Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended JUNE 30, 2004
COMMISSION FILE NUMBER: 1-10104
-------------------------------
- --------------------------------------------------------------------------------
UNITED CAPITAL CORP.
--------------------
(Exact name of registrant as specified in its charter)
================================================================================
UNITED CAPITAL CORP.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2294493
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 PARK PLACE, GREAT NECK, NY 11021
---------------------------- -----
(Address of principal executive offices) (Zip Code)
516-466-6464
------------
(Registrant'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 registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
The registrant had 9,116,142 shares of common stock, $.10 par value, outstanding
as of August 2, 2004.
UNITED CAPITAL CORP. AND SUBSIDIARIES
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of June 30, 2004 (Unaudited) and December 31, 2003...................3
Consolidated Statements of Income for the
Three and Six Months Ended June 30, 2004 and 2003 (Unaudited)........4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2004 and 2003 (Unaudited)................5-6
Notes to Consolidated Financial Statements (Unaudited)............7-15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................15-19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF
MARKET RISK.........................................................20
ITEM 4. CONTROLS AND PROCEDURES.............................................20
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................20
SIGNATURES ...................................................................21
2
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
JUNE 30, DECEMBER 31,
2004 2003
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 71,099 $ 59,210
Marketable securities 54,604 49,612
Notes and accounts receivable, net 7,420 6,434
Inventories 3,535 4,155
Prepaid expenses and other current assets 953 961
Current assets of discontinued operations 28 86
-------- --------
TOTAL CURRENT ASSETS 137,639 120,458
-------- --------
Property, plant and equipment, net 2,724 3,098
Real property held for rental, net 33,661 34,082
Investments in joint ventures 19,653 19,819
Noncurrent notes receivable 4,619 2,862
Other assets 2,013 3,194
Noncurrent assets of discontinued operations 3,854 6,201
-------- --------
TOTAL ASSETS $204,163 $189,714
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 2,619 $ 2,938
Accounts payable and accrued liabilities 9,923 9,203
Income taxes payable 10,154 7,270
Deferred income taxes 4,192 3,947
Current liabilities of discontinued operations 24 1,049
-------- --------
TOTAL CURRENT LIABILITIES 26,912 24,407
-------- --------
Long-term debt 7,139 8,459
Other long-term liabilities 30,552 30,848
Deferred income taxes 1,065 1,783
-------- --------
TOTAL LIABILITIES 65,668 65,497
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock $.10 par value, authorized 17,500 shares;
issued and outstanding 9,114 and 9,092 shares, respectively 911 909
Retained earnings 127,873 114,436
Accumulated other comprehensive income, net of tax 9,711 8,872
-------- --------
TOTAL STOCKHOLDERS' EQUITY 138,495 124,217
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $204,163 $189,714
======== ========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
3
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
2004 2003 2004 2003
---------------------- -----------------------
REVENUES:
Net sales $ 10,178 $ 8,326 $ 19,468 $ 16,482
Rental revenues from real estate operations 5,398 5,907 10,762 11,407
-------- -------- -------- --------
Total revenues 15,576 14,233 30,230 27,889
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of sales 7,103 5,820 13,784 11,880
Real estate operations:
Mortgage interest expense 171 237 363 492
Depreciation expense 607 686 1,214 1,390
Other operating expenses 1,784 1,883 3,535 3,791
General and administrative expenses 1,429 1,728 2,948 3,165
Selling expenses 945 874 1,961 1,740
-------- -------- -------- --------
Total costs and expenses 12,039 11,228 23,805 22,458
-------- -------- -------- --------
Operating income 3,537 3,005 6,425 5,431
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest and dividend income 398 582 784 915
Interest expense (109) (111) (229) (219)
Other income and expense, net 419 845 2,054 1,474
-------- -------- -------- --------
Total other income 708 1,316 2,609 2,170
-------- -------- -------- --------
Income from continuing operations before income taxes 4,245 4,321 9,034 7,601
Provision for income taxes 737 1,431 2,022 2,676
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS 3,508 2,890 7,012 4,925
-------- -------- -------- --------
DISCONTINUED OPERATIONS:
