Maintenance and repairs $1,633,333 $1,298,331 $1,051,234
Taxes, other than payroll and income taxes 746,109 730,112 A
Note A -- Amounts are not presented as such amounts are
less than 1% of total revenues.
The accompanying notes to consolidated financial statements
are an integral part of these schedules.
F-31
SCHEDULE XI
UNITED CAPITAL CORP. AND SUBSIDIARIES
REAL PROPERTY HELD FOR RENTAL AND ACCUMULATED DEPRECIATION
Costs
Initial Cost Capitalized Gross Amount at Which
Mortgage to Registrant Subsequent Carried at Close of Period
Loans ----------------------- to ------------------------------------- Accumulated
Payable Building and Acquisition/ Building and Total Depreciation
Description (Gross) Land Improvements Improvements Land Improvements (a)(c) (b)
----------- ----------- ----------- ------------ ------------ ----------- ------------ ------------- ------------
Shopping Centers and
Retail Outlets-
Culver, CA $ 5,943,911 $ 841,811 $ 7,576,296 $ - $ 841,811 $ 7,576,296 $ 8,418,107 $ 2,979,398
Northbrook, IL 6,416,483 897,246 8,075,215 - 897,246 8,075,215 8,972,461 2,998,782
Miscellaneous
Investments 34,881,468 6,179,080 54,937,958 307,793 6,179,080 55,245,751 61,424,831 21,320,926
----------- ----------- ------------ ------- ---------- ------------ ------------ -----------
47,241,862 7,918,137 70,589,469 307,793 7,918,137 70,897,262 78,815,399 27,299,106
----------- ----------- ------------ ------- ---------- ------------ ------------ -----------
Commercial Properties-
Miscellaneous
Investments 6,469,864 2,921,377 26,098,806 - 2,921,377 26,098,806 29,020,183 10,775,555
Day Care Centers and
Offices-
Miscellaneous
Investments 1,065,168 642,895 5,786,058 98,238 642,895 5,884,296 6,527,191 4,530,856
Hotel Properties-
Miscellaneous
Investments 625,024 - 2,867,703 - - 2,867,703 2,867,703 2,051,755
Other-
Miscellaneous
Investments 227,883 220,598 2,176,671 22,685 220,598 2,199,356 2,419,954 600,474
----------- ----------- ------------ -------- ----------- ------------ ------------ -----------
$55,629,801 $11,703,007 $107,518,707 $428,716 $11,703,007 $107,947,423 $119,650,430 $45,257,746
=========== =========== ============ ======== =========== ============ ============ ===========
Life on
Which
Depreciation
in Latest
Statement of
Income
Date of Date is Computed
Description Construction Acquired (Years)
----------- ------------ -------- ------------
Shopping Centers and
Retail Outlets
Culver, CA N/A 1986 18
Northbrook, IL N/A 1987 18
Miscellaneous
Investments N/A 1986-91 12-32
Commercial Properties-
Miscellaneous
Investments N/A 1986-88 11-39
Day Care Centers and
Offices
Miscellaneous
Investments N/A 1986-91 5-32
Hotel Properties
Miscellaneous
Investments N/A 1986-87 10-13
Other
Miscellaneous
Investments N/A 1986-92 10-32
The accompanying notes to consolidated financial statements
are an integral part of these schedules.
F-32
SCHEDULE XI
(Continued)
NOTES:
(a) Reconciliations of the carrying value of real property held for rental for
the three years ended December 31, 1993 are as follows-
1993 1992 1991
------------ ------------ ------------
Real property held for rental at
beginning of period $119,778,000 $119,059,092 $109,349,859
Additions during the period-
Acquisitions and improvements 750,000 2,070,468 10,208,862
------------ ------------ ------------
120,528,000 121,129,560 119,558,721
Deductions during period-
Cost of real estate sold 877,570 1,351,560 499,629
------------ ------------ ------------
$119,650,430 $119,778,000 $119,059,092
============ ============ ============
(b) Reconciliations of accumulated depreciation for the three years ended
December 31, 1993 are as follows-
1993 1992 1991
----------- ----------- -----------
Accumulated depreciation at
beginning of period $38,942,798 $32,587,172 $25,939,410
Additions during period-
Provision for depreciation 6,626,079 6,715,064 6,811,953
----------- ----------- -----------
45,568,877 39,302,236 32,751,363
Deductions during period-
Accumulated depreciation of
real estate sold 311,131 359,438 164,191
----------- ----------- -----------
$45,257,746 $38,942,798 $32,587,172
=========== =========== ===========
(c) The aggregate cost for Federal income tax purposes is approximately
$178,317,000.
