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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, 2001
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 1-10104
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UNITED CAPITAL CORP.
- --------------------------------------------------------------------------------
(Exact name of 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 February 25, 2002 was approximately
$27,940,000.
The number of shares of the Company's $.10 par value common stock outstanding as
of February 25, 2002 was 4,641,015.
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 whereby 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 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, 95.5% of the total square footage of the
Company's properties were leased as of December 31, 2001.
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 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 14.0%, 15.8%, and 17.0% of the
segment's sales for 2001, 2000, and 1999, respectively.
Summary Financial Information
-----------------------------
The following table sets forth the revenues, operating income and identifiable
assets of each business segment of the Company for 2001, 2000, and 1999.
(In Thousands) 2001 2000 1999
--------------- --------------- --------------
Real Estate Investment and Management
- -------------------------------------
Rental revenues $27,804 $28,237 $29,202
=============== =============== ==============
Operating income $13,970 $14,147 $14,079
=============== =============== ==============
Identifiable assets, including corporate assets $166,562 $136,189 $122,112
=============== =============== ==============
Engineered Products
- -------------------
Net sales $33,792 $34,095 $30,500
=============== =============== ==============
Operating income $1,912 $2,261 $1,855
=============== =============== ==============
Identifiable assets $12,429 $11,807 $11,620
=============== =============== ==============
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.
Most raw materials purchased by the Company are available from several
suppliers. Certain imported raw materials used by the Company have been the
subject of international trade disputes and may become subject to new or
additional tariffs which could also affect the cost of domestic supplies.
Although management does not expect such matters to adversely effect the
Company's financial position, it is uncertain at this time what effect, if any,
such events will have on the cost of such materials. The Company has not had and
does not expect to have any problems fulfilling its raw material requirements
during 2002.
2
Patents and Trademarks
----------------------
The Company owns several patents, patent licenses and trademarks. While the
Company considers that in the aggregate its patents, patent licenses, 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 February 25, 2002, the Company employed approximately 240 persons,
approximately 150 of which were covered by a collective bargaining agreement
that expires in February 2004. The Company believes that its relationship with
its employees is good.
Competition
-----------
The Company competes with at least 20 other companies in the sale of engineered
products. The Company emphasizes product performance and service in connection
with the sale of these products. The principal competition faced by the Company
results from the sales price of the products sold by its competitors.
Backlog
-------
The dollar value of unfilled orders of the Company's engineered products segment
was approximately $2.2 million at December 31, 2001 and $3.8 million at December
31, 2000. The decrease in backlog is principally due to a slow-down in the
growth in the Company's transformer product line. It is anticipated that
substantially all such 2001 backlog will be filled in 2002. Substantially all of
the 2000 backlog was filled in 2001. 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
under the terms of its settlement agreements 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 February 25, 2002, the Company owned 194 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, 2001 are as follows (Dollars in Thousands):
Gross Carrying Number of
Description Value Percentage Properties
----------- ------------------- --------------- ----------
Shopping centers and retail outlets $62,813 50.5% 24
Commercial properties 44,767 36.0% 118
Day-care centers and offices 7,867 6.3% 12
Hotel properties 4,628 3.7% 2
Other 4,332 3.5% 38
------------------- --------------- -----------
Total $124,407 100.0% 194
=================== =============== ===========
The following summarizes real property held for rental by geographic area at
December 31, 2001 (Dollars in Thousands):
Gross Number
Carrying of
Value Properties
------------- ------------------
Northeast $42,349 104
Southeast 25,265 32
Midwest 29,402 35
Southwest 6,071 7
Pacific Coast 17,461 7
Pacific Northwest 980 5
Rocky Mountain 2,879 4
------------- ------------------
$124,407 194
============= ==================
Shopping Centers and Retail Outlets
-----------------------------------
Shopping centers and retail outlets include 17 department stores and other
properties primarily leased under net leases. The tenants are responsible for
taxes, maintenance and all other expenses of the properties. The leases for
certain shopping centers and retail outlets provide for additional rents based
on sales volume and renewal options at higher rents. The department stores
include 11 properties leased or sub-leased to K-Mart and two Macy's stores, with
a total of approximately 884,000, and 364,000, 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 and Southwest regions of the
United States.
5
K-Mart filed for protection under Chapter 11 of the U.S. Bankruptcy Code on
January 22, 2002. Although it is currently uncertain which leases, if any,
K-Mart will reject or affirm as part of its reorganization, management believes
that its leases with K-Mart are at or below the fair market rent for comparable
properties and as a result, the rejection of one or more leases is not expected
to have a material adverse effect on the consolidated financial position of the
Company.
Commercial Properties
---------------------
Commercial properties consist of properties leased as 60 restaurants, 18 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 60
restaurants, located throughout the United States, include properties leased as
McDonalds, Burger King, Dunkin' Donuts, Pizza Hut, Hardee's, Wendy's, Kentucky
Fried Chicken and Boston Market.
Day-Care Centers and Offices
----------------------------
The ten day-care centers and two offices are located in New York City, and
leased to the City of New York.
Hotel Properties
----------------
The Company's two hotel properties are located in Georgia and California and are
managed through a national hotel company with local on-site management
responsible for all day-to-day operations of the hotels. The Board Chairman is
the Chairman and President and another Director of the Company is a director 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 55,000 square
feet of floor space and also in a second facility at 206 Talmadge Road, Edison,
New Jersey which has approximately 55,000 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 24,000 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.
6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange under the
symbol AFP. The table below shows the high and low sales prices as reported in
the composite transactions for the American Stock Exchange.
High Low
------------- --------------
2001 First quarter $18.40 $14.50
Second quarter 25.50 17.90
Third quarter 24.45 18.70
Fourth quarter 21.35 18.90
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
As of February 25, 2002, there were approximately 350 record holders of the
Company's Common Stock. The closing sales price for the Company's Common Stock
on such date was $24.20. 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 to
finance future growth and as a result of certain restrictions in the Company's
credit agreement, it is unlikely that the Company will pay any cash dividends on
its Common Stock in the near future.
7
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with, and is qualified in its entirety by reference to, the
Consolidated Financial Statements and the Notes thereto.
(In Thousands, Except Per Share Data) Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ------------ ----------
Total revenues $61,596 $62,332 $59,702 $58,519 $60,246
=========== =========== =========== ============ ==========
Net income $18,972 $18,278 $13,326 $10,583 $7,465
=========== =========== =========== ============ ==========
Earnings per common share: Basic $4.05 $3.86 $2.68 $2.03 $1.41
=========== =========== =========== ============ ==========
Total assets $178,991 $147,996 $133,732 $126,112 $113,353
Total liabilities 82,650 70,877 74,676 73,694 75,873
Total stockholders' equity 96,341 77,119 59,056 52,418 37,480
=========== =========== =========== ============ ==========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations 2001 and 2000
- -----------------------------------
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 2001 were $61.6 million versus
revenues of $62.3 million during 2000. Operating income during 2001 was $13.6
million versus $14.3 million for 2000. Net income was $19.0 million or $4.05 per
basic share in 2001 versus $18.3 million or $3.86 per basic share in 2000.
Real Estate Operations
----------------------
Rental revenues from real estate operations during 2001 decreased $433,000 or
1.5% compared to 2000. The decrease is primarily attributable to decreased hotel
revenues, offset by certain retroactive lease adjustments in the current year.
Mortgage interest expense decreased $436,000 or 19.5% for the year ended
December 31, 2001 compared to the corresponding 2000 period, due to continuing
mortgage amortization.
