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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, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from TO
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Commission file number 1-10104
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UNITED CAPITAL CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2294493
- -------------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 PARK PLACE, GREAT NECK, NEW YORK 11021
- ------------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (516) 466-6464
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
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 Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the shares of the voting stock held by
nonaffiliates of the Registrant as of March 5, 1998 was approximately
$41,138,000.
The number of shares of the Registrant's $.10 par value common stock outstanding
as of March 5, 1998 was 5,248,347.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of Form 10-K will be incorporated by
reference to certain portions of a definitive proxy statement which is expected
to be filed by the Registrant pursuant to Regulation 14A within 120 days after
the close of its fiscal year.
PART I
ITEM 1. BUSINESS
GENERAL
United Capital Corp. (the "Registrant"), 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 Registrant also invests excess available cash in marketable securities and
other financial instruments.
On November 20, 1997, the Registrant signed a definitive agreement to sell the
stock of its Dorne & Margolin, Inc. ("D&M") subsidiary to AIL Systems Inc.
("AIL") for $16 million in cash. On January 2, 1998 the sale was completed and
will result in a pretax gain of approximately $9 million and have an estimated
$.92 per share effect on earnings on an after tax basis in the first quarter of
1998. The net assets and operating results of D&M are presented in the
accompanying consolidated financial statement as a discontinued operation. (See
Note 2 to Consolidated Financial Statements "Disposal of Operating Companies".)
DESCRIPTION OF BUSINESS
REAL ESTATE INVESTMENT AND MANAGEMENT
The Registrant 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 Registrant are
leased under net leases pursuant to which the tenants are responsible for all
expenses relating to the leased premises, including taxes, utilities, insurance
and maintenance. The Registrant also owns properties that it manages which are
operated by the City of New York as day-care centers and offices and other
properties leased as department stores, hotels and shopping centers around the
country. In addition, the Registrant owns properties available for sale and
lease with the assistance of a consultant or a realtor working in the locale of
the premises.
The majority of properties are leased to single tenants. Approximately 97% of
the total square footage of the Registrant's properties are currently leased.
ENGINEERED PRODUCTS
The Registrant's engineered products are manufactured through the Technical
Products Division of Metex Corporation ("Metex") and AFP Transformers, Inc.
("AFP Transformers"), wholly-owned subsidiaries of the Registrant. The knitted
wire products and components manufactured by Metex must function in adverse
environments and meet rigid performance requirements. The principal areas in
which these products have application are as high temperature gaskets, seals,
components for use in airbags, shock and vibration isolators, noise reduction
elements and air, liquid and solid filtering devices.
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.
The Registrant also manufactures transformer products which are marketed under
several brand names including AFP Transformers, Field Transformer, ISOREG and
EPOXYCAST for a wide variety of industrial and research applications including
machine power transformers, rectifier and inverter transformers and transformers
for heating.
Sales by the Engineered Products segment to its three largest customers (each in
excess of 10% of the segment's net sales) accounted for approximately 39% of the
segment's sales for 1997. During 1996 sales to its three largest customers
accounted for approximately 40% of the segment's sales.
SUMMARY FINANCIAL INFORMATION
The following table sets forth the revenues, operating income and identifiable
assets of each continuing business segment of the Registrant for 1997, 1996 and
1995.
1997 1996 1995
------------ ------------ ------------
(in thousands)
REAL ESTATE INVESTMENT AND MANAGEMENT-
Rental revenues $24,042 $23,936 $22,652
============ ============ ============
Operating income $7,718 $6,195 $5,003
============ ============ ============
Identifiable assets $95,080 $99,292 $92,328
============ ============ ============
ENGINEERED PRODUCTS-
Net sales $36,204 $42,055 $41,688
============ ============ ============
Operating income $3,419 $3,792 $3,779
============ ============ ============
Identifiable assets $11,432 $12,174 $12,955
============ ============ ============
DISTRIBUTION
The Registrant'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 Registrant's products are manufactured at its own facilities. The Registrant
purchases raw materials from a wide range of suppliers of such materials. Most
raw materials purchased by the Registrant are available from several suppliers.
The Registrant has not had and does not expect to have any problems fulfilling
its raw material requirements during 1998.
2
PATENTS AND TRADEMARKS
The Registrant owns several patents, patent licenses and trademarks. While the
Registrant considers that in the aggregate its patents and trademarks used in
the engineered products operations are significant to this segment, it does not
believe that any of these patents or trademarks are of such importance that the
loss of one or more of such patents or trademarks would materially affect its
consolidated financial condition or results of operations.
EMPLOYEES
At March 5, 1998, the Registrant employed approximately 319 persons. Certain of
the Registrant's employees are represented by unions. The Registrant believes
that its relationships with its employees are good.
COMPETITION
The Registrant competes with at least 21 other companies in the sale of
engineered products. The Registrant stresses product performance and service in
connection with the sale of these products. The principal competition faced by
the Registrant results from the sales price of the products sold by its
competitors.
BACKLOG
The dollar value of unfilled orders of the Registrant's engineered products
segment was approximately $2.2 million at December 31, 1997 and 1996. It is
anticipated that substantially all such 1997 backlog will be filled in 1998. The
order backlog referred to above does not include any order backlog with respect
to sales of knitted wire mesh components for exhaust emission control devices or
exhaust seals because of the manner in which customer orders are received.
ENVIRONMENTAL REGULATIONS
Federal, state and local requirements regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment, have
had and will continue to have a significant impact upon the operations of the
Registrant. It is the policy of the Registrant to manage, operate and maintain
its facilities in compliance, in all material respects, with applicable
standards for the prevention, control and abatement of environmental pollution
to prevent damage to the quality of air, land and resources.
The Registrant has undertaken the completion of environmental studies and/or
remedial action at Metex' two New Jersey facilities.
The process of remediation has begun at one facility pursuant to a plan filed
with the New Jersey Department of Environmental Protection and Energy
("NJDEPE"). Environmental experts engaged by the Registrant estimate that under
the most probable remediation scenario the remediation of this site is
anticipated to require initial expenditures of $860,000 including the cost of
capital equipment, and $86,000 in annual operating and maintenance costs over a
15-year period.
Environmental studies at the second facility indicate that remediation may be
necessary. Based upon the facts presently available, environmental experts have
advised the Registrant that under the most probable remediation scenario, the
estimated cost to remediate this site is anticipated to require
3
$2.3 million in initial costs, including capital equipment expenditures, and
$258,000 in annual operating and maintenance costs over a 10-year period. The
Registrant may revise such estimates in the future due to the uncertainty
regarding the nature, timing and extent of any remediation efforts that may be
required at this site, should an appropriate regulatory agency deem such efforts
to be necessary.
The foregoing estimates may also be revised by the Registrant as new or
additional information in these matters become available or should the NJDEPE or
other regulatory agencies require additional or alternative remediation efforts
in the future. It is not currently possible to estimate the range or amount of
any such liability.
Although the Registrant believes that it is entitled to full defense and
indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the Registrant's insurers have denied such
coverage. Accordingly, the Registrant has filed an action against certain
insurance carriers seeking defense and indemnification with respect to all prior
and future costs incurred in the investigation and remediation of these sites
(see Item 3, "Legal Proceedings"). Upon the advice of counsel, the Registrant
believes that based upon a present understanding of the facts and the present
state of the law in New Jersey, it is probable that the Registrant will prevail
in the pending litigation and thereby access all or a very substantial portion
of the insurance coverage it claims; however, the ultimate outcome of litigation
cannot be predicted.
At December 31, 1997 and 1996 a total of $2.9 million in anticipated insurance
recoveries is recorded in the accompanying consolidated financial statements,
and is included in other assets. Additionally, in 1995 the Company received $4.1
million of insurance recoveries. The remaining balance of $2.9 million at
December 31, 1997 (from a total of $7 million) is in dispute with the
Registrant's insurance carriers as more fully discussed in Item 3 "Legal
Proceedings" and Note 19 to Consolidated Financial Statements, "Contingencies."
Management believes that recoveries in excess of the amounts reflected in the
accompanying Consolidated Financial Statements are available under the insurance
policies but have not been recorded. There can be no assurance, however, that
the Registrant will prevail in its efforts to obtain amounts at or in excess of
the estimated recoveries.
In the opinion of management, these matters will be resolved favorably and such
amounts, if any, not recovered under the Registrant's insurance policies will be
paid gradually over a period of years and, accordingly, should not have a
material adverse effect upon the business, liquidity or financial position of
the Registrant. However, adverse decisions or events, particularly as to the
merits of the Registrant's factual and legal basis could cause the Registrant to
change its estimate of liability with respect to such matters in the future.
ITEM 2. PROPERTIES
REAL PROPERTY HELD FOR RENTAL
As of March 5, 1998 the Registrant owned 224 properties strategically located
throughout the United States. The properties are primarily leased under
long-term net leases. The Registrant's classification and gross carrying value
of its properties at December 31, 1997 are as follows (in thousands, except
number of property amounts):
4
Gross Carrying Number of
Description Value Percentage Properties
----------- ---------------- ---------------- -----------------
Shopping centers and retail outlets $71,223 57.3% 31
Commercial properties 31,276 25.2% 136
Day-care centers and offices 7,561 6.1% 12
Hotel properties 2,916 2.3% 2
Other 11,370 9.1% 44
---------------- ------------ --------
Total $124,346 100.0% 225
================ ============ ========
SHOPPING CENTERS AND RETAIL OUTLETS
Shopping centers and retail outlets include 21 department stores and other
properties which are primarily leased under net leases. Taxes, maintenance of
the properties and all other expenses are the responsibility of the tenants. The
leases for certain shopping centers and retail outlets provide for additional
rents based on sales volume and renewal options at higher rents. The department
stores include 11 K-Mart stores, three Macy's stores, one IKEA store and one
Office Depot with a total of approximately 1,064,000, 538,000, 160,000 and
111,000 square feet, respectively. The K-Mart stores are primarily located in
the Midwest region of the United States. The Macy's and IKEA stores are
primarily located in the Pacific Coast and Southwest regions of the United
States.
COMMERCIAL PROPERTIES
Commercial properties consist of properties leased as 93 restaurants, 27 Midas
Muffler Shops, three convenience stores, seven 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 93
restaurants, located throughout the United States, include properties leased as
Boston Market, Roy Rogers, Pizza Hut, Hardee's, Wendy's and Kentucky Fried
Chicken. Included in commercial properties is the 90,000 square foot facility
previously utilized in the Registrant's D&M business. This facility was retained
by the Registrant and transferred to real property held for rental.
DAY-CARE CENTERS AND OFFICES
The 10 day-care centers and two offices, which are located in New York City, are
leased to the City of New York. The Registrant has negotiated with the City of
New York to extend, on a long-term basis, all 12 of these leases.
HOTEL PROPERTIES
The Registrant's two hotel properties are located in Georgia and California
which are managed through a local on-site management company that is responsible
for all day-to-day operations of the hotels.
5
The following summarizes real property held for rental by geographic area at
December 31, 1997 (in thousands, except number of property amounts):
Gross
Number of Carrying
Properties Value
--------------- ------------------
Northeast 116 $35,956
Southeast 41 24,305
Midwest 41 27,314
Southwest 9 9,811
Pacific Coast 7 21,581
Pacific Northwest 6 2,098
Rocky Mountain 5 3,281
--------- ------------------
225 $124,346
========= ==================
MANUFACTURING FACILITIES
The Registrant's engineered products are manufactured at 970 New Durham Road,
Edison, New Jersey, in a one-story building having approximately 53,000 square
feet of floor space and also in a second facility at 206 Talmadge Road in
Edison, New Jersey which has approximately 54,500 square feet of space. The
Registrant owns these facilities together with the sites.
