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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ending September 30, 2002
-------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
----------------------------------------------
Commission File Number: 1-10104
-----------------------------------------------------
United Capital Corp.
- --------------------------------------------------------------------------------
(Exact name of Company as specified in its charter)
Delaware 04-2294493
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9 Park Place, Great Neck, New York 11021
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
516-466-6464
- --------------------------------------------------------------------------------
(Company's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.10 par value 4,542,005 shares outstanding
as of November 1, 2002.
Page 1 of 27
UNITED CAPITAL CORP. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of September 30, 2002 (Unaudited) and December 31, 2001 3
Consolidated Statements of Income for the
Three Months Ended September 30, 2002 and 2001 (Unaudited) 4
Consolidated Statements of Income for the
Nine Months Ended September 30, 2002 and 2001 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2002 and 2001 (Unaudited) 6 - 7
Notes to Consolidated Financial Statements 8 - 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15 - 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF
MARKET RISK 23
ITEM 4. CONTROLS AND PROCEDURES 23
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23
SIGNATURES 23
CERTIFICATIONS 24-27
Page 2 of 27
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(In Thousands)
2002 2001
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 61,663 $ 68,170
Marketable securities 35,051 28,633
Notes and accounts receivable, net 6,335 6,385
Inventories 3,607 4,953
Prepaid expenses and other current assets 694 871
-------- --------
Total current assets 107,350 109,012
-------- --------
Property, plant and equipment, net 3,757 4,525
Real property held for rental, net 49,789 52,815
Real property held for sale, net -- 55
Noncurrent notes receivable 3,195 250
Other assets 11,982 11,308
Deferred income taxes -- 1,026
-------- --------
Total assets $176,073 $178,991
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 4,735 $ 5,047
Borrowings under credit facilities -- 525
Accounts payable and accrued liabilities 9,921 17,937
Income taxes payable 6,425 7,585
Deferred income taxes 1,782 1,481
-------- --------
Total current liabilities 22,863 32,575
-------- --------
Long-term debt 13,266 16,738
Other long-term liabilities 33,217 33,337
Deferred income taxes 1,263 --
-------- --------
Total liabilities 70,609 82,650
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock $.10 par value, authorized 7,500 shares;
issued and outstanding 4,561 and 4,641 shares, respectively 456 464
Retained earnings 101,042 90,000
Accumulated other comprehensive income, net of tax 3,966 5,877
-------- --------
Total stockholders' equity 105,464 96,341
-------- --------
Total liabilities and stockholders' equity $176,073 $178,991
======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
Page 3 of 27
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(In Thousands, Except Per Share Data)
2002 2001
--------- ----------
Revenues:
Net sales $ 8,439 $ 8,119
Rental revenues from real estate operations 6,220 6,567
-------- --------
Total revenues 14,659 14,686
-------- --------
Costs and expenses:
Cost of sales 6,010 6,112
Real estate operations:
Mortgage interest expense 308 439
Depreciation expense 817 1,052
Other operating expenses 1,891 1,782
General and administrative expenses 1,351 1,344
Selling expenses 866 860
-------- --------
Total costs and expenses 11,243 11,589
-------- --------
Operating income 3,416 3,097
-------- --------
Other income (expense):
Interest and dividend income 545 457
Interest expense (112) (108)
Other income and expense, net 3,875 5,025
-------- --------
Total other income 4,308 5,374
-------- --------
Income from continuing operations before income taxes 7,724 8,471
Provision for income taxes 1,992 3,387
-------- --------
Income from continuing operations 5,732 5,084
-------- --------
Discontinued operations:
(Loss) income from discontinued operations, net of tax
(benefit) provision of ($15) and $73, respectively (24) 109
Gain on disposal of discontinued operations, net of tax
provision of $118 176 --
-------- --------
Income from discontinued operations 152 109
-------- --------
Net income $ 5,884 $ 5,193
======== ========
Basic earnings per share:
Income from continuing operations $ 1.26 $ 1.09
Income from discontinued operations .03 .02
-------- --------
Net income per share $ 1.29 $ 1.11
======== ========
Diluted earnings per share:
Income from continuing operations $ 1.17 $ 1.03
Income from discontinued operations .03 .02
-------- --------
Net income per share assuming dilution $ 1.20 $ 1.05
======== ========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
Page 4 of 27
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(In Thousands, Except Per Share Data)
2002 2001
--------- ---------
Revenues:
Net sales $ 25,700 $ 26,096
Rental revenues from real estate operations 18,765 20,757
-------- --------
Total revenues 44,465 46,853
-------- --------
Costs and expenses:
Cost of sales 18,771 19,441
Real estate operations:
Mortgage interest expense 1,074 1,387
Depreciation expense 2,483 3,132
Other operating expenses 5,494 5,873
General and administrative expenses 4,152 4,223
Selling expenses 2,706 2,832
-------- --------
Total costs and expenses 34,680 36,888
-------- --------
Operating income 9,785 9,965
-------- --------
Other income (expense):
Interest and dividend income 1,426 1,407
Interest expense (354) (342)
Other income and expense, net 8,264 8,911
-------- --------
Total other income 9,336 9,976
-------- --------
Income from continuing operations before income taxes 19,121 19,941
Provision for income taxes 6,367 7,976
-------- --------
Income from continuing operations 12,754 11,965
-------- --------
Discontinued operations:
Income from discontinued operations, net of tax
provision of $161 and $234, respectively 241 351
Gain on disposal of discontinued operations, net of tax
provision of $118 176 --
-------- --------
Income from discontinued operations 417 351
-------- --------
Net income $ 13,171 $ 12,316
