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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 March 31, 2003
- --------------------------------------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number: 1-10104
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United Capital Corp.
- --------------------------------------------------------------------------------
(Exact name of Company as specified in its charter)
Delaware 04-2294493
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9 Park Place, Great Neck, New York 11021
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
516-466-6464
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(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 by check mark whether the Company is an accelerated filer.
[ ] Yes [X] 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 4,506,705 shares outstanding
as of May 12, 2003.
Page 1 of 26
UNITED CAPITAL CORP. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of March 31, 2003 (Unaudited) and December 31, 2002 3
Consolidated Statements of Income for the
Three Months Ended March 31, 2003 and 2002 (Unaudited) 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2003 and 2002 (Unaudited) 5-6
Notes to Consolidated Financial Statements 7-18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18-23
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 24
SIGNATURES 24
CERTIFICATIONS 25-26
Page 2 of 26
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2003 (UNAUDITED) AND DECEMBER 31, 2002
(In Thousands)
2003 2002
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 54,250 $ 48,893
Marketable securities 19,108 25,893
Notes and accounts receivable, net 6,632 5,716
Inventories 3,159 3,677
Prepaid expenses and other current assets 945 1,477
Deferred income taxes 2,977 207
Current assets of discontinued operations 14 72
--------- ---------
Total current assets 87,085 85,935
--------- ---------
Property, plant and equipment, net 3,494 3,569
Real property held for rental, net 44,008 44,761
Investments in joint ventures 31,686 31,389
Noncurrent notes receivable 2,976 2,994
Other assets 3,570 3,707
Noncurrent assets of discontinued operations 2,277 4,192
--------- ---------
TOTAL ASSETS $ 175,096 $ 176,547
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 4,733 $ 3,977
Accounts payable and accrued liabilities 8,283 9,263
Income taxes payable 7,775 5,260
Current liabilities of discontinued operations 213 445
--------- ---------
Total current liabilities 21,004 18,945
--------- ---------
Long-term debt 10,533 12,347
Other long-term liabilities 31,187 31,016
Deferred income taxes 2,084 2,605
--------- ---------
TOTAL LIABILITIES 64,808 64,913
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock $.10 par value, authorized 7,500 shares;
issued and outstanding 4,514 and 4,519 shares, respectively 451 452
Retained earnings 113,319 110,096
Accumulated other comprehensive income (loss), net of tax (3,482) 1,086
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 110,288 111,634
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 175,096 $ 176,547
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Page 3 of 26
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(In Thousands, Except Per Share Data)
2003 2002
-------- --------
REVENUES:
Net sales $ 8,156 $ 8,240
Rental revenues from real estate operations 6,077 6,065
-------- --------
Total revenues 14,233 14,305
-------- --------
COSTS AND EXPENSES:
Cost of sales 6,060 6,303
Real estate operations:
Mortgage interest expense 286 366
Depreciation expense 780 833
Other operating expenses 2,066 1,716
General and administrative expenses 1,437 1,374
Selling expenses 866 909
-------- --------
Total costs and expenses 11,495 11,501
-------- --------
Operating income 2,738 2,804
-------- --------
OTHER INCOME (EXPENSE):
Interest and dividend income 333 557
Interest expense (108) (166)
Other income and expense, net 629 2,497
-------- --------
Total other income 854 2,888
-------- --------
Income from continuing operations before income taxes 3,592 5,692
Provision for income taxes 1,370 2,099
-------- --------
INCOME FROM CONTINUING OPERATIONS 2,222 3,593
-------- --------
DISCONTINUED OPERATIONS:
Income from discontinued operations, net of tax
provision of $93 and $110, respectively 139 165
Net gain on disposal of discontinued operations, net of tax
provision of $756 1,135 0
-------- --------
INCOME FROM DISCONTINUED OPERATIONS 1,274 165
-------- --------
NET INCOME $ 3,496 $ 3,758
======== ========
BASIC EARNINGS PER SHARE:
Income from continuing operations $ .49 $ .78
Income from discontinued operations .28 .03
-------- --------
NET INCOME PER SHARE $ .77 $ .81
======== ========
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ .42 $ .73
Income from discontinued operations .24 .03
-------- --------
NET INCOME PER SHARE ASSUMING DILUTION $ .66 $ .76
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Page 4 of 26
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(In Thousands)
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,496 $ 3,758
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,119 1,162
Net loss on sale of available-for-sale securities 0 1,005
Net gain on sale of real estate assets (141) (5,378)
Equity in earnings of joint ventures (235) (169)
Net gain on disposal of discontinued operations, net of tax (1,135) 0
Net realized and unrealized (gain) loss on derivative instruments (315) 1,862
Proceeds from sale of trading securities 884 0
Net realized and unrealized gain on trading securities (57) 0
Changes in assets and liabilities (A) (469) (1,029)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,147 1,211
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities (550) (1,349)
Proceeds from sale of available-for-sale securities 0 268
Proceeds from sale of real estate assets 3,947 560
Proceeds from sale of derivative instruments 461 0
Acquisition of property, plant and equipment (245) (81)
Principal payments on notes receivable 18 5
Acquisition of/additions to real estate assets (27) (87)
