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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, 1999
--------------------------------------------------------
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
-------------------- --------------------------
Commission file number 1-10104
-------------------------------------------------
UNITED CAPITAL CORP.
- --------------------------------------------------------------------------------
(Exact name of Company as specified in its charter)
Delaware 04-2294493
- ------------------------------------------ -------------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number)
9 Park Place, Great Neck, New York 11021
- ------------------------------------------ -------------------------------
(Address of principal executive offices) (Zip code)
Company's telephone number, including area code: (516) 466-6464
--------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- -------------------------------------------------------------------------------
Common Stock (Par Value $.10 Per Share) American Stock Exchange
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. 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 Company'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 Company as of March 15, 2000 was approximately $18,781,000.
The number of shares of the Company's $.10 par value common stock outstanding as
of March 15, 2000 was 4,735,915.
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 Company pursuant to Regulation 14A within 120 days after the
close of its fiscal year.
PART I
ITEM 1. BUSINESS
General
- -------
United Capital Corp. (the "Company"), incorporated in 1980 in the State of
Delaware, currently has two industry segments:
1. Real Estate Investment and Management.
2. Manufacture and Sale of Engineered Products.
The Company also invests excess available cash in marketable securities and
other financial instruments.
Description of Business
- -----------------------
Real Estate Investment and Management
-------------------------------------
The Company is engaged in the business of investing in and managing real estate
properties and the making of high-yield, short-term loans secured by desirable
properties. Most real estate properties owned by the Company 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 Company 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, hotels and shopping centers around the country. In
addition, the Company 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. Exclusive of the
Company's former Dorne & Margolin ("D&M") manufacturing facility and a South
Plainfield property, 96.5% of the total square footage of the Company's
properties are leased as of December 31, 1999.
Engineered Products
-------------------
The Company's engineered products are manufactured through Metex Mfg.
Corporation ("Metex") and AFP Transformers, LLC ("AFP Transformers"),
wholly-owned subsidiaries of the Company. 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.
Metex has been an original equipment manufacturer for the automobile industry
since 1974 and presently supplies many automobile manufacturers with exhaust
seals and components for use in exhaust emission control devices.
1
The Company also manufactures transformer products which are marketed under
several brand names including AFP Transformers, Field Transformer, ISOREG and
EPOXYCAST for a wide variety of industrial and research applications including
machine power transformers, rectifier and inverter transformers and transformers
for heating.
Sales by the engineered products segment to its largest customer (in excess of
10.0% of the segment's net sales) accounted for 17.0% of the segment's sales for
1999. During 1998, sales to its three largest customers accounted for 34.7% of
the segment's sales.
Summary Financial Information
-----------------------------
The following table sets forth the revenues, operating income and identifiable
assets of each continuing business segment of the Company for 1999, 1998 and
1997.
(In Thousands) 1999 1998 1997
-------- -------- -------
Real Estate Investment and Management
- -------------------------------------
Rental revenues $ 29,202 $ 26,349 $ 24,042
======== ======== ========
Operating income $ 14,079 $ 12,133 $ 7,718
======== ======== ========
Identifiable assets, including corporate assets $122,112 $114,406 $ 95,080
======== ======== ========
Engineered Products
- -------------------
Net sales $ 30,500 $ 32,170 $ 36,204
======== ======== ========
Operating income $ 1,855 $ 3,239 $ 3,419
======== ======== ========
Identifiable assets $ 11,620 $ 11,706 $ 11,432
======== ======== ========
Distribution
------------
The Company's manufactured products are distributed by a direct sales force and
through distributors to industrial consumers and original equipment
manufacturers.
Product Methods and Sources of Raw Materials
--------------------------------------------
The Company's products are manufactured at its own facilities and a leased
facility in Mexico. Raw materials are purchased from a wide range of suppliers
of such materials. Most raw materials purchased by the Company are available
from several suppliers. Certain raw materials used by the Company have been the
subject of international trade disputes regarding price dumping in the United
States. Although management does not expect such matters to adversely effect the
Company's financial position, an unfavorable outcome could result in higher raw
material costs and adversely effect the Company's results of operations. The
Company has not had and does not expect to have any problems fulfilling its raw
material requirements during 2000.
Patents and Trademarks
----------------------
The Company owns several patents, patent licenses and trademarks. While the
Company considers that in the aggregate its patents and trademarks used in the
engineered products
2
operations are significant to this segment, it does not believe that any of
these patents or trademarks are of such importance that the loss of one or more
of them would materially affect its consolidated financial condition or results
of operations.
Employees
---------
At March 15, 2000, the Company employed approximately 320 persons, approximately
190 of which were covered by a collective bargaining agreement that expires in
February 2004. The Company believes that its relationship with its employees is
good.
Competition
-----------
The Company competes with at least 20 other companies in the sale of engineered
products. The Company emphasizes product performance and service in connection
with the sale of these products. The principal competition faced by the Company
results from the sales price of the products sold by its competitors.
Backlog
-------
The dollar value of unfilled orders of the Company's engineered products segment
was approximately $2.4 million at December 31, 1999 and $2.1 million at December
31, 1998. It is anticipated that substantially all such 1999 backlog will be
filled in 2000. Substantially all of the 1998 backlog was filled in 1999. 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,
exhaust seals or airbag components 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
Company. It is the policy of the Company 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 Company has undertaken the completion of environmental studies and/or
remedial action at Metex' two New Jersey facilities. The Company has recorded a
liability in the Consolidated Financial Statements for the estimated potential
remediation costs at these facilities.
The process of remediation has begun at one facility pursuant to a plan filed
with the New Jersey Department of Environmental Protection ("NJDEP").
Environmental experts engaged by the Company estimate that under the most
probable remediation scenario the remediation of this site is
3
anticipated to require initial expenditures of $860,000 including the cost of
capital equipment, and $86,000 in annual operating and maintenance costs over a
15 year period.
Environmental studies at the second facility indicate that remediation may be
necessary. Based upon the facts presently available, environmental experts have
advised the Company that under the most probable remediation scenario, the
estimated cost to remediate this site is anticipated to require $2.3 million in
initial costs, including capital equipment expenditures, and $258,000 in annual
operating and maintenance costs over a 10 year period. These estimated costs of
future expenses for remediation obligations are not discounted to their present
value. The Company may revise such estimates in the future due to the
uncertainty regarding the nature, timing and extent of any remediation efforts
that may be required at this site, should an appropriate regulatory agency deem
such efforts to be necessary.
The foregoing estimates may also be revised by the Company as new or additional
information in these matters become available or should the NJDEP or other
regulatory agencies require additional or alternative remediation efforts in the
future. It is not currently possible to estimate the range or amount of any such
liability.
Although the Company believes that it is entitled to full defense and
indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the Company's insurers have denied such
coverage. Accordingly, the Company has filed an action against certain insurance
carriers seeking defense and indemnification with respect to all prior and
future costs incurred in the investigation and remediation of these sites (see
Item 3, "Legal Proceedings"). At December 31, 1999, settlements have been
reached with all but one carrier in this matter. Settlement with the final
carrier was completed in February 2000.
In the opinion of management, amounts recovered from its insurance carriers
should be sufficient to address these matters and amounts needed in excess, if
any, will be paid gradually over a period of years. Accordingly, they should not
have a material adverse effect upon the business, liquidity or financial
position of the Company. However, adverse decisions or events, particularly as
to the merits of the Company's factual and legal basis could cause the Company
to change its estimate of liability with respect to such matters in the future.
ITEM 2. PROPERTIES
Real Property Held for Rental
As of March 15, 2000 the Company owned 211 properties strategically located
throughout the United States. The properties are primarily leased under
long-term net leases. The Company's classification and gross carrying value of
its properties at December 31, 1999 are as follows (Dollars in Thousands):
Gross
Carrying Number of
Description Value Percentage Properties
----------- ----- ---------- ----------
Shopping centers and retail outlets $ 69,330 50.2% 28
Commercial properties 51,845 37.5% 133
Day-care centers and offices 8,080 5.9% 12
Hotel properties 4,628 3.3% 2
Other 4,309 3.1% 39
-------- ----- --------
Total $138,192 100.0% 214
======== ===== ========
4
Shopping Centers and Retail Outlets
-----------------------------------
Shopping centers and retail outlets include 20 department stores and other
properties which are primarily leased under net leases. Taxes, maintenance and
all other expenses of the properties 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 11 K-Mart stores and three Macy's stores, with a total of
approximately 1.1 million, and 538,000, square feet, respectively. The K-Mart
stores are primarily located in the Midwest region of the United States. The
Macy's stores are located in the Pacific Coast region of the United States.
Commercial Properties
---------------------
Commercial properties consist of properties leased as 85 restaurants, 23 Midas
Muffler Shops, three convenience stores, nine 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 85
restaurants, located throughout the United States, include properties leased as
McDonalds, Burger King, Dunkin' Donuts, Pizza Hut, Hardee's, Wendy's and
Kentucky Fried Chicken. Included in commercial properties at December 31, 1999
is the 90,000 square foot facility previously utilized in the Company's D&M
business. This facility was sold in January 2000.
Day-Care Centers and Offices
----------------------------
The ten day-care centers and two offices are located in New York City, and
leased to the City of New York.
Hotel Properties
----------------
The Company's two hotel properties are located in Georgia and California and are
managed through a local on-site management company that is responsible for all
day-to-day operations of the hotels.
The following summarizes real property held for rental by geographic area at
December 31, 1999 (Dollars in Thousands):
Gross Number
Carrying of
Value Properties
--------- ------------
Northeast $ 47,511 110
Southeast 25,814 38
Midwest 31,183 40
Southwest 6,332 8
Pacific Coast 23,090 8
Pacific Northwest 981 5
Rocky Mountain 3,281 5
-------- --------
$138,192 214
======== ========
5
Manufacturing Facilities
- ------------------------
The Company'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 54,000 square feet of floor space.
The Company owns these facilities together with the sites. Metex also leases a
manufacturing facility in Tijuana, Mexico with approximately 10,000 square feet
of floor space. Production at this facility began in February 1999.
ITEM 3. LEGAL PROCEEDINGS
Rosatelli vs. United Capital Corp.
- ----------------------------------
In August 1996, Dennis Rosatelli, the Company's former Chief Financial Officer
commenced an action in Superior Court of New Jersey, Law Division, Bergen County
("Superior Court"), seeking, among other things, payment under his employment
contract, and indemnification for claims against him by the Internal Revenue
Service and other matters in connection with his tenure. In March 1997, Mr.
Rosatelli amended his complaint to include Bank of America Illinois, Metex
Corporation, Kentile Inc. ("Kentile"), A.F. Petrocelli and another officer of
Kentile as additional defendants. The Company believes that as a result of Mr.
Rosatelli's gross negligence, recklessness and/or willful disregard of his
duties and responsibilities, Mr. Rosatelli is not entitled to the recoveries he
seeks. Mr. Rosatelli's employment was terminated by the Company in May 1996 for
cause. In May 1998, Mr. Rosatelli amended his complaint to include Kentile's
assignee for the benefit of creditors as an additional defendant and to remove
the officer of Kentile previously named as a defendant from this action. The
material allegations of the complaint were unchanged. The Company asserted
counterclaims against Mr. Rosatelli for, among other things breach of fiduciary
duty and set off of the amounts by which he has damaged the Company against his
claims under his employment contract. While management continues to believe that
the allegations were false and without merit, as a result of escalating defense
costs and the uncertainty present in any litigation the Company settled such
litigation in September 1999. The costs of such litigation, including amounts
paid in settlement, were not material to the Company's consolidated results of
operations or financial position and had been previously recorded by the
Company.