Depreciation expense associated with real properties held for rental decreased
by $818,000 or 16.4% for the year ended December 31, 2001 compared to the same
period in 2000. This
8
decrease was primarily attributable to reduced depreciation expense associated
with fully depreciated properties and properties sold in 2001 and 2000.
Other operating expenses associated with the management of real properties
increased approximately $998,000 or 14.5% during 2001 versus such expenses
incurred in 2000. This increase is primarily attributable to increased real
estate taxes, insurance, property maintenance expenses and hotel operating
expenses.
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, 2001 and 2000 are as follows:
(In Thousands) 2001 2000
------- -------
Net sales $33,792 $34,095
======= =======
Cost of sales $25,083 $24,738
======= =======
Selling, general and administrative expenses $ 6,797 $ 7,096
======= =======
Operating income $ 1,912 $ 2,261
======= =======
Net sales of the engineered products segment decreased $303,000 or less than 1%
for the year ended December 31, 2001 compared to net sales in the preceding
year. The decrease reflects lower sales in the Company's engineered component
product line, offset by higher sales in the Company's automotive and transformer
product lines. These declines were due to the slowing economy and compounded by
the tragic events of September 11th.
Cost of sales as a percentage of net sales increased approximately 2.2% between
2000 and 2001, principally due to the decline in sales noted above.
Selling, general and administrative expenses of the engineered products segment
decreased $299,000 or 4.2% for the year ended December 31, 2001 versus the
comparable 2000 period. The decrease is primarily due to the decline in sales
noted above and cost containment efforts implemented by management.
General and Administrative Expenses
-----------------------------------
General and administrative expenses not associated with the manufacturing
operations increased approximately $103,000 or 4.8% during 2001, compared to
such expenses incurred in the preceding year. The increase is principally due to
higher salary and salary related expenses and an increase in professional fees.
9
Other Income and Expense, Net
-----------------------------
Other income and expense, net increased approximately $7.2 million from $9.8
million in 2000 to $17.0 million in 2001. The increase is principally due to
increased net gains on the sale of real estate assets of $5.7 million and
increased net gains on the sale of available-for-sale securities, derivative
instruments and trading securities of $2.7 million. Such increases were offset
by net unrealized losses on derivative instruments of $1.4 million.
Results of Operations 2000 and 1999
-----------------------------------
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% compared to 1999. 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 2000, 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 1999. 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 decrease is primarily due to reduced expenses incurred
for the maintenance of properties acquired in prior years.
10
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 1999 revenues. This increase is primarily the result of higher
sales in 2000 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 1.5% 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, 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 1999.
General and Administrative Expenses
-----------------------------------
General and administrative expenses not associated with the manufacturing
operations decreased approximately $695,000 or 24.4% during 2000 compared to
such expenses incurred in 1999. 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.
Liquidity and Capital Resources
-------------------------------
At December 31, 2001, the Company's cash and marketable securities were $96.8
million and working capital was approximately $76.4 million. Management
continues to believe that the real estate market is overvalued and accordingly
recent acquisitions have been limited to those select properties that meet the
Company's stringent financial requirements. Management believes that
11
the available working capital along with the $60.0 million of availability on
the revolving credit facility discussed below, puts the Company in an opportune
position to fund acquisitions and grow the portfolio if and when attractive
long-term opportunities become available.
The Company's portfolio of available-for-sale securities had a fair market value
of approximately $28.6 million at December 31, 2001, reflecting pretax
unrealized holding gains of approximately $9.1 million. Included in these
marketable securities was approximately $27.7 million of common stock in a
publicly traded company for which the Board Chairman is the Chairman and
President and another Director of the Company is a director.
The Company is the lessor of 11 department stores that are currently leased or
sub-leased to K-Mart Corporation ("K-Mart"), which filed for protection under
Chapter 11 of the U.S. Bankruptcy Code on January 22, 2002. In addition, the
Company holds a 50% interest in a joint venture (which is accounted for by the
Company on the equity basis) that owns two distribution centers that are also
leased to K-Mart. Although it is currently uncertain which leases, if any,
K-Mart will reject or affirm as part of its reorganization, management believes
that its leases and the leases of the joint venture with K-Mart are at or below
the fair market rent for comparable properties and as a result, the rejection of
one or more leases is not expected to have a material adverse effect on the
consolidated financial position of the Company.
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 bank participates in the Term Loan.
Under the Revolver, the Company will be provided with eligibility based upon the
sum of (i) 60.0% of the aggregate annualized and normalized year-to-date net
operating income of unencumbered eligible properties, as defined, capitalized at
10.5%, (ii) the lesser of $6.0 million or 60.0% of the aggregate annualized and
normalized year-to-date net operating income of unencumbered eligible hotel
properties, as defined, capitalized at 10.5%, (iii) the lesser of $10.0 million
or 50.0% of the aggregate annualized and normalized year-to-date net operating
income of encumbered eligible properties, as defined, capitalized at 12.0% and
(iv) the lesser of $10.0 million or the sum of 75.0% of eligible accounts
receivable and 50.0% of eligible inventory, as defined. At December 31, 2001,
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, 2001. 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, 2001, there were no amounts outstanding under the Revolver.
12
The Term Loan bears interest at 90 day LIBOR plus 1.4% (3.3% at December 31,
2001) and is payable in quarterly installments of $175,000, with the final
payment due on September 30, 2002. At December 31, 2001, $525,000 was
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 Swap is classified as
a cash flow hedge and is recorded as a component of accounts payable and accrued
liabilities in the accompanying Consolidated Balance Sheets and other
comprehensive income has been reduced by the same amount, with no impact on
earnings. The differential to be paid or received on the Swap is recognized over
the term of the agreement as an adjustment to interest expense.
In strategies designed to hedge overall market risk, the Company may sell common
stock short and participate in put and/or call options. The Company is highly
selective when participating in such transactions. These instruments do not
qualify for hedge accounting and therefore changes in such derivatives fair
value are recognized in earnings. These derivatives are recorded as a component
of accounts payable and accrued liabilities in the accompanying Consolidated
Balance Sheets.
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 18, "Commitments and 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 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 Revolver 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 2001, the Company
purchased and retired 83,900 shares of the Company's common stock for
approximately $1.8 million. Future repurchases of the Company's common stock
will also reduce retained earnings by amounts in excess of the par value.
Repurchases of the Company's common stock will be made from time to time in the
open market at prevailing market prices and may be made in privately negotiated
transactions, subject to available resources.
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
13
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.
Quantitative and Qualitative Disclosures About 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 hedging of overall market risks and 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 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
derivative instruments consist of short stock sales, put and/or call options and
the Swap. Such derivatives are subject to the fluctuations in U.S. stock
markets. The Company's Term Loan has a variable rate but is effectively hedged
by the Swap, 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 or Euro dollars and are
exposed
14
to changes in exchange rates with the U.S. dollar. When the U.S. dollar
strengthens against the French Franc or Euro dollar, 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 or Euro dollars and, as such, benefits from a weaker
dollar but is adversely affected by a stronger dollar relative to the French
Franc or Euro dollar. Beginning in 2002, all of the Company's European
receivables will be denominated in Euro dollars.