Investment in joint ventures, net of distributions (62) 195
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,542 (489)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage commitments, notes
and loans (1,058) (1,054)
Net repayments under credit facilities 0 (175)
Purchase and retirement of common shares (420) (1,279)
Proceeds from exercise of stock options 146 7
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (1,332) (2,501)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,357 (1,779)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 48,893 68,170
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 54,250 $ 66,391
======== ========
Page 5 of 26
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (CONTINUED)
(UNAUDITED)
2003 2002
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 311 $ 462
======= =======
Taxes $ 2,585 $ 2,591
======= =======
(A) Changes in assets and liabilities for the three months ended March 31, 2003
and 2002 are as follows:
2003 2002
------- -------
Accounts receivable, net ($ 916) ($ 698)
Inventories 518 793
Prepaid expenses and other current assets 12 2
Deferred income taxes (831) 1,448
Other assets 118 20
Accounts payable and accrued liabilities (1,126) (643)
Income taxes payable 1,759 (1,705)
Other long-term liabilities 171 (30)
Discontinued operations - noncash charges and working capital
changes (174) (216)
------- -------
Total ($ 469) ($1,029)
======= =======
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Page 6 of 26
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, 2002.
All adjustments, all of which are normal and recurring in the
opinion of management, 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 April 2002, the Financial Accounting Standards Board ("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 30. SFAS No. 145 also requires sale-leaseback accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. The changes related to lease accounting are
effective for transactions occurring after May 15, 2002 and the changes related
to debt extinguishment are effective for fiscal years beginning after May 15,
2002. The adoption of SFAS No. 145 did not 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
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of SFAS No. 146 did not have a material impact on the
Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123" ("SFAS No. 148"). SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation. It also amends the
disclosure provisions of that Statement to require prominent disclosure about
the effects on reported net income of an entity's accounting policy decisions
Page 7 of 26
with respect to stock-based employee compensation. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in APB Opinion No. 25 and related interpretations as provided
for under SFAS No. 148. Accordingly, compensation expense is only recognized
when the market value of the Company's stock at the date of grant exceeds the
amount an employee must pay to acquire the stock. The Company adopted the
interim disclosure provisions of SFAS No. 148 in its financial reports for the
quarter ended March 31, 2003. The adoption of SFAS No. 148 did not have a
material impact on the Company's financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that
upon issuance of a guarantee, a guarantor must recognize a liability for the
fair value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. As a result of adopting the disclosure provisions of FIN 45, the Company
has provided additional disclosures herein as required (See "Subsequent
Events").
In January 2003, the FASB issued FASB Interpretation No. 46
"Consolidation of Variable Interest Entities" ("FIN 46"). In general, a variable
interest entity is a corporation, partnership, trust, or any other legal
structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. A
variable interest entity often holds financial assets, including loans or
receivables, real estate or other property. A variable interest entity may be
essentially passive or it may engage in activities on behalf of another company.
Until now, a company generally has included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
FIN 46 changes that by requiring a variable interest entity to be consolidated
by a company if that company is subject to a majority of the risk of loss from
the variable interest entity's activities or entitled to receive a majority of
the entity's residual returns or both. FIN 46's consolidation requirements apply
immediately to variable interest entities created or acquired after January 31,
2003. The consolidation requirements apply to older entities in the first fiscal
year or interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. The Company
adopted FIN 46 effective January 31, 2003. The adoption of FIN 46 did not have a
material impact on the Company's financial condition or results of operations.
MARKETABLE SECURITIES
The cost, gross unrealized gains, gross unrealized losses and fair
market value of marketable securities by type at March 31, 2003 and December 31,
2002 are as follows:
Gross Gross Fair
unrealized unrealized market
March 31, 2003: Cost gains losses value
-------- -------- -------- --------
Available-for-sale:
Equity securities $ 24,459 $ 594 ($ 5,950) $ 19,103
Bonds 5 0 0 5
-------- -------- -------- --------
$ 24,464 $ 594 ($ 5,950) $ 19,108
======== ======== ======== ========
Page 8 of 26
Gross Gross Fair
unrealized unrealized market
December 31, 2002: Cost gains losses value
-------- -------- -------- --------
Available-for-sale:
Equity securities $ 23,389 $ 2,119 ($ 447) $ 25,061
Bonds 5 0 0 5
-------- -------- -------- --------
23,394 2,119 (447) 25,066
Trading:
Equity securities 792 35 0 827
-------- -------- -------- --------
$ 24,186 $ 2,154 ($ 447) $ 25,893
======== ======== ======== ========
Included in marketable securities at March 31, 2003 and December 31, 2002 was
$12,917 and $20,402, respectively, of common stock in a publicly-traded company
for which the Board Chairman and another Director of the Company are directors.