Income from discontinued operations, net of income
taxes of $15, $129, $32 and $346, respectively 25 193 49 519
Net gain on disposal of discontinued operations, net of
income taxes of $4,212, $249, $4,156 and $1,006,
respectively 6,316 374 6,233 1,509
-------- -------- -------- --------
INCOME FROM DISCONTINUED OPERATIONS 6,341 567 6,282 2,028
-------- -------- -------- --------
NET INCOME $ 9,849 $ 3,457 $ 13,294 $ 6,953
======== ======== ======== ========
BASIC EARNINGS PER SHARE:
Income from continuing operations $ .38 $ .32 $ .77 $ .55
Income from discontinued operations .70 .06 .69 .22
-------- -------- -------- --------
NET INCOME PER SHARE $ 1.08 $ .38 $ 1.46 $ .77
======== ======== ======== ========
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ .33 $ .27 $ .65 $ .46
Income from discontinued operations .59 .05 .58 .19
-------- -------- -------- --------
NET INCOME PER SHARE ASSUMING DILUTION $ .92 $ .32 $ 1.23 $ .65
======== ======== ======== ========
CASH DIVIDENDS PER SHARE $ -- $ 1.00 $ -- $ 1.00
======== ======== ======== ========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
4
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
SIX MONTHS ENDED
JUNE 30,
------------------------
2004 2003
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,294 $ 6,953
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,710 1,784
Net gain on sale of available-for-sale securities (845) --
Gain on sale of other assets (363) --
Net gain on sale of real estate assets (1) (152)
Equity in earnings of joint ventures (223) (533)
Net gain on disposal of discontinued operations, net of tax (6,233) (1,509)
Net realized and unrealized loss (gain) on derivative instruments 7 (982)
Proceeds from sale of trading securities -- 884
Net realized gain on trading securities -- (57)
Changes in assets and liabilities:
Notes and accounts receivable, net (982) (1,895)
Inventories 620 276
Prepaid expenses and other current assets 8 40
Deferred income taxes (925) (826)
Other assets 167 232
Accounts payable and accrued liabilities 714 (221)
Income taxes payable (1,272) 1,503
Other long-term liabilities (296) 72
Discontinued operations - noncash charges and
working capital changes (918) (728)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,462 4,841
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities (14,042) (6,490)
Proceeds from sale of available-for-sale securities 11,186 --
Proceeds from sale of other assets 1,363 --
Proceeds from sale of real estate assets 11,889 6,541
Purchase of derivative instruments (13) --
Proceeds from sale of derivative instruments 12 954
Purchase of notes receivable (1,000) --
Acquisition of property, plant and equipment (108) (132)
Principal payments on notes receivable 38 59
Acquisition of/additions to real estate assets (793) (132)
Investments in joint ventures, net -- (256)
Distributions from joint ventures 389 10,252
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 8,921 10,796
-------- --------
5
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2004 2003
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage commitments, notes and loans (1,639) (1,617)
Purchase and retirement of common shares -- (771)
Proceeds from exercise of stock options 145 842
---------- ------------
NET CASH USED IN FINANCING ACTIVITIES (1,494) (1,546)
---------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 11,889 14,091
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 59,210 48,893
---------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 71,099 $ 62,984
========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 542 $ 658
========== ============
Taxes $ 4,224 $ 3,542
========== ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of note receivable in connection with sale of real property $ 800 $ --
========== ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements
6
UNITED CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
1. 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, 2003.
In the opinion of management, all adjustments, consisting only of normal and
recurring adjustments, necessary for a fair presentation 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.
2. STOCKHOLDERS' EQUITY
Previous purchases of the Company's common stock have reduced the Company's
additional paid-in-capital to zero and, accordingly, any future purchases in
excess of par value will also reduce retained earnings. During the six months
ended June 30, 2003, the Company purchased and retired 44 shares of the
Company's common stock for $771. The Company has not purchased any shares of the
Company's common stock during 2004. Repurchases of the Company's common stock
may 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. During the six months ended June 30, 2004 and 2003, the Company
received proceeds of $145 and $841 from the exercise of 22 and 107 stock
options, respectively.