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, 2001:
Principal (Notional) Amount by Expected Maturity
----------------------------------------------------------------------- Fair
There- Value
(Dollars in Thousands) 2002 2003 2004 2005 2006 after Total 12/31/01
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Available-for-sale securities $28,633 $ 0 $ 0 $ 0 $ 0 $ 0 $ 28,633 $ 28,633
Notes receivable $ 271 $ 37 $ 43 $ 30 $ 28 $ 112 $ 521 $ 575
Average interest rate 13.8% 11.1% 11.2% 10.9% 10.3% 10.0%
Liabilities
Long-term debt, including current portion
Fixed rate $ 5,047 $4,391 $5,866 $2,338 $ 629 $3,514 $ 21,785 $ 20,372
Average interest rate 7.2% 7.1% 7.0% 6.9% 7.0% 6.8%
Variable rate $ 525 $ 0 $ 0 $ 0 $ 0 $ 0 $ 525 $ 495
Average interest rate 3.3%
LIBOR +1.40%
Derivative instruments(1) $10,155 $ 0 $ 0 $ 0 $ 0 $ 0 $ 10,155 $ 10,155
Interest Rate Derivative Financial Instruments Related to Variable Rate Debt
Interest rate swaps
Pay fixed/receive variable $ 525 $ 0 $ 0 $ 0 $ 0 $ 0 $ 525 ($ 11)
Average pay rate 3.3%
Average receive rate 7.7%
(1) Consisting of short stock sales and put options.
Business Trends
- ---------------
Total 2001 revenues were $61.6 million versus $62.3 million during 2000,
primarily due to decreased hotel revenues and a decrease in net sales from the
engineered products segment. Operating income during this period was $13.6
million versus $14.3 million in 2000. Net income was $19.0 million or $4.05 per
basic share in 2001 versus $18.3 million or $3.86 per
15
basic share in 2000. Included in the results for the year ended 2001 are net
gains from the sale of real estate assets of $11.0 million and net realized and
unrealized gains from the sale of available-for-sale securities, derivative
instruments and trading securities of $5.9 million.
Real estate operations continue to generate substantial cash flow for
reinvestment into our lines of business. Operating income generated from this
segment during 2001 was $14.0 million on revenues of $27.8 million. The
long-term nature of the Company's property leases as well as continued mortgage
amortization continues to provide a solid financial base for the results of this
segment.
Operating income from the Company's engineered products segment decreased
$349,000 compared to the 2000 period, primarily due to lower net sales brought
on by the slowing economy and compounded by the tragic events of September 11th.
Management remains committed to growing the business and has continued to
aggressively pursue new sales opportunities, including new geographical markets
for its existing products and new applications for its core technologies.
Forward Looking Statements
- --------------------------
This Form 10-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.
Recent Accounting Pronouncements
- --------------------------------
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"). SFAS No. 144 modifies the rules for accounting for the impairment or
disposal of long-lived assets. The new rules are effective for the Company on
January 1, 2002. Management does not believe that the impact of adopting SFAS
No. 144 will have a material effect on the Company's consolidated financial
statements.
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
22.
16
ITEM 9. CHANGES IN THE COMPANY'S CERTIFYING ACCOUNTANT
The Company's auditors for the year ended December 31, 2000 were Ernst &
Young LLP ("Ernst & Young"). As stated in the Company's proxy statement
dated May 11, 2001, the Company annually reviews the selection of its
independent auditors and has solicited bids from independent accountants to
audit the Company's financial statements for the year ended December 31, 2001.
As a result of financial and other considerations the Audit Committee voted to
appoint Grant Thornton LLP as its new independent accountants on July 6, 2001.
Pursuant to item 304(a) of Regulation S-K, the Company reports the following:
(a) Previous Independent Accountants
(i) On July 6, 2001, the Company retained Grant Thornton LLP
as its independent certified public accountants in place
of Ernst & Young, who were dismissed as auditors of the
Company effective July 6, 2001.
(ii) The reports of Ernst & Young on the Company's financial
statements for the past two fiscal years did not contain
an adverse opinion or a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit
scope, or accounting principles.
(iii) The decision to change accountants was recommended by
the Company's management and separately approved by the
Audit Committee of the Board of Directors.
(iv) In connection with the audits of the Company's financial
statements for each of the two most recent fiscal years
ended December 31, 2000 and through July 6, 2001, there
were no disagreements with Ernst & Young on any matter
of accounting principles or practices, financial
statement disclosure, or auditing scope and procedure
which, if not resolved to the satisfaction of Ernst &
Young, would have caused it to make reference to the
matter in their report.
(v) There were no "reportable events" as that term is
described in Item 304 (a) (1) (v) of Regulation S-K.
(vi) The Company has requested Ernst & Young furnish it a
letter addressed to the Securities and Exchange
Commission stating whether it agrees with the above
statements. A copy of that letter, dated July 12, 2001
is filed as Exhibit 16 under Item 14, "Exhibits,
Financial Statements and Schedules and Reports on Form
8-K" in this Form 10-K.
(b) New Independent Accountants
(i) The Company engaged Grant Thornton LLP as its new
independent accountants effective July 6, 2001. During
the two most recent fiscal years and through July
17
6, 2001, the Company has not consulted with Grant
Thornton LLP concerning the Company's financial
statements, including the application of accounting
principles to a specified transaction (proposed or
completed) or the type of audit opinion that might be
rendered on the Company's financial statements or any
matter that was either the subject of a "disagreement"
or "reportable event" (as such terms are defined in Item
304 of Regulation S-K) with the previous independent
accountants.
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
2002 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
2002 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
2002 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
2002 Annual Meeting of Stockholders under the caption "Certain Relationships and
Related Transactions" and is incorporated herein by reference. Also see Note 13,
"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:
18
Index to Consolidated Financial Statements
------------------------------------------
Page
----
Report of Independent Certified Public Accountants - Grant Thornton LLP 22
Report of Independent Auditors - Ernst & Young LLP 23
Consolidated Balance Sheets as of December 31, 2001 and 2000 24
Consolidated Statements of Income for the Years
Ended December 31, 2001, 2000, and 1999 25
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2001, 2000, and 1999 26
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2001, 2000, and 1999 27-28
Notes to Consolidated Financial Statements 29-46
(2) Consolidated Financial Statement Schedules
Schedule II -- Allowance for Doubtful Accounts 47
Schedule III -- Real Property Held for Rental and
Accumulated Depreciation 48
Schedule IV -- Mortgage Loans on Real Estate 49
(3) Supplementary Data
Quarterly Financial Data (Unaudited) 50
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 2001.
(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 (incorporated by reference to exhibit 10.1 filed with
the Company's report on Form 10-K for the fiscal year ended December 31, 2000).
19
10.2. 1988 Joint Incentive and Non-Qualified Stock
Option Plan, as amended (incorporated by reference to exhibit 10.2 filed with
the Company's report on Form 10-K for the fiscal year ended December 31, 1998).
10.3. Employment Agreement dated as of January 1, 1990
by and between the Company and A. F. Petrocelli (incorporated by reference to
exhibit 10.9 filed with the Company's report on Form 10-K for the fiscal year
ended December 31, 1989).
10.4. Amendment dated as of December 3, 1990 to
Employment Agreement dated as of January 1, 1990, by and between the Company and
A. F. Petrocelli (incorporated by reference to exhibit 10.10 filed with the
Company's report on Form 10-K for the fiscal year ended December 31, 1990).
10.5. Amendment dated as of June 8, 1993 to Employment
Agreement dated as of January 1, 1990 by and between the Company and A. F.
Petrocelli (incorporated by reference to exhibit 10.5 filed with the Company's
report on Form 10-K for the fiscal year ended December 31, 1993).
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 Form 10-K for the fiscal year
ended December 31, 1999).
16. Letter dated July 12, 2001 from Ernst & Young 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 July 12, 2001).
*21. Subsidiaries of the Company.