In April 2003, the Company purchased an additional 450 shares of common stock in
this company for $2,400.
Proceeds from the sale of available-for-sale and trading securities and the
resulting gross realized gains and losses included in the determination of net
income for the three months ended March 31, 2003 and 2002 are as follows:
2003 2002
---------- ---------
Available-for-sale securities:
Proceeds $ 0 $ 268
Gross realized losses 0 (1,005)
Trading securities:
Proceeds $ 884 $ 0
Gross realized gains 57 0
INVENTORIES
- -----------
The components of inventory are as follows:
March 31, 2003 December 31, 2002
-------------- -----------------
Raw materials $1,501 $1,765
Work in process 441 367
Finished goods 1,217 1,545
------ ------
$3,159 $3,677
====== ======
REAL ESTATE
- -----------
Property sales:
- ---------------
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144") in 2002. SFAS No. 144 requires that the
operating results through the date of sale, as well as the gains on sales
generated on properties sold or held for sale be reclassified as discontinued
operations for all periods presented. As the statement requires implementation
on a prospective basis, properties which were identified as held for sale prior
to implementation are presented in the Consolidated Financial Statements in a
manner consistent with the prior periods' presentation.
Page 9 of 26
During the quarter ended March 31, 2003, the Company sold two
commercial properties from its real estate investment and management segment
which had a total net book value of $27. The properties were sold for an
aggregate sales price of $787, resulting in gains of $456 on a net of tax basis.
The Company also sold a shopping center from its real estate investment and
management segment which had a total net book value of $136. The property was
sold for an aggregate sales price of $3,020, resulting in gains of $1,730 on a
net of tax basis. One shopping center from the Company's real estate investment
and management segment was donated during the first quarter of 2003 which had a
total net book value of $60. The Company received no proceeds from the donation
and recorded a loss of $36 on a net of tax basis.
The results of operations for these properties for the three months
ended March 31, 2003 and 2002 have been reclassified to discontinued operations,
on a net of tax basis, in accordance with SFAS No. 144. In addition, the assets
and liabilities associated with these properties have been reclassified to
discontinued operations in the Consolidated Balance Sheet at December 31, 2002.
These amounts primarily consist of real property, net of accumulated
depreciation, rents receivable, prepaid or accrued charges, and mortgage
obligations, if any.
Summarized financial information for properties sold and accounted
for as discontinued operations for the three months ended March 31, 2003 and
2002, respectively, is as follows:
2003 2002
-------- ---------
Rental revenues from real estate operations $ 39 $ 74
Mortgage interest expense 0 (1)
Depreciation expense 0 (2)
Other operating expenses (12) (2)
---- ----
Income from operations $ 27 $ 69
==== ====
Properties held for sale:
- ------------------------
As of March 31, 2003, in accordance with the provisions of SFAS No.
144, the Company considered a total of eight commercial properties from its real
estate and investment management segment to be held for sale and reported as
discontinued operations.
In accordance with SFAS No. 144, the results of operations for these
properties for the three months ended March 31, 2003 and 2002 have been
reclassified to discontinued operations, on a net of tax basis, in the
Consolidated Statements of Income. In addition, the assets and liabilities
associated with these properties, which primarily consist of real property, net
of accumulated depreciation, rents receivable, prepaid or accrued charges, and
mortgage obligations, if any, have been reclassified to discontinued operations
in the Consolidated Balance Sheets at March 31, 2003 and December 31, 2002.
Summarized financial information for properties held for sale and
accounted for as discontinued operations for the three months ended March 31,
2003 and 2002, respectively, is as follows:
Page 10 of 26
2003 2002
------- ---------
Rental revenues from real estate operations $ 216 $ 235
Mortgage interest expense (3) (17)
Depreciation expense 0 (6)
Other operating expenses (8) (6)
----- -----
Income from operations $ 205 $ 206
===== =====
INVESTMENTS IN JOINT VENTURES
- -----------------------------
Investments in joint ventures consist of the following at March 31,
2003 and December 31, 2002:
2003 2002
------- -------
Investment in joint ventures (a) $23,496 $23,128
Lease financing (b) 8,190 8,261
------- -------
$31,686 $31,389
======= =======
(a) In December 2002, the Company purchased a 50% interest in a joint venture
(the "Hotel Venture") for $23,128 together with Prime Hospitality, Corp.
("Prime"), a publicly-traded company for which the Company's Board Chairman
and another Director of the Company are directors. The Hotel Venture owns
and operates a hotel in New Jersey. In March 2003, the Company and Prime
each sold a 10% interest in the Hotel Venture to an unrelated third party,
at cost. See "Subsequent Events."