3. DIVIDENDS
On June 10, 2003, the Board of Directors of the Company declared a special
one-time cash dividend of $1.00 per common share to all stockholders of record
as of June 20, 2003. The declaration of such dividend is within the discretion
of the Board of Directors. While the Company does not currently expect to pay
additional dividends in the future, the Board of Directors could reevaluate this
position in the future. This dividend, totaling $9,102, was paid on July 10,
2003.
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share from continuing operations:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2004 2003 2004 2003
-------------------- -------------------
Numerator:
Income from continuing operations $ 3,508 $ 2,890 $ 7,012 $ 4,925
======= ======= ======= =======
Denominator:
Basic - weighted-average shares outstanding 9,112 9,023 9,105 9,026
Dilutive effect of employee stock options 1,546 1,768 1,702 1,632
------- ------- ------- -------
Diluted - weighted-average shares outstanding 10,658 10,791 10,807 10,658
======= ======= ======= =======
Basic earnings per share - continuing operations $ .38 $ .32 $ .77 $ .55
======= ======= ======= =======
Diluted earnings per share - continuing operations $ .33 $ .27 $ .65 $ .46
======= ======= ======= =======
7
Employee stock options to purchase 756 shares of the Company's common stock for
each of the three and six months ended June 30, 2004 and 758 shares for each of
the three and six months ended June 30, 2003, were not included in the
computation of diluted earnings per share in the respective periods presented
because their effect would have been anti-dilutive.
5. STOCK-BASED COMPENSATION
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income, as reported $ 9,849 $ 3,457 $ 13,294 $ 6,953
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects (676) (584) (1,402) (1,134)
---------- ---------- ---------- ----------
Pro forma net income $ 9,173 $ 2,873 $ 11,892 $ 5,819
========== ========== ========== ==========
Earnings per share:
Basic - as reported $ 1.08 $ .38 $ 1.46 $ .77
========== ========== ========== ==========
Basic - pro forma $ 1.01 $ .32 $ 1.31 $ .64
========== ========== ========== ==========
Diluted - as reported $ .92 $ .32 $ 1.23 $ .65
========== ========== ========== ==========
Diluted - pro forma $ .88 $ .27 $ 1.13 $ .56
========== ========== ========== ==========
Pro forma compensation expense may not be indicative of pro forma expenses in
future periods. For purposes of estimating the fair value of each option on the
grant date, the Company utilized the Black-Scholes option pricing model.
6. MARKETABLE SECURITIES
The cost, gross unrealized gains, gross unrealized losses and fair market value
of marketable securities by type are as follows:
GROSS GROSS FAIR
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ---------- ----------
JUNE 30, 2004:
Available-for-sale:
Equity securities $ 33,734 $ 15,092 $ (152) $ 48,674
Bonds 5,930 -- -- 5,930
-------- -------- -------- --------
$ 39,664 $ 15,092 $ (152) $ 54,604
======== ======== ======== ========
DECEMBER 31, 2003:
Available-for-sale:
Equity securities $ 28,957 $ 13,763 $ (113) $ 42,607
Bonds 7,005 -- -- 7,005
-------- -------- -------- --------
$ 35,962 $ 13,763 $ (113) $ 49,612
======== ======== ======== ========
8
Included in marketable securities at June 30, 2004 and December 31, 2003 was
$37,592 and $36,105, respectively, of common stock at fair value, in a
publicly-traded company for which the Board Chairman is an executive officer and
director and another Director of the Company is a director.
Proceeds from the sale of available-for-sale and trading securities and the
resulting gross realized gains included in the determination of net income are
as follows:
SIX MONTHS ENDED
JUNE 30,
-----------------------------
2004 2003
-------- ----------
Available-for-sale securities:
Proceeds $11,186 $ --
Gross realized gains 845 --
Trading securities:
Proceeds $ -- $ 884
Gross realized gains -- 57
7. INVENTORIES
The components of inventories are as follows:
JUNE 30, DECEMBER 31,
2004 2003
--------- -------------
Raw materials $1,864 $1,601
Work in process 450 411
Finished goods 1,221 2,143
------ ------
$3,535 $4,155
====== ======
8. 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.