======== ========
Basic earnings per share:
Income from continuing operations $ 2.78 $ 2.55
Income from discontinued operations .09 .08
-------- --------
Net income per share $ 2.87 $ 2.63
======== ========
Diluted earnings per share:
Income from continuing operations $ 2.58 $ 2.43
Income from discontinued operations .08 .07
-------- --------
Net income per share assuming dilution $ 2.66 $ 2.50
======== ========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
Page 5 of 27
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(In Thousands)
2002 2001
-------- ---------
Cash flows from operating activities:
Net income $ 13,171 $ 12,316
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,462 4,195
Net loss (gain) on sale of available-for-sale securities 1,005 (3,470)
Net gain on sale of trading securities -- (461)
Net gain on sale of real estate assets (5,792) (3,936)
Gain from equity investments (506) (651)
Gain on disposal of discontinued operations, net of tax (176) --
Net gain on sale of derivative instruments (1,439) (1,304)
Purchase of trading securities -- (54)
Proceeds from sale of trading securities -- 2,287
Net unrealized (gain) loss on derivative instruments (2,190) 335
Changes in assets and liabilities (A) 4,078 1,235
-------- --------
Net cash provided by operating activities 11,613 10,492
-------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities (10,641) (4,158)
Proceeds from sale of available-for-sale securities 268 19,202
Proceeds from sale of real estate assets 6,410 4,207
Proceeds from disposal of discontinued operations 300 --
Proceeds from sale of derivative instruments 3,912 2,351
Purchase of derivative instruments (8,843) --
Acquisition of property, plant and equipment (153) (1,191)
Purchase of note receivable (2,955) --
Principal payments on note receivable 12 --
Acquisition of/additions to real estate assets (193) (1,400)
Distributions from equity investments, net 209 586
-------- --------
Net cash (used in) provided by investing activities (11,674) 19,597
-------- --------
Cash flows from financing activities:
Principal payments on mortgage commitments, notes
and loans (3,784) (4,244)
Net repayments under credit facilities (525) (525)
Purchase and retirement of common shares (2,555) (1,019)
Proceeds from exercise of stock options 418 72
-------- --------
Net cash used in financing activities (6,446) (5,716)
-------- --------
Net (decrease) increase in cash and cash equivalents (6,507) 24,373
Cash and cash equivalents, beginning of period 68,170 17,134
-------- --------
Cash and cash equivalents, end of period $ 61,663 $ 41,507
======== ========
Page 6 of 27
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (CONTINUED)
(UNAUDITED)
(A) Changes in assets and liabilities for the nine months ended
September 30, 2002 and 2001 are as follows:
2002 2001
-------- --------
Notes and accounts receivable, net $ 91 ($1,867)
Inventories 1,346 (561)
Prepaid expenses and other current assets 177 8
Deferred income taxes 3,629 (2,133)
Noncurrent notes receivable 2 (13)
Other assets (435) 61
Accounts payable and accrued liabilities 544 (479)
Income taxes payable (1,160) (473)
Other long-term liabilities (120) 6,660
Discontinued operations - noncash charges and working capital
changes 4 32
------- -------
Total $ 4,078 $ 1,235
======= =======
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
Page 7 of 27
UNITED CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
(UNAUDITED)
BASIS OF PRESENTATION
- ---------------------
The accompanying unaudited Consolidated Financial Statements have
been prepared in accordance with the instructions to Form 10-Q used for
quarterly reports under Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, and therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, results of operations
and cash flows in conformity with accounting principles generally accepted in
the United States of America.
The consolidated financial information included in this report has
been prepared in conformity with the accounting principles and methods of
applying those accounting principles, reflected in the Consolidated Financial
Statements included in the Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the year ended December 31, 2001.
All adjustments necessary for a fair statement of the results for
the interim periods presented have been recorded.
The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In October 2001, the Financial Accounting Standards Board ("the
FASB") issued Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No.
144 provides accounting guidance for financial accounting and reporting for the
impairment or disposal of long-lived assets and supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of" ("SFAS No. 121"). SFAS No. 144 requires that long-lived assets
that are to be disposed of by sale be measured at the lower of book value or
fair value less cost to sell. SFAS No. 144 retains the requirements of SFAS No.
121 regarding impairment loss recognition and measurement. In addition, this
statement retains the basic provisions of APB Opinion 30 for the presentation of
discontinued operations in the income statement but broadens that presentation
to include a component of an entity (rather than a segment of a business). SFAS
No. 144 was adopted by the Company on January 1, 2002. The adoption of SFAS No.
144 did not have a material impact on the Company's financial position or
results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS No. 145"). This statement eliminates the requirement to
report gains and losses from extinguishment of debt as extraordinary unless they
meet the criteria of APB Opinion No. 30. SFAS No. 145 also requires
sale-leaseback accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002. The impact of the
adoption of SFAS No. 145 is not expected to have a material impact on the
Company's financial position or results of operations.
Page 8 of 27
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146
nullifies Emerging Issues Task Force Issue No. 94-3 and requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. This statement also establishes that fair value
is the objective for initial measurement of the liability. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. The impact of the adoption of SFAS No. 146 is not expected to have a
material impact on the Company's financial position or results of operations.