ITEM 3. LEGAL PROCEEDINGS
ROSATELLI VS. UNITED CAPITAL CORP.
In August 1996, Dennis Rosatelli, the Registrant's former Chief Financial
Officer commenced an action in Superior Court of New Jersey, Law Division,
Bergen County, seeking, among other things, payment under his employment
contract, and indemnification for claims against him by the Internal Revenue
Service and other matters in connection with his tenure. In March 1997, Mr.
Rosatelli amended his complaint to include Bank of America Illinois, Metex
Corporation, Kentile Inc., A.F. Petrocelli and another officer of Kentile as
additional defendants. The Registrant believes that as a result of Mr.
Rosatelli's gross negligence, recklessness and/or willful disregard of his
duties and responsibilities, Mr. Rosatelli is not entitled to the recoveries he
seeks. Mr. Rosatelli's employment was terminated by the Registrant in May 1996
for cause. The matter has been removed to the United States District Court,
District of New Jersey. This action is in the early stages of pretrial
discovery. The Registrant intends to vigorously defend this action and has
asserted counterclaims against Mr. Rosatelli for, among other things, the set
off of amounts by which he has damaged the Registrant against his claims under
his employment contract.
METEX CORPORATION VS. AFFILIATED FM INSURANCE CO., ET AL.
On June 27, 1990, Metex filed an action in the Superior Court of New Jersey,
Chancery Division, Middlesex County, against several insurance companies that
provided Metex with liability insurance between 1967 and 1986. To date, Metex
has reached settlements with several carriers. The action seeks both declaratory
relief and monetary damages in connection with reimbursement of the costs
incurred and to be incurred by Metex in connection with the completion of
environmental studies and remedial action required at its two Edison, New Jersey
facilities. The declaratory relief sought is a determination that the terms of
the liability insurance policies at issue obligate the defendants to defend and
6
indemnify Metex with respect to all costs and expenses related to these
environmental matters. Metex also seeks monetary damages in an unspecified
amount for breach of the defendants' duty to indemnify Metex.
In June 1995, the court dismissed, without prejudice, the New Durham site from
this action. The court ruled that without a governmental directive to remediate
the site no third-party liability exists and accordingly no coverage is
available under the policies. The Registrant appealed the decision to the New
Jersey Appellate Division which heard the case in February 1996. In April 1996,
the Appellate Division issued a published ruling in favor of the Registrant
reinstating the action as to the general liability insurance policies regarding
both sites and remanded to the trial court to determine whether the umbrella and
excess insurance policies should be similarly reinstated as to the New Durham
Road site. In November 1996, the umbrella and excess insurance companies once
again moved to dismiss the New Durham site. The motion to dismiss was argued and
denied by the trial court on January 24, 1997. Pretrial discovery is not yet
complete. The Registrant intends to continue to vigorously pursue this action.
OTHER LITIGATION
The Registrant is involved in various other litigation and legal matters which
are being defended and handled in the ordinary course of business.
None of the foregoing is expected to result in a judgment having a material
adverse effect on the Registrant's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
The Registrant's Common Stock is traded on the American Stock Exchange under the
symbol AFP. The table below shows the high and low sales prices as reported in
the composite transactions for the American Stock Exchange.
High Low
------------- -------------
1997 First quarter $12-7/8 $8-3/8
- ---- Second quarter 20-1/2 12-5/8
Third quarter 17-5/8 15
Fourth quarter 29 17-1/8
1996 First quarter $7-3/8 $6-1/2
- ---- Second quarter 8-3/4 7-1/8
Third quarter 10 7-1/2
Fourth quarter 9-5/8 8-1/2
7
As of March 5, 1998, there were approximately 527 record holders of the
Registrant's Common Stock. The closing sales price for the Registrant's Common
Stock on such date was $23 5/8. The Registrant has never paid any cash dividends
on its Common Stock. The payment of dividends is within the discretion of the
Registrant's Board of Directors, however in view of potential working capital
needs and in order to finance future growth and as a result of certain
restrictions in the Registrant's Credit Agreement, it is unlikely that the
Registrant will pay any cash dividends on its Common Stock in the near future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with, and is qualified in its entirety by reference to, the
Consolidated Financial Statements and the Notes thereto.
1997 1996 1995 1994 1993
-------------- ------------ ------------ ------------ ------------
(in thousands except per share amounts)
Total revenues (1) $60,246 $65,991 $64,340 $57,499 $48,458
============== ============ ============ ============ ============
Income from continuing operations $7,465 $6,634 $3,910 $4,158 $3,565
============== ============ ============ ============ ============
Income from continuing operations
per common share basic (2) $1.41 $1.21 $.67 $.68 $.58
============== ============ ============ ============ ============
Total assets, end of year $113,353 $116,761 $110,366 $120,404 $107,345
Total liabilities, end of year 75,873 87,186 84,137 87,623 77,167
Stockholders' equity, end of year 37,480 29,575 26,229 32,781 30,178
============== ============ ============ ============ ============
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Certain reclassifications have been reflected in the financial data to
conform prior years' data to the current classifications.
(2) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"). For further discussion of
earnings per share and the impact of SFAS No. 128, see Notes To
Consolidated Financial Statements beginning on page F-8.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1997 AND 1996
GENERAL
The following discussion of the Registrant's financial condition and results of
operations should be read in conjunction with the description of the
Registrant's business and properties contained in Items 1 and 2 of Part I and
the consolidated financial statements and notes thereto, included elsewhere in
this report.
Total revenues generated by the Registrant during 1997 were $60.2 million a
decrease of $5.8 million from total 1996 revenues of $66 million. Income from
continuing operations for the period was $7.5 million or $1.41 per share as
compared to income from continuing operations of $6.6 million or $1.21 per share
for 1996. Income from discontinued operations for 1997 was $1 million or $.19
per share
8
versus a loss of ($797,000) or ($.15) per share in 1996. Net income increased to
$8.5 million or $1.60 per share in 1997 versus $5.8 million or $1.06 per share
in 1996.
REAL ESTATE OPERATIONS
Rental revenues from real estate operations during 1997 increased $106,000 or
less than 1% over those of the prior year. Revenues from new property additions
and a one-time adjustment for percentage rents on certain properties offset the
reduction in revenues resulting from properties sold.
Mortgage interest expense for 1997 decreased by $613,000 as compared to such
expense incurred during 1996. This decrease of 17% results from the continuing
amortization of mortgages which approximated $5.1 million during the current
year, including repayments associated with properties sold.
Depreciation expense associated with real properties held for rental decreased
approximately $521,000 or approximately 8% from such expense incurred in the
preceding year. This decrease is primarily attributable to properties sold in
1997 and 1996.
Other operating expenses associated with the management of real properties
decreased approximately $283,000 during 1997 versus such expenses incurred in
1996. This decrease is primarily attributable to costs associated with
properties sold, reductions in legal expenses from the prior year, and to
certain cost reductions and capital improvements implemented in 1996.
ENGINEERED PRODUCTS
The Registrant's engineered products segment includes Metex Corporation and AFP
Transformers, Inc. The operating results of the engineered products segment for
the years ended December 31 follows-
1997 1996
------------- ------------
(in thousands)
Net sales $36,204 $42,055
============= ============
Cost of sales $25,972 $30,891
============= ============
Selling, general and administrative expenses $6,813 $7,372
============= ============
Income from operations $3,419 $3,792
============= ============
Net sales of the engineered products segment were $36.2 million, a decrease of
$5.9 million versus such sales in 1996. This decrease resulted primarily from
increased price competition and declining worldwide automotive sales. This group
is continuing to pursue new revenue opportunities including new geographical
markets for its existing products as well as new applications for its core
technologies.
Cost of sales as a percentage of net sales decreased approximately 2% between
1997 and 1996. This decline is primarily due to continued management focus on
cost containment as well as product mix.
Selling, general and administrative expenses ("SG&A") of the engineered products
segment decreased $559,000 or 8% during 1997, as compared to such costs in 1996.
While sales decreased approximately 14% in 1997 as compared to 1996, the 8%
decline in selling, general and administrative expenses reflects management's
commitment to increasing sales in this segment.
9
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the manufacturing
operations decreased approximately $595,000 during 1997 as compared to such
expenses incurred in the preceding year. This decrease is primarily due to lower
compensation and related expenses.
OTHER INCOME AND EXPENSE, NET
Other income and expense, net for 1997 decreased approximately $1.5 million from
$4.8 million in 1996 to $3.3 million in 1997. The decrease is principally due to
a non-recurring gain of $1.4 million in 1996 resulting from the settlement of
all claims from an investment that was principally written off in 1990 and a
reduction in gains on the sale of real estate properties of approximately
$438,000 partially offset by a reduction of other net expenses.
RESULTS OF OPERATIONS 1996 AND 1995
Total revenues generated by the Registrant during 1996 were $66 million, an
increase of $1.7 million from total 1995 revenues of $64.3 million. Income from
continuing operations for the period was $6.6 million or $1.21 per share as
compared to income from continuing operations of $3.9 million or $.67 per share
for 1995. Net loss in 1995 was ($1.9 million) or ($.33) per share as this period
included losses from the Registrant's discontinued resilient vinyl flooring
operations, the write-off of its investment in Kentile, Inc. and losses from the
Registrant's discontinued Antenna Systems segment. See Note 2 to Consolidated
Financial Statements, "Disposal of Operating Companies."
REAL ESTATE OPERATIONS
Rental revenues from real estate operations during 1996 increased $1.3 million
or 6% over those of the prior year primarily as a result of additional revenues
related to existing real estate properties and 1995 property acquisitions.
Mortgage interest expense for 1996 decreased by $747,000 as compared to such
expense incurred during 1995. This decrease of 17% results from the continuing
amortization of mortgages which approximated $9.4 million during 1996, including
repayments associated with properties sold.
Depreciation expense associated with real properties held for rental decreased
approximately $74,000 or approximately 1% from such expense incurred in 1995.
This decrease is primarily attributable to properties sold in 1996 and 1995.
Other operating expenses associated with the management of real properties
increased approximately $1.6 million during 1996 versus such expenses incurred
in 1995. This increase primarily results from the operating costs of additional
properties added by the Registrant in 1996, the reclassification of prior
manufacturing facilities to real property held for rental and operating costs
associated with existing real estate properties.
ENGINEERED PRODUCTS
The Registrant's engineered products segment includes Metex Corporation and AFP
Transformers, Inc. The operating results of the engineered products segment for
the years ended December 31, 1996 and 1995 are as follows-
10
1996 1995
-------------- --------------
(in thousands)
Net sales $42,055 $41,688
============== ==============
Cost of sales $30,891 $31,237
============== ==============
Selling, general and administrative expenses $7,372 $6,672
============== ==============
Income from operations $3,792 $3,779
============== ==============
Net sales of the engineered products segment were $42.1 million, an increase of
$367,000 versus such sales in 1995. This growth resulted primarily from
increased transformer sales as sales of knitted wire products were consistent
with 1995 levels.
Cost of sales as a percentage of net sales decreased approximately 1% between
1996 and 1995. This decline is primarily a result of the mix of product sales.
SG&A of the engineered products segment increased $701,000 or 11% during 1996,
as compared to such costs in 1995. This increase primarily results from
additional selling related expenses, principally salary and travel related
expenses, associated with new product development and business development.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the manufacturing
operations decreased approximately $158,000 during 1996 as compared to such
expenses incurred in 1995. This decrease is primarily due to the
reclassification, in the current year, of costs associated with prior
manufacturing facilities to real estate operations. Such costs were included in
general and administrative expenses during 1995.