In January 2003, the Company purchased a 50% interest in a joint venture
(the "Quebec Venture") for $6,114 together with Prime. The Quebec Venture
owns and operates a hotel in Quebec, Canada. In March 2003, the Company and
Prime each sold a 10% interest in the Quebec Venture to an unrelated third
party, at cost. There is currently no debt outstanding in this joint
venture.
The equity method of accounting is used for investments in 20% to 50% owned
joint ventures in which the Company has the ability to exercise significant
influence, but not control. Under the operating agreements of the Hotel
Venture and Quebec Venture, all significant operating and capital decisions
are made jointly and operating profits are allocated based on ownership
interests. These investments were initially recorded at cost and are
subsequently adjusted for equity in earnings (losses) and cash
contributions and distributions. The Company's equity in earnings of these
joint ventures was $113 for the three months ended March 31, 2003.
Summarized financial information of the joint ventures is as follows:
March 31, 2003 December 31, 2002
-------------- -----------------
BALANCE SHEET:
Property, plant and equipment, net $59,523 $46,397
======= =======
Current assets $ 1,248 $ 347
======= =======
Current liabilities $ 897 $ 500
======= =======
The accounts of the Quebec Venture are recorded in Canadian dollars and are
translated into U.S. dollars, the reporting currency of the Quebec Venture.
Translation adjustments relating to results of operations are generally included
in the equity in earnings reported by the Company while translation of balance
sheet accounts do not generally affect the Company's investment in the joint
venture.
Page 11 of 26
March 31, 2003
----------------
STATEMENT OF OPERATIONS:
Revenues $2,859
Expenses ( 2,633)
--------
Net income $226
========
(b) Lease financing consists of a 50.0% interest in a limited partnership
whose principal assets are two distribution centers leased to Kmart
Corporation ("Kmart"), which are accounted for as leveraged leases.
The Company's share of income arising from this investment was $122
and $169 for the three months ended March 31, 2003 and 2002,
respectively, and is included in rental income in the Consolidated
Statements of Income.
DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------
The Company recognizes all derivative financial instruments, such as
its 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 accumulated 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 accumulated other comprehensive income net of deferred taxes.
Changes in the fair value 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 and participate
in put and/or call options.
Management maintains a diversified 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, including short stock
sales and put and/or call options. At March 31, 2003 and December 31, 2002, the
fair value of such derivatives was ($268) and ($122), respectively, which is
recorded as a component of accounts payable and accrued liabilities in the
Consolidated Balance Sheets. These instruments do not qualify for hedge
accounting and therefore changes in the derivatives fair value are recognized in
earnings. The Company recognized $315 and ($1,862) in net realized and
unrealized gains (losses) from derivative instruments for the three months ended
March 31, 2003 and 2002, respectively, which are included in other income and
expense, net in the Consolidated Statements of Income.
RELATED PARTY TRANSACTIONS
- --------------------------
The Company has a 50.0% interest in an unconsolidated limited
liability corporation, whose principal assets are two distribution centers
leased to Kmart. A group that includes the wife of the Company's Board Chairman,
two Directors of the Company and the wife of one of the Directors has an 8.0%
interest in this entity (see "Investments in Joint Ventures").
Page 12 of 26
The Company's two hotel properties, as well as the hotels owned by
the Hotel Venture and Quebec Venture, are managed by Prime, a publicly-traded
company for which the Board Chairman and another Director of the Company are
directors. Fees paid for the management of the Company's two hotel properties
are based upon a percentage of revenue and were approximately $26 and $31 for
the three months ended March 31, 2003 and 2002, respectively. See "Investments
in Joint Ventures." Included in marketable securities at March 31, 2003 and
December 31, 2002 was $12,917 and $20,402, respectively, of common stock in
Prime which represents approximately 5.6% of Prime's outstanding shares in both
periods. In April 2003, the Company purchased an additional 450 shares of common
stock in Prime for $2,400.
COMMITMENTS AND CONTINGENCIES
- -----------------------------
The Company is a lessor of eight department stores that are
currently leased to Kmart, 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 Kmart. As part of its reorganization, Kmart announced the closure of
approximately 600 of its stores during the past year. Kmart's plan of
reorganization was approved in April 2003 and became effective in May 2003.
The Company has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities. The Company has
recorded a liability, which is included in other long-term liabilities, in the
Consolidated Financial Statements for the estimated potential remediation costs
at these facilities.
The process of remediation has begun at one facility pursuant to a
plan filed with the New Jersey Department of Environmental Protection ("NJDEP").
Environmental experts engaged by the Company estimate that under the most
probable remediation scenario the remediation of this site is anticipated to
require initial expenditures of $860, including the cost of capital equipment,
and $86 in annual operating and maintenance costs over a 15 year period.
