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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, 2000
-----------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 1-10104
-------------------------------------
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 2, 2001 was approximately $21,220,000.
The number of shares of the Company's $.10 par value common stock outstanding as
of March 2, 2001 was 4,704,915.
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 a South
Plainfield, New Jersey property, 96.8% of the total square footage of the
Company's properties are leased as of December 31, 2000.
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(TM) 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 15.8% and 17.0% of the segment's
sales for 2000 and 1999, respectively. 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 business segment of the Company for 2000, 1999 and 1998.
(In Thousands) 2000 1999 1998
----------- ----------- -----------
Real Estate Investment and Management
- -------------------------------------
Rental revenues $ 28,237 $ 29,202 $ 26,349
============ =========== =========
Operating income $ 14,147 $ 14,079 $ 12,133
============ =========== =========
Identifiable assets, including
corporate assets $136,189 $122,112 $114,406
============ =========== =========
Engineered Products
- -------------------
Net sales $ 34,095 $ 30,500 $ 32,170
============= =========== =========
Operating income $ 2,261 $ 1,855 $ 3,239
============= =========== =========
Identifiable assets $ 11,807 $ 11,620 $ 11,706
============= =========== =========
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. The Company has not had and does not expect to have any
problems fulfilling its raw material requirements during 2001.
2
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 operations are significant to this segment, it does not
believe that any of them 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 2, 2001, the Company employed approximately 310 persons, approximately
210 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 $3.8 million at December 31, 2000 and $2.4 million at December
31, 1999. The increase in backlog is principally due to growth in the Company's
transformer products business. It is anticipated that substantially all such
2000 backlog will be filled in 2001. Substantially all of the 1999 backlog was
filled in 2000. 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.
3
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 $860,000 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 believed that it was entitled to full defense and
indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the Company's insurers denied such coverage.
Accordingly, the Company filed an action against certain insurance carriers
seeking defense and indemnification with respect to all prior and future costs
incurred in the investigation and remediation of these sites. Settlements have
been reached with all carriers in this matter.
In the opinion of management, amounts recovered from its' insurance carriers
should be sufficient to address these matters and amounts needed in excess, if
any, will be paid gradually over a period of years. Accordingly, they should not
have a material adverse effect upon the business, liquidity or financial
position of the Company. However, adverse decisions or events, particularly as
to the merits of the Company's factual and legal basis could cause the Company
to change its estimate of liability with respect to such matters in the future.
4
ITEM 2. PROPERTIES
Real Property Held for Rental
-----------------------------
As of March 2, 2001 the Company owned 203 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, 2000 are as follows (Dollars in Thousands):
Gross Carrying Number of
Description Value Percentage Properties
----------- -------------- ---------- ----------
Shopping centers and retail outlets $68,213 52.1% 26
Commercial properties 45,562 34.8% 125
Day-care centers and offices 8,245 6.3% 12
Hotel properties 4,628 3.5% 2
Other 4,347 3.3% 39
---------- ------- -----
Total $130,995 100.0% 204
========== ------- -----
The following summarizes real property held for rental by geographic area at
December 31, 2000 (Dollars in Thousands):
Gross Number
Carrying of
Value Properties
--------- -----------
Northeast $41,946 105
Southeast 25,708 36
Midwest 30,321 39
Southwest 6,071 7
Pacific Coast 23,090 8
Pacific Northwest 980 5
Rocky Mountain 2,879 4
----------- ------
$130,995 204
=========== ======
Shopping Centers and Retail Outlets
-----------------------------------
Shopping centers and retail outlets include 19 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 ten K-Mart stores and three Macy's stores, with a total of
approximately 1.0 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.
5
Commercial Properties
---------------------
Commercial properties consist of properties leased as 63 restaurants, 20 Midas
Muffler Shops, three convenience stores, eight 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 63
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.
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. The lease at one such location has expired and
the Company is currently negotiating a new long-term lease with the tenant.
Although there can be no assurance that the Company will in fact enter into a
lease agreement, the Company believes that with continued negotiations a new
long-term lease should be forthcoming.
Hotel Properties
----------------
The Company's two hotel properties are located in Georgia and California and are
managed through a national hotel company with local on-site management which is
responsible for all day-to-day operations of the hotels. The Board Chairman and
another Director of the Company are directors of this publicly traded hotel
company.
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.
ITEM 3. LEGAL PROCEEDINGS
Litigation
- ----------
The Company is involved in various 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.
6
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
---- ---
2000 First quarter $18.38 $11.75
- ---- Second quarter 13.75 11.88
Third quarter 17.50 13.38
Fourth quarter 17.00 14.00
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
As of March 2, 2001, there were approximately 420 record holders of the
Company's Common Stock. The closing sales price for the Company's Common Stock
on such date was $18.02. 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.
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,
- ------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- -------- ------- -------
Total revenues (1) $62,332 $59,702 $58,519 $60,246 $65,991
========= ========== ======= ======= =======
Income from continuing operations $18,278 $13,326 $10,583 $ 7,465 $ 6,634
========= ========== ======= ======= =======
Income from continuing operations
per basic common share (2) $3.86 $2.68 $2.03 $1.41 $1.21
========= ========== ======== ======== ========
Total assets $147,996 $133,732 $126,112 $113,353 $116,761
Total liabilities 70,877 74,676 73,694 75,873 87,186
Stockholders' equity 77,119 59,056 52,418 37,480 29,575
========= ========== ======== ======== ========
7
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". For further discussion of earnings per share see
Note 1, "Summary of Significant Accounting Policies" of Notes of
Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations 2000 and 1999
- -----------------------------------
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 2000 were $62.3 million versus
revenues of $59.7 million during 1999. Operating income during this period was
$14.3 million versus $13.1 million in 1999, an increase of $1.2 million or 8.9%.
Net income was $18.3 million or $3.86 per basic share in 2000 versus $13.3
million or $2.68 per basic share in 1999.
Real Estate Operations
----------------------
Rental revenues from real estate operations during 2000 decreased $965,000 or
3.3% over those of the prior year. This decrease is primarily attributable to
increased revenues in 1999 from the accounting treatment of certain property
leases resulting in the recognition of non-recurring revenues in the fourth
quarter. Absent this item, rental revenues increased $983,000 or 3.6% primarily
from an increase in the Company's hotel revenues.