During the six months ended June 30, 2004, the Company divested itself of three
commercial properties which had a net book value of $1,970 from its real estate
investment and management segment. Two of the commercial properties were
contributed to charitable organizations in the first quarter for a nominal
amount. The aggregate proceeds from these transactions was $1,693 resulting in a
loss of $167 on a net of tax basis. In addition, the Company sold one of its
shopping centers during the second quarter of 2004 which had a net book value of
$328. Net proceeds from the sale were $10,994, resulting in a gain of $6,400 on
a net of tax basis.
The results of operations for these properties for the three and six months
ended June 30, 2004 and 2003 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, 2003.
These amounts primarily consist of real property, net of accumulated
depreciation, rents receivable, prepaid or accrued charges, and mortgage
obligations, if any.
9
Summarized financial information for properties sold and accounted for as
discontinued operations is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2004 2003 2004 2003
--------- --------- --------- ----------
Rental revenues from real estate $ 70 $ 505 $ 166 $ 1,055
operations
Mortgage interest expense -- (2) -- (10)
Depreciation expense -- (69) -- (122)
Other operating expenses (79) (93) (149) (157)
-------- ------- ------- -------
(Loss) income from operations $ (9) $ 341 $ 17 $ 766
======== ======= ======= =======
PROPERTIES HELD FOR SALE:
- ------------------------
As of June 30, 2004, in accordance with the provisions of SFAS No. 144, the
Company considered a total of five 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 of these properties,
plus those properties disposed of during 2004 and 2003, have been reclassified
to discontinued operations, on a net of tax basis, in the Consolidated
Statements of Income for the three and six months ended June 30, 2004 and 2003.
In addition, the assets and liabilities associated with these properties,
primarily consisting 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 June 30, 2004 and December 31, 2003.
During the quarter ended June 30, 2004, two of the Company's properties
previously classified as held for sale were reclassified to continuing
operations after the Company was able to negotiate favorable leases. In
accordance with SFAS 144, prior periods have been restated to include these
properties in continuing operations.
Summarized financial information for properties held for sale and accounted for
as discontinued operations, is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
2004 2003 2004 2003
-------- ------- ------- -------
Rental revenues from real estate $ 240 $ 226 $ 433 $ 508
operations
Mortgage interest -- (24) (19) (51)
Depreciation expense (23) (23) (46) (46)
Other operating expenses (168) (198) (304) (312)
----- ----- ----- -----
Income (loss) from operations $ 49 $ (19) $ 64 $ 99
===== ===== ===== =====
In July 2004, the Company sold one of the commercial properties classified as
held for sale for approximately $7,500, net of selling expenses. The property's
carrying value was approximately $3,300 and will result in a net of tax gain of
approximately $2,500 which will be included in the results for the third quarter
of 2004.
10
9. INVESTMENTS IN JOINT VENTURES
Investments in joint ventures consist of:
JUNE 30, DECEMBER 31,
2004 2003
--------- ------------
Investment in hotel ventures (a) $11,852 $11,843
Lease financing (b) 7,801 7,976
------- -------
$19,653 $19,819
======= =======
(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 is
an executive officer and director and another Director of the Company is a
director. 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.
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. Accordingly, the fair value of the
guarantee was determined to be insignificant and, therefore, no liability has
been recorded.
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.
In July 2003, the Quebec Venture entered into an $8.2 million (Canadian)
mortgage loan with a Canadian bank, secured by the underlying hotel. The
proceeds of the loan were distributed to the partners of the Quebec Venture
based on their ownership interest, thereby reducing their respective investment.
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 and cash contributions and distributions. The Company's
equity in earnings of these hotel ventures was $151 and $10 for the three and
six months ended June 30, 2004 and $174 and $287 for the three and six months
ended June 30, 2003, respectively.