MARKETABLE SECURITIES
- ---------------------
The aggregate market value of marketable securities was $35,051 and
$28,633 at September 30, 2002 and December 31, 2001, respectively, while the
aggregate cost of such securities at such dates was $28,950 and $19,582,
respectively. Included in marketable securities at September 30, 2002 was
$20,527 of common stock in a publicly-traded company for which the Company's
Chairman of the Board is the Chairman and President and another Director of the
Company is a director. Marketable securities consist of the following:
September 30, 2002 December 31, 2001
------------------ -----------------
Available-for-sale securities:
Corporate equities $34,506 $28,198
Corporate bonds 545 435
------- -------
$35,051 $28,633
======= =======
INVENTORIES
- -----------
The components of inventory are as follows:
September 30, 2002 December 31, 2001
------------------ -----------------
Raw materials $1,860 $2,388
Work in process 570 782
Finished goods 1,177 1,783
------ ------
$3,607 $4,953
====== ======
DISCONTINUED OPERATIONS
- -----------------------
During the three months ended September 30, 2002, the Company sold
one of its properties from its real estate investment and management segment
which had a net book value of $51. The property was sold for a sales price of
approximately $3,400, including a mortgage note receivable of $3,100. In
accordance with accounting principles generally accepted in the United States of
America, the gain from the sale of this property is being recognized under the
installment method, and, accordingly, the carrying value of noncurrent notes
receivable has been reduced by the deferred gain. The deferred gain will be
recognized as income as payments are received under the mortgage note. For the
three months ended September 30, 2002, gains of $176 on a net of tax basis have
been recognized from this sale. In accordance with SFAS No. 144, the gain on
sale and operating results through the date of sale are included in discontinued
operations, on a net of tax basis, in the Consolidated Statements of Income. The
results of operations of this property for the three and nine months ended
September 30, 2002 and 2001 have been reclassified to discontinued operations.
The net assets of this property at December 31, 2001 of $55 have been
reclassified to real property held for sale, net.
Page 9 of 27
Summarized financial information for the discontinued operation is
as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Results of operations:
Rental revenues from real estate operations $- $223 $478 $668
==== ==== ==== ====
(Loss) income from operations before income
taxes ($39) $182 $402 $585
==== ==== ==== ====
September 30, 2002 December 31, 2001
------------------ -----------------
Assets of discontinued operations:
Real property held for sale, net $- $55
===== ===
DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------
As of January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), as amended. As a result of adopting SFAS No. 133,
the Company recognizes all derivative financial instruments, such as its
interest rate swap agreement, short stock sales and put and/or call options, in
the Consolidated Financial Statements at fair value regardless of the purpose or
intent for holding the instrument. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or in
stockholders' equity as a component of other comprehensive income depending on
whether the derivative financial instrument qualifies for hedge accounting, and
if so, whether it qualifies as a fair value or cash flow hedge. Generally,
changes in the fair value of derivatives accounted for as fair value hedges are
recorded in income along with the portions of the changes in the fair values of
the hedged items that relate to the hedged risks. Changes in the fair value of
derivatives accounted for as cash flow hedges, to the extent they are effective
as hedges, are recorded in other comprehensive income net of deferred taxes.
Changes in fair values of derivatives not qualifying as hedges are reported in
income.
In strategies designed to hedge overall market risks and manage its
interest rate exposure, the Company may sell common stock short, participate in
put and/or call options and enter into interest rate swap agreements.
As of September 30, 2002, the Company's interest rate swap agreement
(the "Swap") expired together with the satisfaction of the underlying term loan.
The Swap modified the interest characteristics of a particular term loan by
effectively converting its floating rate to a fixed rate, thus reducing the
impact of interest rate changes on future expense. The Swap was designated with
the principal balance and term of the term loan and qualified as an effective
hedge under SFAS No. 133. Since the Swap was classified as a cash flow hedge,
the fair value of ($11) at December 31, 2001 was recorded as a component of
accounts payable and accrued liabilities in the accompanying Consolidated
Balance Sheets and accumulated other comprehensive income was reduced by exactly
the same amount, net of tax, as the derivative, with no impact on earnings. The
amount paid or received on the Swap was accrued and recognized as an adjustment
of interest expense related to the debt.
Page 10 of 27
Management maintains a diversified and well-balanced portfolio of
cash equivalents and investments in a variety of securities, primarily U.S.
investments in both common and preferred equity issues and participates on a
limited basis in transactions involving derivative financial instruments. The
Company is highly selective when participating in such transactions. At
September 30, 2002 and December 31, 2001, the fair value of such derivatives was
($1,595) and ($10,155), respectively, which is recorded as a component of
accounts payable and accrued liabilities in the accompanying Consolidated
Balance Sheets. These instruments do not qualify for hedge accounting and
therefore changes in the derivatives fair value are recognized in earnings. For
the nine months ended September 30, 2002 and 2001, the Company recognized $2,190
and ($335) in net unrealized gains (losses), respectively, and $1,439 and $1,304
in net realized gains, respectively, from derivative instruments, which are
included in other income and expense, net in the accompanying Consolidated
Statements of Income.
CONTINGENCIES
- -------------
The Company is a lessor of eight (8) department stores that are
currently leased to K-Mart Corporation ("K-Mart"), which filed for protection
under Chapter 11 of the U.S. Bankruptcy Code on January 22, 2002. In addition,
the Company holds a 50% interest in a joint venture that owns two distribution
centers that are also leased to K-Mart. Although it is currently uncertain which
leases, if any, K-Mart will reject or affirm as part of its reorganization,
management believes that its leases and the leases of the joint venture with
K-Mart are at or below the fair market rent for comparable properties and as a
result, the rejection of one or more leases is not expected to have a material
adverse effect on the consolidated financial position of the Company.
The Company has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities. The Company has
previously recorded liabilities in the Consolidated Financial Statements for the
estimated potential remediation costs at these facilities.