OTHER INCOME AND EXPENSE, NET
Other income and expense, net for 1996 of approximately $4.8 million is
comprised of approximately $3.9 million in gains from the sales of real estate
assets and approximately $1.4 million in settlement of all claims from an
investment that was principally written off in 1990. These amounts were
partially offset by $561,000 of miscellaneous other expense.
The 1995 components of other income and expense, net were as follows: $865,000
in gains from the sale of real estate assets, $230,000 from realized gains on
the sale of marketable securities and approximately $550,000 in miscellaneous
other income.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Registrant's current liabilities exceeded current
assets by approximately $4.6 million. This shortfall in working capital results
from financing the purchase of long-term assets utilizing short-term borrowings
and from the classification of current mortgage obligations without the benefit
of a corresponding current asset for such properties.
11
On January 2, 1998, the Registrant sold its antenna business for $16 million in
cash, resulting in a pretax gain of approximately $9 million or $.92 per share
in the first quarter of 1998. Substantially all of the cash proceeds of this
transaction are available for general corporate purposes. Additionally,
effective September 30, 1997, the Registrant amended its January 15, 1997 Credit
Agreement with two banks to provide for both a $7 million term loan ("Term
Loan") and a $40 million revolving credit facility ("Revolver") and converted $7
million of amounts outstanding under the Revolver to borrowings under the Term
Loan. Under the terms of the Credit Agreement, the Registrant will be provided
with eligibility based upon the sum of (i) 50% of the aggregate annualized and
normalized year-to-date net operating income of eligible properties, as defined,
capitalized at 11.5% and (ii) the lesser of $12 million or the sum of 75% of
eligible accounts receivable and 50% of eligible inventory, as defined.
Eligibility is also limited by amounts outstanding under the Term Loan. At
December 31, 1997 eligibility under the Revolver was $40 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 then for real estate). The
Credit Agreement also contains provisions which allow the lenders to perfect a
security interest in certain operating and real estate assets in the event of a
default, as defined under the terms of the Credit Agreement. Borrowings under
the Revolver, at the Registrant's option, bear interest at the bank's prime
lending rate ("Prime") or at the London Interbank Offered Rate ("LIBOR") plus
1.75% while borrowings under the Term Loan bear interest at 90 day LIBOR plus
1.4%. The Term Loan is payable in quarterly principal installments of $350,000,
with a final payment on September 30, 2002. The Revolver expires on January 15,
2000. At December 31, 1997, approximately $4.6 million was outstanding under
this facility, which was repaid on January 2, 1998. The Registrant was in
compliance with all covenants.
Also, effective September 30, 1997, the Registrant entered into an interest-rate
swap agreement 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 agreement, the Registrant agreed to exchange with the
counterparty (a commercial bank ) the difference between the fixed and floating
rate interest amounts. The differential to be paid or received on the interest
rate swap is recognized over the term of the agreement as an adjustment to
interest expense. The fair value of the swap agreement is not recognized in the
financial statements. At December 31, 1997 approximately $40 million was
available to be borrowed under the Revolver.
Management is confident that with the available cash resources discussed above
and cash generated by operations, all obligations will be satisfied as they
become due.
The Registrant has undertaken the completion of environmental studies and
remedial action at Metex' two New Jersey facilities and has filed an action
against certain insurance carriers seeking recovery of costs incurred and to be
incurred in these matters. Based upon the advice of counsel, management believes
such recovery is probable and therefore should not have a material effect on the
liquidity or capital resources of the Registrant. However, the ultimate outcome
of litigation cannot be predicted. To date settlements have been reached with
several carriers in this matter.
At December 31, 1997 and 1996 a total of $2.9 million in anticipated insurance
recoveries is recorded in the accompanying Consolidated Financial Statements,
and is included in other assets. Additionally, in 1995 the Company received
approximately $4.1 million of insurance proceeds. The remaining balance of $2.9
million at December 31, 1997 (from a total of $7 million) is in dispute with the
Registrant's insurance carriers as more fully discussed in Item 3 "Legal
Proceedings" and Note 19 to Consolidated
12
Financial Statements "Contingencies." Management believes that recoveries in
excess of the amounts reflected in the accompanying Consolidated Financial
Statements are available under the insurance policies but have not been
recorded. There can be no assurance, however, that the Registrant will prevail
in its efforts to obtain amounts at or in excess of the estimated recoveries.
The cash needs of the Registrant have been satisfied from funds generated by
current operations and additional borrowings. It is expected that future
operational cash needs will also be satisfied from ongoing operations,
additional borrowings on the Revolver and the proceeds from the sale of the
antenna business. The primary source of capital to fund additional real estate
acquisitions and to make additional high yield mortgage loans will come from the
sale, financing and refinancing of the Registrant's properties and from third
party mortgages and purchase money notes obtained in connection with specific
acquisitions.
In addition to the acquisition of properties for consideration consisting of
cash and mortgage financing proceeds, the Registrant may acquire real properties
in exchange for the issuance of the Registrant's equity securities. The
Registrant may also finance acquisitions of other companies in the future with
borrowings from institutional lenders and/or the public or private offerings of
debt or equity securities.
Funds of the Registrant in excess of that needed for working capital, purchasing
real estate and arranging financing for real estate acquisitions are invested by
the Registrant in corporate equity securities, other financial instruments,
certificates of deposit and government securities.
BUSINESS TRENDS
Total 1997 revenues of the Registrant decreased approximately $5.8 million from
1996 levels to $60.2 million. The reduction in revenues is attributable to
revenue reductions in the engineered products segment as real estate operations
posted an increase in revenues. Income from continuing operations increased to
$7.5 million in 1997 from $6.6 million in 1996 principally due to an increase in
operating profit of the Registrant's real estate operations and a reduction in
general corporate expenses, partially offset by reduced operating profit in the
engineered products segment resulting from the reduction in revenues, as well as
a reduction in other income, net.
The results of the Registrant's real estate operations reflect an increase in
operating profit of $1.5 million on a revenue increase of only $106,000.
Continuing lease renewals and mortgage amortization will continue to have a
positive effect upon the revenues and operating profit of this segment.
Sales in the Registrant's engineered products segment decreased 14% in 1997 from
1996 record levels. These reductions are principally due to continued price
competition and declining worldwide automotive sales. Sales in 1998 are
anticipated to approximate 1997 levels due to increased competition in a number
of markets for knitted wire product sales. Management continues to invest in new
product development and in new markets for its products and believes there is
future opportunity for growth in this segment.
YEAR 2000 CONVERSION
The Registrant currently believes that its essential processes, systems and
business functions will be ready for the millennium transition and is taking the
necessary steps to accomplish this objective. The Year 2000 issue is not
anticipated to have a material impact on the Registrant's results of operations,
financial position or its cash flows.
13
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 (the "Exchange Act"), which are
intended to be covered by the safe harbors created thereby. All forward-looking
statements involve risks and uncertainty including without limitation the
statements expressed under "Business Trends" above. Although the Registrant
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 Registrant or any other person that the objectives and
plans of the Registrant will be achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary information filed as part of this
Item 8 are listed under Part IV, Item 14, "Exhibits, Financial Statements and
Schedules and Reports on Form 8-K" and are contained in this Form 10-K at page
F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information will be contained in the Proxy Statement of the Registrant for
the 1998 Annual Meeting of Stockholders under the captions "Election of
Directors" and "Executive Officers" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information will be contained in the Proxy Statement of the Registrant for
the 1998 Annual Meeting of Stockholders under the caption "Executive
Compensation and Compensation of Directors" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be contained in the Proxy Statement of the Registrant for
the 1998 Annual Meeting of Stockholders under the captions "Security Ownership"
and "Election of Directors" and is incorporated herein by reference.
14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the Proxy Statement of the Registrant for
the 1998 Annual Meeting of Stockholders under the caption "Certain Relationships
and Related Transactions" and is incorporated herein by reference. Also see Note
14, "Transactions with Related Parties," of Notes to Consolidated Financial
Statements, contained elsewhere in this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) CONSOLIDATED FINANCIAL STATEMENTS. The following Consolidated
Financial Statements and Consolidated Financial Statement Schedules of
the Registrant are included in this Form 10-K at the pages indicated:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the Years F-3
Ended December 31, 1997, 1996 and 1995 to F-4
Consolidated Statements of Stockholders' Equity for F-5
the Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the F-6
Years Ended December 31, 1997, 1996 and 1995 to F-7
Notes to Consolidated Financial Statements F-8
to F-27
(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II -- Allowance for Doubtful Accounts F-28
Schedule III -- Real Property Held for Rental and F-29
Accumulated Depreciation
Schedule IV -- Mortgage Loans on Real Estate F-30
(3) SUPPLEMENTARY DATA
Quarterly Financial Data (Unaudited) F-31 to F-32
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 Registrant during the last quarter of
fiscal 1997.
15
(c) Exhibits
3.1. Amended and restated Certificate of Incorporation of the
Registrant (incorporated by reference to exhibit 3.1 filed with the Registrant's
report on Form 10-K for the fiscal year ended December 31, 1993).
3.2. By-laws of the Registrant (incorporated by reference to
exhibit 3 filed with the Registrant's report on Form 10-K for the fiscal year
ended December 31, 1980).
10.1. 1988 Incentive Stock Option Plan of the Registrant, as
amended (incorporated by reference to exhibit 10.1 filed with the Registrant's
report on Form 10-K for the fiscal year ended December 31, 1994).
10.2. 1988 Joint Incentive and Non-Qualified Stock Option
Plan, as amended (incorporated by reference to exhibit 10.2 filed with the
Registrant's report on Form 10-K for the fiscal year ended December 31, 1994).
10.3. Employment Agreement dated as of January 1, 1990 by and
between the Registrant and A. F. Petrocelli (incorporated by reference to
exhibit 10.9 filed with the Registrant's report on Form 10-K for the fiscal year
ended December 31, 1989).
10.4. Amendment dated as of December 3, 1990 to Employment
Agreement dated as of January 1, 1990, by and between the Registrant and A. F.
Petrocelli (incorporated by reference to exhibit 10.10 filed with the
Registrant's report on Form 10-K for the fiscal year ended December 31, 1990).
10.5. Amendment dated as of June 8, 1993 to Employment
Agreement dated as of January 1, 1990 by and between the Registrant and A. F.
Petrocelli (incorporated by reference to exhibit 10.5 filed with the
Registrant's report on Form 10-K for the fiscal year ended December 31, 1993).
*10.6 Revolving Credit Agreement dated as of January 15, 1997
and as amended September 29, 1997 and January 2, 1998, with the financial
parties thereto.
*10.7 Stock Purchase Agreement, dated as of November 20, 1997
by and among AIL Systems Inc., United Capital Corp. and Metex Corporation.
*21. Subsidiaries of the Registrant
*23. Accountants' consent to the incorporation by reference
in Registrant's Registration Statements on Form S-8 of the Report of Independent
Public Accountants included herein.
*27. Financial Data Schedule
- -----------------
* Filed herewith
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED CAPITAL CORP.