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. 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. At December 31,
1999, the Company had settled with all but one of the insurance carriers.
Settlement with the final carrier was completed in February 2000.
6
Other Litigation
- ----------------
The Company is involved in various other litigation and legal matters which are
being defended and handled in the ordinary course of business.
None of the foregoing is expected to result in a judgment having a material
adverse effect on the Company's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The Company'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
--------- ---------
1999 First quarter $18.38 $16.00
Second quarter 16.75 13.00
Third quarter 17.13 14.00
Fourth quarter 19.50 17.00
1998 First quarter $26.50 $23.13
Second quarter 23.75 20.50
Third quarter 24.25 17.00
Fourth quarter 18.88 14.00
As of March 15, 2000, there were approximately 440 record holders of the
Company's Common Stock. The closing sales price for the Company's Common Stock
on such date was $15.25. The Company has never paid any cash dividends on its
Common Stock. The payment of dividends is within the discretion of the Company's
Board of Directors, however in view of potential working capital needs and in
order to finance future growth and as a result of certain restrictions in the
Company's credit agreement, it is unlikely that the Company will pay any cash
dividends on its Common Stock in the near future.
7
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.
(In Thousands, Except Per Share Data) Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ --------- -------- ------ --------
Total revenues (1) $ 59,702 $ 58,519 $ 60,246 $ 65,991 $ 64,340
======== ======== ======== ======== ========
Income from continuing operations $ 13,326 $ 10,583 $ 7,465 $ 6,634 $ 3,910
======== ======== ======== ======== ========
Income from continuing operations
per basic common share (2) $ 2.68 $ 2.03 $ 1.41 $ 1.21 $ .67
======== ======== ======== ======== ========
Total assets $133,732 $126,112 $113,353 $116,761 $110,366
Total liabilities 74,676 73,694 75,873 87,186 84,137
Stockholders' equity 59,056 52,418 37,480 29,575 26,229
======== ======== ======== ======== ========
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) Earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). For
further discussion of earnings per share see Note 1, "Summary
of Significant Accounting Policies" of Notes to Consolidated
Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations 1999 and 1998
- -----------------------------------
General
-------
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the description of the Company'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 Company during 1999 were $59.7 million resulting
in income from continuing operations of $13.3 million, or $2.68 per basic share
versus revenues of $58.5 million and income from continuing operations of $10.6
million, or $2.03 per basic share in 1998. This represents a 32.0% increase in
earnings per basic share from continuing operations for the current year. In
1998, the Company sold its antenna business, resulting in a pretax gain from
discontinued operations of approximately $8.6 million or $.93 per basic share on
an after tax basis. Net income was $13.3 million or $2.68 per basic share in
1999 versus $15.4 million or $2.96 per basic share in 1998.
8
Real Estate Operations
----------------------
Rental revenues from real estate operations during 1999 increased $2.9 million
or 10.8% over those of the prior year. This increase is primarily attributable
to increased revenues from the accounting treatment of certain property leases
resulting in the recognition of non-recurring revenues in the fourth quarter and
also from revenues associated with properties acquired in 1998.
Mortgage interest expense for 1999 decreased by $41,000 as compared to such
expense incurred during 1998. This decrease of 1.5% results from the continuing
amortization of mortgages during the current year, including repayments
associated with properties sold.
Depreciation expense associated with real properties held for rental decreased
approximately $320,000 or 5.8% from such expense incurred in the preceding year.
This decrease is primarily attributable to properties sold in 1999 and 1998.
Other operating expenses associated with the management of real properties
increased approximately $1.3 million during 1999 versus such expenses incurred
in 1998. This increase is primarily due to 1998 expenses having been reduced by
a non-recurring real estate tax abatement of approximately $1.0 million. The
remainder of the increase was principally due to expenses incurred for the
maintenance of properties acquired in 1998.
Engineered Products
-------------------
The Company's engineered products segment includes Metex and AFP Transformers.
The operating results of the engineered products segment for the years ended
December 31, 1999 and 1998 are as follows:
(In Thousands) 1999 1998
------------------- -------------------
Net sales $30,500 $32,170
=================== ===================
Cost of sales $21,808 $22,260
=================== ===================
Selling, general and administrative expenses $6,837 $6,671
=================== ===================
Operating income $1,855 $3,239
=================== ===================
Net sales of the engineered products segment were $30.5 million, a 5.2% decrease
from prior year's revenues. This modest decrease reflects the continued price
competition within the worldwide automotive industry. Management continues to
pursue new revenue opportunities including new geographical markets for its
existing products and new applications for its core technologies.
Cost of sales as a percentage of net sales increased approximately 2.3% between
1998 and 1999. This increase is primarily due to continued price competition,
non-recurring costs associated with a labor strike and subsequent union
settlement in the first quarter of 1999, start up operations in Mexico and the
mix of products sold.
Selling, general and administrative expenses of the engineered products segment
increased $166,000 or 2.5% during 1999, as compared to such costs in 1998. This
increase is principally
9
due to amounts invested to expand the Company's product offerings and improve
competitiveness.
General and Administrative Expenses
-----------------------------------
General and administrative expenses not associated with the manufacturing
operations decreased approximately $250,000 during 1999 as compared to such
expenses incurred in the preceding year. This decrease is primarily due to a
reduction in professional fees offset by an increase in salary and salary
related expenses.
Other Income and Expense, Net
-----------------------------
Other income and expense, net for 1999 increased approximately $3.3 million from
$5.0 million in 1998 to $8.3 million in 1999. The increase is principally due to
an increase in gain on the sale of real estate assets of approximately $1.5
million and an approximate $1.2 million increase in gain from equity investments
resulting from the sale of the Company's 50.0% partnership interest in a Miami
Beach hotel. The remainder of the increase relates to an increased gain from the
sale of trading securities and various increases in other income.
Results of Operations 1998 and 1997
- -----------------------------------
Total revenues generated by the Company during 1998 were $58.5 million versus
$60.2 million in 1997. Income from continuing operations for 1998 was $10.6
million or $2.03 per basic share, a 44.0% increase over 1997 earnings per basic
share of $1.41. Income from continuing operations during 1997 was $7.5 million.
Income from the disposal of discontinued operations, net of tax for 1998, was
$4.8 million or $.93 per basic share versus income from discontinued operations
of $1.0 million or $.19 per basic share in 1997. Net income increased to $15.4
million or $2.96 per basic share in 1998 versus $8.5 million or $1.60 per basic
share in 1997, an 85.0% increase in basic earnings per share.
Real Estate Operations
----------------------
Rental revenues from real estate operations during 1998 increased $2.3 million
or 9.6% over those of the prior year. This increase is primarily due to revenues
associated with properties acquired in 1998 and 1997.
Mortgage interest expense for 1998 decreased by $397,000 as compared to such
expense incurred during 1997. This decrease of 13.0% results from the continuing
amortization of mortgages during 1998, including repayments associated with
properties sold. Additionally, the Company refinanced three mortgages in 1998
with a total principal value of approximately $12.3 million, reducing the
weighted average interest rate on the three mortgages from 10.3% to 6.6%.
Depreciation expense associated with real properties held for rental decreased
approximately $308,000 or 5.3% from such expense incurred in 1997. This decrease
is primarily attributable to properties sold, partially offset by depreciation
expense on acquisitions.
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Other operating expenses associated with the management of real properties
decreased approximately $1.4 million during 1998 versus such expenses incurred
in 1997. This decrease is principally due to a one time adjustment in 1998
associated with real estate tax abatements.
Engineered Products
-------------------
The Company's engineered products segment includes Metex and AFP Transformers.
The operating results of the engineered products segment for the years ended
December 31, 1998 and 1997 are as follows:
(In Thousands) 1998 1997
----------- -------------
Net sales $32,170 $36,204
=========== =============
Cost of sales $22,260 $25,972
=========== =============
Selling, general and administrative expenses $6,671 $6,813
=========== =============
Income from operations $3,239 $3,419
=========== =============
Net sales of the engineered products segment were $32.2 million, an 11.1%
decrease from 1997 revenues. This decrease resulted primarily from continued
price competition and declining worldwide automotive sales. Management has
continued to aggressively pursue new revenue opportunities including new
geographical markets for its existing products as well as new applications for
its core technologies.
Cost of sales as a percentage of net sales decreased approximately 2.5% between
1997 and 1998. This decline is primarily due to a favorable market for stainless
steel purchases, and a continued emphasis on cost reductions, productivity
improvements and product mix.
Selling, general and administrative expenses of the engineered products segment
decreased $142,000 or 2.1% during 1998, as compared to such costs in 1997. This
reduction is principally due to reduced selling expenses, primarily salary and
salary related expenses.
General and Administrative Expenses
-----------------------------------
General and administrative expenses not associated with the manufacturing
operations increased approximately $769,000 during 1998 as compared to such
expenses incurred in the preceding year primarily due to an increase in
professional fees.
Other Income and Expense, Net
-----------------------------
Other income and expense, net for 1998 increased approximately $1.8 million from
$3.2 million in 1997 to $5.0 million in 1998. The increase is principally due to
an increase in gain on the sale of real estate properties of approximately $2.0
million partially offset by increases in other net expenses.
11
Liquidity and Capital Resources
- -------------------------------
At December 31, 1999, the Company's cash and marketable securities were $40.9
million and working capital was approximately $28.4 million. Management
continues to believe that the real estate market is overvalued and accordingly
recent acquisitions have been limited to those select properties that meet the
Company's stringent financial requirements. Management believes that the
available working capital along with the $60.0 million of availability on the
revolving credit facility discussed below, puts it in an opportune position to
fund acquisitions and grow the portfolio as attractive long-term opportunities
become available. The current liabilities of the Company have historically
exceeded its current assets principally due to the financing of the purchase of
long-term assets utilizing short-term borrowings and from the classification of
current mortgage obligations without the corresponding current asset for such
properties. Future financial statements may reflect current liabilities in
excess of current assets. Management is confident that through cash flow
generated from operations, together with borrowings available under the
revolving credit facility discussed below and the sale of select assets, all
obligations will be satisfied as they come due.
The Company's portfolio of available for sale securities had a fair market value
of approximately $27.3 million at December 31, 1999, reflecting pretax
unrealized holding gains of approximately $6.0 million.
Effective December 31, 1999, the Company entered into a credit agreement with
three banks which provides for both a $60.0 million revolving credit facility
("Revolver") and a $1.9 million term loan ("Term Loan"). Each of the three banks
participates in the Revolver while only one of the banks is a participant in the
Term Loan.