*23a. Auditors' consent to the incorporation by
reference in the Company's Registration Statements on Form S-8 as of and for the
year ended December 31, 2001 from Grant Thornton LLP of the Report of
Independent Certified Public Accountants included herein.
*23b. Auditors' consent to the incorporation by
reference in the Company's Registration Statements on Form S-8 as of and for
each of the two years in the period ended December 31, 2000 from Ernst & Young
LLP of the Report of Independent Auditors included herein.
- -----------------
* Filed herewith
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
UNITED CAPITAL CORP.
Dated: February 25, 2002 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: February 25, 2002 By: /s/ A. F. Petrocelli
----------------- ----------------------------------------
A. F. Petrocelli
Chairman, President and
Chief Executive Officer
Dated: February 25, 2002 By: /s/ Howard M. Lorber
----------------- ----------------------------------------
Howard M. Lorber
Director
Dated: February 25, 2002 By: /s/ Robert M. Mann
------------------ ----------------------------------------
Robert M. Mann
Director
Dated: February 25, 2002 By: /s/ Anthony J. Miceli
----------------- ----------------------------------------
Anthony J. Miceli
Chief Financial Officer,
Chief Accountant, Secretary and
Director
Dated: February 25, 2002 By: /s/ Arnold S. Penner
------------------ ----------------------------------------
Arnold S. Penner
Director
21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors
and Stockholders of
United Capital Corp.
We have audited the accompanying consolidated balance sheet of United Capital
Corp. and Subsidiaries (the "Company") as of December 31, 2001, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides 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, 2001, and the consolidated results of
their operations and their consolidated cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
We have also audited the financial statement schedules listed in the Index at
Item 14(a)(2). In our opinion, these schedules present fairly, in all material
respects, the information required to be set forth therein.
\s\GRANT THORNTON LLP
Melville, New York
February 8, 2002
22
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
and Stockholders of
United Capital Corp.:
We have audited the accompanying consolidated balance sheet of United Capital
Corp. and subsidiaries (the "Company") as of December 31, 2000, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the two years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United Capital
Corp. and subsidiaries as of December 31, 2000, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
\s\ ERNST & YOUNG LLP
New York, New York
February 14, 2001
23
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31, 2001 AND 2000
--------------------------------
(In Thousands, Except Per Share Data)
-------------------------------------
2001 2000
------------- -----------
Assets
Current assets:
Cash and cash equivalents $68,170 $17,134
Marketable securities 28,633 43,253
Notes and accounts receivable, net of allowance for doubtful
accounts of $328 6,385 9,057
Inventories 4,953 4,613
Prepaid expenses and other current assets 871 652
------------- -----------
Total current assets 109,012 74,709
------------- -----------
Property, plant and equipment, net 4,525 4,557
Real property held for rental, net 52,870 57,133
Noncurrent notes receivable 250 243
Deferred income taxes 1,026 --
Other assets 11,308 11,354
------------- -----------
Total assets $178,991 $147,996
============= ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $5,047 $5,498
Borrowings under credit facilities 525 700
Accounts payable and accrued liabilities 17,937 9,193
Income taxes payable 7,585 6,093
Deferred income taxes 1,481 954
------------- -----------
Total current liabilities 32,575 22,438
------------- -----------
Borrowings under credit facilities - 525
Long-term debt 16,738 21,784
Other long-term liabilities 33,337 24,961
Deferred income taxes - 1,169
------------- -----------
Total liabilities 82,650 70,877
------------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock $.10 par value, authorized 7,500 shares;
issued and outstanding 4,641 and 4,720 shares, respectively 464 472
Retained earnings 90,000 72,717
Accumulated other comprehensive income, net of tax 5,877 3,930
------------- -----------
Total stockholders' equity 96,341 77,119
------------- -----------
Total liabilities and stockholders' equity $178,991 $147,996
============= ===========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
24
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
-----------------------------------------------------
(In Thousands, Except Per Share Data)
-------------------------------------
2001 2000 1999
----------------- ---------------- ----------------
Revenues:
Net sales $33,792 $34,095 $30,500
Rental revenues from real estate operations 27,804 28,237 29,202
----------------- ---------------- ----------------
Total revenues 61,596 62,332 59,702
----------------- ---------------- ----------------
Costs and expenses:
Cost of sales 25,083 24,738 21,808
Real estate operations:
Mortgage interest expense 1,796 2,232 2,620
Depreciation expense 4,175 4,993 5,210
Other operating expenses 7,863 6,865 7,293
General and administrative expenses 5,310 5,295 5,810
Selling expenses 3,743 3,954 3,875
----------------- ---------------- ----------------
Total costs and expenses 47,970 48,077 46,616
----------------- ---------------- ----------------
Operating income 13,626 14,255 13,086
----------------- ---------------- ----------------
Other income (expense):
Interest and dividend income 1,828 2,230 1,886
Interest expense (436) (564) (614)
Other income and expense, net 16,955 9,797 8,266
----------------- ---------------- ----------------
Total other income 18,347 11,463 9,538
----------------- ---------------- ----------------
Income before income taxes 31,973 25,718 22,624
Provision for income taxes 13,001 7,440 9,298
----------------- ---------------- ----------------
Net income $18,972 $18,278 $13,326
================ ================ ================
Earnings per common share:
Basic $4.05 $3.86 $2.68
================ ================ ================
Diluted $3.86 $3.83 $2.66
================ ================ ================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
25
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
-----------------------------------------------------
(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, 1999 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
--------- -------- -------- ---------- ------------- --------------
Purchase and retirement of common shares (84) (8) 0 (1,761) 0 (1,769)
Proceeds from the exercise of stock options 5 0 0 72 0 72
Net income 0 0 0 18,972 0 18,972 $18,972
Other comprehensive income, net of tax:
Change in net unrealized gain on
available-for-sale securities,
net of tax provision of $1,047 0 0 0 0 1,947 1,947 1,947
------------
Comprehensive income $20,919
--------- -------- -------- ---------- ------------- -------------- ============
Balance - December 31, 2001 4,641 $464 $0 $90,000 $5,877 $96,341
========= ======== ======== ========== ============= ==============
The accompanying Notes to Consolidated Financial Statements are an integral part of the these statements.