Dated: MARCH 5, 1998 By: /S/ A.F. PETROCELLI
------------- -------------------
A. F. Petrocelli
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Dated: MARCH 5, 1998 By: /S/ A.F. PETROCELLI
------------- -------------------
A. F. Petrocelli
Chairman, President and
Chief Executive Officer
Dated: MARCH 5, 1998 By: /S/ HOWARD M. LORBER
------------- --------------------
Howard M. Lorber
Director
Dated: MARCH 5, 1998 By: /S/ ANTHONY J. MICELI
------------- ---------------------
Anthony J. Miceli
Chief Financial Officer,
Chief Accountant, Secretary and
Director
Dated: MARCH 5, 1998 By: /S/ ARNOLD S. PENNER
------------- --------------------
Arnold S. Penner
Director
17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
United Capital Corp.:
We have audited the accompanying consolidated balance sheets of United Capital
Corp. (a Delaware Corporation) and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements and the schedules referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Capital Corp. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
consolidated financial statements and schedules are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 17, 1998
F-1
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
ASSETS 1997 1996
------ -------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 5,250 $ 2,579
Marketable securities 355 313
Notes and accounts receivable, net of allowance for doubtful
accounts of $326 and $377, respectively 11,319 18,744
Inventories 3,693 4,352
Deferred income taxes 1,219 1,355
Net current assets of discontinued operations 4,492 3,312
Prepaid expenses and other current assets 292 706
-------- --------
Total current assets 26,620 31,361
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 4,299 4,114
REAL PROPERTY HELD FOR RENTAL, net 58,578 65,689
NONCURRENT NOTES RECEIVABLE 7,356 5,932
DEFERRED INCOME TAXES 2,966 1,886
NET NONCURRENT ASSETS OF DISCONTINUED OPERATIONS 2,349 1,983
OTHER ASSETS 11,185 5,796
-------- --------
Total assets $113,353 $116,761
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ -------- --------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,232 $ 6,326
Borrowings under credit facilities 6,000 10,031
Accounts payable and accrued liabilities 14,129 14,113
Income taxes payable 5,872 4,237
-------- --------
Total current liabilities 31,233 34,707
LONG-TERM LIABILITIES:
Borrowings under credit facilities 5,250 9,789
Long-term debt 26,560 31,670
Other long-term liabilities 12,830 11,020
-------- --------
Total liabilities 75,873 87,186
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock $.10 par value, authorized 7,500 shares; issued and
outstanding 5,286 and 5,346 shares, respectively 528 534
Additional paid-in capital 6,819 7,416
Retained earnings 29,997 21,516
Net unrealized gain on marketable securities, net of tax 136 109
-------- --------
Total stockholders' equity 37,480 29,575
-------- --------
Total liabilities and stockholders' equity $113,353 $116,761
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-2
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995
----------- ------------ -----------
REVENUES:
Net sales $36,204 $42,055 $41,688
Rental revenues from real estate operations 24,042 23,936 22,652
----------- ------------ -----------
Total revenues 60,246 65,991 64,340
----------- ------------ -----------
COSTS AND EXPENSES:
Cost of sales 25,972 30,891 31,237
Real estate operations-
Mortgage interest expense 3,058 3,671 4,418
Depreciation expense 5,838 6,359 6,433
Other operating expenses 7,428 7,711 6,122
General and administrative expenses 5,038 5,798 6,534
Selling expenses 4,104 4,498 3,896
----------- ------------ -----------
Total costs and expenses 51,438 58,928 58,640
----------- ------------ -----------
Operating income 8,808 7,063 5,700
----------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest income 2,613 1,108 709
Interest expense (1,408) (929) (974)
Other income and expense, net 3,262 4,801 1,645
----------- ------------ -----------
Total other income 4,467 4,980 1,380
----------- ------------ -----------
Income from continuing operations before
income taxes 13,275 12,043 7,080
Provision for income taxes 5,810 5,409 3,170
----------- ------------ -----------
Income from continuing operations 7,465 6,634 3,910
----------- ------------ -----------
F-3
1997 1996 1995
--------------- ----------------- -----------------
DISCONTINUED OPERATIONS:
Operating income (loss), net of tax (provision)
benefit of ($635), $413 and $836, respectively $1,016 ($797) ($1,854)
Provision for disposition, net of tax benefit
of $2,040 0 0 (3,960)
--------------- ----------------- -----------------
Income (loss) from discontinued
operations 1,016 (797) (5,814)
--------------- ----------------- -----------------
Net income (loss) $8,481 $5,837 ($1,904)
=============== ================= =================
BASIC EARNINGS PER COMMON SHARE:
Income from continuing operations $1.41 $1.21 $.67
Discontinued operations .19 (.15) (1.00)
--------------- ----------------- -----------------
Net income (loss) per common share $1.60 $1.06 ($.33)
=============== ================= =================
DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations $1.40 $1.20 $.66
Discontinued operations .19 (.14) (.98)
--------------- ----------------- -----------------
Net income (loss) per common share -
assuming dilution $1.59 $1.06 ($.32)
=============== ================= =================
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
Net
Unrealized
Minimum Gain on
Common Stock Issued Additional Pension Marketable Total
------------------- Paid-in Retained Liability, Securities, Stockholders'
Shares Amount Capital Earnings Net of Tax Net of Tax Equity
------ ------ --------- -------- ---------- ---------- -------------
BALANCE -- December 31, 1994 6,051 $ 605 $ 14,531 $ 17,583 $ 0 $ 62 $ 32,781
Purchase and retirement
of common shares (446) (45) (4,434) 0 0 0 (4,479)
Proceeds from the
exercise of stock
options 1 1 3 0 0 0 4
Change in net
unrealized gain on
marketable securities,
net of tax 0 0 0 0 0 (7) (7)
Change in minimum
pension liability,
net of tax 0 0 0 0 (166) 0 (166)
Net loss 0 0 0 (1,904) 0 0 (1,904)
------ ----- -------- -------- ----- ----- --------
BALANCE -- December 31, 1995 5,606 561 10,100 15,679 (166) 55 26,229
------ ----- -------- -------- ----- ----- --------
Purchase and retirement
of common shares (425) (43) (3,575) 0 0 0 (3,618)
Proceeds from the
exercise of stock
options 165 16 891 0 0 0 907
Change in net
unrealized gain on
marketable securities,
net of tax 0 0 0 0 0 54 54
Change in minimum
pension liability,
net of tax 0 0 0 0 166 0 166
Net income 0 0 0 5,837 0 0 5,837
------ ----- -------- -------- ----- ----- --------
BALANCE-- December 31, 1996 5,346 534 7,416 21,516 0 109 29,575
------ ----- -------- -------- ----- ----- --------
Purchase and retirement
of common shares (67) (7) (659) 0 0 0 (666)
Proceeds from the
exercise of stock
options 7 1 62 0 0 0 63
Change in net
unrealized gain on
marketable securities,
net of tax 0 0 0 0 0 27 27
Net income 0 0 0 8,481 0 0 8,481
------ ----- -------- -------- ----- ----- --------
BALANCE-- December 31, 1997 5,286 $ 528 $ 6,819 $ 29,997 $ 0 $ 136 $ 37,480
====== ===== ======== ======== ===== ===== ========
The accompanying notes to consolidated financial
statements are an integral part of these statements.
F-5
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
1997 1996 1995
------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $8,481 $5,837 ($1,904)
------------- ------------ ------------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities-
Depreciation and amortization 6,657 7,246 7,413
Disposal of discontinued operations 0 0 1,869
Equity in net loss of affiliates 263 0 0
Net realized gains on marketable securities 0 0 (230)
Changes in assets and liabilities, net of effects from
business disposals (A) 11,313 (9,257) 5,641
------------- ------------ ------------
Total adjustments 18,233 (2,011) 14,693
------------- ------------ ------------
Net cash provided by operating activities 26,714 3,826 12,789
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in and advances to affiliates (5,395) 0 0
Purchase of marketable securities 0 (147) 0
Proceeds from sale of marketable securities 0 0 729
Acquisition of property, plant and equipment (806) (735) (1,634)
Investing activities of discontinued operations (569) (261) (886)
------------- ------------ ------------
Net cash used in investing activities (6,770) (1,143) (1,791)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage commitments, notes
and loans (6,715) (13,046) (8,996)
Proceeds from mortgage commitments, notes and loans 0 1,025 3,150
Net borrowings under credit facilities (8,570) 12,035 1,785
Purchase and retirement of common shares (666) (3,618) (4,479)
Proceeds from the exercise of stock options 63 907 4
Financing activities of discontinued operations (1,385) (582) (631)
------------- ------------ ------------
Net cash used in financing activities (17,273) (3,279) (9,167)
------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents 2,671 (596) 1,831
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR 2,579 3,175 1,344
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $5,250 $2,579 $3,175
============= ============ ============
F-6
1997 1996 1995
------------- ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $4,832 $4,734 $5,253
Taxes 3,655 2,876 1,874
============= ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Noncash Investing Activities-
Capital Lease Obligations $511 $0 $0
============= ============ ============
(A) Changes in assets and liabilities for the
years ended December 31, 1997, 1996 and
1995, net of effects from business
disposals are as follows-
1997 1996 1995
------------- ------------ ------------
Decrease (increase) in notes and accounts
receivable, net $7,425 ($7,597) ($659)
Decrease (increase) in inventories 659 (77) 1,378
Decrease (increase) in prepaid expenses and
other current assets 414 (173) 3,708
Increase in deferred income taxes (958) (1,115) (1,622)
Decrease (increase) in real property held for
rental, net 1,275 (228) (2,872)
Increase in noncurrent notes receivable (1,424) (2,308) (274)
Decrease (increase) in other assets (257) (1,464) 192
Increase (decrease) in accounts payable and
accrued liabilities 16 (665) 3,922
Increase (decrease) in income taxes payable 1,635 557 (39)
Increase in other long-term liabilities 1,810 3,184 73
Discontinued operations - noncash charges and working
capital changes 718 629 1,834
------------- ------------ ------------
Total $11,313 ($9,257) $5,641
============= ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
UNITED CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
NATURE OF BUSINESS-
United Capital Corp. (the "Registrant") and its subsidiaries are
currently engaged in the investment and management of real estate and in
the manufacture and sale of engineered products.
PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of the
Registrant and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The equity
method of accounting is used for investments in 50% or less owned
companies over which the Registrant has the ability to exercise
significant influence.
Income Recognition --
REAL ESTATE OPERATIONS-
The Registrant leases substantially all of its properties to tenants
under net leases. Under this type of lease, the tenant is obligated to
pay all operating costs of the property including real estate taxes,
insurance, repairs and maintenance. Rental income is recognized based on
the terms of the leases. Certain lease agreements provide for additional
rent based on a percentage of tenants' sales. Such additional rents are
recorded as income when they can be reasonably estimated. Gains on sales
of real estate assets are recorded when the gain recognition criteria
under generally accepted accounting principles have been met.
Revenue Recognition --
MANUFACTURING OPERATIONS-
Sales are recorded when products are shipped to the customer.
CASH AND CASH EQUIVALENTS-
The Registrant considers all highly liquid investments with a maturity,
at the purchase date, of three months or less to be cash equivalents.
F-8
MARKETABLE SECURITIES-
All marketable debt and equity securities have been classified as
available-for-sale and, as a result, are stated at fair value. Unrealized
gains and losses on securities available-for-sale are recorded net, as a
separate component of stockholders' equity until realized. Management
determines the appropriate classification of securities at the time of
purchase and reassesses the appropriateness of the classification at each
reporting date.
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.