Under the terms of the Revolver, the Company will be provided with eligibility
based upon the sum of (i) 60.0% of the aggregate annualized and normalized
year-to-date net operating income of unencumbered eligible properties, as
defined, capitalized at 10.5%, (ii) the lesser of $6.0 million or 60.0% of the
aggregate annualized and normalized year-to-date net operating income of
unencumbered eligible hotel properties, as defined, capitalized at 10.5%, (iii)
the lesser of $10.0 million or 50.0% of the aggregate annualized and normalized
year-to-date net operating income of encumbered eligible properties, as defined,
capitalized at 12.0% and (iv) the lesser of $10.0 million or the sum of 75.0% of
eligible accounts receivable and 50.0% of eligible inventory, as defined. At
December 31, 1999, eligibility under the Revolver was $60.0 million, based upon
the above terms. The credit agreement contains certain financial and restrictive
covenants, including minimum consolidated equity, interest coverage, debt
service coverage and capital expenditures (other than for real estate). The
Company was in compliance with all covenants at December 31, 1999. The credit
agreement also contains provisions which allow the banks to perfect a security
interest in certain operating and real estate assets in the event of a default,
as defined in the credit agreement. Borrowings under the Revolver, at the
Company's option, bear interest at the bank's prime lending rate ("Prime") or at
the London Interbank Offered Rate ("LIBOR") plus 2.0%. The Revolver expires on
December 31, 2002. At December 31, 1999, there were no amounts outstanding under
the Revolver.
The Term Loan bears interest at 90 day LIBOR plus 1.4% (7.4% at December 31,
1999) and is payable in quarterly principal installments of $175,000, with the
final payment due on September 30, 2002. At December 31, 1999, there was $1.9
million outstanding on the Term Loan.
12
Prior to obtaining the Revolver and Term Loan, the Company maintained a credit
agreement with two banks which provided for both a $7.0 million term loan and a
$40.0 million revolving credit facility. This credit agreement was terminated
effective December 31, 1999 in conjunction with the execution of the new
Revolver and Term Loan. The termination included the retirement of $1.9 million
under the term loan to a bank that is not participating in the current facility.
The remaining term loan balance of $1.9 million was converted to the Term Loan
under arrangements similar to the original facility. At December 31, 1998, there
were no amounts outstanding under the revolving credit facility and $5.3 million
outstanding on the term loan.
The Company has an interest-rate swap agreement (the "Swap") to effectively
convert its floating rate Term Loan to a fixed rate basis, thus reducing the
impact of interest rate changes on future expense. Under the Swap, the Company
agreed to exchange with the counterparty (a commercial bank) the difference
between the fixed and floating rate interest amounts. The differential to be
paid or received on the Swap is recognized over the term of the agreement as an
adjustment to interest expense. The fair value of the Swap is not recognized in
the financial statements.
The Company has undertaken the completion of environmental studies and/or
remedial action at Metex' two New Jersey facilities and has filed an action
against certain insurance carriers seeking recovery of costs incurred and to be
incurred in these matters. At December 31, 1999, settlements have been reached
with all but one carrier in this matter. Settlement with the final carrier was
completed in February 2000. See Item 3 "Legal Proceedings" and Note 19,
"Contingencies" of Notes to Consolidated Financial Statements for further
discussion on this matter.
In August 1999, the Company's Board of Directors authorized a "Dutch Auction"
self-tender offer for up to 500,000 shares of the Company's common stock, or
approximately 10.0% of its outstanding shares. Under the terms of this offer,
which expired on September 30, 1999, the Company invited shareholders to tender
shares at prices between $15.00 and $17.50 per share.
In October 1999, the Company purchased and retired approximately 278,000 shares
validly tendered at a price of $17.50 per share. The $4.9 million of shares
repurchased in connection with this self-tender offer represented approximately
5.5% of the Company's outstanding shares at that time. As a result of the
repurchase, the Company's additional paid-in capital was reduced to zero and the
Company's retained earnings was reduced by approximately $4.1 million. Future
repurchases of the Company's common stock will also reduce retained earnings by
amounts in excess of the par value.
The cash needs of the Company have been satisfied from funds generated by
current operations and additional borrowings. It is expected that future
operational cash needs and the cash required to repurchase the Company's common
stock will also be satisfied from existing cash balances, ongoing operations and
additional borrowings under the Revolver. The primary source of capital to fund
additional real estate acquisitions and to make additional high-yield mortgage
loans will come from existing funds, additional borrowings under the Revolver,
the sale, financing and refinancing of the Company's properties and from third
party mortgages and purchase money notes obtained in connection with specific
acquisitions.
In addition to the acquisition of properties for consideration consisting of
cash and mortgage financing proceeds, the Company may acquire real properties in
exchange for the issuance of the Company's equity securities. The Company may
also finance acquisitions of other companies in
13
the future with borrowings from institutional lenders and/or the public or
private offerings of debt or equity securities.
Funds of the Company in excess of that needed for working capital, purchasing
real estate and arranging financing for real estate acquisitions are invested by
the Company in corporate equity securities, corporate notes, certificates of
deposit, government securities and other financial instruments.
Market Risk
- -----------
The Company's interest income is most sensitive to changes in the general levels
of U.S. interest rates. Changes in U.S. interest rates affect the interest
earned on the Company's cash and cash equivalents. The Company's
available-for-sale securities consist of U.S. investments in both common and
preferred equity issues as well as corporate debt securities and are subject to
the fluctuations in U.S. stock markets. Most of the Company's mortgages payable
are fixed rate and self amortizing from the net cash flow on the underlying
properties. The Company's Term Loan has a variable rate but is effectively
hedged by an interest-rate swap agreement, whose notional amount matches the
principal balance of the variable rate debt it hedges.
The Company manufactures its products in the United States and Mexico and sells
its products in those markets as well as the European, South American and Asian
markets. Most of the Company's sales are denominated in U.S. dollars and the
Company's operating results are not materially exposed to changes in exchange
rates. The Company's manufacturing operations utilize various metal commodities
(principally stainless steel) in the manufacturing process. Global competition
has stabilized or reduced prices in the key metals used in the Company's
manufacturing processes. While key metals purchased from foreign entities are
generally denominated in U.S. dollars, fluctuations in the suppliers' local
currencies may impact materials pricing. The Company is unable to quantify the
effects of such fluctuations, however, it does enter into purchase commitments
for certain key metals that generally do not exceed twelve months and tend to
minimize short-term currency fluctuations. The Company's financial results,
however, could be significantly affected by fluctuations in metals pricing.
Certain raw materials used by the Company have been the subject of international
trade disputes regarding price dumping in the United States. Although management
does not expect such matters to adversely effect the Company's financial
position, an unfavorable outcome could result in higher raw material costs and
adversely effect the Company's results of operations.
14
The following is a tabular presentation of quantitative market risks at December
31, 1999:
Principal (Notional) Aount by Expected Maturity
----------------------------------------------------------------------------- Fair
There- Value
(Dollars in Thousands) 2000 2001 2002 2003 2004 after Total 12/31/99
- ------------------------------------------------------------------------------------------------------------------- -------------
Assets
Available-for-sale securities $ 27,296 $ 0 $ 0 $ 0 $ 0 $ 0 $27,296 $27,296
Mortgage notes receivable $ 28 $ 28 $ 30 $ 34 $ 39 $ 139 $ 298 $ 354
Average interest rate 10.6% 10.3% 10.9% 10.9% 10.9% 10.0%
Liabilities
Long-term debt, including
current portion
Fixed rate $ 5,990 $ 5,531 $ 5,047 $ 4,391 $ 5,866 $ 6,481 $33,306 $31,134
Average interest rate 7.7% 7.6% 7.4% 7.4% 7.3% 6.9%
Variable rate $ 700 $ 700 $ 525 $ 0 $ 0 $ 0 $ 1,925 $ 1,902
Average interest rate- 6.9% 6.9% 6.9%
LIBOR +1.40%
Interest Rate Derivative Financial Instruments Related to Variable Rate Debt
Interest rate swap
Pay fixed/receive variable $ 700 $ 700 $ 525 $ 0 $ 0 $ 0 $ 1,925 $ 14
Average pay rate 7.8% 7.8% 7.8%
Average receive rate 6.9% 6.9% 6.9%
Business Trends
- ---------------
Total 1999 revenues of the Company increased approximately $1.2 million or 2.0%
from 1998 levels to $59.7 million. This increase is primarily attributable to
increased revenues from the accounting treatment of certain property leases
resulting in the recognition of non-recurring revenues in the fourth quarter and
also from revenues associated with properties acquired in 1998 offset by lower
sales in the engineered products segment. Income from continuing operations
increased to $13.3 million in 1999 from $10.6 million in 1998. This increase is
principally due to the results of the Company's real estate operations,
partially offset by reduced operating profit in the engineered products segment
resulting from the reduction in revenues and amounts invested to expand the
Company's product offerings and improve competitiveness.
The results of the Company's real estate operations reflect an increase in
operating income of $1.9 million on a revenue increase of $2.9 million. The
increase in operating profits is primarily due to the revenue increase discussed
above and lower depreciation expense associated with properties sold in 1999 and
1998 offset by increases in other real estate operating expenses. Continuing
lease renewals and mortgage amortization will continue to have a positive effect
upon the revenues and operating profit of this segment. Where appropriate,
management may use permanent long-term financing rather than its short-term
revolving credit facility to finance its real estate acquisitions.
The Company's engineered products segment posted a 5.2% decrease in revenues
during the twelve months ended December 31, 1999, from the comparable 1998
period. The modest decrease in net sales reflects the continued price
competition within the worldwide automotive
15
industry. Management is aggressively pursuing new sales opportunities including
new geographical markets for its existing products and new applications for its
core technologies.
Year 2000 Conversion
- --------------------
The Company has taken reasonable steps in preparing for the Year 2000 issue. The
costs directly associated with Year 2000 compliance were not material to the
Company's financial condition or results of operations. Although the Company
believes that it successfully avoided any significant disruption from the Year
2000 issue, it will continue to monitor all critical systems for the appearance
of latent Year 2000 disruptions and problems encountered through third parties
with whom the Company deals to ensure that such matters get addressed promptly.
Any resulting disruption could have a material adverse impact on its business.
Forward Looking Statements
- --------------------------
This Form 10-K contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. All forward-looking statements involve risks
and uncertainties including without limitation the statements expressed under
"Business Trends" and "Year 2000 Conversion" above. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Form 10-K will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary information filed as part of this
Item 8 are listed under Item 14, "Exhibits, Financial Statements and Schedules
and Reports on Form 8-K" and are contained in this Form 10-K, beginning on page
F-1.
ITEM 9. CHANGES IN THE COMPANY'S CERTIFYING ACCOUNTANT
The Company's auditors for the year ended December 31, 1998 were Arthur Andersen
LLP ("Arthur Andersen"). As stated in the Company's proxy statement dated May 6,
1999, the Company annually reviews the selection of its independent auditors.
The Company had previously solicited bids from independent accountants to audit
the Company's financial statements for the year ended December 31, 1999 and on
October 4, 1999, Arthur Andersen informed the Company that it was resigning. The
Audit Committee voted to appoint Ernst & Young LLP ("Ernst & Young") as its new
independent accountants on October 4, 1999.
16
Pursuant to item 304(a) of Regulation S-K, the Company reports the following:
(a) Previous Independent Accountants
(i) On October 4, 1999, the Company retained Ernst & Young as its
independent certified public accountants in place of Arthur
Andersen.
(ii) The reports of Arthur Andersen on the financial statements for
the past two fiscal years of the Company did not contain any
adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or
accounting principles.