Summarized financial information of the Hotel Venture and Quebec Venture are as
follows:
JUNE 30, DECEMBER 31,
BALANCE SHEETS: 2004 2003
--------------- ------- -------------
Current assets $ 4,024 $ 3,728
======= =======
Property, plant and equipment, net $59,257 $61,008
======= =======
Other non-current assets $ 238 $ 304
======= =======
Current liabilities $ 2,965 $ 3,267
======= =======
Long-term liabilities $29,194 $29,971
======= =======
Equity $31,360 $31,802
======= =======
11
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -----------------------
2004 2003 2004 2003
--------- --------- ---------- ---------
OPERATING RESULTS:
Revenues $ 6,345 $ 6,010 $ 11,918 $ 8,869
Expenses (5,968) (5,615) (11,894) (8,248)
-------- -------- -------- --------
Operating income $ 377 $ 395 $ 24 $ 621
======== ======== ======== ========
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.
Currency adjustments relating to results of operations are generally included in
the equity in earnings reported by the Company while the translation of balance
sheet accounts do not generally affect the Company's investment in joint
venture.
(b) Lease financing consists of a 50% 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 $107 and $214 for the three and six
months ended June 30, 2004 and $123 and $245 for the three and six months ended
June 30, 2003, respectively, and is included in rental income in the
Consolidated Statements of Income.
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company recognizes all derivative financial instruments, such as 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 value 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, participate in put
and/or call options and enter into interest rate swap agreements.
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 June 30, 2004 and December 31, 2003, the fair value of
such derivatives was ($15) and ($10) 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 income. The
Company recognized ($7) and $982 in net realized and unrealized (losses) gains
from derivative instruments for the six months ended June 30, 2004 and 2003,
respectively, which are included in other income and expense, net in the
Consolidated Statements of Income.
11. RELATED PARTY TRANSACTIONS
The Company has a 50% 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% interest
in this entity (See Note 9).
The Company's two hotel properties, as well as the hotels owned by the Hotel
Venture and Quebec Venture, are managed by Prime (See Note 9). Fees paid for the
management of the Company's two hotel properties are based upon a percentage of
revenue and were approximately $39 and $52 for the six months ended June 30,
2004 and 2003, respectively. Included in marketable securities at June 30, 2004
and December 31, 2003 was $37,592 and $36,105, respectively, of common stock in
Prime which represents approximately 7.9% of Prime's outstanding shares at both
periods.
12
12. COMMITMENTS AND CONTINGENCIES
The Company has undertaken the completion of environmental studies and/or
remedial action at Metex' (as hereafter defined) two New Jersey facilities and
has recorded a liability for the estimated investigation, remediation and
administrative costs associated therewith.
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. Although it is not currently possible to estimate the range or amount of
the ultimate liability, the Company has approximately $11,000 recorded in other
long-term liabilities as of June 30, 2004 and December 31, 2003 to cover such
matters. In the opinion of management, this amount 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, regulatory and tax
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. At June 30, 2004 and December 31, 2003, the Company
had approximately $20,000 recorded in other long-term liabilities relating to
such matters. None of these matters are expected to result in a material adverse
effect on the Company's consolidated financial position or results of
operations.
13. COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2004 2003 2004 2003
--------- -------- --------- --------
Net income $ 9,849 $ 3,457 $ 13,294 $ 6,953
Other comprehensive income, net of tax:
Change in net unrealized gain (loss) on available for
sale securities, net of tax (provision) benefit of
$881, ($2,188), ($746) and $272, respectively (1,635) 4,064 1,387 (504)
Reclassification adjustment for net gains realized in
net income, net of tax provision of $87 and $295,
respectively (162) -- (548) --
-------- -------- -------- --------
Comprehensive income $ 8,052 $ 7,521 $ 14,133 $ 6,449
======== ======== ======== ========
13
Accumulated other comprehensive income included as a component of stockholders'
equity at June 30, 2004 and December 31, 2003 consists of net unrealized gains
on available-for-sale securities of $9,711 and $8,872, which is net of $5,229
and $4,777 of taxes, respectively.
14. 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 which are located throughout the United States. Engineered products
are manufactured through wholly-owned subsidiaries of the Company and primarily
consist of knitted wire products and components and transformer products which
are sold worldwide.