The components of inventory at December 31, are as follows-
1997 1996
----------- ------------
Raw materials $1,959 $2,542
Work in process 265 397
Finished goods 1,469 1,413
----------- ------------
$3,693 $4,352
=========== ============
DEPRECIATION AND AMORTIZATION-
Depreciation and amortization are provided on a straight-line basis over
the estimated useful lives of the related assets as follows-
Real property held for rental-
Buildings 5 to 39 years
Equipment 5 to 7 years
Property, plant and equipment-
Buildings and improvements 18 to 20 years
Machinery and equipment 3 to 10 years
REAL PROPERTY HELD FOR RENTAL-
Real property held for rental is carried at cost less accumulated
depreciation. Major renewals and betterments are capitalized. Maintenance
and repairs are expensed as incurred.
Certain mortgage obligations assumed by the Registrant contain provisions
whereby the mortgage holder may acquire, under certain conditions, an
interest in the properties securing the obligation, for a nominal amount.
The Registrant considers any costs incurred as a result of these
provisions to be a cost of acquisition and the basis in such properties
is adjusted accordingly.
F-9
RESEARCH AND DEVELOPMENT-
The Registrant expenses research, development and product engineering
costs as incurred. Approximately $77, $112 and $85 of such costs were
incurred by the Registrant in 1997, 1996 and 1995, respectively.
COMMON STOCK-BASED COMPENSATION-
The Registrant accounts for stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related Interpretations ("APB No.
25"). 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 cost is recognized.
NET INCOME (LOSS) PER COMMON SHARE-
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic
and diluted earnings per share. Basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities.
Diluted earnings per share gives effect to all potentially dilutive
common shares that were outstanding during the period. All earnings per
share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS No. 128 requirements.
PRIOR YEAR FINANCIAL STATEMENTS-
Certain amounts have been reclassified in the December 31, 1996 and
1995 financial statements and notes thereto to present them on a basis
consistent with the current year.
USE OF ESTIMATES-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS-
During 1996, the Registrant adopted Statement of Financial Accounting
Standards No. 121-"Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed Of," which requires impairment
losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount. The adoption thereof had no material effect on the
Registrant's financial position or operating results.
F-10
CHANGES IN ACCOUNTING POLICIES-
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which establishes standards for reporting comprehensive income and its
components in annual and interim financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The Registrant is in the process
of determining its preferred format. The adoption of SFAS No. 130 will
have no impact on the Registrant's consolidated results of operations,
financial position or cash flows.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"), which establishes standards for
the way that companies report information about operating segments in
annual financial statements and requires that companies report selected
information about operating segments in interim financial reports,
based on the approach that management utilizes to organize the segments
within the Registrant for management reporting and decision making. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after
December 15, 1997. Financial statement disclosures for prior periods
are required to be restated. The Registrant is in the process of
evaluating the disclosure requirements. The adoption of SFAS No. 131
will have no impact on the Registrant's consolidated results of
operations, financial position or cash flows.
(2) DISPOSAL OF OPERATING COMPANIES:
On November 20, 1997, the Registrant signed a definitive agreement to
sell the stock of its Dorne & Margolin, Inc. ("D&M") subsidiary to AIL
Systems Inc. ("AIL") for $16 million in cash. On January 2, 1998 the sale
was completed and will result in a pretax gain of approximately $9
million in the first quarter of 1998. The net assets and operating
results of D&M are presented in the accompanying consolidated financial
statements as a discontinued operation. At December 31, 1997, net current
assets of discontinued operations consist primarily of inventory and
accounts receivable, partially offset by accounts payable and accrued
expenses. Net noncurrent assets of discontinued operations consists
primarily of machinery and equipment. The Registrant retained D&M's
90,000 square foot manufacturing facility in Bohemia, New York, which has
been reclassified to real property held for rental in the accompanying
financial statements.
In August 1995, the operations of the Registrant's Kentile Inc.
("Kentile") subsidiary ceased when its raw material stocks were exhausted
resulting from an unwillingness of major trade suppliers of Kentile to
extend further credit. In December 1995, the assets of Kentile were
assigned for the benefit of creditors and are currently being liquidated.
In connection with the write-off of the Registrant's investment in
Kentile, a pretax charge of approximately $6 million, including estimated
costs of disposition was recorded in 1995. Additional costs could be
incurred by the Registrant as a result of this matter. Management will
continue to monitor this situation closely, including the values received
upon the disposition of the Kentile assets.
F-11
In addition, the accompanying consolidated statements of operations
include operating losses of Kentile during 1995, incurred prior to its
closure, of approximately $2.3 million, on a pre-tax basis.
Revenues applicable to discontinued operations, which includes $19,613
for Kentile in 1995, were $19,985 in 1997, $18,883 in 1996 and $39,920 in
1995.
(3) REAL PROPERTY HELD FOR RENTAL:
The Registrant 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-
1997 1996
------------ -------------
Land $14,075 $12,462
Buildings 110,271 114,414
------------ -------------
124,346 126,876
Less- Accumulated depreciation (65,768) (61,187)
------------ -------------
$58,578 $65,689
============ =============
As of December 31, 1997, 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-
1998 $17,276
1999 16,209
2000 14,566
2001 12,873
2002 11,226
Thereafter 54,822
-------------
Total Minimum Future Rentals $126,972
=============
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 income from operations in 1997, 1996 and 1995 were
approximately $1,603, $1,045 and $1,029, respectively.
F-12
(4) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is principally used in the Registrant's
manufacturing operations and consists of the following at December 31-
1997 1996
----------- -----------
Land $37 $37
Buildings and improvements 963 894
Machinery and equipment 7,193 6,236
----------- -----------
8,193 7,167
Less- Accumulated depreciation (3,894) (3,053)
----------- -----------
$4,299 $4,114
=========== ===========
(5) MARKETABLE SECURITIES:
The aggregate market value of marketable securities, which are all equity
securities and available-for-sale, was $355 and $313 at December 31, 1997
and 1996, respectively, while gross unrealized holding gains were $136
and $109 on a net of tax basis, respectively.
There were no sales of marketable securities in 1997 or 1996. Proceeds
from the sales of securities, which were designated as available-for-sale
in all years presented and the resulting gross realized gains and losses
included in the determination of net income for the year ended December
31, 1995 are as follows-
1995
---------
Proceeds $729
=========
Realized gains $230
=========
Realized losses $0
=========
(6) NOTES RECEIVABLE:
Notes receivable consist of the following at December 31-
1997 1996
----------- -----------
High yield mortgage loans (a) $3,226 $13,499
Mortgage note receivable (b) 3,355 0
Mortgage note receivable (c) 3,249 3,249
Mortgage participation (d) 1,147 0
Mortgage notes receivable (e) 633 665
Due from related party (Note 14) 398 468
Other 255 299
----------- -----------
12,263 18,180
Less- Current portion included in notes
and accounts receivable 4,907 12,248
----------- -----------
$7,356 $5,932
=========== ===========
F-13
(a) In 1997, the Registrant participated in several high yield
mortgage loans which in certain instances, may include related
party participants (see Note 14). At December 31, 1997 there are
four notes outstanding with balances ranging from $250 to
$1,851, with varying terms maturing from March 1998 to December
1998. The notes are secured by a first or second mortgage lien
on property which is generally fully leased with a substantial
value-to-loan ratio. Management believes that sufficient
collateral exists to satisfy the obligations. The notes are
interest bearing and in most cases, the Registrant receives a
commitment fee of 4%. The effective yields on these notes are
approximately 18%. High yield mortgage loans at December 31,
1996 consisted of nine notes (see Note 14). Seven of these notes
were fully satisfied in 1997 and two were extended to 1998.
(b) In September 1997, the Registrant purchased a non performing
mortgage secured by an office building in Great Neck, New York
for $3.4 million. The mortgage note had a face amount
outstanding of approximately $4.8 million and bears interest at
approximately 10% per annum. Management believes that the fair
value of the property exceeds the purchase price of the mortgage
note. The Registrant has commenced foreclosure proceedings and
expects to take title to the property unless the mortgage is
fully satisfied.
(c) In February 1994, the Registrant acquired the underlying
mortgage secured by Kentile Floors Inc.'s South Plainfield, New
Jersey facility for $2.25 million plus the assumption of certain
liabilities in connection with operating and maintaining the
property. The mortgage note has a face amount outstanding of
approximately $6.5 million plus delinquent accrued interest.
Included in the carrying value of the mortgage note receivable
are costs associated with readying the underlying property for
rental. Management believes that the fair value of the property
exceeds the carrying value of the mortgage note.
(d) In October 1997, the Registrant, together with two unrelated
participants, purchased an 8.5% interest ("the Participation")
in a portfolio of mortgage loans secured by first liens on 17
multi-tenanted residential properties. At the time of the
acquisition the portfolio had outstanding approximately $24.4
million in principal and stated interest rates ranging between
6.82% and 9.4%. The Participation, in which the Registrant holds
a 78% interest, was purchased for $2 million and is subordinate
to the interest of a bank who is the holder of the remaining
balance of the portfolio, which had been recently acquired at a
4% discount to face value. In exchange for a 50% interest in the
discount, upon collection, the holders of the Participation have
agreed, in the event of default, to indemnify the bank for
payments that come due on the underlying mortgages, as well as
costs incurred in the event of foreclosure, up to a limit of $5
million. The underlying mortgages, which had an outstanding
balance of approximately $18.1 million at December 31, 1997, are
scheduled to mature at varying dates through November 1998 and
are all expected to be satisfied through refinancings by such
time.
(e) As partial consideration in the sale of several properties, the
Registrant received mortgage notes in the aggregate amount of
$1.88 million. The notes, which are secured by the properties
sold, bore interest in 1997 and 1996 at various rates ranging
between 9% and 10.25% and bear interest in future periods at
rates ranging between 9% and 11%. Interest under the notes is
due monthly. Principal repayment terms vary with periodic
installments through December 2008.
F-14
In accordance with generally accepted accounting principles, the
gains from the sales of certain of these properties are being
recognized under the installment method, and accordingly, the
carrying value of noncurrent notes receivable has been reduced
by deferred gains of approximately $799 and $849 at December 31,
1997 and 1996, respectively. The deferred gains are being
recognized as income as payments are received under the note.
(7) OTHER ASSETS:
Other assets consist of the following at December 31-
1997 1996
---------- -------------
Anticipated insurance recoveries (a) $2,893 $2,893
Deposits 638 851
Pension (Note 17) 722 572
Cash surrender value of life insurance policies, net 245 236
Patents, net of accumulated amortization 140 157
Investments in and advances to affiliates (b) 1,510 1,307
Lease financing (c) 4,907 0
Other 422 486
---------- -------------
11,477 6,502
Less- Amounts included in prepaid expenses and
other current assets 292 706
---------- -------------
Total other assets $11,185 $5,796
========== =============
(a) The Registrant has recorded the anticipated recoveries from its
insurance carriers in connection with the environmental
investigation and remediation costs to be incurred at two of its
manufacturing sites in New Jersey. ( See Note 19,
"Contingencies.")
(b) Through its subsidiaries, the Registrant owns a 50% interest in
Indian Creek Hotel, LLP, a Miami, Florida hotel operated as a
Holiday Inn. The hotel began operations in January 1997 and the
Registrant's share of losses incurred through December 31, 1997
was approximately $340, which have been recorded under the
equity method of accounting in other income and expense (See
Notes 14 and 16).