(iii) The decision to change accountants was recommended by the
Company's management and separately approved by the Audit
Committee of the Board of Directors and the Board of Directors
of the Company.
(iv) In connection with its audits for the two most recent fiscal
years ended December 31, 1997 and 1998 and through October 4,
1999, there have been no disagreements with Arthur Andersen on
any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which
disagreement, if not resolved to the satisfaction of Arthur
Andersen, would have caused it to make a reference to the
subject matter of the disagreement in connection with its
report on the financial statements for each of the years or
interim periods.
(v) During the Company's two most recent fiscal years, and during
the subsequent interim periods, no "reportable events" (as
described in Item 304 (a) (1) (v) of Regulation S-K) have
occurred.
(vi) The Company has requested that Arthur Andersen furnish it with
a letter addressed to the Securities and Exchange Commission
stating whether or not Arthur Andersen agrees with the
statements made by the Company above in response to Item 304
of Regulation S-K. A copy of such letter, dated October 4,
1999, is listed as Exhibit 10.7 under Item 14, "Exhibits,
Financial Statements and Schedules and Reports on Form 8-K" in
this Form 10-K.
(b) New Independent Accountants
(i) The Company engaged Ernst & Young as its new independent
accountants effective October 4, 1999. During the two most
recent fiscal years and through October 4, 1999, the Company
has not consulted with Ernst & Young concerning the Company's
financial statements, including the application of accounting
principles to a specified transaction (proposed or completed)
or the type of audit opinion that might be rendered on the
Company's financial statements or any matter that was either
the subject of a "disagreement" or "reportable event" (as such
terms are defined in Item 304 of Regulation S-K) with the
previous independent accountants. The Company's Audit
Committee chose to engage Ernst & Young to reaudit the
Company's financial statements for the years ended December
31, 1998 and 1997 rather than obtain a consent from Arthur
Andersen as it was determined to be more economical for the
Company.
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
This information will be contained in the Proxy Statement of the Company for the
2000 Annual Meeting of Stockholders under the caption "Election of Directors"
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information will be contained in the Proxy Statement of the Company for the
2000 Annual Meeting of Stockholders under the caption "Executive Compensation"
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 Company for the
2000 Annual Meeting of Stockholders under the caption "Security Ownership" and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the Proxy Statement of the Company for the
2000 Annual Meeting of Stockholders under the caption "Certain Relationships and
Related Transactions" and is incorporated herein by reference. Also see Note 14,
"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 Company
are included in this Form 10-K at the pages indicated:
Index to Consolidated Financial Statements
------------------------------------------
Page
----
Report of Independent Auditors F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Income for the Years F-3
Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity F-4
for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the F-5
Years Ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
to F-24
18
(2) Consolidated Financial Statement Schedules
------------------------------------------
Schedule II -- Allowance for Doubtful Accounts F-25
Schedule III -- Real Property Held for Rental and F-26
Accumulated Depreciation
Schedule IV -- Mortgage Loans on Real Estate F-27
(3) Supplementary Data
------------------
Quarterly Financial Data (Unaudited) F-28
Schedules not listed above are omitted as not applicable or
the information is presented in the financial statements or
related notes.
(b) Reports on Form 8-K
On October 4, 1999, the Company filed a Current Report on Form 8-K under Item 4
to report a change in its certifying accountant, as more fully discussed in Item
9.
(c) Exhibits
3.1. Amended and restated Certificate of Incorporation of the
Company (incorporated by reference to exhibit 3.1 filed with the Company's
report on Form 10-K for the fiscal year ended December 31, 1993).
3.2. By-laws of the Company (incorporated by reference to exhibit 3
filed with the Company's report on Form 10-K for the fiscal year ended December
31, 1980).
10.1. 1988 Incentive Stock Option Plan of the Company, as amended
incorporated by reference to exhibit 10.1 filed with the Company's report on
Form 10-K for the fiscal year ended December 31, 1998).
10.2. 1988 Joint Incentive and Non-Qualified Stock Option Plan, as
amended (incorporated by reference to exhibit 10.2 filed with the Company's
report on Form 10-K for the fiscal year ended December 31, 1998).
10.3. Employment Agreement dated as of January 1, 1990 by and
between the Company and A. F. Petrocelli (incorporated by reference to exhibit
10.9 filed with the Company'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 Company and A. F. Petrocelli
(incorporated by reference to exhibit 10.10 filed with the Company'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 Company and A. F. Petrocelli
(incorporated by reference to exhibit 10.5 filed with the Company's report on
Form 10-K for the fiscal year ended December 31, 1993).
19
*10.6. Revolving Credit Agreement dated as of December 31, 1999, with
the financial parties thereto.
10.7. Letter dated October 4, 1999 from Arthur Andersen LLP related
to the change in certifying accountants (incorporated by reference to Exhibit 16
filed with the Company's report on Form 8-K dated October 4, 1999).
*21. Subsidiaries of the Company
*23. Auditors' consent to the incorporation by reference in
Company's Registration Statements on Form S-8 of the Report of Independent
Auditors included herein.
*27. Financial Data Schedule
- -----------------
* Filed herewith
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
UNITED CAPITAL CORP.
Dated: March 15, 2000 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 Company and in
the capacities and on the date indicated.
Dated: March 15, 2000 By: /s/ A.F. Petrocelli
-------------- -----------------------
A. F. Petrocelli
Chairman, President and
Chief Executive Officer
Dated: March 15, 2000 By: /s/ Howard M. Lorber
-------------- -----------------------
Howard M. Lorber
Director
Dated: March 15, 2000 By: /s/ Anthony J. Miceli
-------------- -----------------------
Anthony J. Miceli
Chief Financial Officer,
Chief Accountant, Secretary and
Director
Dated: March 15, 2000 By: /s/ Arnold S. Penner
-------------- -----------------------
Arnold S. Penner
Director
21
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Board of Directors
and Stockholders of
United Capital Corp. :
We have audited the accompanying consolidated balance sheets of United Capital
Corp. and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. We have also
audited the financial statement schedules listed in the Index at Item 14(a)2.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial position of United Capital
Corp. and subsidiaries as of December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
New York, NY
February 11, 2000
F-1
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
(In Thousands, Except Per Share Data)
-------------------------------------
1999 1998
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 13,575 $ 8,154
Marketable securities 27,296 14,290
Notes and accounts receivable, net of allowance for doubtful
accounts of $390 in 1999 and 1998 5,626 7,819
Inventories 4,207 4,339
Prepaid expenses and other current assets 254 209
-------- --------
Total current assets 50,958 34,811
-------- --------
Property, plant and equipment, net 5,077 4,686
Real property held for rental, net 66,939 71,437
Noncurrent notes receivable 270 593
Other assets 10,488 11,296
Deferred income taxes 0 3,289
-------- --------
Total assets $133,732 $126,112
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 5,990 $ 5,875
Borrowings under credit facilities 700 1,400
Accounts payable and accrued liabilities 9,835 10,821
Income taxes payable 5,000 6,355
Deferred income taxes 1,019 152
-------- --------
Total current liabilities 22,544 24,603
-------- --------
Borrowings under credit facilities 1,225 3,850
Long-term debt 27,316 26,929
Other long-term liabilities 22,917 18,312
Deferred income taxes 674 0
-------- --------
Total liabilities 74,676 73,694
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock $.10 par value, authorized 7,500 shares;
issued and outstanding 4,736 and 5,148 shares, respectively 474 515
Additional paid-in capital 0 3,536
Retained earnings 54,671 45,429
Accumulated other comprehensive income, net of tax 3,911 2,938
-------- --------
Total stockholders' equity 59,056 52,418
-------- --------
Total liabilities and stockholders' equity $133,732 $126,112
======== ========
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, 1999, 1998 AND 1997
----------------------------------------------------
(In Thousands, Except Per Share Data)
-------------------------------------
1999 1998 1997
------- ------ -------
Revenues:
Net sales $ 30,500 $ 32,170 $ 36,204
Rental revenues from real estate operations 29,202 26,349 24,042
-------- -------- --------
Total revenues 59,702 58,519 60,246
-------- -------- --------
Costs and expenses:
Cost of sales 21,808 22,260 25,972
Real estate operations:
Mortgage interest expense 2,620 2,661 3,058
Depreciation expense 5,210 5,530 5,838
Other operating expenses 7,293 6,025 7,428
General and administrative expenses 5,810 6,057 5,038
Selling expenses 3,875 3,712 4,104
-------- -------- --------
Total costs and expenses 46,616 46,245 51,438
-------- -------- --------
Operating income 13,086 12,274 8,808
-------- -------- --------
Other income (expense):
Interest income 1,886 1,961 2,613
Interest expense (614) (962) (1,408)
Other income and expense, net 8,266 5,035 3,262
-------- -------- --------
Total other income 9,538 6,034 4,467
-------- -------- --------
Income from continuing operations before
income taxes 22,624 18,308 13,275
Provision for income taxes 9,298 7,725 5,810
-------- -------- --------
Income from continuing operations 13,326 10,583 7,465
-------- -------- --------
Discontinued operations:
Operating income, net of tax provision of $635 0 0 1,016
Gain on disposal of discontinued operations, net
of tax provision of $3,700 0 4,849 0
-------- -------- --------
Income from discontinued operations 0 4,849 1,016
-------- -------- --------
Net income $ 13,326 $ 15,432 $ 8,481
======== ======== ========
Basic earnings per common share:
Income from continuing operations $ 2.68 $ 2.03 $ 1.41
Discontinued operations .00 .93 .19
-------- -------- --------
Net income per common share $ 2.68 $ 2.96 $ 1.60
======== ======== ========
Diluted earnings per common share:
Income from continuing operations $ 2.66 $ 2.00 $ 1.40
Discontinued operations .00 .92 .19
-------- -------- --------
Net income per common share assuming dilution $ 2.66 $ 2.92 $ 1.59
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
F-3
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
----------------------------------------------------
(In Thousands)
--------------
Accumulated
Other
Common Stock Issued Additional Comprehensive Total
-------------------- Paid-in Retained Income, Stockholders' Comprehensive
Shares Amount Capital Earnings Net of Tax Equity Income
-------- -------- ---------- -------- ------------- ------------- -------------
Balance - January 1, 1997 5,346 $ 534 $ 7,416 $ 21,516 $ 109 $ 29,575
Purchase and retirement of common shares (67) (7) (659) 0 0 (666)
Proceeds from the exercise of stock options 7 1 62 0 0 63
Net income 0 0 0 8,481 0 8,481 $ 8,481
Other comprehensive income, net of tax:
Change in net unrealized gain on
available-for-sale securities,
net of tax provision of $14 0 0 0 0 27 27 27
--------
Comprehensive income $ 8,508
-------- -------- -------- -------- -------- -------- ========
Balance - December 31, 1997 5,286 528 6,819 29,997 136 37,480
-------- -------- -------- -------- -------- --------
Purchase and retirement of common shares (189) (18) (3,846) 0 0 (3,864)
Proceeds from the exercise of stock options 51 5 563 0 0 568
Net income 0 0 0 15,432 0 15,432 $ 15,432
Other comprehensive income, net of tax:
Change in net unrealized gain on
available-for-sale securities,
net of tax provision of $1,444 0 0 0 0 2,802 2,802 2,802
--------
Comprehensive income $ 18,234
-------- -------- -------- -------- -------- -------- ========
Balance - December 31, 1998 5,148 515 3,536 45,429 2,938 52,418
-------- -------- -------- -------- -------- --------
Purchase and retirement of common shares (441) (44) (3,675) (4,084) 0 (7,803)
Proceeds from the exercise of stock options 29 3 139 0 0 142
Net income 0 0 0 13,326 0 13,326 $ 13,326
Other comprehensive income, net of tax:
Change in net unrealized gain on
available-for-sale securities,
net of tax provision of $593 0 0 0 0 973 973 973
--------
Comprehensive income $ 14,299
-------- -------- -------- -------- -------- -------- ========
Balance - December 31, 1999 4,736 $ 474 $ 0 $ 54,671 $ 3,911 $ 59,056
======== ======== ======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements
are in integral part of these statements.