Mortgage interest expense for 2000 decreased by $388,000 as compared to such
expense incurred during 1999. This decrease of 14.8% 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 $217,000 or 4.2% from such expense incurred in the preceding year.
This decrease is primarily attributable to properties sold in 2000 and 1999.
Other operating expenses associated with the management of real properties
decreased approximately $428,000 or 5.9% during 2000 versus such expenses
incurred in 1999. This
8
decrease is primarily due to reduced expenses incurred for the maintenance of
properties acquired in prior years.
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, 2000 and 1999 are as follows:
(In Thousands) 2000 1999
-------- --------
Net sales $34,095 $30,500
======= =======
Cost of sales $24,738 $21,808
======= =======
Selling, general and administrative expenses $7,096 $6,837
======= =======
Operating income $2,261 $1,855
======= =======
Net sales of the engineered products segment were $34.1 million, an 11.8%
increase from prior year's revenues. This increase is primarily the result of
higher sales of transformer products as well as in the engineered products and
European automotive markets of knitted wire products.
Cost of sales as a percentage of net sales increased approximately 1.1% between
1999 and 2000. This increase is primarily due to the mix of products sold,
primarily from the increase in transformer sales, noted above.
Selling, general and administrative expenses of the engineered products segment
increased $259,000 or 3.8% during 2000, as compared to such costs in 1999. This
increase is principally related to the increase in sales volume and represents a
1.6% decline as a percentage of net sales from the prior year.
General and Administrative Expenses
-----------------------------------
General and administrative expenses not associated with the manufacturing
operations decreased approximately $695,000 or 24.4% during 2000 as compared to
such expenses incurred in the preceding year. This decrease is primarily due to
a reduction in professional fees.
Other Income and Expense, Net
-----------------------------
Other income and expense, net for 2000 increased approximately $1.5 million from
$8.3 million in 1999 to $9.8 million in 2000. The increase is principally due to
increased gains on the sale of marketable securities of $4.4 million offset by a
$1.7 million decrease in gain on the sale of real estate assets and a $838,000
decrease in gain from equity investments resulting from the 1999 sale of a 50.0%
partnership interest in a Miami Beach hotel.
9
Results of Operations 1999 and 1998
- -----------------------------------
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 1999. 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.
Real Estate Operations
----------------------
Rental revenues from real estate operations during 1999 increased $2.9 million
or 10.8% over those of 1998. 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 1999, 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 1998. 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
======= =======
10
Net sales of the engineered products segment were $30.5 million, a 5.2% decrease
from 1998'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 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 1998. 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.
Liquidity and Capital Resources
-------------------------------
At December 31, 2000, the Company's cash and marketable securities were $60.4
million and working capital was approximately $52.3 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 Company's portfolio of available-for-sale securities had a fair market value
of approximately $43.3 million at December 31, 2000, reflecting pretax
unrealized holding gains of approximately $6.0 million. Included in these
marketable securities was approximately $29.1 million of common stock in a
publicly traded company for which the Board Chairman and another Director of the
Company are directors.
11
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 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, 2000,
eligibility under the Revolver was $60.0 million, based upon the above terms.
The credit agreement contains certain financial and restrictive covenants,
including minimum consolidated equity, interest coverage, debt service coverage
and capital expenditures (other than for real estate). The Company was in
compliance with all covenants at December 31, 2000. The credit agreement also
contains provisions which allow the banks to perfect a security interest in
certain operating and real estate assets in the event of 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, 2000, there were no amounts outstanding under the Revolver.
The Term Loan bears interest at 90 day LIBOR plus 1.4% (7.8% at December 31,
2000) and is payable in quarterly installments of $175,000, with the final
payment due on September 30, 2002. At December 31, 2000, there was approximately
$1.2 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 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 differential to be paid or
received on the Swap is recognized over the term of the agreement as an
adjustment to interest expense.
The Company has undertaken the completion of environmental studies and/or
remedial action at Metex' two New Jersey facilities and filed an action against
certain insurance carriers seeking recovery of costs incurred and to be incurred
in these matters. Settlements have been reached with all carriers in this
matter. See Note 19, "Contingencies" of Notes to Consolidated Financial
Statements for further discussion on this matter.
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
12
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.
Previous purchases of the Company's common stock have reduced the Company's
additional paid-in capital to zero and accordingly current year purchases in
excess of par value have reduced retained earnings. During 2000, the Company
purchased and retired 16,000 shares of the Company's common stock for
approximately $234,000. 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, equity securities,
ongoing operations and borrowings under the Revolver. The primary source of
capital to fund additional real estate acquisitions and to make additional
high-yield mortgage loans will come from existing funds, borrowings under the
Revolver, the sale, financing and refinancing of the Company's properties and
from third party mortgages and purchase money notes obtained in connection with
specific acquisitions.
In addition to the acquisition of properties for consideration consisting of
cash and mortgage financing proceeds, the Company may acquire real properties in
exchange for the issuance of the Company's equity securities. The Company may
also finance acquisitions of other companies in the future with borrowings from
institutional lenders and/or the public or private offerings of debt or equity
securities.
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
- -----------
Market risk generally represents the risk of loss that may result from the
potential change in the value of a financial instrument as a result of
fluctuations in interest and currency exchange rates and in equity and commodity
prices. Derivative financial instruments are used by the Company principally in
the management of its interest rate exposure.
The primary objective of the Company's investment activities is to preserve
principal and maximize yields without significantly increasing market risk. To
achieve this, management maintains a portfolio of cash equivalents and
investments in a variety of securities, primarily U.S. investments in both
common and preferred equity issues.
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 and trading securities consist of U.S. investments
13
in both common and preferred equity issues 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 of 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. As a result, the Company's operating results could be affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in which the Company distributes its products.
Most of the Company's sales are denominated in U.S. dollars. A portion of the
Company's receivables are denominated in French Francs and are exposed to
changes in exchange rates with the U.S. dollar. When the U.S. dollar strengthens
against the French Franc, the value of the nonfunctional currency sales
decreases. When the U.S. dollar weakens the functional currency amount of sales
increases. Overall, the Company is a net receiver of French Francs and, as such,
benefits from a weaker dollar but is adversely affected by a stronger dollar
relative to the French Franc.
The Company's manufacturing operations utilize various metal commodities
(principally stainless steel) in the manufacturing process. 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 which tend to minimize short-term currency
fluctuations. The Company's financial results, however, could be significantly
affected by fluctuations in metals pricing.