(c) Lease financing consists of a 50% interest in Net Lease
Management Partners, L.L.C., whose principal assets are two
leveraged leases with Kmart Corporation. 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
investment is positive. The components of the net investment in
the leveraged leases at December 31 consists of the following-
F-15
1997
------------
Rentals receivable $97,630
Residual values 10,000
Non recourse debt service (75,470)
Unearned income (27,253)
----------
4,907
Less- Deferred taxes arising
from leveraged leases 268
==========
$4,639
==========
(8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following at
December 31-
1997 1996
---------- ------------
Accounts payable $3,768 $4,296
Accrued wages and benefits 2,056 1,993
Liabilities for discontinued operations 2,792 2,816
Other accrued expenses 5,513 5,008
---------- ------------
$14,129 $14,113
========== ============
(9) LONG-TERM DEBT:
Long-term debt consists of the following at December 31-
1997 1996
-------- ----------
First mortgages on real property (a) $29,332 $34,366
Second mortgages on real property (b) 273 316
Loan payable to bank (c) 1,733 2,363
Capital lease obligation 454 0
Loan payable to bank at 6.2% 0 741
Loan payable to bank at 6.3% 0 208
Other 0 2
--------- -----------
31,792 37,996
Less- Current maturities 5,232 6,326
--------- -----------
$26,560 $31,670
========= ===========
(a) First mortgages bearing interest at rates ranging from 4% to
10.5% per annum are collateralized by the related real property.
Such amounts are scheduled to mature at various dates from May
1998 through February 2010.
F-16
(b) Second mortgages bearing interest at rates of approximately
10.125% per annum are collateralized by the related real
property. Such amounts are scheduled to mature at various dates
from October 2001 through November 2002.
(c) In August 1995, the Registrant converted $3.15 million
outstanding under its then existing revolving credit facility to
a fixed rate note at 7.94% per annum. The note is due in 60
equal principal installments, together with accrued interest
thereon, through September 2000. The loan agreement contains,
among other things, several financial covenants regarding net
worth and debt-to-equity ratios. The Registrant was in
compliance with all covenants.
The approximate aggregate maturities of these obligations at December
31, 1997 are as follows-
Long-Term Capital Lease
Debt Obligation
--------------- --------------------
1998 $5,141 $124
1999 4,625 124
2000 4,552 124
2001 3,939 124
2002 3,360 40
Thereafter 9,721 0
----------- ----------
Total minimum payments $31,338 536
===========
Less- Amount representing interest 82
----------
Total present value of minimum lease payments 454
Less- Current portion 91
----------
Total noncurrent portion $363
==========
(10) CREDIT FACILITIES:
Effective September 30, 1997, the Registrant amended its January 15,
1997 Credit Agreement with two banks to provide for both a $7 million
term loan ("Term Loan") and a $40 million revolving credit facility
("Revolver") and converted $7 million of amounts outstanding under the
Revolver to borrowings under the Term Loan. Under the terms of the
Credit Agreement, the Registrant will be provided with eligibility
based upon the sum of (i) 50% of the aggregate annualized and
normalized year-to-date net operating income of eligible properties, as
defined, capitalized at 11.5% and (ii) the lesser of $12 million or the
sum of 75% of eligible accounts receivable and 50% of eligible
inventory, as defined. Eligibility is also limited by amounts
outstanding under the Term Loan. At December 31, 1997 the Registrant's
eligibility under the Revolver was $40 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 Credit Agreement also contains provisions which allow the
lenders to perfect a security interest in certain operating and real
estate assets in the event of a default, as defined under the terms of
the Credit Agreement. Borrowings under the Revolver, at the
registrant's option, bear interest at the bank's prime lending rate
("Prime") or at the London Interbank Offered Rate ("LIBOR") plus 1.75%
while borrowings under the Term Loan bear interest at 90 day LIBOR plus
1.4%. The Term Loan is payable in quarterly principal installments of
$350 with final payment on
F-17
September 30, 2002. The Revolver expires on January 15, 2000. At
December 31, 1997 approximately $4.6 million was outstanding under the
Revolver at Prime (8.5%) and $6,650 was outstanding on the Term Loan.
Maturities under the Term Loan are $1.4 million per year for 1998
through 2001 and $1,050 in 2002. The Registrant was in compliance with
all covenants. All amounts outstanding under the Revolver were paid in
January 1998.
Effective September 30, 1997, the Registrant entered into an
interest-rate swap agreement 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 agreement, the
Registrant agreed to exchange with the counterparty (a commercial bank)
the difference between the fixed and floating rate interest amounts.
The differential to be paid or received on the interest rate swap is
recognized over the term of the agreement as an adjustment to interest
expense.
At December 31, 1996, $19.8 million was outstanding at Prime (8.25%)
under the Registrant's then existing unsecured line of credit
arrangement with a bank. On January 15, 1997 borrowings under this
facility were converted to borrowings under the Revolver portion of the
Credit Agreement discussed above. At December 31, 1996, the Registrant
classified approximately $9.8 million of borrowings under the Revolver
portion of the Credit Agreement, discussed above, as long-term debt.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Registrant has limited involvement with financial instruments and
does not use them for trading purposes. The following methods and
assumptions were used by the Registrant in estimating its fair value
disclosures for financial instruments-
The carrying amount reported in the consolidated balance sheets for
cash and cash equivalents and accounts receivable approximate their
fair value.
The fair value of fixed rate 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
carrying amounts of notes receivable approximate fair value.
Marketable securities held for investment purposes are carried at
fair value based on quoted market prices or dealer quotes. If a
quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
Carrying amounts of borrowings under the revolving credit facilities
approximate their fair value. The fair value of the long-term debt
was calculated based on interest rates available for debt with terms
and due dates similar to the Registrant's existing debt arrangements.
The fair value of long-term debt at December 31, 1997 and 1996 was
approximately $32.2 and $38.2 million respectively, while the
carrying value was $31.8 and $37.9 million for the same periods.
The fair value of interest rate swaps (used for hedging purposes) is
the estimated amount that the bank would receive or pay to terminate
the swap agreements at the reporting date, taking into account
current interest rates and the current creditworthiness of the swap
counterparties. At December 31, 1997, the fair value of the swap was
estimated at ($63).
F-18
(12) STOCKHOLDERS' EQUITY:
STOCK OPTIONS-
The Registrant has two stock option plans under which qualified and
nonqualified options may be granted to key employees to purchase the
Registrant's common stock at the fair market value at the date of
grant. Under both plans, the options typically become exercisable in
three equal installments, beginning one year from the date of grant.
The 1988 Incentive Stock Option Plan (the "Incentive Plan") provides
for the granting of incentive stock options not to exceed 325,000
options in the aggregate. The 1988 Joint Incentive and Non-Qualified
Stock Option Plan (the "Joint Plan") provides for the granting of
incentive or nonqualified stock options, also not to exceed 325,000
options in the aggregate.
At December 31, 1997, there were 262,130 and 216,751 options
outstanding under the Joint Plan and Incentive Plan, respectively. At
December 31, 1996, 118,367 and 51,061 options were outstanding under
the Joint Plan and Incentive Plan, respectively.
In addition to options outstanding under the Joint Plan and Incentive
Plan, at December 31, 1995 there were 180,000 options outstanding at
$5.50 per share. Such options were granted to Directors and certain
officers of the Registrant at $5.50 per share, which price was equal
to the market value per share on the date of grant. During 1996, all
such options were exercised. Approximately $490 of compensation
expense was recognized in 1996 resulting from the exercise and
repurchase of such options by two Directors of the Registrant.
A summary of the Registrant's stock options as of December 31, 1997,
1996 and 1995, and changes during the years then ended are summarized
below-
Weighted-
Average
Shares Exercise Price
----------- ---------------
Outstanding at December 31, 1994 349,110 $7.53
Exercised (700) $5.00
Forfeited (3,484) $10.51
---------
Outstanding at December 31, 1995 344,926 $7.51
Granted 20,000 $7.25
Exercised (185,250) $5.48
Forfeited (10,248) $7.49
---------
Outstanding at December 31, 1996 169,428 $9.45
Granted 319,381 $17.31
Exercised (6,700) $9.48
Forfeited (3,228) $10.88
=========
Outstanding at December 31, 1997 478,881 $14.68
=========
F-19
The following table summarizes information about options outstanding
and exercisable at December 31, 1997-
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
- ---------------------- ----------------- ----------------- ----------------- ---------------- --------------
$5.00 - $7.25 49,500 4.18 years $5.91 49,500 $5.91
$10.875 - $11.00 110,000 5.96 years $11.00 110,000 $11.00
$17.00 - $18.75 319,381 9.47 years $17.31 0 $0
------------- ----------------
$5.00 - $18.75 478,881 8.11 years $14.68 159,500 $9.42
============= ================
The Registrant applies APB No. 25 in accounting for 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 1997, as required by Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation
to Employees" ("SFAS No. 123") proforma net income and net income per
share (basic) would have been approximately $8,091 or $1.53 per share,
respectively. Proforma compensation costs for the Registrant's stock
option plans determined based on the fair value at the grant date for
1996 awards under those plans, consistent with the method of SFAS No.
123, were not material. There were no options granted in 1995. The SFAS
No. 123 method of accounting has not been applied to periods prior to
January 1, 1995 and the resulting proforma compensation expense may not
be indicative of proforma expense in future years. For purposes of
estimating the fair value of each option on the date of grant, the
Registrant utilized the Black-Scholes option pricing model with the
following assumptions for 1997 and 1996; risk free interest rates of
6.27% and 5.84%, respectively; no dividend yield; weighted average
expected option lives of 5 years and 3 years, respectively, and
expected volatility of 39% and 40%, respectively.
(13) EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted
earnings per share-
1997 1996 1995
----------- ------------ ------------
Numerator-
Income from continuing operations $7,465 $6,634 $3,910
----------- ------------ ------------
Denominator-
Denominator for basic earnings per
share--weighted-average shares 5,288 5,497 5,816
Effect of dilutive securities-
Employee stock options 51 10 77
----------- ------------ ------------
Denominator for diluted earnings per
share-adjusted weighted-average shares
and assumed conversions 5,339 5,507 5,893
----------- ------------ ------------
F-20
1997 1996 1995
----------- ------------ ------------
Basic earnings per share $1.41 $1.21 $.67
=========== ============ ============
Diluted earnings per share $1.40 $1.20 $.66
=========== ============ ============
(14) TRANSACTIONS WITH RELATED PARTIES:
The Registrant has a 50% interest in an unconsolidated limited
liability corporation, whose principal assets are two leveraged leases
with Kmart. A group that includes the wife of the Board Chairman, two
Directors of the Registrant and the wife of one of the Directors have
an 8% interest in this entity (see Note 7).
In September 1996, the Registrant purchased a 50% interest in a limited
partnership that owns and operates a hotel in Miami Beach, Florida.
Through December 31, 1997, the Registrant has invested approximately
$1,168 for its equity interest. In September 1996, the Registrant
participated in a $2.5 million loan transaction to the limited
partnership secured by a mortgage lien against the property. The
Registrant advanced approximately $683 in connection with this note.
The remaining amounts were advanced by the following: a Director of the
Registrant, $250; the wife of the Board Chairman, $1 million; an
officer of the Registrant $100; and the balance by unrelated parties.
All amounts invested in and advanced to the partnership by the
Registrant have been classified as investments in and advances to
affiliate and are included in other assets in the consolidated
financial statements. The note bears interest at 14% per annum payable
monthly and the participants also received a commitment fee of 4%. This
note matured in September 1997 and was extended in accordance with
original terms of the note, for one year, in consideration of a 4%
commitment fee.
In 1996 and 1997, in order to effectively manage the cost to the
Registrant of the remediation efforts at Metex Corporation's ("Metex")
two New Jersey facilities (see Note 19), the Registrant sold, in total,
approximately a 4% interest for $40 in a subsidiary that manages the
Registrant's environmental remediation efforts to an Officer and
Director of the Registrant and other employees, as well as an interest
to the Registrant's environmental consulting company. These shares
contain certain restrictions on transfer and, under certain
circumstances, are redeemable at the net book value of the subsidiary.