Operating results of the Company's business segments are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2004 2003 2004 2003
--------- -------- --------- ---------
Net revenues and sales:
Real estate investment and management $ 5,398 $ 5,907 $ 10,762 $ 11,407
Engineered products 10,178 8,326 19,468 16,482
-------- -------- -------- --------
$ 15,576 $ 14,233 $ 30,230 $ 27,889
======== ======== ======== ========
Operating income:
Real estate investment and management $ 2,836 $ 3,101 $ 5,650 $ 5,734
Engineered products 1,350 833 2,189 1,312
General corporate expenses (649) (929) (1,414) (1,615)
-------- -------- -------- --------
3,537 3,005 6,425 5,431
Other income, net 708 1,316 2,609 2,170
-------- -------- -------- --------
Income from continuing operations before
income taxes $ 4,245 $ 4,321 $ 9,034 $ 7,601
======== ======== ======== ========
15. PENSION PLAN
The Company accounts for its defined benefit pension plan in accordance with
Statement of Financial Accounting Standards No. 87, "Employers' Accounting for
Pensions" ("SFAS No. 87"), which requires that amounts recognized in the
financial statements be determined on an actuarial basis. SFAS No. 87 generally
reduces the volatility of future income (expense) from changes in pension
liability discount rates and the performance of the pension plan's assets. The
Company uses December 31 as the measurement date for its pension plan.
Net periodic pension expense consists of the following:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ --------------------
2004 2003 2004 2003
------- ------- ------- ---------
Service cost $ (71) $ (67) $(142) $(133)
Interest cost (162) (161) (325) (323)
Actual return on plan assets (46) 953 119 904
Net amortization and deferral 249 (815) 228 (628)
----- ----- ----- -----
Net periodic pension expense $ (30) $ (90) $(120) $(180)
===== ===== ===== =====
The Company did not contribute to the pension plan during the six months ended
June 30, 2004 as the plan is overfunded. The Company does not anticipate
contributing to the plan in 2004.
14
16. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued SFAS No.132 (Revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No. 132R").
This standard requires new annual and interim disclosures about the types of
plan assets, investment strategy, measurement date, plan obligations, and cash
flows as well as the components of the net periodic benefit cost recognized in
interim periods. The Company has adopted the disclosures required by SFAS No.
132R, except for the disclosure of expected future benefit payments, which must
be disclosed for fiscal years ending after June 15, 2004.
17. 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.
18. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to present them on a basis
consistent with the current year presentations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
Net income increased $6,392 or 185% to $9,849 for the quarter ended June 30,
2004 from the comparable 2003 period. On a per basic share basis, net income was
$1.08 for the current quarter compared with $.38 for the same quarter of 2003.
Income from continuing operations during this period was $3,508 or $.38 per
basic share versus $2,890 or $.32 per basic share during the same period in
2003, representing a 21.4% increase. Total revenues were $15,576 for the three
months ended June 30, 2004, an increase of $1,343 or 9.4% from the comparable
2003 period.
For the six months ended June 30, 2004, net income increased $6,341 or 91.2% to
$13,294 from net income of $6,953 for the same period of 2003. On a per basic
share basis, net income was $1.46 for the current six month period compared with
$.77 for the same period of 2003. Income from continuing operations during the
six month period ended June 30, 2004 was $7,012 or $.77 per basic share, an
increase of $2,087 or 42.4% over the comparable prior year period. Total
revenues for the six months ended June 30, 2004 were $30,230, up $2,341 or 8.4%
from the comparable 2003 period.
REAL ESTATE INVESTMENT AND MANAGEMENT
Rental revenues from real estate operations decreased $509 or 8.6% to $5,398 for
the three month period ended June 30, 2004 and $645 or 5.7% to $10,762 for the
six month period ended June 30, 2004 compared to the corresponding periods in
2003. These decreases are primarily attributable to the recognition of a
non-recurring amount for back-rent during second quarter of 2003 and a decrease
in hotel operating revenue. Excluding the non-recurring adjustment for back
15
rent, rental revenues from real estate increased slightly during both the second
quarter and first half of 2004. Rental revenues from real estate operations does
not include revenue from properties classified as held for sale or those sold
during 2004 and 2003, as such results have been reclassified as discontinued
operations in accordance with SFAS No.144.