Environmental studies at the second facility indicate that
remediation may be necessary. Based upon the facts presently available,
environmental experts have advised the Company that under the most probable
remediation scenario, the estimated cost to remediate this site is anticipated
to require $2,300 in initial costs, including capital equipment expenditures,
and $258 in annual operating and maintenance costs over a 10 year period. These
estimated costs of future expenses for environmental remediation obligations are
not discounted to their present value. The Company may revise such estimates in
the future due to the uncertainty regarding the nature, timing and extent of any
remediation efforts that may be required at this site, should an appropriate
regulatory agency deem such efforts to be necessary.
The foregoing estimates may also be revised by the Company as new or
additional information in these matters become available or should the NJDEP or
other regulatory agencies require additional or alternative remediation efforts
in the future. It is not currently possible to estimate the range or amount of
any such liability.
Although the Company believed that it was entitled to full defense
and indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the Company's insurers denied such coverage.
Accordingly, the Company filed an action against certain insurance carriers
seeking defense and indemnification with respect to all prior and future costs
incurred in the investigation and remediation of these sites. Settlements have
been reached with all carriers in this matter.
Page 13 of 26
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 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
three months ended March 31, 2003 and 2002, the Company purchased and retired 12
and 53 shares of the Company's common stock for $420 and $1,279, respectively.
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.
EARNINGS PER SHARE
- ------------------
The following table sets forth the computation of basic and diluted
earnings per share from continuing operations:
Three Months Ended March 31,
----------------------------
2003 2002
------ ------
Numerator:
Income from continuing operations $2,222 $3,593
====== ======
Denominator:
Denominator for basic earnings per
share - weighted-average shares 4,515 4,622
Effect of dilutive securities:
Employee stock options 748 340
------ ------
Denominator for diluted earnings per
share - adjusted weighted-average shares
and assumed conversions 5,263 4,962
====== ======
Basic earnings per share - continuing operations $ .49 $ .78
====== ======
Diluted earnings per share - continuing operations $ .42 $ .73
====== ======
Page 14 of 26
Employee stock options to purchase 29 shares of the Company's common
stock that were outstanding during the three months ended March 31, 2002 were
not included in the computation of diluted earnings per share because their
effect would have been anti-dilutive.
STOCK-BASED COMPESATION
- -----------------------
The Company accounts for stock-based compensation using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related Interpretations
("APB No. 25") and has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation
- - Transition and Disclosure, an amendment of FASB Statement No. 123" ("SFAS No.
148"). Under APB No. 25, compensation expense is only recognized when the market
value of the underlying stock at the date of grant exceeds the amount an
employee must pay to acquire the stock. Accordingly, no compensation expense has
been recognized in the Consolidated Financial Statements in connection with
employee stock option grants.
The following table illustrates the effect on net income and
earnings per share had the Company applied the fair value recognition provisions
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation.
Three Months Ended March 31,
-----------------------------------
2003 2002
------ ---------
Net income, as reported $3,496 $ 3,758
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects (550) (454)
------ ---------
Pro forma net income $2,946 $ 3,304
====== =========
Earnings per share:
Basic - as reported $ .77 $ .81
====== =========
Basic - pro forma $ .65 $ .71
====== =========
Diluted - as reported $ .66 $ .76
====== =========
Diluted - pro forma $ .57 $ .68
====== =========
Pro forma compensation expense may not be indicative of pro forma
expense in future periods. For purposes of estimating the fair value of each
option on the date of grant, the Company utilized the Black-Scholes option
pricing model.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Page 15 of 26
The weighted-average option fair values and the assumptions used to
estimate these values for grants issued during 2002 are as follows:
Expected life (years) 5
Risk free interest rate 4.4%
Expected volatility 34.2%
Dividend yield 0.0%
Weighted-average option fair value $ 9.17
COMPREHENSIVE INCOME (LOSS)
- ---------------------------
The components of comprehensive income (loss) are as follows:
Three Months Ended March 31,
----------------------------
2003 2002
------- -------
Net income $ 3,496 $ 3,758
Other comprehensive income (loss), net of tax:
Changein net unrealized gain (loss) on available-for-sale
securities, net of tax benefit (provision) of $2,460 and ($1,914),
respectively
(4,568) 3,555
Change in fair value of cash flow hedge, net of tax provision of $2 0 4
------- -------
Comprehensive income (loss) ($1,072) $ 7,317
======= =======
The components of accumulated other comprehensive income (loss) are as follows:
March 31, 2003 December 31, 2002
-------------- -----------------
Net unrealized gain (loss) on available-for-sale securities, net
of tax benefit (provision) of
$1,874 and ($586), respectively
($3,482) $ 1,086
======= =======
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.