The process of remediation has begun at one facility pursuant to a
plan filed with the New Jersey Department of Environmental Protection ("NJDEP").
Environmental experts engaged by the Company estimate that under the most
probable remediation scenario the remediation of this site is anticipated to
require initial expenditures of $860, including the cost of capital equipment,
and $86 in annual operating and maintenance costs over a 15 year period.
Environmental studies at the second facility indicate that
remediation may be necessary. Based upon the facts presently available,
environmental experts have advised the Company that under the most probable
remediation scenario, the estimated cost to remediate this site is anticipated
to require $2,300 in initial costs, including capital equipment expenditures,
and $258 in annual operating and maintenance costs over a 10 year period. These
estimated costs of future expenses for environmental remediation obligations are
not discounted to their present value. The Company may revise such estimates in
the future due to the uncertainty regarding the nature, timing and extent of any
remediation efforts that may be required at this site, should an appropriate
regulatory agency deem such efforts to be necessary.
The foregoing estimates may also be revised by the Company as new or
additional information in these matters becomes available or should the NJDEP or
other regulatory agencies require additional or alternative remediation efforts
in the future. It is not currently possible to estimate the range or amount of
any such liability.
Page 11 of 27
Although the Company believed that it was entitled to full defense
and indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the Company's insurers denied such coverage.
Accordingly, the Company filed an action against certain insurance carriers
seeking defense and indemnification with respect to all prior and future costs
incurred in the investigation and remediation of these sites. Settlements have
been reached with all carriers in this matter.
In the opinion of management, amounts recovered from its insurance
carriers under the terms of its settlement agreements should be sufficient to
address these matters and amounts needed in excess, if any, will be paid
gradually over a period of years. Accordingly, they should not have a material
adverse effect upon the business, liquidity or financial position of the
Company. However, adverse decisions or events, particularly as to the merits of
the Company's factual and legal basis, could cause the Company to change its
estimate of liability with respect to such matters in the future.
The Company is subject to various other litigation, legal and
regulatory matters that arise in the ordinary course of business activities.
When management believes it is probable that a liability has been incurred and
such amounts are reasonably estimable the Company provides for amounts that
include judgments and penalties that may be assessed. These liabilities are
usually included in accounts payable and accrued liabilities or other long-term
liabilities in the accompanying Consolidated Financial Statements, depending on
the anticipated payment date. None of these matters are expected to result in a
material adverse effect on the Company's consolidated financial position or
results of operations.
STOCKHOLDERS' EQUITY
- --------------------
Previous purchases of the Company's common stock have reduced the
Company's additional paid-in-capital to zero and accordingly current year
purchases in excess of par value have reduced retained earnings. During the nine
months ended September 30, 2002, the Company purchased and retired 104 shares of
the Company's common stock for $2,555.
EARNINGS PER SHARE
- ------------------
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Numerator:
Income from continuing operations $5,732 $ 5,084 $12,754 $11,965
====== ======= ======= =======
Denominator:
Denominator for basic earnings per
share--weighted-average shares 4,570 4,678 4,593 4,691
Effect of dilutive securities:
Employee stock options 320 289 351 229
------- ------- ------- -------
Denominator for diluted earnings per
share--adjusted weighted-average shares
and assumed conversions 4,890 4,967 4,944 4,920
====== ======= ======= =======
Basic earnings per share - continuing operations $ 1.26 $ 1.09 $ 2.78 $ 2.55
====== ======= ======= =======
Diluted earnings per share - continuing operations $ 1.17 $ 1.03 $ 2.58 $ 2.43
====== ======= ======= =======
Page 12 of 27
Employee stock options to purchase 951 and 890 shares of the
Company's common stock that were outstanding during the three months ended
September 30, 2002 and 2001, respectively, were not included in the computation
of diluted earnings per share because their effect would have been
anti-dilutive. Employee stock options to purchase 29 and 890 shares of the
Company's common stock that were outstanding during the nine months ended
September 30, 2002 and 2001, respectively, were not included in the computation
of diluted earnings per share because their effect would have been
anti-dilutive.
COMPREHENSIVE INCOME
- --------------------
The components of comprehensive income are as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
-------- ------- -------- --------
Net income $ 5,884 $ 5,193 $ 13,171 $ 12,316
Other comprehensive income, net of tax:
Change in net unrealized gain on
available-for-sale securities, net of tax
benefits of $2,820, $4,663, $1,033, and
$910, respectively (5,236) (8,659) (1,917) (1,690)
Change in fair value of cash flow hedge, net
of tax (provision) benefit of $(1), ($5), ($5),
and $1, respectively 1 8 6 (1)
-------- -------- -------- --------
Comprehensive income $ 649 ($ 3,458) $ 11,260 $ 10,625
======== ======== ======== ========
The components of accumulated other comprehensive income are as follows:
September 30, 2002 December 31, 2001
------------------ -----------------
Net unrealized gain on available-
for-sale securities, net of tax provision
of $2,135 and $3,168, respectively $ 3,966 $ 5,883
Unrealized loss on interest
rate swap agreement, net
of tax benefit of $5 at December 31, 2001 -- (6)
------- -------
$ 3,966 $ 5,877
======= =======
Page 13 of 27
BUSINESS SEGMENTS
- -----------------
The Company operates through two business segments: real estate
investment and management and engineered products. The real estate investment
and management segment is engaged in the business of investing in and managing
real estate properties and the making of high-yield, short-term loans secured by
desirable properties. Engineered products are manufactured through wholly-owned
subsidiaries of the Company and primarily consist of knitted wire products and
components and transformer products.