26
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
-----------------------------------------------------
(In Thousands)
--------------
2001 2000 1999
--------- -------- ---------
Cash flows from operating activities:
Net income $ 18,972 $ 18,278 $ 13,326
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,605 6,328 6,628
Net gain on sale of available-for-sale securities (4,911) (4,513) 0
Net gain on sale of trading securities (461) 0 (144)
Net gain on sale of real estate assets (10,995) (5,269) (6,957)
Gain from equity investments (868) (1,227) (3,601)
Net gain on sale of derivative instruments (1,856) 0 0
Purchase of trading securities (54) (1,772) (700)
Proceeds from sale of trading securities 2,287 0 844
Unrealized loss on trading securities 0 7 0
Net unrealized loss on derivative instruments 1,374 0 0
Changes in assets and liabilities (A) 7,594 (755) 10,920
-------- -------- --------
Net cash provided by operating activities 16,687 11,077 20,316
-------- -------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities (4,488) (25,024) (11,439)
Proceeds from sale of available-for-sale securities 25,259 15,372 0
Proceeds from sale of real estate assets 12,858 9,890 9,064
Proceeds from sale of equity investments 0 0 1,300
Proceeds from sale of derivative instruments 10,939 0 0
Acquisition of property, plant and equipment (1,327) (798) (1,775)
Acquisition of real estate assets (1,774) (767) (2,304)
Distributions from equity investments, net 776 767 743
-------- -------- --------
Net cash provided by (used in) investing activities 42,243 (560) (4,411)
-------- -------- --------
Cash flows from financing activities:
Principal payments on mortgage commitments, notes
and loans (5,497) (6,024) (6,058)
Proceeds from mortgage commitments, notes and loans 0 0 6,560
Net repayments under credit facilities (700) (700) (3,325)
Purchase and retirement of common shares (1,769) (234) (7,803)
Proceeds from the exercise of stock options 72 0 142
-------- -------- --------
Net cash used in financing activities (7,894) (6,958) (10,484)
-------- -------- --------
Net increase in cash and cash equivalents 51,036 3,559 5,421
Cash and cash equivalents, beginning of year 17,134 13,575 8,154
-------- -------- --------
Cash and cash equivalents, end of year $ 68,170 $ 17,134 $ 13,575
======== ======== ========
27
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 (CONTINUED)
-----------------------------------------------------------------
(In Thousands)
--------------
2001 2000 1999
--------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $2,265 $2,726 $3,177
====== ====== ======
Taxes $5,722 $4,114 $4,749
====== ====== ======
(A) Changes in assets and liabilities for the years ended December 31, 2001, 2000, and 1999, are as follows:
2001 2000 1999
------------ ------------- -------------
Notes and accounts receivable, net $ 2,672 ($ 3,431) $ 2,049
Inventories (340) (406) 132
Prepaid expenses and other current assets (219) (398) (45)
Deferred income taxes (2,733) 420 4,236
Noncurrent notes receivable (8) 27 (49)
Other assets 67 (475) 2,333
Accounts payable and accrued liabilities (1,713) (642) (986)
Income taxes payable 1,492 1,093 (1,355)
Other long-term liabilities 8,376 3,057 4,605
-------- -------- --------
Total $ 7,594 ($ 755) $ 10,920
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
28
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 2001, 2000, AND 1999
---------------------------------
(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 in the United States
of America 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.
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.
29
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, 2001, all
marketable securities held by the Company have been classified as
available-for-sale and, as a result, are stated at fair value.
Unrealized gains and losses on available-for-sale securities are
recorded as a separate component of stockholders' equity. 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:
2001 2000
---------------- ----------------
Raw materials $2,388 $2,533
Work in process 782 402
Finished goods 1,783 1,678
---------------- ----------------
$4,953 $4,613
================ ================
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
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.
30
Research and Development:
-------------------------
The Company expenses research, development and product engineering
costs as incurred. Approximately $77, $52, and $95 of such costs
were incurred by the Company in 2001, 2000, and 1999, 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:
---------------------------------
As of January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), as amended. As a result of
adopting SFAS No. 133, the Company recognizes all derivative
financial instruments, such as its interest rate swap contract,
short stock sales and put and/or call options, in the consolidated
financial statements at fair value regardless of the purpose or
intent for holding the instrument. Changes in the fair value of
derivative financial instruments are either recognized periodically
in income or in stockholders' equity as a component of other
comprehensive income depending on whether the derivative financial
instrument qualifies for hedge accounting, and if so, whether it
qualifies as a fair value or cash flow hedge. Generally, changes in
the fair value of derivatives accounted for as fair value hedges are
recorded in income along with the portions of the changes in the
fair values of the hedged items that relate to the hedged risks.
Changes in the fair value of derivatives accounted for as cash flow
hedges, to the extent they are effective as hedges, are recorded in
other comprehensive income net of deferred taxes. Changes in the
fair values for derivatives not qualifying as hedges are reported in
income.
In strategies designed to hedge overall market risks and manage its
interest rate exposure, the Company may sell common stock short,
participate in put and/or call options and enter into interest rate
swap agreements.
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 and qualifies as an effective hedge under SFAS No. 133.
Since the Swap is classified as a cash flow hedge, the fair value of
($11) at December 31, 2001 is recorded as a component of accounts
payable and accrued liabilities in the accompanying Consolidated
Balance Sheets and other comprehensive income has been reduced by
exactly the same amount as the derivative, with no impact on
earnings. The amount paid or received on the Swap is accrued and
recognized as an adjustment of interest expense related to the debt.
Since SFAS No. 133 was adopted by the Company as of January 1, 2001,
the fair value of the Swap of ($6) at December 31, 2000 is not
recorded in the consolidated financial statements at December 31,
2000.
31
Management maintains a diversified and well-balanced portfolio of
cash equivalents and investments in a variety of securities,
primarily U.S. investments in both common and preferred equity
issues and participates in transactions involving bonds and other
derivative financial instruments, including short stock sales and
put and/or call options. The Company is highly selective when
participating in such transactions. At December 31, 2001, the fair
value of such derivatives was ($10,155), which is recorded as a
component of accounts payable and accrued liabilities in the
accompanying Consolidated Balance Sheets. These instruments do not
qualify for hedge accounting and therefore changes in the
derivatives fair value are recognized in earnings. For the year
ended December 31, 2001, the Company recognized $1,374 in net
unrealized losses and $1,856 in net realized gains from derivative
instruments, which are included in other income and expense, net in
the accompanying Consolidated Statements of Income.
Use of Estimates:
-----------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Recent Pronouncements of the Financial Accounting Standards Board:
-----------------------------------------------------------------
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 modifies the rules
for accounting for the impairment or disposal of long-lived assets.
The new rules are effective for the Company on January 1, 2002.
Management does not believe that the impact of adopting SFAS No. 144
will have a material effect on the Company's consolidated financial
statements.
(2) 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:
2001 2000
-------------- ------------
Land $19,922 $20,710
Buildings 104,485 110,285
-------------- ------------
124,407 130,995
Less: Accumulated depreciation (71,537) (73,862)
-------------- ------------
$52,870 $57,133
============== ============
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 $1,000 less than originally estimated. As a result, real
property held for rental was reduced accordingly.
32
As of December 31, 2001, 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,
2002 $ 15,755
2003 14,457
2004 11,815
2005 10,312
2006 6,062
Thereafter 67,559
---------------------
Total minimum future rentals $125,960
=====================
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 2001, 2000, and 1999 were approximately
$860, $527, and $1,131, respectively.
(3) 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:
2001 2000
------------- ---------------
Land $28 $28
Buildings and improvements 1,428 1,372
Machinery and equipment 11,920 10,630
------------- ---------------
13,376 12,030
Less: Accumulated depreciation (8,851) (7,473)
------------- ---------------
$4,525 $4,557
============= ===============
33
(4) Marketable Securities:
----------------------
At December 31, 2001 and 2000, the aggregate market value of marketable
securities was $28,633 (of which $27,661 was in a publicly traded
company for which the Board Chairman and another Director of the
Company are directors), and $43,253, respectively, while the aggregate
cost of such securities was $19,582 and $37,217, respectively.
Unrealized holding gains at December 31, 2001 and 2000 were $5,883 and
$3,930 on a net of tax basis, respectively. The Company held no trading
securities at December 31, 2001. Unrealized holding losses on trading
securities held at December 31, 2000, included in the determination of
net income for 2000 were $7. Marketable securities consist of the
following at December 31:
2001 2000
------------ ------------
Available-for-sale securities:
Corporate equities $28,198 $41,488
Corporate bonds 435 0
------------ ------------
28,633 41,488
------------ ------------
Trading securities:
Corporate equities 0 1,765
------------ ------------
$28,633 $43,253
============ ============
Proceeds from the sale of available-for-sale and trading securities and
the resulting net realized gains included in the determination of net
income are as follows:
2001 2000 1999
---------------- ---------------- --------------
Available-for-sale securities:
Proceeds $25,259 $15,372 $0
Net realized gains $4,911 $4,513 $0
Trading securities:
Proceeds $2,287 $0 $844
Net realized gains $461 $0 $144
(5) Notes Receivable:
-----------------
Notes receivable consist of the following at December 31:
2001 2000
------------- -------------
High yield mortgage loan (a) $0 $3,500
Other 521 637
------------- -------------
521 4,137
Less: Current portion included in notes
and accounts receivable 271 3,894
------------- -------------
$250 $243
============= =============
(a) As of December 31, 2001, the Company's participation in a high
yield mortgage loan with a related party participant was
satisfied (see Note 13). This loan was secured by a first
mortgage lien on the property. The loan bore interest at 14.0%
and the Company received a commitment fee of 4.0%.
