UNITED STATES
 SECURITIES AND EXCHANGE
COMMISSION
 Washington, D.C.
20549
 
 FORM 10-Q
 
 (Mark
One)
 
 xQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the
quarterly period ended September 30,
2008
  or
 
  ̈TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the
transition period from 
to
 
 Commission File Number:
1-10104
 
 UNITED CAPITAL
  CORP.(Exact
      name of registrant as specified in its
charter)
 
 Delaware
                  04-2294493(State
      or other jurisdiction of incorporation or organization)
                  (I.R.S.
      Employer 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 Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.     Yes x     No
 ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
(Check one):
  Large
      accelerated filer  ̈
                Accelerated
      filer  ̈Non-accelerated
      filer  ̈ (Do
      not check if a smaller reporting company)
                Smaller
      reporting company x
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).     Yes o    No
x
 
 The
registrant had 8,483,434 shares of common stock, $.10 par value, outstanding as
of November 5, 2008.




UNITED
CAPITAL CORP. AND SUBSIDIARIES





INDEX








PAGEPART I – FINANCIAL INFORMATIONITEM 1.
                        FINANCIAL STATEMENTSCondensed
      Consolidated Balance Sheets as ofSeptember 30, 2008 (Unaudited)
      and December 31, 2007
                        3Condensed
      Consolidated Statements of Operations for the Three and Nine
      Months Ended September 30, 2008 and 2007 (Unaudited)
                        4Condensed
      Consolidated Statements of Cash Flows for theNine Months
      Ended September 30, 2008 and 2007 (Unaudited)
                        5-6Notes to Condensed Consolidated Financial Statements
      (Unaudited)
                        7-14ITEM 2.
                        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
                        14-20ITEM 3.
                        QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET
      RISK
                        20ITEM 4.
                        CONTROLS AND PROCEDURES
                        20PART II – OTHER INFORMATIONITEM 1.
                        LEGAL PROCEEDINGS
                        20ITEM 1A.
                        RISK FACTORS
                        21ITEM 2.
                        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
                        21ITEM 6.
                        EXHIBITS
                        21SIGNATURES
                        22
   2
 Index


UNITED CAPITAL CORP. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


(In
thousands, except per share data)





September
      30,
                  2008
              
              
              December
      31, 2007(Unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              113,215
              
              
              $
              129,003Marketable
      securities
              
              
              26,861
              
              
              
              27,191Notes
      and accounts receivable, net
              
              
              8,922
              
              
              
              24,209Inventories
              
              
              5,157
              
              
              
              5,458Prepaid
      expenses and other current assets
              
              
              1,789
              
              
              
              1,787Deferred
      income taxes
              
              
              7,714
              
              
              
              1,143Total
      current assets
              
              
              163,658
              
              
              
              188,791Property,
      plant and equipment, net
              
              
              5,830
              
              
              
              6,249Real
      property held for rental, net
              
              
              77,501
              
              
              
              64,936Investment
      in joint venture
              
              
              5,609
              
              
              
              6,125Noncurrent
      notes receivable
              
              
              1,058
              
              
              
              352Other
      assets
              
              
              4,125
              
              
              
              4,059Noncurrent
      assets of discontinued operations
              
              
              1,537
              
              
              
              1,558Total
      assets
              
              $
              259,318
              
              
              $
              272,070Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Current
      maturities of long-term debt
              
              $
              2,727
              
              
              $
              1,002Accounts
      payable and accrued liabilities
              
              
              11,687
              
              
              
              10,934Income
      taxes payable
              
              
              976
              
              
              
              4,343Total
      current liabilities
              
              
              15,390
              
              
              
              16,279Long-term
      debt
              
              
              30,375
              
              
              
              32,334Other
      long-term liabilities
              
              
              15,132
              
              
              
              15,233Deferred
      income taxes
              
              
              9,481
              
              
              
              9,615Total
      liabilities
              
              
              70,378
              
              
              
              73,461Commitments
      and contingenciesStockholders’
      equity:Common
      stock, $.10 par value, authorized 17,500 shares;issued
      and outstanding 8,483 and 8,286 shares, respectively
              
              
              848
              
              
              
              829Retained
      earnings
              
              
              193,694
              
              
              
              196,817Accumulated
      other comprehensive (loss) income, net of tax
              
              
              (5,602
              )
              
              
              963Total
      stockholders’ equity
              
              
              188,940
              
              
              
              198,609Total
      liabilities and stockholders’ equity
              
              $
              259,318
              
              
              $
              272,070









The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.