Operating results of the Company's business segments are as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Net revenues and sales:
Real estate investment and management $ 6,220 $ 6,567 $ 18,765 $ 20,757
Engineered products 8,439 8,119 25,700 26,096
-------- -------- -------- --------
$ 14,659 $ 14,686 $ 44,465 $ 46,853
======== ======== ======== ========
Operating income:
Real estate investment and management $ 3,204 $ 3,294 $ 9,714 $ 10,365
Engineered products 807 393 1,881 1,517
General corporate expenses (595) (590) (1,810) (1,917)
-------- -------- -------- --------
3,416 3,097 9,785 9,965
Other income, net 4,308 5,374 9,336 9,976
-------- -------- -------- --------
Income from continuing operations before
income taxes $ 7,724 $ 8,471 $ 19,121 $ 19,941
======== ======== ======== ========
Identifiable assets of the Company's business segments are as follows:
September 30, 2002 December 31, 2001
------------------ -----------------
Real estate investment and management and
corporate assets $165,244 $166,562
Engineered products 10,829 12,429
-------- --------
$176,073 $178,991
======== ========
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATIONS
- -----------------
Certain amounts have been reclassified in the prior year
Consolidated Financial Statements to present them on a basis consistent with the
current year.
Page 14 of 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In Thousands, Except Per Share Data)
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements of United Capital Corp. (the
"Company") and related notes thereto.
FORWARD-LOOKING STATEMENTS
- --------------------------
This Form 10-Q contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. All forward-looking
statements involve risks and uncertainties, including without limitation,
general economic conditions, interest rates, competition, potential technology
changes and potential changes in customer spending and purchasing policies and
procedures. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Form 10-Q will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The Consolidated Financial Statements of the Company include the
accounts of the Company and its wholly-owned subsidiaries. The preparation of
the financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions in certain circumstances that affect amounts reported in the
Consolidated Financial Statements and related notes. In preparing these
financial statements, management has made its best estimates and assumptions
that affect the reported amounts of assets and liabilities. These estimates are
based on, but not limited to, historical results, industry standards and current
economic conditions, giving due consideration to materiality. It is possible
that the ultimate outcome as anticipated by management in formulating its
estimates inherent in these financial statements might not materialize. However,
application of the critical accounting policies below involves the exercise of
judgment and use of assumptions as to future uncertainties and, as a result,
actual results could differ from these estimates. In addition, other companies
may utilize different estimates, which may impact the comparability of the
Company's results of operations to those of companies in similar businesses.
Revenue Recognition and Accounts Receivable - Manufacturing Operations
----------------------------------------------------------------------
Sales are recorded when the products are shipped to the
customer. Estimates are used in determining the Company's allowance
for doubtful accounts based on historical collections experience,
current economic trends and a percentage of its accounts receivable
by aging category. In determining these percentages, the Company
looks at historical write-offs of its receivables. The Company also
looks at the credit quality of its customer base as well as changes
in its credit policies. The Company continuously monitors
collections and payments from its customers. While credit losses
have historically been within expectations and the provisions
established, the Company cannot guarantee that it will continue to
experience the same credit loss rates that it has in the past. The
Company's net income is directly affected by management's estimate
of the collectibility of accounts receivable.
Page 15 of 27
Revenue Recognition and Accounts Receivable - Real Estate Operations
--------------------------------------------------------------------
The Company leases substantially all of its properties to
tenants under net leases which are accounted for as operating
leases. Under this type of lease, the tenant is obligated to pay all
operating costs of the property including real estate taxes,
insurance and repairs and maintenance. Gains on the sale of real
estate assets and equity investments are recorded when the gain
recognition criteria under generally accepted accounting principles
in the United States of America have been met.
Certain lease agreements provide for additional rent based
on a percentage of tenants' sales. These percentage rents are
recorded once the required sales levels are achieved.
Income on leveraged leases is recognized by a method that
produces a constant rate of return on the outstanding investment in
the lease, net of the related deferred tax liability in the years in
which the net investment is positive.
The Company makes estimates of the uncollectibility of its
accounts receivable related to base rents, tenant escalations,
expense reimbursements and other revenues. The Company analyzes
accounts receivable and historical bad debt levels, customer credit
worthiness and current economic trends when evaluating the adequacy
of the allowance for doubtful accounts. In addition, tenants in
bankruptcy are analyzed and estimates are made in connection with
the expected recovery of pre-petition and post-petition claims. The
Company's net income is directly affected by management's estimate
of the collectibility of accounts receivable.
Real Estate
-----------
Land, buildings and improvements and equipment are
recorded at cost, less accumulated depreciation and amortization.
Expenditures for maintenance and repairs are charged to operations
as incurred. Significant renovations and replacements, which improve
the life of the asset, are capitalized and depreciated over their
estimated useful lives.
Depreciation is computed utilizing the straight-line
method over the estimated useful lives of five to thirty-nine years
for buildings and improvements and five to seven years for
equipment.
The Company is required to make subjective assessments as
to the useful lives of its properties for purposes of determining
the amount of depreciation to reflect on an annual basis with
respect to those properties. These assessments have a direct impact
on the Company's net income. Should the Company lengthen the
expected useful life of a particular asset, it would be depreciated
over more years, and result in less depreciation expense and higher
annual income.
Inventories
-----------
The Company values inventory at the lower of cost or
market, cost being determined on a first-in, first-out basis. The
Company regularly reviews inventory quantities on hand, particularly
finished goods, and records a provision for excess and obsolete
inventory based primarily on existing and anticipated design and
engineering changes to the Company's products as well as forecasts
of future product demand. The Company's net income is directly
affected by management's estimate of the realizability of
inventories.