F-33
SCHEDULE XII
UNITED CAPITAL CORP. AND SUBSIDIARIES
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1993
Principal
Amount
of Loans
Subject to
Delinquent
Face Principal
Final Prior Amount of Carrying Amount or
Description Interest Rate Maturity Date Periodic Payment Terms Liens Mortgages of Mortgages (b) Interest
----------- ------------- ------------- ---------------------- ----- --------- ---------------- ----------
Mortgage note receivable 10.25% through November 2001 Principal and interest $ - $ 610,000 $263,324 $ -
in connection with October 1998; due monthly; in addition,
sale of hotel property 11% thereafter principal payments of
in Montgomery, Alabama $25,000 are due in March
1993 and September 1994
and $150,000 is due in
November 1998
Mortgage note receivable 8% through February 2002 Principal and interest - 900,000 377,331 -
in connection with January 1993; due monthly; in addition
sale of hotel property 9% through principal payments of
in Beaumont, Texas January 1994; $50,000 are due in
10% through February 1993 and $773,000
January 2000; at maturity
11% thereafter
Mortgage note receivable 13% through November 1996 Interest due monthly; - 200,000 150,000 -
in connection with October 1993; principal payments of
sale of land and 14% through $50,000 each due
building in Tampa, October 1994; November 1, 1993, 1994,
Florida 15% through 1995 and 1996
October 1995;
16% thereafter
Mortgage note receivable 10% August 1, 2000 Principal and interest - 325,000 104,265 -
in connection with sale due monthly
of land and building in
Waterbury, Connecticut
Mortgage note receivable 9% December 31, 2008 Principal and interest - 45,000 13,589 -
in connection with sale due monthly
of land and building in
Augusta, Georgia ---- ---------- -------- ----
$ - $2,080,000 $908,509(a) (c) $ -
==== ========== ======== ====
F-34
SCHEDULE XII
(Continued)
NOTES:
(a) A reconciliation of mortgage loans on real estate for the year ended
December 31, 1993 is as follows-
Balance at beginning of period $886,473
Additions during period-
New mortgage loans 123,643
Deductions during period-
Collection of principal ( 101,607)
--------
Balance at end of period $908,509
========
(b) In accordance with generally accepted accounting principles the gains from
the sale of these properties are being recognized under the installment
method and, accordingly, notes receivable have been reduced by the
following deferred gains at December 31, 1993:
Mortgage note receivable in connection with sale of property in-
Montgomery, Alabama $288,276
Beaumont, Texas 461,738
Waterbury, Connecticut 209,851
Augusta, Georgia 31,411
--------
$991,276
========
(c) The carrying value for Federal income tax purposes is substantially equal
to the carrying amount for book purposes.
The accompanying notes to consolidated financial statements
are an integral part of these schedules.
F-35
UNITED CAPITAL CORP. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
FOR THE YEAR 1993:
Revenues $17,832 $17,194 $16,838 $17,692
======= ======= ======= =======
Costs and expenses $16,513 $16,188 $16,097 $17,018
======= ======= ======= =======
Other income (expense) $ 312 $ 1,021 $ 1,567 $ 772
======= ======= ======= =======
Income before cumulative effect
of change in accounting
principle $ 970 $ 1,228 $ 1,328 $ 841
Cumulative effect of change in
accounting principle 702 - - -
======= ======= ======= =======
Net income $ 1,672 $ 1,228 $ 1,328 $ 841
======= ======= ======= =======
Per share data:
Income before cumulative effect
of change in accounting
principle $.16 $.20 $.21 $.14
Cumulative effect of change in
accounting principle .11 - - -
==== ==== ==== ====
Net income $.27 $.20 $.21 $.14
==== ==== ==== ====
FOR THE YEAR 1992:
Revenues $15,709 $18,921 $18,223 $18,022
======= ======= ======= =======
Costs and expenses $14,734 $17,711 $16,237 $16,045
======= ======= ======= =======
Other income (expense) $ 860 ($ 283) ($ 211) ($ 709)
======= ======= ======= =======
Net income $ 1,015 $ 242 $ 720 $ 889
======= ======= ======= =======
Per share data:
Net income $.15 $.04 $.11 $.14
==== ==== ==== ====
F-36
- - - --------------------------------------------------------------------------------
UNITED CAPITAL CORP.
EXHIBITS TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1993
- - - --------------------------------------------------------------------------------