The following is a tabular presentation of quantitative market risks at December
31, 2000:
Principal (Notional) Amount by Expected Maturity
------------------------------------------------------------- Fair
There- Value
(Dollars in Thousands) 2001 2002 2003 2004 2005 After Total 12/31/00
- --------------------------------------------------------------------------------------------------------------------
Assets
Available-for-sale securities $41,488 $ 0 $ 0 $ 0 $ 0 $ 0 $41,488 $41,488
Trading securities $ 1,765 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,765 $ 1,765
Notes receivable $ 3,894 $ 30 $ 34 $ 39 $ 27 $ 113 $ 4,137 $ 4,174
Average interest rate 14.0% 10.9% 10.9% 10.9% 10.1% 10.0%
Liabilities
Long-term debt, including current portion
Fixed rate $ 5,498 $ 5,047 $ 4,391 $ 5,866 $ 2,338 $ 4,142 $27,282 $25,500
Average interest rate 7.3% 7.2% 7.1% 7.0% 6.9% 6.9%
Variable rate $ 700 $ 525 $ 0 $ 0 $ 0 $ 0 $ 1,225 $ 1,188
Average interest rate
LIBOR +1.40% 7.8% 7.8%
Interest Rate Derivative Financial Instruments Related to Variable Rate Debt
Interest rate swaps
Pay fixed/receive variable $ 700 $ 525 $ 0 $ 0 $ 0 $ 0 $ 1,225 ($ 6)
Average pay rate 7.8% 7.8%
Average receive rate 7.7% 7.7%
14
Business Trends
- ---------------
Total 2000 revenues were $62.3 million versus $59.7 million during 1999.
Operating income during this period was $14.3 million versus $13.1 million in
1999, an increase of $1.2 million or 8.9%. Net income was $18.3 million or $3.86
per basic share in 2000 versus $13.3 million or $2.68 per basic share in 1999,
representing a 44.0% increase in earnings per basic share over the prior year.
Real estate operations continue to contribute to the Company's strong financial
performance. Operating income generated from this segment during 2000 was $14.1
million on revenues of $28.2 million. The long-term nature of the Company's
property leases as well as continued mortgage amortization continues to provide
the solid financial base for these results.
The Company's engineered products segment posted a 21.9% increase in operating
profit as compared to 1999. This increase is primarily attributable to an
increase in sales from this segment of $3.6 million or 11.8% over 1999 levels.
These results reflect management's continued commitment to grow this segment and
pursue new sales opportunities, including new geographical markets for its
existing products and new applications for its core technologies.
Forward Looking Statements
- --------------------------
This Form 10-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. 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 information required herein has been previously reported in the Company's
report on Form10-K for the fiscal year ended December 31, 1999.
15
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
2001 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
2001 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
2001 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
2001 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, 2000 and 1999 F-2
Consolidated Statements of Income for the Years F-3
Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the Years F-4
Ended December 31, 2000, 1999 and 1998
16
Consolidated Statements of Cash Flows for the F-5
Years Ended December 31, 2000, 1999 and 1998 to F-6
Notes to Consolidated Financial Statements F-7
to F-23
(2) Consolidated Financial Statement Schedules
------------------------------------------
Schedule II -- Allowance for Doubtful Accounts F-24
Schedule III -- Real Property Held for Rental and F-25
Accumulated Depreciation
Schedule IV -- Mortgage Loans on Real Estate F-26
(3) Supplementary Data
------------------
Quarterly Financial Data (Unaudited) F-27
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
No reports on Form 8-K were filed by the Company during the last quarter of
fiscal 2000.
(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 and Non-Qualified Stock Option Plan of the
Company, as amended.
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).
17
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).
10.6. Revolving Credit Agreement dated as of December 31, 1999, with
the financial parties thereto (incorporated by reference to exhibit 10.6 filed
with the Company's report on Form10-K for the fiscal year ended December 31,
1999).
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.
- -----------------
* Filed herewith
18
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 2, 2001 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 2, 2001 By: /s/ A.F. Petrocelli
------------- --------------------------------
A. F. Petrocelli
Chairman, President and
Chief Executive Officer
Dated: March 2, 2001 By: /s/ Howard M. Lorber
------------- --------------------------------
Howard M. Lorber
Director
Dated: March 2, 2001 By: /s/ Anthony J. Miceli
------------- --------------------------------
Anthony J. Miceli
Chief Financial Officer,
Chief Accountant, Secretary and
Director
Dated: March 2, 2001 By: /s/ Arnold S. Penner
------------- --------------------------------
Arnold S. Penner
Director
19
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, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2000. We have also
audited the financial statement schedules listed in the Index at Item 14(a)2.