Mortgage interest expense decreased $66 or 27.8% to $171 for the quarter ended
June 30, 2004, and $129 or 26.2% to $363 for the six months ended June 30, 2004,
as compared to the corresponding periods in 2003. These decreases are a result
of continuing mortgage amortization. At June 30, 2004, the outstanding mortgage
balance on the Company's real estate properties had been reduced to less than
$10 million.
Depreciation expense associated with real properties held for rental decreased
$79 or 11.5% for the three months ended June 30, 2004 and $176 or 12.7% for the
six months ended June 30, 2004 compared to the same period in 2003. These
decreases are primarily due to reduced depreciation expense associated with
certain properties becoming fully depreciated in the current and prior year.
Depreciation expense from property sales and properties held for sale in 2004
and 2003 has been reclassified as discontinued operations in accordance with
SFAS No.144.
Other operating expenses associated with the management of real properties
decreased $99 or 5.3% for the three months ended June 30, 2004 and $256 or 6.8%
for the six months ended June 30, 2004 compared to the same period in 2003. The
decrease for the three months ended June 30, 2004 is primarily due to decreases
in hotel operating and legal expenses partially offset by an increase in real
estate taxes. For the six month period ended June 30, 2004, the decrease is
principally due to decreases in hotel operating, property maintenance, payroll,
and real estate tax expenses.
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 ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net sales $10,178 $ 8,326 $19,468 $16,482
Cost of sales 7,103 5,820 13,784 11,880
Selling, general and administrative
expenses 1,725 1,673 3,495 3,290
------- ------- ------- -------
Operating income $ 1,350 $ 833 $ 2,189 $ 1,312
======= ======= ======= =======
Net sales of the engineered products segment increased $1.9 million or 22.2% and
$3.0 million or 18.1% for the three and six months ended June 30, 2004,
respectively, compared with the results of the corresponding 2003 period. These
increases primarily result from increased demand in three of the Company's
product lines- engineered components, automotive products and transformers which
has been brought about through success of new value added applications, a strong
worldwide automotive market and a general increase in capital spending, which
has been significantly reduced over the last few years.
Cost of sales as a percentage of sales declined slightly in the three and six
month periods ended June 30, 2004, compared to the corresponding periods in
2003. Many factors contributed to these declines including the increase in sales
of the product lines, noted above, as each product line has differing gross
margins. In addition, the results of the current year periods include certain
additional costs associated with the preparations and subsequent negotiation of
the Company's collective bargaining agreement which expired and was successfully
renegotiated in February 2004.
Selling, general and administrative expenses of the engineered products segment
increased $52 or 3.1% and $205 or 6.2% for the second quarter and first half of
2004, respectively, over the comparable 2003 period. These increases are
primarily due to increases in payroll and payroll related items and as a result
of the increase in sales, noted above. These increases are partially offset by
decreases in advertising expense and professional fees.
16
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the manufacturing
operations for the three and six months ended June 30, 2004 decreased $280 or
30.1% and $201 or 12.4%, respectively, compared to such expenses incurred for
the comparable 2003 periods. These decreases are primarily due to lower
compensation and benefit expenses, pension related expenses and professional
fees.
OTHER INCOME AND EXPENSE, NET
The components of other income and expense, net in the Consolidated Statements
of Income are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2004 2003 2004 2003
--------- ---------- -------- ---------
Net gain on sale of available-for-sale
securities $ 251 $ -- $ 845 $ --
Net realized and unrealized gain on derivative
instruments (4) 667 (7) 982
Net realized gain on trading securities -- -- -- 57
Gain on sale of other assets -- -- 363 --
Equity in earnings of hotel ventures 151 174 10 287
Net gain on sale of real estate assets -- 11 1 152
Casualty insurance settlement -- -- 831 --
Other, net 21 (7) 11 (4)
------- ------- ------- -------
$ 419 $ 845 $ 2,054 $ 1,474
======= ======= ======= =======
INCOME TAXES
The effective tax rate from continuing operations has been reduced for the three
and six months ended June 30, 2004 from that of the comparable periods in 2003
as a result of tax benefits from the donation of certain properties to qualified
organizations which are being recognized ratably over the current year.