Page 16 of 26
Operating results of the Company's business segments are as follows:
Three Months Ended March 31,
----------------------------
2003 2002
-------- --------
Net revenues and sales:
Real estate investment and management $ 6,077 $ 6,065
Engineered products 8,156 8,240
-------- --------
$ 14,233 $ 14,305
======== ========
Operating income:
Real estate investment and management $ 2,945 $ 3,150
Engineered products 479 221
General corporate expenses (686) (567)
-------- --------
2,738 2,804
Other income, net 854 2,888
-------- --------
Income from continuing operations before income
taxes $ 3,592 $ 5,692
======== ========
SUBSEQUENT EVENTS
- -----------------
In April 2003, the Hotel Venture entered into a $25,000 mortgage
loan (the "Mortgage") with a bank, secured by the underlying hotel. The proceeds
of the loan were distributed to the partners of the Hotel Venture based on their
ownership interest, thereby reducing their respective investment. In connection
with the Mortgage, the Company and Prime entered into a direct guaranty
agreement with the bank whereby the Company and Prime, jointly and severally,
guaranteed not more than $4,000 of the Mortgage. Amounts due under the guaranty
are reduced by the scheduled principal payments under the Mortgage. The guaranty
is enforceable upon the occurrence of certain events, including a default as
defined in the Mortgage and expires upon satisfaction of the loan in April 2006.
Pursuant to the operating agreement, any payments made under the guaranty would
increase the guarantors' ownership interest. The Company believes that the
collateral of the underlying hotel is sufficient to repay the Mortgage without
requiring enforcement of the guaranty. The Company is currently in the process
of evaluating the effect that reporting this guaranty in accordance with FIN 45
will have in subsequent financial statements.
In April 2003, the Company purchased an additional 450 shares of
common stock in Prime for $2,400.
USE OF ESTIMATES
- ----------------
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to use judgment in making estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities. Certain of the
estimates and assumptions required to be made relate to matters that are
inherently uncertain as they pertain to future events. While management believes
that the estimates and assumptions used were the most appropriate, actual
results could differ significantly from those estimates under different
assumptions and conditions.
Page 17 of 26
RECLASSIFICATIONS
- -----------------
Certain amounts have been reclassified in the prior year
Consolidated Financial Statements to present them on a basis consistent with the
current year.
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
Consolidated Financial Statements of United Capital Corp. (the "Company") and
related notes thereto.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
- ------------------------------------------
Revenues for the three months ended March 31, 2003 were $14,233
compared to comparable 2002 revenues of $14,305. Operating income during this
period was $2,738 versus $2,804 for the comparable 2002 period. Net income for
the first quarter was $3,496 or $.77 per basic share compared to net income of
$3,758 or $.81 per basic share for the same period in 2002.
Included in the results for the three months ended March 31, 2003 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"), in 2002. SFAS
No. 144 requires that the operating results, as well as gains or losses on real
estate assets sold or to be disposed of, as defined, be reflected in the
Consolidated Statements of Income as discontinued operations. The results of
operations for properties that have been reported as discontinued operations
during the three months ended March 31, 2003 have been reclassified to
discontinued operations for the three months ended March 31, 2002 in accordance
with SFAS No. 144.
REAL ESTATE INVESTMENT AND MANAGEMENT
- -------------------------------------
Rental revenues from real estate operations remained relatively
consistent with the prior year, totaling $6,077 for the three months ended March
31, 2003, compared to $6,065 for the corresponding 2002 period. Rental revenues
from 2003 property sales and properties held for sale have been classified as
discontinued operations in accordance with SFAS No. 144. Property sales and
properties held for sale prior to the implementation of SFAS No. 144 have not
been similarly reclassified to discontinued operations.
Mortgage interest expense continues to decrease as a result of
continuing mortgage amortization. For the three months ended March 31, 2003,
mortgage interest expense was $286 compared to $366 for the corresponding 2002
period, a decline of 21.9% or $80.
Depreciation expense associated with real properties held for rental
decreased $53 or 6.4% for the three months ended March 31, 2003 compared to the
same period in 2002. Such decline was primarily due to reduced depreciation
expense associated with fully depreciated properties and properties sold in 2002
and not accounted for as discontinued operations. Depreciation expense from
property sales and properties held for sale in 2003 has been reclassified as
discontinued operations in accordance with SFAS No. 144. Such expenses on
property sales and properties held for sale prior to the implementation of SFAS
No. 144 have not been similarly reclassified to discontinued operations.
Page 18 of 26
Other operating expenses associated with the management of real
properties increased $350 or 20.4% for the three months ended March 31, 2003,
compared to the same period in 2002. Such increase is primarily the result of
increased hotel operating expenses and increased payroll and property
maintenance expenses, including insurance and real estate taxes.