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with 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, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, 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, New York
February 14, 2001
F-1
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(In Thousands, Except Per Share Data)
2000 1999
---- ----
Assets
Current assets:
Cash and cash equivalents $ 17,134 $ 13,575
Marketable securities 43,253 27,296
Notes and accounts receivable, net of allowance for doubtful
accounts of $328 and $390, respectively 9,057 5,626
Inventories 4,613 4,207
Prepaid expenses and other current assets 652 254
-------- --------
Total current assets 74,709 50,958
-------- --------
Property, plant and equipment, net 4,557 5,077
Real property held for rental, net 57,133 66,939
Noncurrent notes receivable 243 270
Other assets 11,354 10,488
-------- --------
Total assets $147,996 $133,732
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 5,498 $ 5,990
Borrowings under credit facilities 700 700
Accounts payable and accrued liabilities 9,193 9,835
Income taxes payable 6,093 5,000
Deferred income taxes 954 1,019
-------- --------
Total current liabilities 22,438 22,544
-------- --------
Borrowings under credit facilities 525 1,225
Long-term debt 21,784 27,316
Other long-term liabilities 24,961 22,917
Deferred income taxes 1,169 674
-------- --------
Total liabilities 70,877 74,676
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock $.10 par value, authorized 7,500 shares;
issued and outstanding 4,720 and 4,736 shares, respectively 472 474
Retained earnings 72,717 54,671
Accumulated other comprehensive income, net of tax 3,930 3,911
-------- --------
Total stockholders' equity 77,119 59,056
-------- --------
Total liabilities and stockholders' equity $147,996 $133,732
======== ========
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, 2000, 1999 AND 1998
(In Thousands, Except Per Share Data)
2000 1999 1998
---- ---- ----
Revenues:
Net sales $ 34,095 $ 30,500 $ 32,170
Rental revenues from real estate operations 28,237 29,202 26,349
-------- -------- --------
Total revenues 62,332 59,702 58,519
-------- -------- --------
Costs and expenses:
Cost of sales 24,738 21,808 22,260
Real estate operations:
Mortgage interest expense 2,232 2,620 2,661
Depreciation expense 4,993 5,210 5,530
Other operating expenses 6,865 7,293 6,025
General and administrative expenses 5,295 5,810 6,057
Selling expenses 3,954 3,875 3,712
-------- -------- --------
Total costs and expenses 48,077 46,616 46,245
-------- -------- --------
Operating income 14,255 13,086 12,274
-------- -------- --------
Other income (expense):
Interest and dividend income 2,230 1,886 1,961
Interest expense (564) (614) (962)
Other income and expense, net 9,797 8,266 5,035
-------- -------- --------
Total other income 11,463 9,538 6,034
-------- -------- --------
Income from continuing operations before
income taxes 25,718 22,624 18,308
Provision for income taxes 7,440 9,298 7,725
-------- -------- --------
Income from continuing operations 18,278 13,326 10,583
-------- -------- --------
Discontinued operations:
Gain on disposal of discontinued operations, net
of tax provision of $3,700 0 0 4,849
-------- -------- --------
Net income $ 18,278 $ 13,326 $ 15,432
======== ======== ========
Basic earnings per common share:
Income from continuing operations $ 3.86 $ 2.68 $ 2.03
Discontinued operations .00 .00 .93
-------- -------- --------
Net income per common share $ 3.86 $ 2.68 $ 2.96
======== ======== ========
Diluted earnings per common share:
Income from continuing operations $ 3.83 $ 2.66 $ 2.00
Discontinued operations .00 .00 .92
-------- -------- --------
Net income per common share assuming dilution $ 3.83 $ 2.66 $ 2.92
======== ======== ========
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, 2000, 1999 AND 1998
(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, 1998 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
------- -------- -------- -------- -------- --------
Purchase and retirement of common shares (16) (2) 0 (232) 0 (234)
Net income 0 0 0 18,278 0 18,278 $ 18,278
Other comprehensive income, net of tax:
Change in net unrealized gain on
available-for-sale securities,
net of tax provision of $10 0 0 0 0 19 19 19
--------
Comprehensive income $ 18,297
------- -------- -------- -------- -------- -------- ========
Balance - December 31, 2000 4,720 $ 472 $ 0 $ 72,717 $ 3,930 $ 77,119
======= ======== ======== ======== ======== ========
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, 2000, 1999 AND 1998
(In Thousands)
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $ 18,278 $ 13,326 $ 15,432
-------- -------- --------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 6,328 6,628 6,566
Gain on sale of real estate assets (5,269) (6,957) (5,444)
Gain on sale of available-for-sale securities (4,513) 0 0
Gain on sale of trading securities 0 (144) (75)
Gain from equity investments (1,227) (3,601) (1,222)
Gain on sale of discontinued operations, net of tax 0 0 (4,849)
Purchase of trading securities (1,772) (700) (5,891)
Proceeds from sale of trading securities 0 844 5,966
Unrealized loss on trading securities 7 0 0
Changes in assets and liabilities (A) (755) 10,920 (15)
-------- -------- --------
Total adjustments (7,201) 6,990 (4,964)
-------- -------- --------
Net cash provided by operating activities 11,077 20,316 10,468
-------- -------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities (25,024) (11,439) (9,690)
Proceeds from sale of available-for-sale securities 15,372 0 0
Proceeds from sale of real estate assets 9,890 9,064 8,293
Acquisition of real estate assets (767) (2,304) (12,539)
Distributions from equity investments, net 767 743 503
Proceeds from sale of equity investments 0 1,300 0
Acquisition of property, plant and equipment (798) (1,775) (1,846)
Proceeds from sale of discontinued operations 0 0 16,000
-------- -------- --------
Net cash (used in) provided by investing activities (560) (4,411) 721
-------- -------- --------
Cash flows from financing activities:
Principal payments on mortgage commitments, notes
and loans (6,024) (6,058) (18,141)
Proceeds from mortgage commitments, notes and loans 0 6,560 19,153
Net repayments under credit facilities (700) (3,325) (6,000)
Purchase and retirement of common shares (234) (7,803) (3,865)
Proceeds from the exercise of stock options 0 142 568
-------- -------- --------
Net cash used in financing activities (6,958) (10,484) (8,285)
-------- -------- --------
Net increase in cash and cash equivalents 3,559 5,421 2,904
Cash and cash equivalents, beginning of year 13,575 8,154 5,250
-------- -------- --------
Cash and cash equivalents, end of year $ 17,134 $ 13,575 $ 8,154
======== ======== ========
F-5
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (CONTINUED)
(In Thousands)
2000 1999 1998
---- ---- ----
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $2,726 $3,177 $3,640
====== ====== ======
Taxes $4,114 $4,749 $7,874
====== ====== ======
Supplemental schedule of noncash
investing and financing activities:
See Notes to Consolidated Financial Statements
(A) Changes in assets and liabilities for the years ended December 31,
2000, 1999 and 1998, are as follows:
2000 1999 1998
---- ---- ----
Notes and accounts receivable, net ($ 3,431) $ 2,049 $ 3,500
Inventories (406) 132 (646)
Prepaid expenses and other current assets (398) (45) 84
Deferred income taxes 420 4,236 (395)
Noncurrent notes receivable 27 (49) (1,512)
Other assets (475) 2,333 607
Accounts payable and accrued liabilities (642) (986) (3,918)
Income taxes payable 1,093 (1,355) (3,217)
Other long-term liabilities 3,057 4,605 5,482
-------- -------- --------
Total ($ 755) $ 10,920 ($ 15)
======== ======== ========
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, 2000, 1999 AND 1998
(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. The Company also invests
excess available cash in marketable securities and other financial
instruments.
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 which are accounted for as operating 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. 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.
Certain lease agreements provide for additional rent based on a
percentage of tenants' sales. In the fourth quarter of 2000, the
Company adopted the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 ("SAB No. 101") which provides, among other
things, guidance as to the recognition of contingent rents. SAB No. 101
requires that such additional rent be recorded as income when the
tenants' actual sales are known. The impact of adopting SAB No. 101 was
not material to the Company's results of operations or the timing of
revenue recognition.