F-4
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
----------------------------------------------------
(In Thousands)
--------------
1999 1998 1997
-------- --------- ---------
Cash flows from operating activities:
Net income $ 13,326 $ 15,432 $ 8,481
-------- -------- --------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 6,628 6,566 6,657
Gain on sale of real estate assets (6,957) (5,444) (3,481)
Purchase of trading securities (700) (5,891) 0
Proceeds from sale of trading securities 844 5,966 0
Gain on sale of trading securities (144) (75) 0
(Gain) loss from equity investments (3,601) (1,222) 263
Gain on sale of discontinued operations, net of tax 0 (4,849) 0
Changes in assets and liabilities, net of effects from
business disposals (A) 10,920 (15) 10,007
-------- -------- --------
Total adjustments 6,990 (4,964) 13,446
-------- -------- --------
Net cash provided by operating activities 20,316 10,468 21,927
-------- -------- --------
Cash flows from investing activities:
Acquisition of real estate assets (2,304) (12,539) (2,276)
Proceeds from sale of real estate assets 9,064 8,293 7,063
Investments in and advances to affiliates 743 503 (5,395)
Purchase of available-for-sale securities (11,439) (9,690) 0
Proceeds from sale of equity investments 1,300 0 0
Acquisition of property, plant and equipment (1,775) (1,846) (806)
Proceeds from sale of discontinued operations 0 16,000 0
Investing activities of discontinued operations 0 0 (569)
-------- -------- --------
Net cash (used in) provided by investing activities (4,411) 721 (1,983)
-------- -------- --------
Cash flows from financing activities:
Principal payments on mortgage commitments, notes
and loans (6,058) (18,141) (6,715)
Proceeds from mortgage commitments, notes and loans 6,560 19,153 0
Net repayments under credit facilities (3,325) (6,000) (8,570)
Purchase and retirement of common shares (7,803) (3,865) (666)
Proceeds from the exercise of stock options 142 568 63
Financing activities of discontinued operations 0 0 (1,385)
-------- -------- --------
Net cash used in financing activities (10,484) (8,285) (17,273)
-------- -------- --------
Net increase in cash and cash equivalents 5,421 2,904 2,671
Cash and cash equivalents, beginning of year 8,154 5,250 2,579
-------- -------- --------
Cash and cash equivalents, end of year $ 13,575 $ 8,154 $ 5,250
======== ======== ========
F-5
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (CONTINUED)
----------------------------------------------------------------
(In Thousands)
--------------
1999 1998 1997
------- ------- -------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $3,177 $3,640 $4,832
====== ====== ======
Taxes $4,749 $7,874 $3,655
====== ====== ======
Supplemental schedule of noncash
investing and financing activities:
Noncash investing activities:
Capital lease obligations $ 0 $ 0 $ 511
====== ====== ======
(A) Changes in assets and liabilities for the years ended
December 31, 1999, 1998 and 1997, net of effects from
business disposal are as follows:
1999 1998 1997
---- ---- ----
Notes and accounts receivable, net $ 2,049 $ 3,500 $ 7,425
Inventories 132 (646) 659
Prepaid expenses and other current assets (45) 84 414
Deferred income taxes 4,236 (395) (958)
Noncurrent notes receivable (49) (1,512) (1,455)
Other assets 2,333 607 (257)
Accounts payable and accrued liabilities (986) (3,918) 16
Income taxes payable (1,355) (3,217) 1,635
Other long-term liabilities 4,605 5,482 1,810
Discontinued operations: noncash charges and
working capital changes 0 0 718
-------- -------- --------
Total $ 10,920 ($ 15) $ 10,007
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
F-6
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997
--------------------------------
(In Thousands, Except Share And Per Share Data)
-----------------------------------------------
(1) Summary of Significant Accounting Policies:
-------------------------------------------
Nature of Business:
-------------------
United Capital Corp. (the "Company") and its subsidiaries are
currently engaged in the investment and management of real
estate and in the manufacture and sale of engineered products.
Principles of Consolidation:
----------------------------
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The equity method of accounting is used for investments in 50%
or less owned companies over which the Company has the ability
to exercise significant influence.
Income Recognition - Real Estate Operations:
--------------------------------------------
The Company 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 and repairs and
maintenance. Rental income is recognized in accordance with
generally accepted accounting principles. 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 and equity investments are recorded when
the gain recognition criteria under generally accepted
accounting principles have been met.
Income on leveraged leases is recognized by a method which
produces a constant rate of return on the outstanding
investment in the lease, net of the related deferred tax
liability in the years in which the net investment is
positive.
Revenue Recognition - Manufacturing Operations:
-----------------------------------------------
Sales are recorded when products are shipped to the customer.
Cash and Cash Equivalents:
--------------------------
The Company considers all highly liquid investments with a
maturity, at the purchase date, of three months or less to be
cash equivalents.
Marketable Securities:
----------------------
The Company determines the appropriate classification of
securities at the time of purchase and reassesses the
appropriateness of the classification at each reporting date.
At December 31, 1999
F-7
and 1998, all marketable securities have been classified as
available-for-sale and, as a result, are stated at fair value.
Unrealized gains and losses on available-for-sale securities
are recorded as a separate component of stockholders' equity.
Marketable securities defined as trading securities are stated
at fair value and unrealized holding gains and losses are
reflected in earnings. Realized gains and losses on the sale
of securities, as determined on a specific identification
basis, are included in the Consolidated Statements of Income.
Inventories:
------------
Inventories are stated at the lower of cost or market and
include material, labor and manufacturing overhead. The
first-in, first-out (FIFO) method is used to determine the
cost of inventories.
Inventory consists of the following components at December 31:
1999 1998
------- -------
Raw materials $2,369 $1,851
Work in process 334 403
Finished goods 1,504 2,085
------ ------
$4,207 $4,339
====== ======
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 5 to 7 years
Property, plant and equipment:
Buildings and improvements 18 to 20 years
Machinery and equipment 3 to 10 years
Intangible Assets:
Patents, trademarks and other
intellectual property 5 to 20 years
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.
Property, Plant and Equipment:
------------------------------
Property, plant and equipment is recorded at cost, less
accumulated depreciation and amortization. Major improvements
are capitalized and maintenance and repairs are expensed as
incurred.
F-8
Research and Development:
-------------------------
The Company expenses research, development and product
engineering costs as incurred. Approximately $95, $63 and $77
of such costs were incurred by the Company in 1999, 1998 and
1997, respectively.
Earnings Per Common Share:
--------------------------
Basic earnings per common share is calculated by dividing net
income by the weighted-average number of common shares
outstanding and excludes any dilutive effects of stock
options. Diluted earnings per common share gives effect to all
potentially dilutive common shares that were outstanding
during the period. Dilutive common shares used in the
computation of diluted earnings per common share result from
the assumed exercise of stock options, using the treasury
stock method.
Derivative Financial Instruments:
---------------------------------
The Company has entered into an interest rate swap agreement
(the "Swap") to modify the interest characteristics of a
particular term loan by effectively converting its floating
rate to a fixed rate, thus reducing the impact of interest
rate changes on future expense. The Swap is designated with
the principal balance and term of the term loan. The amount
paid or received on the Swap is accrued and recognized as an
adjustment of interest expense related to the debt (the
accrual accounting method). The fair value of the Swap and
changes in the fair value as a result of changes in market
interest rates are not recognized in the financial statements.
The Company has not otherwise traded in derivative financial
instruments.
Prior Year Financial Statements:
--------------------------------
Certain amounts have been reclassified in the December 31,
1998 and 1997 Consolidated Financial Statements and Notes
thereto to present them on a basis consistent with the current
year.
Use of Estimates:
-----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Recent Pronouncements of the Financial Accounting Standards Board:
------------------------------------------------------------------
Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), issued in June 1998, establishes accounting
and reporting standards for derivative instruments. SFAS No.
133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The
statement requires that changes in the derivative's fair value
be recognized currently
F-9
in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item
in the income statement. In June 1999, Statement of Financial
Accounting Standards No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133" was issued which changes the
effective date to all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS No. 133 cannot be applied
retroactively prior to the issuance of the statement. The
Company is in the process of evaluating the accounting and
reporting requirements of SFAS No. 133 and believes that it
will not have a material impact on the consolidated results of
operations, financial position or cash flows.
(2) Disposal of Operating Company:
------------------------------
On January 2, 1998, the Company completed the sale of the
stock of its Dorne & Margolin, Inc. ("D&M") subsidiary to AIL
Systems, Inc. for $16,000, in cash, resulting in a pretax gain
from discontinued operations of $8,549. The operating results
of D&M are presented as a discontinued operation in the
accompanying Consolidated Financial Statements for periods
prior to the sale. The Company retained the D&M manufacturing
facility, which was sold in January 2000 for an amount in
excess of carrying value.
Revenues applicable to discontinued operations were $19,985 in
1997.
(3) Real Property Held for Rental:
------------------------------
The Company is the lessor of real estate under operating
leases which expire in various years through 2078.
The following is a summary of real property held for rental at
December 31:
1999 1998
-------- ------
Land $ 21,084 $ 19,732
Buildings 117,108 120,370
--------- ---------
138,192 140,102
Less: Accumulated depreciation (71,253) (68,665)
--------- ---------
$ 66,939 $ 71,437
========= =========
As of December 31, 1999, 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,
2000 $ 16,183
2001 15,088
2002 13,185
2003 11,115
2004 8,558
Thereafter 66,276
--------
Total minimum future rentals $130,405
========
F-10
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 for 1999, 1998 and
1997 were approximately $1,131, $1,018 and $1,603, respectively.
(4) Property, Plant and Equipment:
------------------------------
Property, plant and equipment is principally used in the Company's
manufacturing operations and consists of the following at December
31:
1999 1998
-------- --------
Land $ 37 $ 37
Buildings and improvements 1,413 1,010
Machinery and equipment 9,909 8,556
-------- --------
11,359 9,603
Less: Accumulated depreciation (6,282) (4,917)
-------- --------
$ 5,077 $ 4,686
======== ========
(5) Marketable Securities:
----------------------
The aggregate market value of marketable securities, which are all
classified as available-for-sale, was $27,296 and $14,290 at
December 31, 1999 and 1998, respectively, while unrealized holding
gains were $3,911 and $2,938 on a net of tax basis, respectively.