34
(6) Other Assets:
Other assets consist of the following at December 31:
2001 2000
------------ ------------
Lease financing (a) $8,364 $8,272
Other 3,815 3,734
------------ ------------
12,179 12,006
Less: Amounts included in prepaid expenses and
other current assets 871 652
------------ ------------
$11,308 $11,354
============ ============
(a) Lease financing consists of a 50.0% interest in a limited
partnership, whose principal assets are two leveraged leases
with K-Mart Corporation (see Note 18). The following
represents the components of the net investment in the
leveraged leases at December 31:
2001 2000
--------------- -------------
Rentals receivable $81,583 $85,611
Residual values 10,000 10,000
Non recourse debt service (64,859) (68,111)
Unearned income (18,360) (19,228)
--------------- -------------
8,364 8,272
Less: Deferred taxes arising from leveraged leases 6,254 5,561
--------------- -------------
$2,110 $2,711
=============== =============
The Company's share of income arising from this investment was $868,
$1,227, and $3,601 in 2001, 2000, and 1999, respectively, and is
included in rental income in the accompanying Consolidated Statements
of Income.
(7) Accounts Payable and Accrued Liabilities:
-----------------------------------------
Accounts payable and accrued liabilities consist of the following at
December 31:
2001 2000
-------------- --------------
Accounts payable $3,085 $4,098
Fair market value of derivatives 10,155 0
Accrued wages and benefits 1,300 1,412
Liabilities for discontinued operations 1,434 1,613
Other accrued expenses 1,963 2,070
-------------- --------------
$17,937 $9,193
============== ==============
35
(8) Long-term Debt:
---------------
Long-term debt consists of the following at December 31:
2001 2000
--------------- --------------
Mortgages on real property (a) $21,744 $27,126
Capital lease obligation 41 156
--------------- --------------
21,785 27,282
Less: Current maturities 5,047 5,498
--------------- --------------
$16,738 $21,784
=============== ==============
(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
January 2002 through October 2015.
The approximate aggregate maturities of these obligations at
December 31, 2001 are as follows:
Long-term Capital Lease
Debt Obligation
----------------- ----------------
2002 $5,006 $42
2003 4,391 0
2004 5,866 0
2005 2,338 0
2006 629 0
Thereafter 3,514 0
---------------- ----------------
Total minimum payments $21,744 42
================
Less: Amount representing interest 1
----------------
Total present value of minimum lease payments 41
Less: Current portion 41
----------------
Total noncurrent portion $0
================
(9) 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 bank participates 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
36
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, 2001,
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, 2001. 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, 2001,
there were no amounts outstanding under the Revolver.
The Term Loan bears interest at 90 day LIBOR plus 1.4% (3.3% at
December 31, 2001) and is payable in quarterly principal
installments of $175, with the final payment due on September 30,
2002. At December 31, 2001, $525 was outstanding under the Term
Loan.
(10) 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, accounts payable and
accrued liabilities 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, 2001 and 2000 was
approximately $575 and $4,174, respectively, while the carrying
value was $521 and $4,137 for the same periods.
At December 31, 2001 and 2000, 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, 2001 and 2000 was
approximately $20,372 and $25,500, respectively, while the carrying
value was $21,785 and $27,282 for the same periods.
The derivative instruments held by the Company, representing short
stock sales and put and/or call options, are carried at fair value
based on quoted market prices or dealer quotes. At December 31,
2001, the fair value of these derivatives was estimated at
($10,155).
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
37
rates and the current creditworthiness of the Swap counterparties.
At December 31, 2001 and 2000, the fair values of the Swap were
estimated at ($11) and ($6), respectively.
(11) 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 2001, the Company purchased and retired 83,900
shares of the Company's common stock for approximately $1,769.
Future repurchases of the Company's common stock will also reduce
retained earnings by amounts in excess of the par value. Repurchases
of the Company's common stock will be made from time to time in the
open market at prevailing market prices and may be made in privately
negotiated transactions, subject to available resources.
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.
At December 31, 2001, there were 1,183,880 and 866,001 options
outstanding under the Joint Plan and Incentive Plan, respectively.
At December 31, 2000, 1,198,380 and 417,001 options were outstanding
under the Joint Plan and Incentive Plan, respectively.
A summary of the Company's stock options as of December 31, 2001,
2000, and 1999, and changes during the years then ended are
summarized below:
Weighted-
Shares Average
Exercise Price
----------------- ----------------
Outstanding at January 1, 1999 871,881 $19.16
Granted 434,000 $14.06
Exercised (28,500) $5.00
Cancelled/Forfeited (23,000) $20.52
-----------------
Outstanding at December 31, 1999 1,254,381 $17.69
Granted 371,000 $13.06
Cancelled/Forfeited (10,000) $18.57
-----------------
Outstanding at December 31, 2000 1,615,381 $16.62
Granted 468,000 $23.85
Exercised (5,000) $14.45
Cancelled/Forfeited (28,500) $16.66
-----------------
Outstanding at December 31, 2001 2,049,881 $18.28
=================
38
The following table summarizes information about options outstanding and
exercisable at December 31, 2001:
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 79,000 2.5 years $ 10.05 79,000 $ 10.05
$13.06 - $18.75 1,080,881 7.3 years $ 14.61 692,881 $ 15.27
$22.88 - $25.16 890,000 8.0 years $ 23.46 422,000 $ 23.04
--------- ---------
$7.25 - $25.16 2,049,881 7.4 years $ 18.28 1,193,881 $ 17.67
========= =========
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 consolidated financial statements in connection
with employee stock option grants. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma 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 2001, 2000, and 1999 pro forma net income and net income
per basic share for 2001, 2000, and 1999 would have been $17,222 or $3.68,
$16,532 or $3.49, and $11,758 or $2.37 per basic share, respectively. Pro
forma compensation expense may not be indicative of pro forma 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.
39
The weighted-average option fair values and the assumptions used to
estimate these values are as follows:
Grants Issued During
--------------------
2001 2000 1999
---- ---- ----
Expected life (years) 5 5 5
Risk free interest rate 5.0% 6.1% 5.6%
Expected volatility 36.9% 35.3% 32.4%
Dividend yield 0.0% 0.0% 0.0%
Weighted-average option fair value $ 9.67 $ 5.40 $ 5.42
(12) Earnings Per Common Share:
--------------------------
The following table sets forth the computation of basic and diluted
earnings per common share:
(Share Data in Thousands) 2001 2000 1999
----------- ---------- ----------
Numerator:
Income from continuing operations $18,972 $18,278 $13,326
=========== ========== ==========
Denominator:
Denominator for basic earnings per common
share--weighted-average shares 4,685 4,731 4,968
Effect of dilutive securities:
Employee stock options 229 42 45
----------- ---------- ----------
Denominator for diluted earnings per common
share--adjusted weighted-average shares
and assumed conversions 4,914 4,773 5,013
========== =========== ===========
Basic earnings per common share $4.05 $3.86 $2.68
========== =========== ===========
Diluted earnings per common share $3.86 $3.83 $2.66
========== =========== ===========
(13) 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 K-Mart. 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 Notes 6 and 18).