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.
F-7
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, 2000 all
marketable securities held by the Company have been classified as
either available-for-sale or trading 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. Realized gains and losses on the sale of securities, as
determined on a specific identification basis, as well as unrealized
holding gains and losses on trading securities 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:
2000 1999
---- ----
Raw materials $2,533 $2,369
Work in process 402 334
Finished goods 1,678 1,504
------ ------
$4,613 $4,207
====== ======
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 and improvements 5 to 39 years
Equipment 5 to 7 years
Property, plant and equipment:
Buildings and improvements 18 to 39 years
Machinery and equipment 3 to 8 years
Intangible Assets:
Patents, trademarks and other
intellectual property 5 to 20 years
F-8
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.
Research and Development:
-------------------------
The Company expenses research, development and product engineering
costs as incurred. Approximately $52, $95 and $63 of such costs were
incurred by the Company in 2000, 1999 and 1998, 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:
---------------------------------
Derivative financial instruments are used by the Company principally in
the management of its interest rate exposure. 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 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.
Prior Year Financial Statements:
--------------------------------
Certain amounts have been reclassified in the December 31, 1999 and
1998 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 accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that
F-9
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"), as
amended, establishes accounting and reporting standards for derivative
instruments. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The
statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged
item into income or other comprehensive income, depending on whether
its qualifies as a fair value hedge or cash flow hedge, respectively.
The effective date of SFAS No. 133, as amended, is all fiscal quarters
of all fiscal years beginning after June 15, 2000, and accordingly the
Company will adopt SFAS No. 133 in the first quarter of 2001. Based
upon its current use of derivatives the Company believes that SFAS No.
133 will not have a material impact on the consolidated results of
operations, financial position or cash flows of the Company.
(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. Such gain on disposal of D&M is presented net of
$3,700 in tax in the accompanying Consolidated Financial Statements.
(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:
2000 1999
-------- -----------
Land $20,710 $21,084
Buildings 110,285 117,108
------- -------
130,995 138,192
Less: Accumulated depreciation (73,862) (71,253)
------- -------
$57,133 $66,939
======= =======
In 1998, the Company acquired a property subject to certain contingent
liabilities which were estimated and capitalized at the time of
acquisition. During 2000, these liabilities were resolved for
approximately $1.0 million less than originally estimated. As a result,
real property held for rental was reduced accordingly.
F-10
As of December 31, 2000, 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,
2001 $16,561
2002 15,109
2003 13,224
2004 10,703
2005 9,176
Thereafter 78,422
--------
Total minimum future rentals $143,195
========
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 2000, 1999 and 1998 were approximately
$527, $1,131 and $1,018, 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:
2000 1999
--------- ----------
Land $28 $37
Buildings and improvements 1,372 1,413
Machinery and equipment 10,630 9,909
------ ------
12,030 11,359
Less: Accumulated depreciation (7,473) (6,282)
------- -------
$4,557 $5,077
======= =======
(5) Marketable Securities:
----------------------
At December 31, 2000 and 1999, the aggregate market value of marketable
securities was $43,253 and $27,296, respectively, while the aggregate
cost of such securities was $37,217 and $21,279, respectively.
Unrealized holding gains at December 31, 2000 and 1999 were $3,930 and
$3,911 on a net of tax basis, respectively. Unrealized holding losses
on trading securities held at December 31, 2000, included in the
determination of net income for 2000 were $7. The Company held no
trading securities at December 31, 1999. Marketable securities consist
of the following at December 31:
2000 1999
---- ----
Available-for-sale securities:
Corporate equities $41,488 $21,685
Corporate debts 0 5,611
------- -------
41,488 27,296
------- -------
Trading securities:
Corporate equities 1,765 0
------- -------
$43,253 $27,296
======= =======
F-11
Proceeds from the sale of available-for-sale and trading securities and
the resulting gross realized gains included in the determination of net
income are as follows:
2000 1999 1998
---- ---- ----
Available-for-sale securities:
Proceeds $15,372 $ 0 $ 0
Realized gains $ 4,513 $ 0 $ 0
Trading securities:
Proceeds $ 0 $ 844 $ 5,966
Realized gains $ 0 $ 144 $ 75
(6) Notes Receivable:
-----------------
Notes receivable consist of the following at December 31:
2000 1999
---- ----
High yield mortgage loans (a) $3,500 $ 0
Other 637 298
------ ------
4,137 298
Less: Current portion included in notes
and accounts receivable 3,894 28
------ ------
$ 243 $ 270
====== ======
(a) At December 31, 2000, the Company holds a participation in a high
yield mortgage loan with a related party participant (see Note
14). This loan is secured by a first mortgage lien on the
property. The loan bears interest at 14.0% and the Company
received a commitment fee of 4.0%.
(7) Other Assets:
-------------
Other assets consist of the following at December 31:
2000 1999
---- ----
Lease financing (a) $8,272 $7,812
Other 3,734 2,930
------ ------
12,006 10,742
Less: Amounts included in prepaid expenses
and other current assets 652 254
------- -------
$11,354 $10,488
======= =======
F-12
(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:
2000 1999
---- ----
Rentals receivable $85,611 $89,573
Residual values 10,000 10,000
Non recourse debt service (68,111) (69,003)
Unearned income (19,228) (22,758)
------- --------
8,272 7,812
Less: Deferred taxes arising
from leveraged leases 5,561 4,722
------- --------
$2,711 $3,090
======= ========
The Company's share of income arising from this investment was $1,227,
$3,601 and $1,222 in 2000, 1999 and 1998, respectively and is included
in rental income in the accompanying Consolidated Statements of Income.
(8) Accounts Payable and Accrued Liabilities:
-----------------------------------------
Accounts payable and accrued liabilities consist of the following at
December 31:
2000 1999
---- ----
Accounts payable $4,098 $3,760
Accrued wages and benefits 1,412 1,417
Liabilities for discontinued operations 1,613 1,806
Other accrued expenses 2,070 2,852
------ ------
$9,193 $9,835
====== ======
(9) Long-term Debt:
---------------
Long-term debt consists of the following at December 31:
2000 1999
---- ----
Mortgages on real property (a) $27,126 $32,571
Loan payable to bank 0 472
Capital lease obligation 156 263
------- -------
27,282 33,306
Less: Current maturities 5,498 5,990
------- -------
$21,784 $27,316
======= =======
(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 July
2001 through October 2015.