Page 16 of 27
Long Lived Assets
-----------------
On a periodic basis, management assesses whether there are
any indicators that the value of its long lived assets may be
impaired. An asset's value is considered impaired only if
management's estimate of current and projected operating cash flows
(undiscounted and without interest charges) of the asset over its
remaining useful life is less than the net carrying value of the
asset. Such cash flow projections consider factors such as expected
future operating income, trends and prospects, as well as the
effects of demand, competition and other factors. To the extent
impairment has occurred, the carrying amount of the asset would be
written down to an amount which reflects the fair value of the
asset.
The Company is required to make subjective assessments as
to whether there are impairments in the value of its long lived
assets and other investments. The Company's reported net income is
directly affected by management's estimate of impairments.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
- -------------------------------------------------------
Revenues for the three months ended September 30, 2002 were $14,659
compared to comparable 2001 revenues of $14,686. Operating income during this
period was $3,416 versus $3,097 for the comparable 2001 period. Income from
continuing operations for the third quarter was $5,732 or $1.26 per basic share
compared to income from continuing operations of $5,084 or $1.09 per basic share
for the same period in 2001, a 15.6% increase in basic earnings per share.
Total revenues for the nine months ended September 30, 2002 were
$44,465 resulting in operating income of $9,785 versus total revenues of $46,853
and operating income of $9,965 during the comparable 2001 period. Income from
continuing operations for the nine month period was $12,754 or $2.78 per basic
share in 2002 versus $11,965 or $2.55 per basic share in 2001, a 9.0% increase
in basic earnings per share.
Included in the results for the three and nine months ended
September 30, 2002 is income from discontinued operations, net of tax, resulting
from the Company's adoption of Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"). SFAS No. 144 requires that the operating results and gains on the sales
of real estate assets sold subsequent to December 31, 2001 and qualifying as a
component of an entity be reflected in the Consolidated Statements of Income as
discontinued operations. The results of operations for properties sold for the
three and nine months ended September 30, 2002 and 2001 have been reclassified
to discontinued operations in accordance with SFAS No. 144.
REAL ESTATE OPERATIONS
- ----------------------
Rental revenues from real estate operations decreased $347 or 5.3%
for the three months ended September 30, 2002 and decreased $1,992 or 9.6% for
the nine months ended September 30, 2002 compared to the corresponding periods
in 2001. These decreases are primarily attributable to decreased rental revenues
resulting from the sale of properties and decreased hotel revenues due to the
continued weakness in the economy.
Mortgage interest expense decreased $131 or 29.8% for the three
months ended September 30, 2002, and $313 or 22.6% for the nine months ended
September 30, 2002, compared to the corresponding 2001 periods, due to
continuing mortgage amortization which approximated $4,967 during the 12 month
period ended September 30, 2002.
Page 17 of 27
Depreciation expense associated with rental properties decreased
$235 or 22.3% for the three months ended September 30, 2002, and $649 or 20.7%
for the nine months ended September 30, 2002 compared to the same periods in
2001. These decreases are primarily due to reduced depreciation expense
associated with fully depreciated properties and properties sold in 2002 and
2001.
Other operating expenses associated with the management of real
properties increased $109 or 6.1% for the three months ended September 30, 2002,
and decreased $379 or 6.5% for the nine months ended September 30, 2002 compared
to the corresponding periods in 2001. The increase for the three month period is
principally due to increased property maintenance expenses, including real
estate taxes and insurance, offset by decreased hotel operating expenses due to
the decrease in hotel revenues noted above. The decrease in other operating
expenses for the year to date period is mainly attributable to the decrease in
hotel operating expenses due to the decrease in hotel revenues as noted above.
ENGINEERED PRODUCTS
- -------------------
The Company's engineered products segment includes Metex Mfg.
Corporation ("Metex") and AFP Transformers, LLC ("AFP Transformers"). The
operating results of the engineered products segment are as follows:
Three Months Nine Months
(In Thousands) Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Net Sales $8,439 $ 8,119 $25,700 $26,096
====== ======= ======= =======
Cost of Sales $6,010 $ 6,112 $18,771 $19,441
====== ======= ======= =======
Selling, General and
Administrative Expenses $1,622 $ 1,614 $ 5,048 $ 5,138
====== ======= ======= =======
Operating Income $ 807 $ 393 $ 1,881 $ 1,517
====== ======= ======= =======
Net sales of the engineered products segment increased $320 or 3.9%
for the three months ended September 30, 2002 and decreased $396 or 1.5% for the
nine months ended September 30, 2002 compared to the same periods in 2001. The
increase for the quarter reflects higher sales in the Company's automotive
product line, offset by lower sales in the Company's engineered component and
transformer product lines. The decrease for the nine months ended September 30,
2002 results primarily from lower sales in the Company's transformer and
engineered component product lines, partially offset by higher sales in the
Company's automotive product line.
Cost of sales as a percentage of sales decreased 5.4% and 2.0% for
the three and nine months ended September 30, 2002, respectively, compared to
the corresponding periods in 2001, principally due to the mix of products sold
noted above.
Selling, general and administrative expenses of the engineered
products segment increased less than one percent for the three months ended
September 30, 2002 and decreased $90 or 1.8% for the nine months ended September
30, 2002, versus the comparable 2001 periods. The changes are mainly due to
changes in sales volume noted above.
Page 18 of 27
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses not associated with the
manufacturing operations for the three months ended September 30, 2002 were
comparable to the three months ended September 30, 2001 and decreased $107 or
5.6% for the nine months ended September 30, 2002, versus the same period in
2001. The overall decrease for the year to date period is principally due to a
decrease in salary and salary related expenses.