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 bore interest at 14.0% per annum payable
monthly. The participants also received a commitment fee of 4.0% in
connection with the loan. The note, which was scheduled to mature in
February 2002, was satisfied as of December 31, 2001.
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
40
approximately $121, $165, and $134 for 2001, 2000, and 1999,
respectively. Included in marketable securities at December 31, 2001
was $27,661 of common stock in this company which represents
approximately 5.6% of such company's outstanding shares.
(14) Income Taxes:
-------------
Deferred income taxes are determined on the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109,
deferred tax assets and liabilities are determined based on the
difference between the tax basis of an asset or liability and its
reported amount in the Consolidated Financial Statements using
enacted tax rates. Future tax benefits attributable to these
differences are recognized to the extent that realization of such
benefits is more likely than not.
The components of the net deferred tax liability at December 31,
2001 and 2000 are as follows:
2001 2000
----------------- ----------------
Realization allowances related to
accounts receivable and inventories $364 $282
Net unrealized gain on marketable securities (2,683) (2,113)
Basis differences relating to real
property held for rental 3,459 3,468
Accrued expenses, deductible when paid, net 6,995 4,190
Basis differences relating to business acquisitions (1,863) (1,863)
Leveraged lease (6,254) (5,561)
Property, plant and equipment (387) (431)
Pensions (58) (65)
Other, net (28) (30)
----------------- ----------------
Net deferred tax liability (455) (2,123)
Less: Current portion (1,481) (954)
----------------- ----------------
Noncurrent portion $1,026 ($1,169)
================= ================
The income tax provision reflected in the accompanying Consolidated
Statements of Income for each of the years presented herein is as
follows:
2001 2000 1999
------------ ---------------- ----------------
Current:
Federal $10,498 $5,233 $5,175
State 2,700 1,864 1,831
Deferred (197) 343 2,292
------------ ---------------- ----------------
$13,001 $7,440 $9,298
============ ================ ================
41
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, 2001, 2000, and 1999 is as
follows:
2001 2000 1999
-------------- --------------- ---------------
Computed federal income
tax provision at statutory rates $11,190 $9,001 $7,918
State income taxes, net of federal income tax benefit 1,841 1,255 1,236
Realization of capital loss deductions 0 (2,805) 0
Other, net (30) (11) 144
-------------- --------------- ---------------
$13,001 $7,440 $9,298
============== =============== ===============
(15) 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,
2001, 2000, and 1999 are as follows:
2001 2000 1999
-------------- -------------- ---------------
Net gain on sale of real estate assets $10,995 $5,269 $6,957
Gain from equity investments (a) 0 0 838
Net gain on the sale of available-for-sale
securities (Note 4) 4,911 4,513 0
Net gain on the sale of trading securities (Note 4) 461 0 144
Net gain on sale of derivative instruments 1,856 0 0
Net unrealized losses on derivative instruments (1,374) 0 0
Other, net 106 15 327
-------------- -------------- ---------------
$16,955 $9,797 $8,266
============== ============== ===============
(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.
(16) 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.
42
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:
2001 2000
-------------- --------------
Change in benefit obligation:
Benefit obligation, beginning of year $8,497 $8,979
Service cost 279 336
Interest cost 640 681
Actuarial loss (gain) 194 (570)
Benefits paid (989) (929)
-------------- --------------
Benefit obligation, end of year 8,621 8,497
-------------- --------------
Change in plan assets:
Fair value of plan assets, beginning of year 10,453 11,241
Actual return on plan assets (233) 141
Benefits paid (989) (929)
-------------- --------------
Fair value of plan assets, end of year 9,231 10,453
-------------- --------------
Funded status 610 1,956
-------------- --------------
Unrecognized net actuarial gain (366) (560)
Unrecognized net loss (gain) 517 (612)
-------------- --------------
Prepaid benefit obligation $761 $784
============== ==============
Net periodic pension expense consists of the following components
for the years ended December 31:
2001 2000 1999
----------- ------------- --------------
Service cost ($279) ($336) ($332)
Interest cost (640) (681) (730)
Actual return on plan assets (233) 141 58
Net amortization and deferral 1,129 829 995
----------- ------------- --------------
Net periodic pension expense ($23) ($47) ($9)
=========== ============= ==============
In determining the projected benefit obligation for 2001 and 2000,
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 2001 or 2000 as the plan is overfunded. Plan assets
consist primarily of U.S. bonds, government backed mortgage
obligations, equity securities and mutual funds.
(17) 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-
43
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, 2001, 2000, and 1999 is as follows:
2001 2000 1999
---------------- --------------- --------------
Net revenues and sales:
Real estate investment and management $27,804 $28,237 $29,202
Engineered products 33,792 34,095 30,500
---------------- --------------- --------------
$61,596 $62,332 $59,702
================ =============== ==============
Operating income:
Real estate investment and management $13,970 $14,147 $14,079
Engineered products 1,912 2,261 1,855
---------------- --------------- --------------
15,882 16,408 15,934
General corporate expenses (2,256) (2,153) (2,848)
Other income, net 18,347 11,463 9,538
---------------- --------------- --------------
Income before income taxes $31,973 $25,718 $22,624
================ =============== ==============
2001 2000 1999
---------------- --------------- --------------
Depreciation and amortization expense:
Real estate investment and management $4,175 $4,993 $5,210
Engineered products 745 772 737
General corporate expenses 685 563 681
---------------- --------------- --------------
$5,605 $6,328 $6,628
================ =============== ==============
Mortgage interest expense:
Real estate investment and management $1,796 $2,232 $2,620
================ =============== ==============
Sales by the Company's engineered products segment to automobile
original equipment manufacturers accounted for approximately 13.3%,
19.9%, and 19.4% of 2001, 2000, and 1999 consolidated revenues,
respectively. Sales by this segment to its largest customer (in
excess of 10.0% of the segment's net sales) accounted for 14.0%,
15.8%, and 17.0% of the segment's sales for 2001, 2000, and 1999,
respectively.
Approximately 8.3%, 13.1%, and 14.5% of 2001, 2000, and 1999 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.
44
Selected information on the Company's business segments as of
December 31, 2001 and 2000 is as follows:
2001 2000
------------- ------------
Identifiable assets:
Real estate investment and management
and corporate assets $166,562 $136,189
Engineered products 12,429 11,807
------------- ------------
$178,991 $147,996
============= ============
Additions to long-lived assets:
Real estate investment and management $2,537 $1,244
Engineered products 564 321
------------- ------------
$3,101 $1,565
============= ============
Included in the identifiable assets of the real estate investment
and management segment at December 31, 2001 and 2000 is
approximately $0 and $3,500, respectively, of a high yield mortgage
loan (see Note 5). Income generated by this loan receivable is
included in interest income.
(18) Commitments and Contingencies:
------------------------------
The Company is a lessor of 11 department stores that are currently
leased or sub-leased to K-Mart Corporation ("K-Mart"), which filed
for protection under Chapter 11 of the U.S. Bankruptcy Code on
January 22, 2002. In addition, the Company holds a 50% interest in a
joint venture that owns two distribution centers that are also
leased to K-Mart. Although it is currently uncertain which leases,
if any, K-Mart will reject or affirm as part of its reorganization,
management believes that its leases and the leases of the joint
venture with K-Mart are at or below the fair market rent for
comparable properties and as a result, the rejection of one or more
leases is not expected to have a material adverse effect on the
consolidated financial position of the Company.