3
 Index




UNITED
CAPITAL CORP. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(In
thousands, except per share data)





Three
      Months Ended
                  September
      30,
              
              
              Nine
      Months Ended
                  September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Revenues:Net sales
              
              $
              9,109
              
              
              $
              9,332
              
              
              $
              28,628
              
              
              $
              28,919Revenues from real estate
      operations
              
              
              9,439
              
              
              
              9,813
              
              
              
              27,816
              
              
              
              24,634Total revenues
              
              
              18,548
              
              
              
              19,145
              
              
              
              56,444
              
              
              
              53,553Costs
      and expenses:Cost of sales
              
              
              7,201
              
              
              
              7,241
              
              
              
              22,382
              
              
              
              21,996Real estate
      operations:Mortgage interest
      expense
              
              
              538
              
              
              
              266
              
              
              
              1,588
              
              
              
              661Depreciation
      expense
              
              
              957
              
              
              
              837
              
              
              
              2,858
              
              
              
              2,265Other operating
      expenses
              
              
              4,613
              
              
              
              4,432
              
              
              
              13,500
              
              
              
              11,203General and administrative
      expenses
              
              
              1,655
              
              
              
              1,612
              
              
              
              5,067
              
              
              
              4,801Selling
expenses
              
              
              986
              
              
              
              815
              
              
              
              2,910
              
              
              
              2,566Total costs and
      expenses
              
              
              15,950
              
              
              
              15,203
              
              
              
              48,305
              
              
              
              43,492Operating
income
              
              
              2,598
              
              
              
              3,942
              
              
              
              8,139
              
              
              
              10,061Other
      income (expense):Interest and dividend
      income
              
              
              1,341
              
              
              
              1,859
              
              
              
              4,156
              
              
              
              5,447Other income and (expense),
      net
              
              
              (14,982
              )
              
              
              (994
              )
              
              
              (15,193
              )
              
              
              5,490Total other income
      (expense)
              
              
              (13,641
              )
              
              
              865
              
              
              
              (11,037
              )
              
              
              10,937(Loss)
      income from continuing operations before income taxes
              
              
              (11,043
              )
              
              
              4,807
              
              
              
              (2,898
              )
              
              
              20,998(Benefit)
      provision for income taxes
              
              
              (3,969
              )
              
              
              1,118
              
              
              
              (957
              )
              
              
              6,993(Loss)
      income from continuing operations
              
              
              (7,074
              )
              
              
              3,689
              
              
              
              (1,941
              )
              
              
              14,005Discontinued
      operations:Income
      from discontinued operations, net of tax provision of $26, $17, $71 and
      $57, respectively
              
              
              41
              
              
              
              26
              
              
              
              108
              
              
              
              86Net
      gain on disposal of discontinued operations, net of tax provision of
      $5,967 and $6,668, respectively
              
              
              —
              
              
              
              8,950
              
              
              
              —
              
              
              
              10,002Income
      from discontinued operations
              
              
              41
              
              
              
              8,976
              
              
              
              108
              
              
              
              10,088Net
      (loss) income
              
              $
              (7,033
              )
              
              $
              12,665
              
              
              $
              (1,833
              )
              
              $
              24,093Basic
      earnings (loss) per share:(Loss) income from continuing
      operations
              
              $
              (.83
              )
              
              $
              .45
              
              
              $
              (.23
              )
              
              $
              1.69Income from discontinued
      operations
              
              
              —
              
              
              
              1.08
              
              
              
              .01
              
              
              
              1.22Net (loss) income per
      share
              
              $
              (.83
              )
              
              $
              1.53
              
              
              $
              (.22
              )
              
              $
              2.91Diluted
      earnings (loss) per share:(Loss) income from continuing
      operations
              
              $
              (.83
              )
              
              $
              .37
              
              
              $
              (.23
              )
              
              $
              1.37Income from discontinued
      operations
              
              
              —
              
              
              
              .89
              
              
              
              .01
              
              
              
              .98Net (loss) income per share
      assuming dilution
              
              $
              (.83
              )
              
              $
              1.26
              
              
              $
              (.22
              )
              
              $
              2.35











The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.