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:
(In Thousands) Three Months Ended March 31,
----------------------------
2003 2002
------ ------
Net Sales $8,156 $8,240
====== ======
Cost of Sales $6,060 $6,303
====== ======
Selling, General and Administrative Expenses $1,617 $1,716
====== ======
Operating Income $ 479 $ 221
====== ======
Net sales of the engineered products segment for the three months
ended March 31, 2003 remained relatively consistent with the corresponding 2002
period. Sales continue to increase for the Company's automotive product line as
a result of increased marketing and sales efforts while demand for the Company's
engineered component and transformer product lines decreased as a result of the
struggling economy.
Cost of sales as a percentage of sales decreased 2.9% for the three
months ended March 31, 2003, compared to the corresponding period in 2002,
principally due to the implementation of cost containment measures and the mix
of products sold.
Selling, general and administrative expenses of the engineered
products segment decreased $99 or 5.8% for the three months ended March 31, 2003
versus the comparable 2002 period. This decrease is primarily a result of lower
professional fees, as well as management's continuing cost containment efforts.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses not associated with the
manufacturing operations increased $119 or 21.0% for the three months ended
March 31, 2003 compared to such expenses incurred for the comparable 2002
period. The increase is mainly due to higher pension related expenses and salary
and salary related expenses.
Page 19 of 26
OTHER INCOME AND EXPENSE, NET
- -----------------------------
The components of other income and expense, net in the Consolidated
Statements of Income are as follows:
(In Thousands) Three Months Ended March 31,
-----------------------------
2003 2002
-------- --------
Net gain on sale of real estate assets $ 141 $ 5,378
Net loss on sale of available-for-sale securities 0 (1,005)
Net realized and unrealized gain on trading securities 57 0
Net realized and unrealized gain (loss) on derivative
instruments 315 (1,862)
Other, net 116 (14)
------- -------
$ 629 $ 2,497
======= =======
DISCONTINUED OPERATIONS
- -----------------------
Operating income from properties sold or held for sale and accounted
for as discontinued operations was $139 on a net of tax basis for the three
months ended March 31, 2003, versus $165 for the comparable 2002 period. Prior
year amounts have been reclassified to reflect results of operations of real
properties sold in 2003 or held for sale as of March 31, 2003 as discontinued
operations. Net gains on real estate accounted for as discontinued operations
were $1,135 on a net of tax basis for the three months ended March 31, 2003.
Prior to the adoption of SFAS No. 144, gains on sales of real estate assets were
not accounted for as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company experienced a net cash inflow from operations of $3.1
million for the three months ended March 31, 2003 versus $1.2 million for the
three months ended March 31, 2002. The $1.9 million increase in operating cash
flow primarily results from changes in working capital and $.9 million in
proceeds from the sale of trading securities in 2003. The components of the
working capital changes are set forth in detail in the Consolidated Statements
of Cash Flows.
For the three months ended March 31, 2003, $3.5 million was provided
by investing activities which consisted primarily of proceeds from the sale of
real estate assets of $3.9 million and proceeds from the sale of derivative
instruments of $.5 million partially offset by purchases of available-for-sale
securities of $.6 million.
For the three months ended March 31, 2002, $.5 million was used in
investing activities which consisted primarily of $1.1 million of purchases of
available-for-sale securities net of proceeds received from the sale of such
securities. This was offset by proceeds from the sale of real estate assets of
$.6 million.
Page 20 of 26
Net cash used in financing activities was $1.3 million and $2.5
million during the three months ended March 31, 2003 and 2002, respectively.
This use of cash flow was primarily attributable to debt reduction and the
purchase and retirement of the Company's common stock.
At March 31, 2003, the Company's cash and marketable securities were
$73.4 million and working capital was $66.1 million compared to cash and
marketable securities of $74.8 million and working capital of $67.0 million at
December 31, 2002. Management continues to believe that the real estate market
is overvalued and accordingly recent acquisitions have been limited to those
select properties that meet the Company's stringent financial requirements.
Management believes that the available working capital along with the $80.0
million of availability on the revolving credit facility, discussed below, puts
the Company in an opportune position to fund acquisitions and grow its portfolio
of real estate properties if and when attractive long-term opportunities become
available.
The cash needs of the Company have been satisfied from funds
generated by current operations. 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, marketable securities, ongoing
operations and borrowings under the Revolver (as hereinafter defined). The
primary source of capital to fund additional real estate acquisitions and to
make additional high-yield mortgage loans will come from existing funds,
borrowings under the Revolver, the sale, financing and refinancing of the
Company's properties and from third party mortgages and purchase money notes
obtained in connection with specific acquisitions.