OTHER INCOME AND EXPENSE, NET
- -----------------------------
The components of other income and expense, net in the accompanying
Consolidated Statements of Income are as follows:
Three Months Nine Months
(In Thousands) Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Net gain on sale of real estate assets $ -- $ 901 $ 5,674 $ 3,936
Net gain on sale of trading securities -- -- -- 461
Net gain (loss) on sale of available-for-sale -- 3,342 (1,005) 3,470
securities
Net gain on sale of derivative instruments 1,219 783 1,439 1,304
Net unrealized gain (loss) on derivative
instruments 2,665 (31) 2,190 (335)
Other, net (9) 30 (34) 75
------- ------- ------- -------
$ 3,875 $ 5,025 $ 8,264 $ 8,911
======= ======= ======= =======
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 2002, the Company's cash and marketable securities
were $96,714 and working capital was $84,487. Management continues to believe
the real estate market is overvalued and accordingly (1) recent acquisitions
have been limited to select properties that meet the Company's stringent
financial requirements and (2) the Company has divested itself of certain
assets. Management believes the available working capital along with the $60,000
of availability on the revolving credit facility discussed below, puts the
Company in an opportune position to fund acquisitions and grow the portfolio if
and when attractive long-term opportunities become available.
The Company's portfolio of marketable securities had a fair market
value of $35,051 at September 30, 2002, reflecting pretax unrealized holding
gains of $6,101. Included in marketable securities at September 30, 2002 was
$20,527 of common stock in a publicly-traded company for which the Company's
Chairman of the Board is the Chairman and President and another Director of the
Company is a director.
Page 19 of 27
The Company is a lessor of eight (8) department stores that are
currently leased to K-Mart Corporation ("K-Mart"), which filed for protection
under Chapter 11 of the U.S. Bankruptcy Code on January 22, 2002. In addition,
the Company holds a 50% interest in a joint venture that owns two distribution
centers that are also leased to K-Mart. Although it is currently uncertain which
leases, if any, K-Mart will reject or affirm as part of its reorganization,
management believes that its leases and the leases of the joint venture with
K-Mart are at or below the fair market rent for comparable properties and as a
result, the rejection of one or more leases is not expected to have a material
adverse effect on the consolidated financial position of the Company.
Effective December 31, 1999, the Company entered into a credit
agreement with three banks which provides for both a $60,000 revolving credit
facility ("Revolver") and a $1,925 term loan ("Term Loan"). Each of the three
banks participates in the Revolver while only one bank participated in the Term
Loan. The Term Loan was satisfied as of September 30, 2002.
Under the Revolver, the Company will be provided with eligibility
based upon the sum of (i) 60.0% of the aggregate annualized and normalized
year-to-date net operating income of unencumbered eligible properties, as
defined, capitalized at 10.5%, (ii) the lesser of $6,000 or 60.0% of the
aggregate annualized and normalized year-to-date net operating income of
unencumbered eligible hotel properties, as defined, capitalized at 10.5%, (iii)
the lesser of $10,000 or 50.0% of the aggregate annualized and normalized
year-to-date net operating income of encumbered eligible properties, as defined,
capitalized at 12.0% and (iv) the lesser of $10,000 or the sum of 75.0% of
eligible accounts receivable and 50.0% of eligible inventory, as defined. At
September 30, 2002, eligibility under the Revolver was $60,000, based upon the
above terms. The credit agreement contains certain financial and restrictive
covenants, including minimum consolidated equity, interest coverage, debt
service coverage and capital expenditures (other than for real estate). The
Company was in compliance with all covenants at September 30, 2002. The credit
agreement also contains provisions, which allow the banks to perfect a security
interest in certain operating and real estate assets in the event of default, as
defined in the credit agreement. Borrowings under the Revolver, at the Company's
option, bear interest at the bank's prime lending rate or at the London
Interbank Offered Rate ("LIBOR") plus 2.0%. The Revolver expires on December 31,
2002. The Company is currently in discussions with a number of banks to renew
and/or expand the current facility. At September 30, 2002, there were no amounts
outstanding under the Revolver.
As of September 30, 2002, the Company's interest rate swap agreement
(the "Swap") expired together with the satisfaction of the underlying Term Loan.
The Swap effectively converted the Company's floating rate Term Loan to a fixed
rate basis, thus reducing the impact of interest rate changes on future expense.
Under the Swap, the Company agreed to exchange with the counterparty (a
commercial bank) the difference between the fixed and floating rate interest
amounts. The Swap was classified as a cash flow hedge and was recorded as a
component of accounts payable and accrued liabilities in the accompanying
Consolidated Balance Sheet at December 31, 2001 and accumulated other
comprehensive income was reduced by the same amount, net of tax, with no impact
on earnings. The differential to be paid or received on the Swap was recognized
over the term of the agreement as an adjustment to interest expense.
The Company has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities and filed an action
against certain insurance carriers seeking recovery of costs incurred and to be
incurred in these matters. Settlements have been reached with all carriers in
this matter. See Notes to Consolidated Financial Statements for further
discussion on this matter.
Page 20 of 27
The current liabilities of the Company have historically exceeded
its current assets principally due to the financing of the purchase of long-term
assets utilizing short-term borrowings and from the classification of current
mortgage obligations without the corresponding current asset for such
properties. Future financial statements may reflect current liabilities in
excess of current assets. Management is confident that through cash flow
generated from operations, together with borrowings available under the Revolver
and the sale of select assets, all obligations will be satisfied as they come
due.