F-13
The approximate aggregate maturities of these obligations at December
31, 2000 are as follows:
Long-term Capital Lease
Debt Obligation
--------- -------------
2001 $5,383 $124
2002 5,006 43
2003 4,391 0
2004 5,866 0
2005 2,338 0
Thereafter 4,142 0
------ -----
Total minimum payments $27,126 167
=======
Less: Amount representing interest 11
------
Total present value of minimum
lease payments 156
Less: Current portion 115
-----
Total noncurrent portion $41
=====
(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, 2000, 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, 2000. The credit
agreement also contains provisions which allow the banks to perfect a
security interest in certain operating and real estate assets in the
event of 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, 2000, there were no amounts outstanding under the
Revolver.
The Term Loan bears interest at 90 day LIBOR plus 1.4% (7.8% at
December 31, 2000) and is payable in quarterly principal installments
of $175, with the final payment due on September 30, 2002. At December
31, 2000, there was $1,225 outstanding under the Term Loan.
F-14
(11) Fair Value of Financial Instruments:
------------------------------------
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, accounts receivable and accounts payable
approximate their fair value due to the short maturity of such items.
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, 2000 and 1999 was approximately $4,174 and
$354 respectively, while the carrying value was $4,137 and $298 for the
same periods.
At December 31, 2000 and 1999, all marketable securities held by the
Company have been classified as either available-for-sale or trading
and, as a result, 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, 2000 and 1999 was approximately $25,500
and $31,134 respectively, while the carrying value was $27,282 and
$33,306 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 then current interest rates and the
current creditworthiness of the Swap counterparties. At December 31,
2000 and 1999, the fair values of the Swap were estimated at ($6) and
$14, respectively.
(12) Stockholders' Equity:
---------------------
Previous purchases of the Company's common stock have reduced the
Company's additional paid-in capital to zero and accordingly current
year purchases in excess of par value have reduced retained earnings.
During 2000, the Company purchased and retired 16,000 shares of the
Company's common stock for approximately $234. Future repurchases of
the Company's common stock will also reduce retained earnings by
amounts in excess of the par value.
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 and
Non-Qualified Stock Option Plan (the "Incentive Plan") and the 1988
Joint Incentive and Non-Qualified Stock Option Plan (the "Joint Plan")
both provide for the granting of incentive or nonqualified stock
options. The number of authorized shares reserved for issuance pursuant
to each plan is 1,325,000.
F-15
At December 31, 2000, there were 1,198,380 and 417,001 options
outstanding under the Joint Plan and Incentive Plan, respectively. At
December 31, 1999, 1,031,380 and 223,001 options were outstanding under
the Joint Plan and Incentive Plan, respectively.
A summary of the Company's stock options as of December 31, 2000, 1999
and 1998, and changes during the years then ended are summarized below:
Weighted-
Average
Exercise
Shares Price
--------- ----------
Outstanding at January 1, 1998 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
Granted 371,000 $ 13.06
Forfeited (10,000) $ 18.57
-----------
Outstanding at December 31, 2000 1,615,381 $ 16.62
===========
The following table summarizes information about options outstanding and
exercisable at December 31, 2000:
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 3.5 years $ 10.06 80,000 $ 10.06
$13.06 - $18.75 1,106,381 8.3 years $ 14.61 448,048 $ 16.25
$22.88 - $25.16 429,000 7.4 years $ 23.04 286,000 $ 23.04
--------- --------
$7.25 - $25.16 1,615,381 7.8 years $ 16.63 814,048 $ 18.03
========== ========
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,
F-16
"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 2000, 1999 and 1998 proforma net income
and net income per basic share for 2000, 1999 and 1998 would have been $16,532
or $3.49, $11,758 or $2.37 and $14,234 or $2.74 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 Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The weighted-average option fair values and the assumptions used to estimate
these values are as follows:
Grants Issued During
--------------------
2000 1999 1998
---- ---- ----
Expected life (years) 5 5 5
Risk free interest rate 6.1% 5.6% 5.6%
Expected volatility 35.3% 32.4% 32.7%
Dividend yield 0.0% 0.0% 0.0%
Weighted-average option fair value $5.40 $5.42 $8.78
(13) Earnings Per Common Share:
--------------------------
The following table sets forth the computation of basic and diluted
earnings per common share:
(Share Data in Thousands) 2000 1999 1998
---- ---- ----
Numerator:
Income from continuing operations $18,278 $13,326 $10,583
======= ======= =======
Denominator:
Denominator for basic earnings per common
share--weighted-average shares 4,731 4,968 5,203
Effect of dilutive securities:
Employee stock options 42 45 85
------- ------- -------
Denominator for diluted earnings per common
share--adjusted weighted-average shares
and assumed conversions 4,773 5,013 5,288
======= ======= =======
Basic earnings per common share $ 3.86 $ 2.68 $ 2.03
======= ======= =======
Diluted earnings per common share $ 3.83 $ 2.66 $ 2.00
======= ======= =======
F-17
(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 January 2000, the Company participated in a $4,500 loan transaction
secured by mortgage liens against three properties in New York, New
York. The Company advanced $3,500 in connection with this loan. The
remaining $1,000 was advanced by the wife of the Board Chairman. The
note matures in February 2001 with a one year renewal option and bears
interest at 14.0% per annum payable monthly. The participants also
received a commitment fee of 4.0% in connection with the loan.
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. In January
1999, the Company sold this investment for $1,300 resulting in a pretax
gain of $838.
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 $165, $134 and $139 for 2000, 1999
and 1998, respectively. Included in marketable securities at December
31, 2000 was $29,101 of common stock in this company which represents
approximately 5.6% of such company's outstanding shares.