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, which is included in other
long-term liabilities, in the Consolidated Financial Statements for
the estimated potential remediation costs at these facilities.
The process of remediation has begun at one facility pursuant to a
plan filed with the New Jersey Department of Environmental
Protection ("NJDEP"). Environmental experts engaged by the Company
estimate that under the most probable remediation scenario the
remediation of this site is anticipated to require initial
expenditures of $860, including the cost of capital equipment, and
$86 in annual operating and maintenance costs over a 15 year period.
Environmental studies at the second facility indicate that
remediation may be necessary. Based upon the facts presently
available, environmental experts have advised the Company that under
the most probable remediation scenario, the estimated cost to
remediate this site is anticipated to require $2,300 in initial
costs, including capital equipment expenditures, and $258 in annual
operating and maintenance costs over a 10 year period. These
estimated costs of future expenses for environmental remediation
obligations are not discounted to their present value. The Company
may revise such estimates in the future due to the uncertainty
regarding the nature, timing and extent of
45
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 under the terms of its settlement agreements 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 $1,000 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. These liabilities are usually included in
accounts payable and accrued liabilities or other long-term
liabilities in the accompanying Consolidated Financial Statements,
depending on the anticipated payment date. None of these matters are
expected to result in a material adverse effect on the Company's
consolidated financial position or results of operations.
46
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 and Previously at
Beginning Expenses Written End of
of Period Off Period
---------------- ------------------ ---------------- -----------------
Allowance for doubtful accounts:
Year ended December 31, 2001 $328 $0 $0 $328
Year ended December 31, 2000 390 0 62 328
Year ended December 31, 1999 390 0 0 390
The accompanying Notes to Consolidated Financial Statements are an integral part of these schedules.
47
SCHEDULE III
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
REAL PROPERTY HELD FOR RENTAL AND ACCUMULATED DEPRECIATION
----------------------------------------------------------
DECEMBER 31, 2001
-----------------
(In Thousands)
--------------
Gross Amount at Which
Initial Cost to Company Costs Carried at Close of Period
Mortgage ------------------------ Capitalized ------------------------------------
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 $2,784 $842 $7,576 $0 $842 $7,576 $8,418
Northbrook, IL 3,128 898 8,075 0 898 8,075 8,973
Miscellaneous Investments 9,622 4,464 38,995 1,963 4,464 40,958 45,422
------------ ---------- ------------ ----------- --------- ----------- -------------
15,534 6,204 54,646 1,963 6,204 56,609 62,813
------------ ---------- ------------ ----------- --------- ----------- -------------
Commercial Properties:
Miscellaneous Investments 6,110 8,745 35,313 709 8,745 36,022 44,767
Day Care Centers and Offices:
Miscellaneous Investments 100 643 5,292 1,932 643 7,224 7,867
Hotel Properties:
Miscellaneous Investments 0 1,712 2,868 48 1,712 2,916 4,628
Other:
Miscellaneous Investments 0 2,618 630 1,084 2,618 1,714 4,332
------------ ---------- ------------ ----------- --------- ----------- -------------
$21,744 $19,922 $98,749 $5,736 $19,922 $104,485 $124,407
============ ========== ============ =========== ========= =========== =============
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 $6,287 N/A 1986 18
Northbrook, IL 6,562 N/A 1987 18
Miscellaneous Investments 30,155 N/A 1986-98 12-39
------------------
43,004
------------------
Commercial Properties:
Miscellaneous Investments 18,666 N/A 1986-98 5-39
Day Care Centers and Offices:
Miscellaneous Investments 5,941 N/A 1986-91 5-39
Hotel Properties:
Miscellaneous Investments 2,884 N/A 1986-99 7-10
Other:
Miscellaneous Investments 1,042 N/A 1986-97 10-39
------------------
$71,537
==================
Notes:
(a) Reconciliations of the carrying value of real property held for rental for
the three years ended December 31, 2001 are as follows:
2001 2000 1999
------------- ------------- ------------------
Real property held for rental at beginning of period $130,995 $138,192 $140,102
Additions during the period:
Acquisitions and improvements 1,774 767 2,304
------------- ------------- ------------------
132,769 138,959 142,406
Deductions during the period:
Cost of real estate sold 8,362 6,951 4,214
Other (see Note 2) 0 1,013 0
------------- ------------- ------------------
$124,407 $130,995 $138,192
============= ============= ==================
(b) Reconciliations of accumulated depreciation for the three years ended
December 31, 2001 are as follows:
2001 2000 1999
------------- ------------- ------------------
Accumulated depreciation at beginning of period $73,862 $71,253 $68,665
Additions during the period:
Provision for depreciation 4,175 4,993 5,210
------------- ------------- ------------------
78,037 76,246 73,875
Deductions during the period:
Accumulated depreciation of real estate sold 6,500 2,384 2,622
------------- ------------- ------------------
$71,537 $73,862 $71,253
============= ============= ==================
(c) The aggregate cost for federal income tax purposes is approximately $170,075.
The accompanying Notes to Consolidated Financial Statements are an integral part of these schedules.
48
SCHEDULE IV
UNITED CAPITAL CORP. AND SUBSIDIARIES
-------------------------------------
MORTGAGE LOANS ON REAL ESTATE
-----------------------------
DECEMBER 31, 2001
-----------------
(In Thousands)
--------------
Final
Description Interest Rate Maturity Date Periodic Payment Terms
- ----------------------------------------------- ----------------------- -------------- ----------------------------------
Mortgage loans secured by commercial property:
Augusta Georgia (b) 9.0% December 2008 Principal and interest due monthly
Atlanta, Georgia Varies from 10.0%-14.0% April 2006 Principal and interest due monthly
Philadelphia, Pennsylvania Varies from 9.0%-12.0% January 2005 Principal and interest due monthly
Principal
Amount of
Carrying Loans Subject
Face Amount of to Delinquent
Prior Amount of Mortgages Principal
Description Liens Mortgages (a), (c) or Interest
- ----------------------------------------------- ---------- ---------- ----------- --------------
Mortgage loans secured by commercial property:
Augusta Georgia (b) $0 $45 $9 $0
Atlanta, Georgia 0 31 28 0
Philadelphia, Pennsylvania 0 77 49 0
--------- ---------- ----------- --------------
$0 $153 $86 $0
========= ========== =========== ==============
(a) A reconciliation of mortgage loans on real estate for the year ended
December 31, 2001 is as follows:
Balance at beginning of period $3,585
Additions during the period:
New mortgage loans 31
Deductions during the period:
Collection of principal (3,530)
-------------
Balance at end of period $86
=============
(b) In accordance with generally accepted accounting principles the gain from
the sale of real property is being recognized under the installment
method and, accordingly, notes receivable have been reduced by $20 in
deferred gains at December 31, 2001.
(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.
49
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 2001:
Revenues $16,966 $15,646 $14,909 $14,075
================== ================== =============== ==================
Costs and expenses $12,694 $12,647 $11,630 $10,999
================== ================== =============== ==================
Other income $4,323 $279 $5,374 $8,371
================== ================== =============== ==================
Net income $5,115 $2,008 $5,193 $6,656
================== ================== =============== ==================
Net income per common share:
Basic $1.09 $.43 $1.11 $1.43
================== ================== =============== ==================
Diluted $1.06 $.41 $1.05 $1.36
================== ================== =============== ==================
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
================== ================== =============== ==================
50