Previous purchases of the Company's common stock have reduced the
Company's additional paid-in capital to zero and accordingly current year
purchases in excess of par value have reduced retained earnings. During the nine
months ended September 30, 2002, the Company purchased and retired 104 shares of
the Company's common stock for $2,555. Future repurchases of the Company's
common stock will also reduce retained earnings by amounts in excess of the par
value. Repurchases of the Company's common stock will be made from time to time
in the open market at prevailing market prices and may be made in privately
negotiated transactions, subject to available resources.
The cash needs of the Company have been satisfied from funds
generated by current operations and additional borrowings. It is expected that
future operational cash needs and the cash required to repurchase the Company's
common stock will also be satisfied from existing cash balances, ongoing
operations and borrowings under the Revolver. The primary source of capital to
fund additional real estate acquisitions and make additional high-yield mortgage
loans will come from existing funds, borrowings under the Revolver, the sale,
financing and refinancing of the Company's properties and from third party
mortgages and purchase money notes obtained in connection with specific
acquisitions.
In addition to acquiring properties for consideration consisting of
cash and mortgage financing proceeds, the Company may acquire real properties in
exchange for the issuance of the Company's equity securities. The Company may
also finance acquisitions of other companies in the future with borrowings from
institutional lenders and/or the public or private offerings of debt or equity
securities.
Funds of the Company in excess of that needed for working capital,
purchasing real estate and arranging financing for real estate acquisitions are
invested by the Company in corporate equity securities, corporate notes,
certificates of deposit, government securities and other financial instruments.
The following table presents the Company's expected cash
requirements for contractual obligations outstanding as of September 30, 2002:
Payments Due by Period
Less
than 1-3 4-5 After
Contractual Obligations 1 year years years 5 years Total
- ----------------------- ------ ----- ----- ------- -----
Long-Term Debt $ 4,735 $ 8,717 $ 1,260 $ 3,289 $18,001
Operating Leases 490 627 461 3,391 4,969
------- ------- ------- ------- -------
Total Contractual Cash
Obligations $ 5,225 $ 9,344 $ 1,721 $ 6,680 $22,970
======= ======= ======= ======= =======
Page 21 of 27
BUSINESS TRENDS
- ---------------
Total revenues of the Company were $44,465 for the nine months ended
September 30, 2002, a decrease of $2,388 or 5.1% from the comparable 2001
period, principally due to decreased rental and hotel revenues and a decrease in
net sales from the engineered products segment. Income from continuing
operations during this period was $12,754 or $2.78 per basic share compared to
income from continuing operations of $11,965 or $2.55 per basic share for the
same period in 2001.
Revenues from the Company's real estate operations for the nine
months ended September 30, 2002 were $18,765, generating operating income of
$9,714. The Company has continued to take advantage of the current economic
environment by divesting itself of certain assets. During the nine months ended
September 30, 2002, the Company sold five properties generating $6,710 of cash
inflow and yielding pre-tax property gains of $5,968, inclusive of pre-tax gains
reflected as discontinued operations in the Consolidated Statements of Income.
Management's commitment to implementing cost containment measures,
improved product offerings and price competitiveness during 2002 have helped the
Company increase operating income and minimize the effects of lower revenues
generated by the engineered products segment during the first nine months of
this year. Operating income from this segment during the first nine months of
2002 increased 24% to $1,881 despite a 1.5% decline in revenues from the prior
year.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144"). SFAS No. 144 provides accounting guidance for
financial accounting and reporting for the impairment or disposal of long-lived
assets and supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of" ("SFAS No. 121"). SFAS No.
144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less cost to sell. SFAS No.
144 retains the requirements of SFAS No. 121 regarding impairment loss
recognition and measurement. In addition, this statement retains the basic
provisions of APB Opinion 30 for the presentation of discontinued operations in
the income statement but broadens that presentation to include a component of an
entity (rather than a segment of a business). SFAS No. 144 was adopted by the
Company on January 1, 2002. The adoption of SFAS No. 144 did not have a material
impact on the Company's financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS No. 145"). This statement eliminates the requirement to
report gains and losses from extinguishment of debt as extraordinary unless they
meet the criteria of APB Opinion No. 30. SFAS No. 145 also requires
sale-leaseback accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002. The impact of the
adoption of SFAS No. 145 is not expected to have a material impact on the
Company's financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146
nullifies Emerging Issues Task Force Issue No. 94-3 and requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. This statement also establishes that fair value
is the objective for initial measurement of the liability. SFAS No. 146 is
Page 22 of 27
effective for exit or disposal activities that are initiated after December 31,
2002. The impact of the adoption of SFAS No. 146 is not expected to have a
material impact on the Company's financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The information called for by this item is provided under the
caption "Derivative Financial Instruments" under Item 1 - Notes to Consolidated
Financial Statements.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic reports. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNITED CAPITAL CORP.
Dated: November 1, 2002 By: /s/Anthony J. Miceli
----------------------------------
Anthony J. Miceli
Vice President, Chief Financial Officer
and Secretary of the Company
Page 23 of 27
CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14
-------------------------------------------------------------
I, A. F. Petrocelli, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United Capital
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 1, 2002
/s/ A. F. Petrocelli
----------------------------------------
A. F. Petrocelli
Chairman, President and Chief Executive Officer
Page 24 of 27
CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14
-------------------------------------------------------------
I, Anthony J. Miceli, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United Capital
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 1, 2002
/s/ Anthony J. Miceli
-----------------------------------------
Anthony J. Miceli
Chief Financial Officer
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