(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
F-18
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 at December 31, 2000 and 1999
are as follows:
2000 1999
---- ----
Realization allowances related to
accounts receivable and inventories $ 282 $ 257
Net unrealized gain on marketable securities (2,113) (2,106)
Basis differences relating to real
property held for rental 3,468 2,812
Accrued expenses, deductible when paid, net 4,190 4,472
Basis differences relating to business acquisitions (1,863) (1,863)
Leveraged lease (5,561) (4,722)
Property, plant and equipment (431) (432)
Pensions (65) (81)
Other, net (30) (30)
------- -------
Net deferred tax liability (2,123) (1,693)
Less: Current portion (954) (1,019)
------- -------
Noncurrent portion ($1,169) ($ 674)
======= =======
The income tax provision reflected in the accompanying Consolidated Statements
of Income for each of the years presented herein is as follows:
2000 1999 1998
---- ---- ----
Current:
Federal $ 5,233 $ 5,175 $ 6,325
State 1,864 1,831 1,900
Deferred 343 2,292 (500)
------- ------- -------
$ 7,440 $ 9,298 $ 7,725
======= ======= =======
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, 2000, 1999 and 1998 is as follows:
2000 1999 1998
---- ---- ----
Computed federal income
tax provision at statutory rates $ 9,001 $ 7,918 $ 6,408
State income taxes, net of federal income tax benefit 1,255 1,236 1,293
Realization of capital loss deductions (2,805) 0 0
Other, net (11) 144 24
------- ------- -------
$ 7,440 $ 9,298 $ 7,725
======= ======= =======
F-19
(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,
2000, 1999 and 1998 are as follows:
2000 1999 1998
---- ---- ----
Gain on sale of real estate assets $ 5,269 $ 6,957 $ 5,444
Gain (loss) from equity investments (a) 0 838 (402)
Gain on the sale of available-for-sale
securities (Note 5) 4,513 0 0
Gain on the sale of trading securities (Note 5) 0 144 75
Other, net 15 327 (82)
------- ------- -------
$ 9,797 $ 8,266 $ 5,035
======= ======= =======
(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 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.
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:
2000 1999
---- ----
Change in benefit obligation:
Benefit obligation, beginning of year $ 8,979 $ 9,290
Service cost 336 332
Interest cost 681 730
Actuarial gain (570) (339)
Benefits paid (929) (1,034)
-------- --------
Benefit obligation, end of year 8,497 8,979
-------- --------
Change in plan assets:
Fair value of plan assets, beginning of year 11,241 12,217
Actual return on plan assets 141 58
Benefits paid (929) (1,034)
-------- --------
Fair value of plan assets, end of year 10,453 11,241
-------- --------
Funded status 1,956 2,262
-------- --------
Unrecognized net actuarial (gain) loss (560) 10
Unrecognized net gain (612) (1,441)
-------- --------
Prepaid benefit obligation $ 784 $ 831
======== ========
F-20
Net periodic pension (expense) income consists of the following
components for the years ended December 31:
2000 1999 1998
---- ---- ----
Service cost ($336) ($332) ($308)
Interest cost (681) (730) (640)
Actual return on plan assets 141 58 610
Net amortization and deferral 829 995 456
----- ----- -----
Net periodic pension (expense) income ($ 47) ($ 9) $ 118
===== ===== =====
In determining the projected benefit obligation for 2000 and 1999, the
weighted average assumed discount rate was 8.0%, while the rate of
expected increases in future salary levels was 3.5%. The expected
long-term rate of return on assets used in determining net periodic
pension cost for all years presented was 9.0%. No contributions were
made during 2000 or 1999 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 the business of
investing in and managing real estate properties and the making of
high-yield, short-term loans secured by desirable properties.
Engineered products are manufactured through wholly-owned subsidiaries
of the Company and primarily consist of knitted wire products and
components and transformer products.
Operating information on the Company's business segments for the years
ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998
---- ---- ----
Net revenues and sales:
Real estate investment and management $ 28,237 $ 29,202 $ 26,349
Engineered products 34,095 30,500 32,170
-------- -------- --------
$ 62,332 $ 59,702 $ 58,519
======== ======== ========
Operating income:
Real estate investment and management $ 14,147 $ 14,079 $ 12,133
Engineered products 2,261 1,855 3,239
-------- -------- --------
16,408 15,934 15,372
General corporate expenses (2,153) (2,848) (3,098)
Other income, net 11,463 9,538 6,034
-------- -------- --------
Income from continuing
operations before income taxes $ 25,718 $ 22,624 $ 18,308
======== ======== ========
F-21
2000 1999 1998
---- ---- ----
Depreciation and amortization expense:
Real estate investment and management $4,993 $5,210 $5,530
Engineered products 772 737 662
General corporate expenses 563 681 374
------ ------ ------
$6,328 $6,628 $6,566
====== ====== ======
Mortgage interest expense:
Real estate investment and management $2,232 $2,620 $2,661
====== ====== ======
Sales by the Company's engineered products segment to automobile original
equipment manufacturers accounted for approximately 19.9%, 19.4% and 21.2% of
2000, 1999 and 1998 consolidated revenues, respectively. Sales by this segment
to its largest customer (in excess of 10.0% of the segment's net sales)
accounted for 15.8% and 17.0% of the segment's sales for 2000 and 1999,
respectively. During 1998, sales to its three largest customers accounted for
34.7% of the segment's sales.
Approximately 13.1%, 14.5% and 12.9% of 2000, 1999 and 1998 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. In 1999 manufacturing operations of this
segment were commenced at a leased facility in Mexico.
Selected information on the Company's business segments as of December
31, 2000 and 1999 is as follows:
2000 1999
---- ----
Identifiable assets:
Real estate investment and management
and corporate assets $136,189 $122,112
Engineered products 11,807 11,620
-------- --------
$147,996 $133,732
======== ========
Additions to long-lived assets:
Real estate investment and management $ 1,244 $ 3,194
Engineered products 321 885
-------- --------
$ 1,565 $ 4,079
======== ========
Included in the identifiable assets of the real estate investment and management
segment at December 31, 2000 is approximately $3,500 of high yield mortgage
loans (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.
F-22
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 believed that it was entitled to full defense and
indemnification with respect to environmental investigation and
remediation costs under its insurance policies, the Company's insurers
denied such coverage. Accordingly, the Company filed an action against
certain insurance carriers seeking defense and indemnification with
respect to all prior and future costs incurred in the investigation and
remediation of these sites. Settlements have been reached with all
carriers in this matter.
In the opinion of management, amounts recovered from its' insurance
carriers should be sufficient to address these matters and amounts
needed in excess, if any, will be paid gradually over a period of
years. Accordingly, they should not have a material adverse effect upon
the business, liquidity or financial position of the Company. However,
adverse decisions or events, particularly as to the merits of the
Company's factual and legal basis could cause the Company to change its
estimate of liability with respect to such matters in the future.
In 1998, the Company acquired a property subject to certain contingent
liabilities which were estimated and capitalized at the time of
acquisition. During 2000, these liabilities were resolved for
approximately $1.0 million less than originally estimated. As a result,
real property held for rental and other long-term liabilities were
reduced accordingly.