In addition to the acquisition of properties for consideration
consisting of cash and mortgage financing proceeds, the Company may acquire real
properties in exchange for the issuance of the Company's equity securities. The
Company may also finance acquisitions of other companies in the future with
borrowings from institutional lenders and/or the public or private offerings of
debt or equity securities. The Company currently has no agreements, commitments
or understandings with respect to the acquisition of real properties or other
companies in exchange for 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 Company is the lessor of eight department stores that are
currently leased to Kmart Corporation ("Kmart"), which filed for protection
under Chapter 11 of the U.S. Bankruptcy Code on January 22, 2002. In addition,
the Company holds a 50% interest in a joint venture (which is accounted for by
the Company on the equity basis) that owns two distribution centers that are
also leased to Kmart. As part of its reorganization, Kmart announced the closure
of approximately 600 of its stores during the past year. Kmart's plan of
reorganization was approved in April 2003 and became effective in May 2003.
Effective December 10, 2002, the Company entered into a credit
agreement with five banks which provides for an $80.0 million revolving credit
facility ("Revolver"). The Revolver may be increased under certain circumstances
and expires on December 31, 2005.
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 10.0%, (ii) 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%, not to exceed the lesser of $10.0
million or 10% of total eligibility, (iii) the lesser of $20.0 million or 50.0%
Page 21 of 26
of the aggregate annualized and normalized year-to-date net operating income of
encumbered eligible properties, as defined, capitalized at 12.0%, (iv) the sum
of 75.0% of eligible accounts receivable, 50.0% of eligible inventory, and 50%
of eligible loans, as defined, (v) cash and cash equivalents in excess of
working capital, as defined, and (vi) 50% of marketable securities, as defined.
At March 31, 2003, eligibility under the Revolver was $80.0 million, based upon
the above terms and there were no amounts outstanding under the Revolver. 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), and limitations on
indebtedness. The Company was in compliance with all covenants at March 31,
2003. The credit agreement also contains provisions which allow the banks to
perfect a security interest in certain operating and real estate assets in the
event of a default, as defined in the credit agreement. Borrowings under the
Revolver, at the Company's option, bear interest at the bank's prime lending
rate or at the London Interbank Offered Rate ("LIBOR") (1.29% at March 31, 2003)
plus 2.0% for non cash collateralized borrowings and 1.0% for cash
collateralized borrowings.
In strategies designed to hedge overall market risk, the Company may
sell common stock short and participate in put and/or call options. These
instruments do not qualify for hedge accounting and therefore changes in such
derivatives fair value are recognized in earnings. These derivatives are
recorded as a component of accounts payable and accrued liabilities in the
Consolidated Balance Sheets.
The Company has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities and filed an action
against certain insurance carriers seeking recovery of costs incurred and to be
incurred in these matters. Settlements have been reached with all carriers in
this matter. See Notes to Consolidated Financial Statements for further
discussion on this matter.
The Company is subject to various 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 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.
The current liabilities of the Company have at times in the past
exceeded its current assets principally due to the financing 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.
RELATED PARTY TRANSACTIONS
- --------------------------
Refer to Notes to Consolidated Financial Statements for a discussion
of related party transactions.
Page 22 of 26
CRITICAL ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES
- -----------------------------------------------------
Refer to the Company's 2002 Annual Report on Form 10-K for a
discussion of the Company's critical accounting policies, which include revenue
recognition and accounts receivable, marketable securities, inventories, real
estate, discontinued operations, long-lived assets and pension plans. During the
first quarter of 2003, there were no material changes to these policies.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
Refer to Notes to Consolidated Financial Statements for a discussion
of recent accounting pronouncements.
FORWARD-LOOKING STATEMENTS
- --------------------------
Certain statements in this Report on Form 10-Q and other statements
made by the Company or its representatives that are not strictly historical
facts are "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995 that should be considered as subject to
the many risks and uncertainties that exist in the Company's operations and
business environment. The forward-looking statements are based on current
expectations and involve a number of known and unknown risks and uncertainties
that could cause the actual results, performance and/or achievements of the
Company to differ materially from any future results, performance or
achievements, expressed or implied, by the forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
and that in light of the significant uncertainties inherent in forward-looking
statements, the inclusion of such statements should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved. The Company also assumes no obligation to
publicly update or revise its forward-looking statements or to advise of changes
in the assumptions and factors on which they are based. See the Company's 2002
Annual Report on Form 10-K for a discussion of risk factors that could impact
our future financial performance and/or cause actual results to differ
significantly from those expressed or implied by such statements.
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.
Page 23 of 26
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K. None
(b) Exhibits
99.1 Certification of the Chief Executive Officer
99.2 Certification of the Chief Financial Officer
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: May 12, 2003 By: /s/ Anthony J. Miceli
-----------------------------------------
Anthony J. Miceli
Vice President, Chief Financial Officer
and Secretary of the Company
Page 24 of 26
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: May 12, 2003
/s/ A. F. Petrocelli
------------------------------------------------
A. F. Petrocelli
Chairman, President and Chief Executive Officer
Page 25 of 26
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: May 12, 2003
/s/ Anthony J. Miceli
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Anthony J. Miceli
Chief Financial Officer
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