In May 1995, the Registrant participated in a $4.5 million loan
transaction secured by an assignment of a mortgage note covering a
commercial office building in New York City. The Registrant advanced
approximately $2.5 million in connection with this loan. The remaining
amounts were advanced by the following: a Director of the Registrant,
$500; the wife of the Board Chairman, $1.45 million; and the balance by
unrelated parties. The note bore interest at 14% per annum, and was
fully satisfied together with accrued interest in August 1996. The
participants also received a commitment fee of 4% in connection with
the loan. A Director of the Registrant was a shareholder of the
borrower and also a guarantor under the note.
The Registrant's two hotel properties are managed by a publicly traded
company for which the Board Chairman and another Director of the
Registrant are directors. Fees paid for the management of these
properties is based upon a percentage of revenue and were approximately
$143, $159 and $120 for 1997, 1996 and 1995, respectively.
F-21
During 1997 and 1996 the Registrant advanced, in the aggregate, $398
and $468, respectively, to the Board Chairman and $375 in 1997 to a
Director and Officer of the Registrant. Such advances bore interest at
the Registrant's borrowing rate under its revolving credit facility
which was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.
Amounts outstanding at December 31, 1997 and 1996 of $398 and $468,
respectively, together with accrued interest thereon were repaid in
January 1998 and 1997, respectively.
(15) INCOME TAXES:
Deferred income taxes are determined on the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred
tax assets and liabilities are determined based on the difference
between the tax basis of an asset or liability and its reported amount
in the consolidated financial statements using enacted tax rates.
Future tax benefits attributable to these differences are recognized to
the extent that realization of such benefits is more likely than not.
Deferred tax assets primarily arose from basis differences of real
properties held for rental for financial statement and income tax
purposes. Based upon the Registrant's historical and projected levels
of pretax income, management believes it is more likely than not that
the Registrant will realize such benefits in the future and,
accordingly, no valuation reserve has been recorded.
The components of the net deferred tax asset (liability) at December
31, follows-
1997 1996
------------ -----------
Realization allowances related to
accounts receivable and inventories $259 $217
Net unrealized gain on marketable securities (70) (56)
Basis differences relating to real
property held for rental 3,990 3,292
Environmental accrual 2,380 2,380
Insurance proceeds (2,380) (2,380)
Accrued expenses, deductible when paid 2,476 2,587
Deferred revenue and profit (for tax purposes) 112 (163)
Basis differences relating to business acquisitions (1,859) (1,859)
Leveraged lease (268) 0
Property, plant and equipment (606) (610)
Pensions (49) (200)
Other, net 200 33
------------ -----------
Net deferred tax asset 4,185 3,241
Less- Current portion 1,219 1,355
------------ -----------
Noncurrent portion $2,966 $1,886
============ ===========
F-22
Income tax provision (benefit) reflected in the accompanying
consolidated statements of operations for the years ended December 31,
follows-
1997 1996 1995
---------- ----------- ------------
Current-
Federal $4,823 $4,589 $2,791
State 1,860 1,838 1,224
Deferred (873) (1,018) (845)
---------- ----------- ------------
$5,810 $5,409 $3,170
========== =========== ============
A reconciliation of the tax provision computed at statutory rates to
the amounts shown in the accompanying consolidated statements of
operations for the years ended December 31, follows-
1997 1996 1995
---------- ----------- ------------
Computed Federal income
tax provision at statutory rates $4,513 $4,094 $2,407
State income taxes, net of
Federal income tax benefit 1,272 1,266 829
Other, net 25 49 (66)
---------- ----------- ------------
$5,810 $5,409 $3,170
========== =========== ============
(16) OTHER INCOME AND EXPENSE, NET:
The components of other income and expense, net in the accompanying
consolidated statements of operations for the years ended December 31,
follows-
1997 1996 1995
----------- ----------- ------------
Gain on sales of real estate assets $3,481 $3,919 $ 865
Net realized gains on marketable
securities 0 0 230
(Loss) income from equity investments (a) (263) 0 4
Settlement income (b) 0 1,443 0
Other, net (c) 44 (561) 546
----------- ----------- ------------
$3,262 $4,801 $1,645
=========== =========== ============
(a) Loss from equity investments principally represents the
Registrant's share of losses incurred by Indian Creek Hotel, LLP
(See Note 7), partially offset by nonrecurring cash
distributions received by the Registrant in connection with
interests held in certain real estate ventures which were
acquired in the 1991 merger with BMG Equities Corp. Such
investments were valued at historical cost at the date of
acquisition.
(b) In December 1996, the Registrant received approximately $1.4
million in settlements of all claims from an investment that was
principally written off in 1990.
F-23
(c) In March 1991, the Registrant was named as a defendant in a suit
by certain investors and limited partners seeking actual,
punitive and treble damages in a total unspecified amount. While
management continued to believe that the allegations of the
action were false and without merit, as a result of escalating
defense costs and the continued likelihood of extended
litigation, the Registrant settled this matter in April 1996 for
approximately $425, after taxes.
(17) RETIREMENT PLAN:
The Registrant has a noncontributory defined benefit pension plan that
covers substantially all full-time employees of the engineered products
segment and the former employees of the Registrant's discontinued
resilient vinyl flooring segment.
The following table sets forth the funded status of the plan and
amounts recognized in the Registrant's consolidated financial
statements as of December 31-
1997 1996
------------ --------------
Accumulated benefit obligation:
Vested $8,696 $8,659
Nonvested 187 171
------------ --------------
$8,883 $8,830
============ ==============
Plan assets at fair value, primarily U. S. bonds,
government-backed mortgage obligations and stocks $12,643 $12,904
Projected benefit obligation (9,052) (8,983)
------------ --------------
Plan assets in excess of projected benefit obligation 3,591 3,921
Effect of purchase accounting (156) (156)
Unrecognized net gain, net of amortization (2,713) (3,193)
------------ --------------
Prepaid pension obligation $722 $572
============ ==============
Net periodic pension (income) expense for the years ended December 31
includes the following components-
1997 1996 1995
---------- ----------- ---------
Service cost $325 $230 $197
Interest cost 626 643 145
Actual return on plan assets (1,013) (883) (199)
Net amortization and deferral (87) (102) 63
---------- ----------- ---------
Net periodic pension (income) expense ($149) ($112) $206
========== =========== =========
In determining the projected benefit obligation for 1997 and 1996, the
weighted average assumed discount rate was 7.5%, 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%. No contributions were made
during 1997 or 1996.
F-24
(18) BUSINESS SEGMENTS:
At December 31, 1997, the Registrant had two business segments: real
estate investment and management and the manufacture and sale of
engineered products. Information on the Registrant's business segments
for the years ended December 31 follows-
1997 1996 1995
------------- -------------- -------------
Net revenues and sales-
Real estate investment and management $24,042 $23,936 $22,652
Engineered products 36,204 42,055 41,688
------------- -------------- -------------
$60,246 $65,991 $64,340
============= ============== =============
Operating income (loss)-
Real estate investment and management $7,718 $6,195 $5,003
Engineered products 3,419 3,792 3,779
------------- -------------- -------------
11,137 9,987 8,782
General corporate expenses (2,329) (2,924) (3,082)
Other income, net 4,467 4,980 1,380
------------- -------------- -------------
Income from continuing
operations before income taxes $13,275 $12,043 $7,080
============= ============== =============
Identifiable assets-
Real estate investment and management $95,080 $99,292 $92,328
Engineered products 11,432 12,174 12,955
Discontinued operations 6,841 5,295 5,083
------------- -------------- -------------
$113,353 $116,761 $110,366
============= ============== =============
Sales by the Registrant's engineered products segment to automobile
original equipment manufacturers accounted for approximately 31%, 32%
and 31% of 1997, 1996 and 1995 consolidated revenues, respectively.
Included in the identifiable assets of the real estate investment and
management segment for 1997, 1996 and 1995 are approximately $5.1,
$13.5 and $3.0 million, respectively, of high yield mortgage notes
receivable (see Note 6). Income generated by these notes receivable is
included in interest income. Also included in the identifiable assets
of the real estate investment and management segment for 1997, 1996 and
1995 are approximately $1.8, $1.8 and $1.9 million, respectively,
related to the former manufacturing facility of the Registrant's
antenna segment which has been reclassified to real property held for
rental. Operating expenses associated with this facility have also been
reclassified to this segment, but were not material to any of the years
presented.
(19) CONTINGENCIES:
The Registrant has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities.
F-25
The process of remediation has begun at one facility pursuant to a plan
filed with the New Jersey Department of Environmental Protection and
Energy ("NJDEPE"). Environmental experts engaged by the Registrant
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 Registrant that under the most
probable remediation scenario, the estimated cost to remediate this
site is anticipated to require $2.3 million in initial costs, including
capital equipment expenditures, and $258 in annual operating and
maintenance costs over a 10-year period. The Registrant may revise such
estimates in the future due to the uncertainty regarding the nature,
timing and extent of any remediation efforts that may be required at
this site, should an appropriate regulatory agency deem such efforts to
be necessary.
The foregoing estimates may also be revised by the Registrant as new or
additional information in these matters become available or should the
NJDEPE or other regulatory agencies require additional or alternative
remediation efforts in the future. It is not currently possible to
estimate the range or amount of any such liability.
Although the Registrant believes that it is entitled to full defense
and indemnification with respect to environmental investigation and
remediation costs under its insurance policies, the Registrant's
insurers have denied such coverage. Accordingly, the Registrant has
filed an action against certain insurance carriers seeking defense and
indemnification with respect to all prior and future costs incurred in
the investigation and remediation of these sites. Upon the advice of
counsel, the Registrant believes that based upon a present
understanding of the facts and the present state of the law in New
Jersey, it is probable that the Registrant will prevail in the pending
litigation and thereby access all or a very substantial portion of the
insurance coverage it claims; however, the ultimate outcome of
litigation cannot be predicted.
At December 31, 1997 and 1996, a total of $2.9 million in anticipated
insurance recoveries is recorded in the accompanying consolidated
financial statements and is included in other assets. Additionally, in
1995 the Company received approximately $4.1 million of insurance
recoveries. The remaining balance of $2.9 million at December 31, 1997
(from a total of $7 million) is in dispute with the Registrant's
insurance carriers. Management believes that recoveries in excess of
the amounts reflected in the accompanying consolidated financial
statements are available under the insurance policies but have not been
recorded. There can be no assurances, however, that the Registrant will
prevail in its efforts to obtain amounts at or in excess of the
estimated recoveries.
In the opinion of management, these matters will be resolved favorably
and such amounts, if any, not recovered under the Registrant's
insurance policies will be paid gradually over a period of years and,
accordingly, should not have a material adverse effect upon the
business, liquidity or financial position of the Registrant. However,
adverse decisions or events, particularly as to the merits of the
Registrant's factual and legal basis could cause the Registrant to
change its estimate of liability with respect to such matters in the
future.
F-26
The Registrant is involved in various other litigation and legal
matters which are being defended and handled in the ordinary course of
business. None of these matters are expected to result in a judgment
having a material adverse effect on the Registrant's consolidated
financial position or results of operations.
F-27
SCHEDULE II
UNITED CAPITAL CORP. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
Write-offs
Net of
Recoveries
Balance Charged of Accounts Balance
at to Previously at
Beginning Costs and Written End of
of Period Expenses Off Period
---------------- ------------- ----------------- ------------
Allowance for doubtful accounts:
Year ended December 31, 1997 $377 $0 $51 $326
Year ended December 31, 1996 332 46 1 377
Year ended December 31, 1995 373 54 95 332
The accompanying notes to consolidated financial statements
are an integral part of these schedules.