Marketable securities consist of the following at December 31:
1999 1998
------ ------
Available-for-sale securities:
Corporate equities $21,685 $14,290
Corporate debts 5,611 0
------- -------
$27,296 $14,290
======= =======
Corporate debt securities have contractual maturities ranging from
approximately one to eight years, with the majority of the
maturities being five years or less.
There were no sales of marketable securities in 1997. Proceeds
from the sale of trading securities and the resulting gross
realized gains and losses included in the determination of net
income for the years ended December 31, 1999 and 1998 are as
follows:
1999 1998
------ ------
Proceeds $ 844 $5,966
====== ======
Realized gains $ 144 $ 75
====== ======
F-11
(6) Notes Receivable:
-----------------
Notes receivable consist of the following at December 31:
1999 1998
------ ------
High yield mortgage loans (a) $ 0 $1,963
Other 298 751
------ ------
298 2,714
Less: Current portion included in notes
and accounts receivable 28 2,121
------ ------
$ 270 $ 593
====== ======
(a) The Company participates in high yield mortgage loans
which in certain instances, may include related party
participants (see Note 14). These loans are generally
secured by a first or second mortgage lien on property
which is generally fully leased with a substantial
value-to-loan ratio or other appropriate collateral.
Management believes that sufficient collateral exists to
satisfy such obligations. The loans are interest bearing
and, in most cases, the Company receives a commitment fee
of 4.0%. The effective yield on such loans is usually
18.0%. No such loans were outstanding at December 31,
1999. At December 31, 1998 there were three loans
outstanding with balances ranging from $400 to $863, which
were fully satisfied in 1999.
(7) Other Assets:
-------------
Other assets consist of the following at December 31:
1999 1998
------- -------
Lease financing (a) $ 7,812 $ 5,792
Other 2,930 5,713
------- -------
10,742 11,505
Less: Amounts included in prepaid
expenses and other current assets 254 209
------- -------
Total other assets $10,488 $11,296
======= =======
(a) Lease financing consists of a 50.0% interest in a limited
partnership, whose principal assets are two leveraged
leases with Kmart Corporation. The following represents
the components of the net investment in the leveraged
leases at December 31:
1999 1998
-------- -------
Rentals receivable $ 89,573 $ 93,601
Residual values 10,000 10,000
Non recourse debt service (69,003) (72,252)
Unearned income (22,758) (25,557)
-------- --------
7,812 5,792
Less: Deferred taxes arising
from leveraged leases 4,722 503
-------- --------
$3,090 $5,289
======== ========
F-12
(8) Accounts Payable and Accrued Liabilities:
----------------------------------------
Accounts payable and accrued liabilities consist of the following
at December 31:
1999 1998
-------- --------
Accounts payable $ 3,760 $ 2,822
Accrued wages and benefits 1,417 1,946
Liabilities for discontinued operations 1,806 2,758
Other accrued expenses 2,852 3,295
-------- --------
$ 9,835 $ 10,821
======== ========
(9) Long-term Debt:
---------------
Long-term debt consists of the following at December 31:
1999 1998
--------- -------
Mortgages on real property (a) $32,571 $31,339
Loan payable to bank (b) 472 1,102
Capital lease obligation 263 363
------- -------
33,306 32,804
Less: Current maturities 5,990 5,875
------- -------
$27,316 $26,929
======= =======
(a) First mortgages bearing interest at rates ranging from 4.0%
to 10.3% per annum are collateralized by the related real
property. Such amounts are scheduled to mature at various
dates from October 2000 through October 2015. In 1998, the
Company refinanced three mortgages with a total outstanding
principal value of $12,308 and interest rates ranging from
10.0% to 10.5%. The new mortgages bear interest ranging from
6.5% to 6.7% and have maturities similar to the original
obligations.
(b) The Company has a fixed rate note bearing interest at 7.9%
per annum, which is due in 60 equal principal installments,
together with accrued interest thereon, through September
2000. The loan agreement contains, among other things,
several financial covenants regarding net worth and
debt-to-equity ratios. The Company was in compliance with
all covenants at December 31, 1999 and 1998.
F-13
The approximate aggregate maturities of these obligations at
December 31, 1999 are as follows:
Long-term Capital Lease
Debt Obligation
------------ ----------------
2000 $5,883 $124
2001 5,416 124
2002 5,006 43
2003 4,391 0
2004 5,866 0
Thereafter 6,481 0
------------ ----------------
Total minimum payments $33,043 291
============
Less: Amount representing interest 28
----------------
Total present value of minimum lease payments 263
Less: Current portion 107
----------------
Total noncurrent portion $156
================
(10) Credit Facilities:
------------------
Effective December 31, 1999, the Company entered into a credit
agreement with three banks which provides for both a $60,000
revolving credit facility ("Revolver") and a $1,925 term loan
("Term Loan"). Each of the three banks participates in the
Revolver while only one of the banks is a participant in the
Term Loan.
Under the terms of the Revolver, the Company will be provided
with eligibility based upon the sum of (i) 60.0% of the
aggregate annualized and normalized year-to-date net operating
income of unencumbered eligible properties, as defined,
capitalized at 10.5%, (ii) the lesser of $6,000 or 60.0% of
the aggregate annualized and normalized year-to-date net
operating income of unencumbered eligible hotel properties, as
defined, capitalized at 10.5%, (iii) the lesser of $10,000 or
50.0% of the aggregate annualized and normalized year-to-date
net operating income of encumbered eligible properties, as
defined, capitalized at 12.0% and (iv) the lesser of $10,000
or the sum of 75.0% of eligible accounts receivable and 50.0%
of eligible inventory, as defined. At December 31, 1999,
eligibility under the Revolver was $60,000, based upon the
above terms. The credit agreement contains certain financial
and restrictive covenants, including minimum consolidated
equity, interest coverage, debt service coverage and capital
expenditures (other than for real estate). The Company was in
compliance with all covenants at December 31, 1999. The credit
agreement also contains provisions which allow the banks to
perfect a security interest in certain operating and real
estate assets in the event of a default, as defined in the
credit agreement. Borrowings under the Revolver, at the
Company's option, bear interest at the bank's prime lending
rate or at the London Interbank Offered Rate ("LIBOR") plus
2.0%. The Revolver expires on December 31, 2002. At December
31, 1999, there were no amounts outstanding under the
Revolver.
The Term Loan bears interest at 90 day LIBOR plus 1.4% (7.4%
at December 31, 1999) and is payable in quarterly principal
installments of $175, with the final payment due on September
30, 2002. At December 31, 1999, there was $1,925 outstanding
under the Term Loan.
F-14
Prior to obtaining the Revolver and Term Loan discussed above,
the Company maintained a credit agreement with two banks which
provided for both a $7,000 term loan and a $40,000 revolving
credit facility. This credit agreement was terminated
effective December 31, 1999 in conjunction with the execution
of the new Revolver and Term Loan. The termination included
the retirement of $1,925 under the term loan to a bank that is
not participating in the current facility. The remaining term
loan balance of $1,925 was converted to the Term Loan under
arrangements similar to the original facility. At December 31,
1998, there were no amounts outstanding under the revolving
credit facility and $5,250 outstanding under the term loan.
(11) Fair Value of Financial Instruments:
------------------------------------
The Company has limited involvement with financial instruments
and has not used them for trading purposes. The following
methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
The carrying amount reported in the Consolidated Balance
Sheets for cash and cash equivalents and accounts receivable
approximate their fair value.
The fair value of notes receivable are estimated using
discounted cash flow analyses, with interest rates comparable
on loans with similar terms and borrowers of similar credit
quality. The fair value of notes receivable at December 31,
1999 and 1998 was approximately $354 and $2,763 respectively,
while the carrying value was $298 and $2,714 for the same
periods.
Marketable securities available-for-sale, which are held for
investment purposes are carried at fair value based on quoted
market prices or dealer quotes. If a quoted market price is
not available, fair value is estimated using quoted market
prices for similar securities.
Carrying amounts of borrowings under the credit facilities
approximate their fair value. The fair value of long-term debt
was calculated based on interest rates available for debt with
terms and due dates similar to the Company's existing debt
arrangements. The fair value of long-term debt at December 31,
1999 and 1998 was approximately $31,134 and $32,705
respectively, while the carrying value was $33,306 and $32,804
for the same periods.
The fair value of the Swap (used for hedging purposes) is the
estimated amount that the bank would receive or pay to
terminate the Swap at the reporting date, taking into account
current interest rates and the current creditworthiness of the
Swap counterparties. At December 31, 1999 and 1998, the fair
values of the Swap were estimated at $14 and ($125),
respectively.
(12) Stockholders' Equity:
---------------------
In October 1999, the Company purchased and retired
approximately 278,000 shares in connection with its "Dutch
Auction" self-tender offer. As a result of this repurchase the
Company's additional paid-in capital was reduced to zero and
the Company's retained earnings was reduced by approximately
$4.1 million. Future repurchases of the Company's common stock
will also reduce retained earnings by amounts in excess of the
par value.
F-15
Stock Options:
--------------
The Company has two stock option plans under which qualified
and nonqualified options may be granted to key employees to
purchase the Company's common stock at the fair market value
on the date of grant. Under both plans, the options typically
become exercisable in three equal installments, beginning one
year from the date of grant. Stock options expire ten years
from the date of grant. The 1988 Incentive Stock Option Plan
(the "Incentive Plan") provides for the granting of incentive
stock options and the 1988 Joint Incentive and Non-Qualified
Stock Option Plan (the "Joint Plan") provides for the granting
of incentive or nonqualified stock options. The Company's
shareholders have approved an amendment to the Company's
Incentive Plan and Joint Plan to increase the number of
authorized shares reserved for issuance pursuant to each plan,
from 325,000 shares to 1,325,000 shares, respectively, and to
extend the term of the Incentive Plan and Joint Plan to 2008.
At December 31, 1999, there were 1,031,380 and 223,001 options
outstanding under the Joint Plan and Incentive Plan,
respectively. At December 31, 1998, 647,630 and 224,251
options were outstanding under the Joint Plan and Incentive
Plan, respectively.