The Company is subject to various other litigation, legal and
regulatory matters that arise in the ordinary course of business
activities. When management believes it is probable that a liability
has been incurred and such amounts are reasonably estimable the Company
provides for amounts that include judgments and penalties that may be
assessed. None of these matters are expected to result in a material
adverse effect on the Company's consolidated financial position or
results of operations.
F-23
SCHEDULE II
UNITED CAPITAL CORP. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(In Thousands)
Write-offs
Net of
Charged Recoveries
Balance to of Accounts Balance
at Costs Previously at
Beginning and Written End of
of Period Expenses Off Period
--------- -------- ----------- -------
Allowance for doubtful accounts:
Year ended December 31, 2000 $390 $0 $62 $328
Year ended December 31, 1999 390 0 0 390
Year ended December 31, 1998 326 70 6 390
The accompanying Notes to Consolidated Financial Statements are an integral part
of these schedules.
F-24
SCHEDULE III
UNITED CAPITAL CORP. AND SUBSIDIARIES
REAL PROPERTY HELD FOR RENTAL AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
(In Thousands)
Costs Gross Amount at Which
Mortgage Initial Cost to Company Capitalized Carried at Close at 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 $ 3,417 $ 842 $ 7,576 $ 0 $ 842 $ 7,576 $ 8,418
Northbrook, IL 3,747 898 8,075 0 898 8,075 8,973
Miscellaneous Investments 12,150 5,079 44,529 1,214 5,079 45,743 50,822
-------- -------- -------- -------- -------- -------- --------
19,314 6,819 60,180 1,214 6,819 61,394 68,213
-------- -------- -------- -------- -------- -------- --------
Commercial Properties:
Miscellaneous Investments 7,634 8,865 36,395 302 8,865 36,697 45,562
Day Care Centers and Offices:
Miscellaneous Investments 178 643 5,292 2,310 643 7,602 8,245
Hotel Properties:
Miscellaneous Investments 0 1,712 2,868 48 1,712 2,916 4,628
Other:
Miscellaneous Investments 0 2,671 630 1,046 2,671 1,676 4,347
-------- -------- -------- -------- -------- -------- --------
$ 27,126 $ 20,710 $105,365 $ 4,920 $ 20,710 $110,285 $130,995
======== ======== ======== ======== ======== ======== ========
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 $ 5,866 N/A 1986 18
Northbrook, IL 6,113 N/A 1987 18
Miscellaneous Investments 33,661 N/A 1986-98 12-39
-------
45,640
-------
Commercial Properties:
Miscellaneous Investments 18,268 N/A 1986-98 5-39
Day Care Centers and Offices:
Miscellaneous Investments 6,073 N/A 1986-91 5-39
Hotel Properties:
Miscellaneous Investments 2,872 N/A 1986-99 7-10
Other:
Miscellaneous Investments 1,009 N/A 1986-97 10-28
-------
$73,862
=======
Notes:
(a) Reconciliations of the carrying value of real property held for rental
for the three years ended December 31, 2000 are as follows:
2000 1999 1998
-------- -------- --------
Real property held for rental at beginning of period $138,192 $140,102 $124,346
Additions during the period:
Acquisitions and improvements 767 2,304 12,539
Transfers to real property held for rental 0 0 8,584
-------- -------- --------
138,959 142,406 145,469
Deductions during the period:
Cost of real estate sold 6,951 4,214 5,367
Other (see Note 3) 1,013 0 0
-------- -------- --------
$130,995 $138,192 $140,102
======== ======== ========
(b) Reconciliations of accumulated depreciation for the three years ended
December 31, 2000 are as follows:
2000 1999 1998
------- ------- -------
Accumulated depreciation at beginning of period $ 71,253 $ 68,665 $ 65,768
Additions during the period:
Provision for depreciation 4,993 5,210 5,530
------- ------- -------
76,246 73,875 71,298
Deductions during the period:
Accumulated depreciation of real estate sold 2,384 2,622 2,633
------- ------- -------
$ 73,862 $ 71,253 $ 68,665
======= ======= =======
(c) The aggregate cost for federal income tax purposes is approximately
$174,000.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these schedules.
F-25
SCHEDULE IV
UNITED CAPITAL CORP. AND SUBSIDIARIES
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2000
(In Thousands)
Final
Description Interest Rate Maturity Date Periodic Payment Terms
- -------------------------------- ------------------------- ---------------- --------------------------
Mortgage loans secured by
commercial property:
New York, New York 14% January 2002 Interest due monthly,
with principal
due at maturity
Other Varies from 9.0%-12.0% From September Principal and interest due
2001- December 2008 monthly
Principal
Amount of
Carrying Loans Subject
Face Amount of to Delinquent
Prior Amount of Mortgages Principal
Description Liens Mortgages (a), (b), (c) or Interest
- ------------------------------- ------- --------- ------------- -------------
Mortgage loans secured by
commercial property:
New York, New York $0 $3,500 $3,500 $0
Other 0 192 85 0
--- ------ ------ ----
$0 $3,692 $3,585 $0
=== ====== ====== ====
(a) A reconciliation of mortgage loans on real estate for the year ended
December 31, 2000 is as follows:
Balance at beginning of period $98
Additions during the period:
New mortgage loans 3,500
Deductions during the period:
Collection of principal (13)
-------
Balance at end of period $3,585
=======
(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 $20 in
deferred gains at December 31, 2000.
(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-26
UNITED CAPITAL CORP. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
(Dollars In Thousands, Except Per Share Data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
For the year 2000:
Revenues $15,098 $16,070 $15,589 $15,575
======= ======= ======= =======
Costs and expenses $11,949 $12,346 $12,098 $11,684
======= ======= ======= =======
Other income $ 3,087 $ 2,932 $ 4,191 $ 1,253
======= ======= ======= =======
Net income $ 3,681 $ 3,821 $ 4,672 $ 6,104
======= ======= ======= =======
Net income per common share:
Basic $ .78 $ .81 $ .99 $ 1.29
======= ======= ======= =======
Diluted $ .77 $ .81 $ .97 $ 1.27
======= ======= ======= =======
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
======= ======= ======= =======
Net income per common share:
Basic $ .70 $ .51 $ .58 $ .89
======= ======= ======= =======
Diluted $ .70 $ .51 $ .58 $ .87
======= ======= ======= =======
F-27