DISCONTINUED OPERATIONS
Operating income from properties sold or held for sale and accounted for as
discontinued operations was $25 and $49 on a net of tax basis for the three and
six months ended June 30, 2004, respectively, versus $193 and $519 for the
comparable 2003 periods. Prior year amounts have been reclassified to reflect
results of operations of real properties held for sale as of June 30, 2004, or
disposed of during 2004 and 2003, as discontinued operations. Net gains on the
disposal of real estate assets accounted for as discontinued operations were
$6,316 and $6,233 for the three and six months ended June 30, 2004 and $374 and
$1,509 for the three and six months ended June 30, 2003, on a net of tax basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a net cash inflow from operations of $4,462 for the six
months ended June 30, 2004 versus $4,841 for the six months ended June 30, 2003.
The $379 decrease in operating cash flow primarily resulted from changes in
working capital partially offset by an increase in income from operations and
lower proceeds from the sale of trading securities.
Net cash provided by investing activities decreased $1,875 for the six months
ended June 30, 2004 compared with the same period in 2003. Several significant
changes occurred between the two periods as a result of the timing of certain
transactions, particularly the purchase or sale of the marketable securities,
real estate and other assets as well as from distributions from the Company's
investments in joint ventures. The components of these changes are set forth in
detail in the Consolidated Statement of Cash Flows.
17
Net cash used in financing activities was $1.5 million during both the six
months ended June 30, 2004 and 2003. These uses of cash were primarily
attributable to debt reduction partially offset by cash proceeds from the
exercise of stock options. In addition, during 2003, the Company used cash for
the purchase and retirement of the Company's common stock.
At June 30, 2004, the Company's cash and marketable securities totaled $125.7
million and working capital was $110.7 million compared to cash and marketable
securities of $108.8 million and working capital of $96.1 million at December
31, 2003. Management continues to believe that the real estate market is
overvalued and accordingly 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, 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 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 its 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. Changes in U.S.
interest rates affect the interest earned on the Company's cash and cash
equivalent balances and other interest bearing investments. Although interest
rates have begun to rise over the past couple of months, given the level of cash
and other interest bearing investments held by the Company and the decline in
U.S. interest rates over the past several years, the Company's earnings have
been negatively impacted.
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% 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 June 30, 2004
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 June 30, 2004. 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") (1.36% at June 30, 2004) plus 2.0% for
non-cash collateralized borrowings and 1.0% for cash collateralized borrowings.
18
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 has recorded a liability
for the estimated investigation, remediation and administrative cost associated
therewith. See Note 12 of Notes to Consolidated Financial Statements for further
discussion of this matter. The Company is subject to various other litigation,
legal regulatory and tax 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.
RELATED PARTY TRANSACTIONS
Refer to Notes to Consolidated Financial Statements for a discussion of related
party transactions.
CRITICAL ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES
The preparation of consolidated financial statements in accordance 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.
Refer to the Company's 2003 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 six
months ended June 30, 2004, 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 2003 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.
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
See Note 10 of Notes to Consolidated Financial Statements for a discussion of
derivative financial activity since December 31, 2003. There have been no other
material changes in quantitative and qualitative market risks from those
disclosed in item 7A of the Company's Annual Report on form 10-K for the year
ended December 31, 2003, which is incorporated herein by reference.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by 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 over financial reporting or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 8, 2004, the Company held its Annual Meeting of Stockholders, whereby
the stockholders voted to elect Directors as follows:
FOR WITHHELD
-------------- ------------
A.F. Petrocelli 8,442,163 327,507
Howard M. Lorber 8,597,264 172,406
Robert M. Mann 8,610,400 159,270
Anthony J. Miceli 8,441,363 328,307
Arnold S. Penner 8,593,110 176,560
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
None
(b) Exhibits:
31.1 Certification of the Chief Executive Officer Pursuant to Rule
13a-14.
31.2 Certification of the Chief Financial Officer Pursuant to Rule
13a-14.
32.1 Certification of the Chief Executive Officer Pursuant to Section 906
of Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer Pursuant to Section 906
of Sarbanes-Oxley Act of 2002.
20
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: August 2, 2004 By: /s/Anthony J. Miceli
---------------------------------------
Anthony J. Miceli
Vice President, Chief Financial Officer
and Secretary of the Company
21