A summary of the Company's stock options as of December 31,
1999, 1998 and 1997, and changes during the years then ended
are summarized below:
Weighted-
Average
Exercise
Shares Price
------------ ----------
Outstanding at January 1, 1997 169,428 $9.45
Granted 319,381 $17.31
Exercised (6,700) $9.48
Forfeited (3,228) $10.88
------------
Outstanding at December 31, 1997 478,881 $14.68
Granted 444,000 $23.08
Exercised (51,000) $11.13
------------
Outstanding at December 31, 1998 871,881 $19.16
Granted 434,000 $14.06
Exercised (28,500) $5.00
Forfeited (23,000) $20.52
------------
Outstanding at December 31, 1999 1,254,381 $17.69
============
F-16
The following table summarizes information about options outstanding and
exercisable at December 31, 1999:
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------- -------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
- --------------------- ----------------- --------------- --------------- -------------- ----------
$7.25 - $11.00 80,000 4.5 years $ 10.06 80,000 $ 10.06
$14.06 - $18.75 742,381 8.7 years $ 15.40 205,254 $ 17.29
$22.88 - $25.16 432,000 8.5 years $ 23.05 144,000 $ 23.05
--------- -------
$7.25 - $25.16 1,254,381 8.3 years $ 17.69 429,254 $ 17.87
========= =======
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations ("APB No. 25") in
accounting for stock-based compensation plans. Under APB No. 25, when the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. Accordingly, no compensation expense has been recognized in the
financial statements for employee stock option arrangements. Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," requires the disclosure of proforma net income and earnings per
share had the Company adopted the fair value method of accounting for its
stock-based compensation plans. If stock-based compensation costs had been
recognized based on the estimated fair values at the dates of grant of options
awarded during 1999, 1998 and 1997 proforma net income and net income per basic
share for 1999, 1998 and 1997 would have been $11,758 or $2.37, $14,234 or $2.74
and $8,091 or $1.53 per basic share, respectively. Proforma compensation expense
may not be indicative of proforma expense in future years. For purposes of
estimating the fair value of each option on the date of grant, the Company
utilized the Black-Scholes option pricing model. The weighted-average option
fair values and the assumptions used to estimate these values are as follows:
Grants Issued During
--------------------
1999 1998 1997
---- ---- ----
Expected life (years) 5 5 5
Risk free interest rate 5.6% 5.6% 6.3%
Expected volatility 32.4% 32.7% 39.3%
Dividend yield 0.0% 0.0% 0.0%
Weighted-average option fair value $5.42 $8.78 $7.42
F-17
(13) Earnings Per Common Share:
--------------------------
The following table sets forth the computation of basic and
diluted earnings per common share:
1999 1998 1997
------- ------- -------
Numerator:
Income from continuing operations $13,326 $10,583 $7,465
======= ======= ======
Denominator:
Denominator for basic earnings per common
share--weighted-average shares 4,968 5,203 5,288
Effect of dilutive securities:
Employee stock options 45 85 51
------- ------- ------
Denominator for diluted earnings per common
share--adjusted weighted-average shares
and assumed conversions 5,013 5,288 5,339
======= ======= ======
Basic earnings per common share $ 2.68 $ 2.03 $ 1.41
======= ======= ======
Diluted earnings per common share $ 2.66 $ 2.00 $ 1.40
======= ======= ======
(14) Transactions with Related Parties:
----------------------------------
The Company has a 50.0% interest in an unconsolidated limited
liability corporation, whose principal assets are two
leveraged leases with Kmart. A group that includes the wife of
the Board Chairman, two Directors of the Company and the wife
of one of the Directors have an 8.0% interest in this entity
(see Note 7).
In July 1998, the Company participated in a $3,000 loan
transaction secured by stock in a corporation whose principal
assets were leased equipment and stock in a cooperative
apartment. The Company advanced approximately $1,800 in
connection with this loan. The remaining amounts were advanced
by the Board Chairman of the Company, $250; and the balance by
the wife of the Board Chairman. The note, which matured in
August 1999, bore interest at 14.0% per annum payable monthly.
The participants also received a commitment fee of 4.0% in
connection with the loan.
In September 1996, the Company purchased a 50.0% interest in a
limited partnership that owns and operates a hotel in Miami
Beach, Florida. At the time of the acquisition, the Company
participated in a $2,500 loan transaction to the limited
partnership secured by a mortgage lien against the property.
The Company advanced approximately $683 in connection with
this note. The remaining amounts were advanced by the
following: a Director of the Company, $250; the wife of the
Board Chairman, $1,000; an officer of the Company $100; and
the balance by unrelated parties. The note bore interest at
14.0% per annum payable monthly and the participants also
received a commitment fee of 4.0%. This note matured in
September 1997 and was extended in accordance with the
original terms of the note, for one year, in consideration of
a 4.0% commitment fee. The limited partnership repaid the full
amount outstanding together with accrued interest in July
1998. All amounts invested in and advanced to the partnership
by the Company were classified as investments in and advances
to affiliates and included in other assets in the Consolidated
Financial Statements. In January 1999, the Company sold this
investment for $1,300 resulting in a pretax gain of $838.
F-18
The Company's two hotel properties are managed by a publicly
traded company for which the Board Chairman and another
Director of the Company are directors. In addition, during
1998 the Company's Board Chairman was also named Chairman and
President of this company. Fees paid for the management of
these properties are based upon a percentage of revenue and
were approximately $134, $139 and $143 for 1999, 1998 and
1997, respectively. Included in marketable securities at
December 31, 1999 was $11,089 of common stock in this company
which represents approximately 2.6% of such company's
outstanding shares.
During 1997 the Company advanced, in the aggregate $398 to the
Board Chairman and $375 to a Director and Officer of the
Company. Such advances bore interest at the Company's
borrowing rate under its revolving credit facility which was
8.5% at December 31, 1997. Amounts outstanding at December 31,
1997 of $398 together with accrued interest thereon were
repaid in January 1998. No such advances were made by the
Company in 1999 and 1998.
(15) Income Taxes:
-------------
Deferred income taxes are determined on the liability method
in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under
SFAS No. 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.
The components of the net deferred tax (liability) asset at
December 31, 1999 and 1998 are as follows:
1999 1998
--------- --------
Realization allowances related to
accounts receivable and inventories $257 $276
Net unrealized gain on marketable securities (2,106) (1,514)
Basis differences relating to real
property held for rental 2,812 3,239
Accrued expenses, deductible when paid, net 4,472 4,190
Basis differences relating to business acquisitions (1,863) (1,859)
Leveraged lease (4,722) (503)
Property, plant and equipment (432) (582)
Pensions (81) (81)
Other, net (30) (29)
---------- ---------
Net deferred tax (liability) asset (1,693) 3,137
Current portion (1,019) (152)
---------- ---------
Noncurrent portion ($674) $3,289
========== =========
Based upon the Company's historical and projected levels of
pretax income, management believes it is more likely than not
that the Company will realize the benefits of its deferred tax
assets and, accordingly, no valuation reserve has been
recorded.
F-19
The income tax provision (benefit) reflected in the
accompanying Consolidated Statements of Income for each of the
years presented herein is as follows:
1999 1998 1997
------------ ------------ ------------
Current:
Federal $5,175 $6,325 $4,823
State 1,831 1,900 1,860
Deferred 2,292 (500) (873)
------------ ------------ ------------
$9,298 $7,725 $5,810
============ ============ ============
A reconciliation of the tax provision computed at statutory
rates to the amounts shown in the accompanying Consolidated
Statements of Income for the years ended December 31, 1999,
1998 and 1997 is as follows:
1999 1998 1997
---- ----- ----
Computed federal income
tax provision at statutory rates $7,918 $6,408 $4,513
State income taxes, net of federal income tax benefit 1,236 1,293 1,272
Other, net 144 24 25
====== ====== ======
$9,298 $7,725 $5,810
====== ====== ======
(16) Other Income and Expense, Net:
------------------------------
The components of other income and expense, net in the
accompanying Consolidated Statements of Income for the years
ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
------- ------- ------
Gain on sale of real estate assets $ 6,957 $ 5,444 $ 3,481
Gain (loss) from equity investments (a) 838 (402) (319)
Gain on the sale of trading securities (Note 5) 144 75 0
Other, net 327 (82) 100
------- ------- -------
$ 8,266 $ 5,035 $ 3,262
======= ======= =======
(a) In January 1999, the Company sold its 50.0% partnership
interest in a Miami Beach hotel for $1,300 resulting in a
pretax gain of $838. Loss from equity investments in 1998
and 1997 principally represents the Company's share of
losses in this hotel.
(17) Retirement Plan:
----------------
The Company has a noncontributory defined benefit pension plan
that covers substantially all full-time employees and the
former employees of the Company's discontinued resilient vinyl
flooring segment.
F-20
The following table sets forth the change in benefit obligation, the change in
plan assets and the funded status of the plan as of December 31:
1999 1998
--------- --------
Change in benefit obligation:
Benefit obligation, beginning of year $ 9,290 $ 9,052
Service cost 332 308
Interest cost 730 640
Actuarial (gain) loss (339) 326
Benefits paid (1,034) (1,036)
-------- --------
Benefit obligation, end of year 8,979 9,290
-------- --------
Change in plan assets:
Fair value of plan assets, beginning of year 12,217 12,643
Actual return on plan assets 58 610
Benefits paid (1,034) (1,036)
-------- --------
Fair value of plan assets, end of year 11,241 12,217
-------- --------
Funded status 2,262 2,927
-------- --------
Unrecognized net actuarial loss 10 349
Unrecognized net gain (1,441) (2,436)
-------- --------
Prepaid benefit obligation $ 831 $ 840
======== ========
Net periodic pension (expense) income consists of the following components for
the years ended December 31:
1999 1998 1997
------- ------- -------
Service cost ($ 332) ($ 308) ($ 325)
Interest cost (730) (640) (626)
Actual return on plan assets 58 610 1,013
Net amortization and deferral 995 456 87
------- ------- -------
Net periodic pension (expense) income ($ 9) $ 118 $ 149
======= ======= =======
In determining the projected benefit obligation for 1999 and
1998, the weighted average assumed discount rate was 8.0% and
7.0%, respectively, while the rate of expected increases in
future salary levels was 3.5% for both years. The expected
long-term rate of return on assets used in determining net
periodic pension cost for all years presented was 9.0%. No
contributions were made during 1999 or 1998 as the plan is
overfunded. Plan assets consist primarily of U.S. bonds,
government backed mortgage obligations, equity securities and
mutual funds.
(18) Business Segments:
------------------
The Company operates through two business segments: real
estate investment and management and engineered products. The
real estate investment and management segment is engaged in
F-21
the business of investing in and managing real estate
properties and the making of high-yield, short-term loans
secured by desirable properties. Engineered products are
manufactured through wholly-owned subsidiaries of the Company
and primarily consist of knitted wire products and components
and transformer products.
Information on the Company's business segments for the years
ended December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997
--------- --------- ---------
Net revenues and sales:
Real estate investment and management $ 29,202 $ 26,349 $ 24,042
Engineered products 30,500 32,170 36,204
--------- --------- ---------
$ 59,702 $ 58,519 $ 60,246
========= ========= =========
Operating income:
Real estate investment and management $ 14,079 $ 12,133 $ 7,718
Engineered products 1,855 3,239 3,419
--------- --------- ---------
15,934 15,372 11,137
General corporate expenses (2,848) (3,098) (2,329)
Other income, net 9,538 6,034 4,467
--------- --------- ---------
Income from continuing
operations before income taxes $ 22,624 $ 18,308 $ 13,275
========= ========= =========
Identifiable assets:
Real estate investment and management and corporate assets
$ 122,112 $ 114,406 $ 95,080
Engineered products 11,620 11,706 11,432
Discontinued operations 0 0 6,841
--------- --------- ---------
$ 133,732 $ 126,112 $ 113,353
========= ========= =========
Depreciation and amortization expense:
Real estate investment and management $ 5,210 $ 5,530 $ 5,838
Engineered products 737 662 577
General corporate expenses 681 374 242
--------- --------- ---------
$ 6,628 $ 6,566 $ 6,657
========= ========= =========
Mortgage interest expense:
Real estate investment and management $ 2,620 $ 2,661 $ 3,058
========= ========= =========
Additions to long-lived assets:
Real estate investment and management $ 3,194 $ 13,878 $ 2,885
Engineered products 885 507 197
--------- --------- ---------
$ 4,079 $ 14,385 $ 3,082
========= ========= =========
Sales by the Company's engineered products segment to automobile original
equipment
F-22
manufacturers accounted for approximately 21.8%, 24.6% and
30.8% of 1999, 1998 and 1997 consolidated revenues,
respectively. Approximately 14.5%, 12.9% and 13.1% of 1999,
1998 and 1997 total sales generated from the engineered
products segment were from foreign customers. Substantially
all assets held by the Company's engineered products segment
are located within the United States, however manufacturing
operations of this segment were commenced in Mexico in 1999.