F-28
SCHEDULE III
UNITED CAPITAL CORP. AND SUBSIDIARIES
REAL PROPERTY HELD FOR RENTAL AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
Mortgage Initial Cost To Registrant Costs Capitalized
Loans -------------------------------------- Subsequent to
Payable Building and Acquisition/
Description (Gross) Land Improvements Improvements
----------- ------------- --------------- ------------------- -----------------
Shopping Centers and Retail Outlets-
Culver, CA $4,630 $842 $7,576 $0
Northbrook, IL 5,112 898 8,075 0
Miscellaneous Investments 16,365 5,377 47,516 938
---------- --------------- ------------------- -------------------
26,107 7,117 63,167 938
---------- --------------- ------------------- -------------------
Commercial Properties-
Miscellaneous Investments 2,102 2,997 27,666 613
Day Care Centers and Offices-
Miscellaneous Investments 512 643 5,786 1,133
Hotel Properties-
Miscellaneous Investments 0 0 2,868 48
Other-
Miscellaneous Investments 884 3,318 7,473 579
---------- --------------- ------------------- -------------------
$29,605 $14,075 $106,960 $3,311
========== =============== =================== ===================
Gross Amount at Which Carried at Close of Period
------------------------------------------------
Accumulated
Building and Total Depreciation
Description Land Improvements (a) (c) (b)
----------- --------------- ------------------- ---------------- --------------
Shopping Centers and Retail Outlets-
Culver, CA $842 $7,576 $8,418 $4,623
Northbrook, IL 898 8,075 8,973 4,776
Miscellaneous Investments 5,377 48,454 53,831 30,433
--------------- ------------------- ---------------- ------------------
7,117 64,105 71,222 39,832
--------------- ------------------- ---------------- ------------------
Commercial Properties-
Miscellaneous Investments 2,997 28,279 31,276 15,714
Day Care Centers and Offices-
Miscellaneous Investments 643 6,919 7,562 5,918
Hotel Properties-
Miscellaneous Investments 0 2,916 2,916 2,868
Other-
Miscellaneous Investments 3,318 8,052 11,370 1,436
------------- ---------------- -------------- ---------------
$14,075 $110,271 $124,346 $65,768
============= ================ ============== ===============
Life on Which
Depreciation
in Latest
Statement of
Operations is
Date of Date Computed
Description Construction Acquired (Years)
----------- ---------------- -------------- ----------------
Shopping Centers and Retail Outlets-
Culver, CA N/A 1986 18
Northbrook, IL N/A 1987 18
Miscellaneous Investments N/A 1986-97 10-39
Commercial Properties-
Miscellaneous Investments N/A 1986-97 12-39
Day Care Centers and Offices-
Miscellaneous Investments N/A 1986-91 7-39
Hotel Properties-
Miscellaneous Investments N/A 1986-96 10-39
Other-
Miscellaneous Investments N/A 1986-97 10-39
Notes:
(a) Reconciliations of the carrying value of real property held for rental for
the three years ended December 31, 1997 are as follows-
1997 1996 1995
------------- ---------- ----------
Real property held for rental at beginning of period $126,876 $128,135 $128,283
Additions during the period-
Acquisitions and improvements 2,276 3,480 3,189
Transfers from property, plant and equipment 0 2,195 0
Transfer to noncurrent notes receivable 0 0 (2,683)
------------- ---------- ----------
129,152 133,810 128,789
Deductions during period-
Cost of real estate sold 4,806 6,934 654
------------- ---------- ----------
$124,346 $126,876 $128,135
============= ========== ==========
(b) Reconciliations of accumulated depreciation for the three years ended
December 31, 1997 are as follows-
1997 1996 1995
------------- ---------- ---------
Accumulated depreciation at beginning of period $61,187 $58,122 $51,718
Additions during the period-
Provision for depreciation 5,836 6,588 6,770
Transfers from property, plant and equipment 0 159 0
Transfer to noncurrent notes receivable 0 0 (29)
------------- ---------- ---------
67,023 64,869 58,459
Deductions during period-
Accumulated depreciation of real estate sold 1,255 3,682 337
------------- ---------- ---------
$65,768 $61,187 $58,122
============= ========== =========
(c) The aggregate cost for Federal income tax purposes is approximately $175,000
The accompanying notes to consolidated financial statements are an integral part
of these schedules.
F-29
SCHEDULE IV
UNITED CAPITAL CORP. AND SUBSIDIARIES
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
(IN THOUSANDS)
Description Interest Rate Final Maturity Date
----------- ------------- -------------------
Mortgage loans secured by Commercial Property-
Deer Park, NY 14% March 1998
Other - Two loans - Face amounts $325 or less Varies from 9% - 10% From August 2000 - December 2008
Mortgage loans secured by Hotels- Varies from 10% - 11% November 2001
Montgomery, AL
Beaumont, TX Varies from 8%-11% February 2002
Construction Loans secured by Commercial Property-
Mt. Laurel, NJ 14% August 1998
Mortgage loans secured by Residential Property-
Miami Beach, FL 14% November 1998
Bronx, NY 7.44% June 1998
Brooklyn, NY 7.25% June 1998
Brooklyn, NY 7.64% April 1998
Other - Four loans - Face amounts $45 to $75 Varies from 7% - 9% From April 1998 - November 1998
Other - Four loans - Face amounts $90 to $140 Varies from 7% - 9% From April 1998 - November 1998
Mortgage loans secured by Mortgage Notes
Long Beach, NY 14% December 1998
Description Periodic Payment Terms
----------- ----------------------
Mortgage loans secured by Commercial Property-
Deer Park, NY Interest due monthly; with principal due at maturity
Other - Two loans - Face amounts $325 or less Principal and interest due monthly
Mortgage loans secured by Hotels- Principal and interest due monthly, additionally,
Montgomery, AL there is a principal payment of $153 due in November 1998
Principal and interest due monthly, additionally, there
Beaumont, TX is a principal payment $773 due in February 2002
Construction Loans secured by Commercial Property-
Mt. Laurel, NJ Interest due monthly, with principal due at maturity
Mortgage loans secured by Residential Property-
Miami Beach, FL Interest due monthly, with principal due at maturity
Bronx, NY Interest due monthly, with principal due at maturity
Brooklyn, NY Interest due monthly, with principal due at maturity
Brooklyn, NY Interest due monthly, with principal due at maturity
Other - Four loans - Face amounts $45 to $75 Interest due monthly, with principal due at maturity
Other - Four loans - Face amounts $90 to $140 Interest due monthly, with principal due at maturity
Mortgage loans secured by Mortgage Notes
Long Beach, NY Interest due monthly, with principal due at maturity
Principal Amount
of Loans Subject
Carrying to Delinquent
Prior Face Amount Amount of Principal or
Description Liens of Mortgages Mortgages (b) Interest
----------- ------------ --------------- ---------------- ------------------
Mortgage loans secured by Commercial Property-
Deer Park, NY $3,550 $300 $250 $0
Other - Two loans - Face amounts $325 or less 0 370 62 0
------------ --------------- --------------- ---------
3,550 670 312 0
------------ --------------- --------------- ---------
Mortgage loans secured by Hotels-
Montgomery, AL 0 610 207 0
Beaumont, TX 0 900 365 0
------------ --------------- --------------- ---------
0 1,510 572 0
------------ --------------- --------------- --------
Construction Loans secured by Commercial Property-
Mt. Laurel, NJ 4,500 1,851 1,851 0
------------ --------------- --------------- --------
Mortgage loans secured by Residential Property-
Miami Beach, FL 15,500 525 525 0
Bronx, NY 0 163 157 0
Brooklyn, NY 0 182 175 0
Brooklyn, NY 0 168 161 0
Other - Four loans - Face amounts $45 to $75 0 257 247 0
Other - Four loans - Face amounts $90 to $140 0 426 406 0
------------ --------------- --------------- --------
15,500 1,721 1,671 0
Mortgage loans secured by Mortgage Notes
Long Beach, NY 0 600 600 0
------------ --------------- --------------- --------
$23,550 $6,352 $5,006 (a)(c) $0
============ =============== =============== ========
NOTES:
(a) A reconciliation of mortgage loans on real estate for the year ended
December 31, 1997-
Balance at beginning of period $14,164
Additions during period-
New mortgage loans 3,681
Deductions during period-
Collection of principal (12,839)
----------
Balance at end of period $5,006
==========
(b) In accordance with generally accepted accounting principles certain gains
from the sale of real property are being recognized under the installment
method and, accordingly, notes receivable have been reduced by the
following deferred gains at December 31, 1997:
Mortgage note receivable in connection with sale of property in:
Montgomery, Alabama $227
Beaumont, Texas 447
Waterbury, Connecticut 101
Augusta, Georgia 24
----------
$799
==========
(c) The carrying value for Federal income tax purposes is substantially equal
to the carrying amount for book purposes.
The accompanying notes to consolidated financial statements are an integral part
of these schedules.
F-30
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 1997:
Revenues $15,200 $16,092 $14,379 $14,575
============= ============= ============= =============
Costs and expenses $13,640 $13,274 $12,523 $12,001
============= ============= ============= =============
Other income $2,789 $523 $233 $922
============= ============= ============= =============
Income from continuing operations $2,386 $1,886 $1,071 $2,122
============= ============= ============= =============
Income from discontinued operations,
net of tax $249 $104 $448 $215
============= ============= ============= =============
Net income $2,635 $1,990 $1,519 $2,337
============= ============= ============= =============
Per share data:
BASIC EARNINGS PER COMMON SHARE:
Income from continuing operations $.45 $.36 $.20 $.40
Discontinued operations, net of tax $.05 $.02 $.09 $.04
------------- ------------- ------------- -------------
Net income per common share $.50 $.38 $.29 $.44
============= ============= ============= =============
DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations $.45 $.35 $.20 $.39
Discontinued operations, net of tax $.05 $.02 $.08 $.04
------------- ------------- ------------- -------------
Net income per common share assuming
dilution $.50 $.37 $.28 $.43
============= ============= ============= =============
FOR THE YEAR 1996:
Revenues $16,967 $16,893 $16,818 $15,313
============= ============= ============= =============
Costs and expenses $15,647 $15,723 $14,852 $12,706
============= ============= ============= =============
Other income $463 $2,564 $430 $1,523
============= ============= ============= =============
Income from continuing operations $1,028 $2,221 $1,408 $1,977
============= ============= ============= =============
F-31
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Income (loss) from discontinued operations,
net of tax ($82) ($321) ($421) $27
============= ============= ============= =============
Net income $946 $1,900 $987 $2,004
============= ============= ============= =============
Per share data:
BASIC EARNINGS PER COMMON SHARE:
Income from continuing operations $.18 $.40 $.26 $.37
Discontinued operations, net of tax ($.01) ($.06) ($.08) $.00
------------- ------------- ------------- -------------
Net income per common share $.17 $.34 $.18 $.37
============= ============= ============= =============
DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations $.18 $.40 $.26 $.37
Discontinued operations, net of tax ($.01) ($.06) ($.08) $.00
------------- ------------- ------------- -------------
Net income per common share --
assuming dilution $.17 $.34 $.18 $.37
============= ============= ============= =============
Notes to quarterly financial data
(1) The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement of Financial Accounting Standards
No. 128, "Earnings per Share".
F-32