Included in the identifiable assets of the real estate
investment and management segment at December 31, 1998 and
1997 are approximately $1,963 and $5,056, respectively, of
high yield mortgage loans receivable (see Note 6). There were
no such loans outstanding at December 31, 1999. Income
generated by these loans receivable is included in interest
income.
(19) Contingencies:
--------------
The Company has undertaken the completion of environmental
studies and/or remedial action at Metex' two New Jersey
facilities. The Company has recorded a liability in the
Consolidated Financial Statements for the estimated potential
remediation costs at these facilities.
The process of remediation has begun at one facility pursuant
to a plan filed with the New Jersey Department of
Environmental Protection ("NJDEP"). Environmental experts
engaged by the Company estimate that under the most probable
remediation scenario the remediation of this site is
anticipated to require initial expenditures of $860, including
the cost of capital equipment, and $86 in annual operating and
maintenance costs over a 15 year period.
Environmental studies at the second facility indicate that
remediation may be necessary. Based upon the facts presently
available, environmental experts have advised the Company that
under the most probable remediation scenario, the estimated
cost to remediate this site is anticipated to require $2,300
in initial costs, including capital equipment expenditures,
and $258 in annual operating and maintenance costs over a 10
year period. These estimated costs of future expenses for
environmental remediation obligations are not discounted to
their present value. The Company may revise such estimates in
the future due to the uncertainty regarding the nature, timing
and extent of any remediation efforts that may be required at
this site, should an appropriate regulatory agency deem such
efforts to be necessary.
The foregoing estimates may also be revised by the Company as
new or additional information in these matters become
available or should the NJDEP or other regulatory agencies
require additional or alternative remediation efforts in the
future. It is not currently possible to estimate the range or
amount of any such liability.
Although the Company believes that it is entitled to full
defense and indemnification with respect to environmental
investigation and remediation costs under its insurance
policies, the Company's insurers have denied such coverage.
Accordingly, the Company has filed an action against certain
insurance carriers seeking defense and indemnification with
respect to all prior and future costs incurred in the
investigation and remediation of these sites. At December 31,
1999, settlements have been reached with all but one carrier
in this matter. Settlement with the final carrier was
completed in February 2000.
In the opinion of management, amounts recovered from its
insurance carriers should be
F-23
sufficient to address these matters and amounts needed in
excess, if any, will be paid gradually over a period of years.
Accordingly, they should not have a material adverse effect
upon the business, liquidity or financial position of the
Company. However, adverse decisions or events, particularly as
to the merits of the Company's factual and legal basis could
cause the Company to change its estimate of liability with
respect to such matters in the future.
The Company is involved in various other litigation and legal
matters which are being defended and handled in the ordinary
course of business. None of these matters are expected to
result in a judgment having a material adverse effect on the
Company's consolidated financial position or results of
operations.
F-24
SCHEDULE II
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------
(In Thousands)
--------------
Write-offs
Net of
Recoveries
Balance Charged of Accounts Balance
at to Previously at
Beginning Costs and Written End of
of Period Expenses Off Period
----------- --------- ----------- -------
Allowance for doubtful accounts:
Year ended December 31, 1999 $390 $ 0 $ 0 $390
Year ended December 31, 1998 326 70 6 390
Year ended December 31, 1997 377 0 51 326
The accompanying Notes to Consolidated Financial Statements are an
integral part of these schedules.
F-25
SCHEDULE III
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
REAL PROPERTY HELD FOR RENTAL AND ACCUMULATED DEPRECIATION
----------------------------------------------------------
DECEMBER 31, 1999
-----------------
(In Thousands)
--------------
Initial Cost to Company Costs Gross Amount at Which
Mortgage ------------------------ Capitalized Carried at Close of Period
Loans Subsequent to ---------------------------------------
Payable Building and Acquisition/ Building and
Description (Gross) Land Improvements Improvements Land Improvements Total (a), (c)
- ------------------------------------ ----------- --------- ------------ ------------- --------- ------------ --------------
Shopping Centers and Retail Outlets:
Culver, CA $ 4,010 $ 842 $ 7,576 $ 0 $ 842 $ 7,576 $ 8,418
Northbrook, IL 4,328 898 8,075 0 898 8,075 8,973
Miscellaneous Investments 14,763 5,172 45,776 990 5,172 46,766 51,938
-------- -------- -------- -------- -------- -------- --------
23,101 6,912 61,427 990 6,912 62,417 69,329
-------- -------- -------- -------- -------- -------- --------
Commercial Properties:
Miscellaneous Investments 9,171 9,512 41,358 975 9,512 42,333 51,845
Day Care Centers and Offices:
Miscellaneous Investments 299 643 5,292 2,145 643 7,437 8,080
Hotel Properties:
Miscellaneous Investments 0 1,712 2,868 48 1,712 2,916 4,628
Other:
Miscellaneous Investments 0 2,305 997 1,008 2,305 2,005 4,310
-------- -------- -------- -------- -------- -------- --------
$ 32,571 $ 21,084 $111,942 $ 5,166 $ 21,084 $117,108 $138,192
======== ======== ======== ======== ======== ======== ========
Life on Which
Depreciation
in Latest
Statement of
Accumulated Date of Date Income is
Description Depreciation (b) Construction Acquired Computed (Years)
- ------------------------------------ ---------------- ------------ ----------- ----------------
Shopping Centers and Retail Outlets:
Culver, CA $ 5,445 N/A 1986 18
Northbrook, IL 5,664 N/A 1987 18
Miscellaneous Investments 32,452 N/A 1986-98 10-39
-------
43,561
-------
Commercial Properties:
Miscellaneous Investments 17,844 N/A 1986-98 5-39
Day Care Centers and Offices:
Miscellaneous Investments 6,004 N/A 1986-91 5-39
Hotel Properties:
Miscellaneous Investments 2,868 N/A 1986-99 7-10
Other:
Miscellaneous Investments 976 N/A 1986-97 10-28
-------
$71,253
=======
Notes:
(a) Reconciliations of the carrying value of real property held for rental
for the three years ended December 31, 1999 are as follows:
1999 1998 1997
--------- --------- --------
Real property held for rental at beginning of period $140,102 $124,346 $126,876
Additions during the period:
Acquisitions and improvements 2,304 12,539 2,276
Transfers to real property held for rental 0 8,584 0
-------- -------- --------
142,406 145,469 129,152
Deductions during period:
Cost of real estate sold 4,214 5,367 4,806
-------- -------- --------
$138,192 $140,102 $124,346
======== ======== ========
(b) Reconciliations of accumulated depreciation for the three years ended
December 31, 1999 are as follows:
1999 1998 1997
-------- -------- --------
Accumulated depreciation at beginning of period $ 68,665 $ 65,768 $ 61,187
Additions during the period:
Provision for depreciation 5,210 5,530 5,838
-------- -------- --------
73,875 71,298 67,025
Deductions during period:
Accumulated depreciation of real estate sold 2,622 2,633 1,257
-------- -------- --------
$ 71,253 $ 68,665 $ 65,768
======== ======== ========
(c) The aggregate cost for federal income tax purposes is approximately
$178,000.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these schedules.
F-26
SCHEDULE IV
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
MORTGAGE LOANS ON REAL ESTATE
-----------------------------
DECEMBER 31, 1999
-----------------
(In Thousands)
--------------
Final Prior
Description Interest Rate Maturity Date Periodic Payment Terms Liens
- ------------------------------- --------------------- ---------------------- ----------------------------------- ----------
Mortgage loans secured by
commercial property:
Augusta, Georgia 9.0% December 2008 Principal and interest due monthly $0
Philadelphia, Pennsylvania Varies from 9.0%-12.0% January 2005 Principal and interest due monthly 0
---------
$0
=========
Principal
Amount of
Carrying Loans Subject
Face Amount of to Delinquent
Amount of Mortgages Principal
Description Mortgages (a), (b), (c) or Interest
- ---------------------------------- -------------------- --------------------------- ---------------------
Mortgage loans secured by
commercial property:
Augusta, Georgia $45 $10 $0
Philadelphia, Pennsylvania 77 77 0
-------------------- -------------------------- ---------------------
$122 $87 $0
==================== ========================== =====================
(a) A reconciliation of mortgage loans on real estate for the year ended
December 31, 1999 is as follows:
Balance at beginning of period $1,226
Additions during period:
New mortgage loans 77
Deductions during period:
Collection of principal (1,216)
------
Balance at end of period $87
======
(b) In accordance with generally accepted accounting principles certain gains
from the sale of real property are being recognized under the installment
method and, accordingly, notes receivable have been reduced by the
following deferred gains at December 31, 1999:
Mortgage note receivable in connection with sale of property in:
Augusta, Georgia $24
======
(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-27
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
QUARTERLY FINANCIAL DATA
------------------------
(Unaudited)
-----------
(In Thousands, Except Per Share Data)
-------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- --------- --------- ---------
For the year 1999:
Revenues $14,175 $14,713 $14,339 $16,475
======= ======= ======= =======
Costs and expenses $12,167 $11,695 $11,243 $11,511
======= ======= ======= =======
Other income $ 4,148 $ 1,473 $ 1,945 $ 1,972
======= ======= ======= =======
Net income $ 3,586 $ 2,576 $ 2,916 $ 4,248
======= ======= ======= =======
Per share data:
Earnings per common share:
Basic $ .70 $ .51 $ .58 $ .89
======= ======= ======= =======
Diluted $ .70 $ .51 $ .58 $ .87
======= ======= ======= =======
For the year 1998:
Revenues $14,548 $14,996 $13,883 $15,092
======= ======= ======= =======
Costs and expenses $10,747 $12,734 $10,814 $11,950
======= ======= ======= =======
Other income $ 349 $ 3,753 $ 400 $ 1,532
======= ======= ======= =======
Income from continuing operations $ 2,414 $ 3,423 $ 1,961 $ 2,785
======= ======= ======= =======
Income from discontinued operations,
net of tax $ 4,849 $ 0 $ 0 $ 0
------- ------- ------- -------
Net income $ 7,263 $ 3,423 $ 1,961 $ 2,785
======= ======= ======= =======
Per share data:
Basic earnings per common share:
Income from continuing operations $ .46 $ .66 $ .38 $ .54
Discontinued operations, net of tax .92 .00 .00 .00
------- ------- ------- -------
Net income per common share $ 1.38 $ .66 $ .38 $ .54
======= ======= ======= =======
Diluted earnings per common share:
Income from continuing operations $ .45 $ .64 $ .37 $ .54
Discontinued operations, net of tax .90 .00 .00 .00
------- ------- ------- -------
Net income per common share assuming
dilution $ 1.35 $ .64 $ .37 $ .54
======= ======= ======= =======
F-28