4
 Index


UNITED
CAPITAL CORP. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(In
thousands)





Nine
      Months Ended
                  September
      30,2008
              
              
              2007Cash flows from operating
      activities:Net (loss) income
              
              $
              (1,833
              )
              
              $
              24,093Adjustments to reconcile net
      (loss) income to net cash provided by operating
activities:Depreciation
      and amortization
              
              
              3,199
              
              
              
              2,619Gain
      on disposal of discontinued operations, net of tax
              
              
              —
              
              
              
              (10,002
              )Litigation
      award from prior condemnation
              
              
              (457
              )
              
              
              (5,665
              )Contribution
      to pension plan
              
              
              —
              
              
              
              (700
              )Net
      loss on available-for-sale securities
              
              
              16,088
              
              
              
              316Net
      realized and unrealized gain on derivative instruments
              
              
              (438
              )
              
              
              (149
              )Income
      from equity investment
              
              
              (69
              )
              
              
              (143
              )Deferred
      income taxes
              
              
              (3,170
              )
              
              
              1,916Other,
      net
              
              
              87
              
              
              
              149Changes
      in assets and liabilities:Notes
      and accounts receivable, net
              
              
              (454
              )
              
              
              (864
              )Inventories
              
              
              301
              
              
              
              (398
              )Other
      assets
              
              
              (242
              )
              
              
              (246
              )Accounts
      payable and accrued liabilities
              
              
              121
              
              
              
              1,907Income
      taxes payable
              
              
              (3,367
              )
              
              
              (2,051
              )Other
      long-term liabilities
              
              
              (101
              )
              
              
              79Net
      cash provided by operating activities of continuing
    operations
              
              
              9,665
              
              
              
              10,861Operating
      activities of discontinued operations
              
              
              21
              
              
              
              (39
              )Net
      cash provided by operating activities
              
              
              9,686
              
              
              
              10,822Cash flows from investing
      activities:Purchase
      of available-for-sale securities
              
              
              (27,145
              )
              
              
              (12,927
              )Proceeds/maturities
      from sale of available-for-sale securities
              
              
              1,352
              
              
              
              53,344Proceeds
      from sale of real estate assets
              
              
              —
              
              
              
              17,855Escrowed
      proceeds from sale of real estate assets
              
              
              15,000
              
              
              
              (15,000
              )Net
      proceeds from litigation award from prior condemnation
              
              
              457
              
              
              
              5,665Proceeds
      from sale of derivative instruments
              
              
              1,070
              
              
              
              188Principal
      payments on notes receivable
              
              
              35
              
              
              
              1,367Acquisition
      of property, plant and equipment
              
              
              (528
              )
              
              
              (297
              )Acquisition
      of/additions to real estate assets
              
              
              (14,795
              )
              
              
              (16,271
              )Distributions
      from joint venture
              
              
              585
              
              
              
              587Net
      cash (used in) provided by investing activities of continuing
      operations
              
              
              (23,969
              )
              
              
              34,511Investing
      activities of discontinued operations
              
              
              —
              
              
              
              15Net
      cash (used in) provided by investing activities
              
              
              (23,969
              )
              
              
              34,526







Continued





5
 Index




UNITED
CAPITAL CORP. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


(Unaudited)





Nine
      Months Ended
                  September
      30,2008
              
              
              2007Cash flows from financing
      activities:Proceeds
      from mortgage obligations
              
              
              500
              
              
              
              12,000Principal
      payments on mortgage obligations
              
              
              (734
              )
              
              
              (398
              )Purchase
      and retirement of common stock
              
              
              (13,325
              )
              
              
              (15,681
              )Proceeds
      from exercise of stock options
              
              
              9,224
              
              
              
              4,936Tax
      benefit from exercise of employee stock options
              
              
              2,830
              
              
              
              3,944Net
      cash (used in) provided by financing activities
              
              
              (1,505
              )
              
              
              4,801Net
      (decrease) increase in cash and cash equivalents
              
              
              (15,788
              )
              
              
              50,149Cash
      and cash equivalents, beginning of period
              
              
              129,003
              
              
              
              76,688Cash
      and cash equivalents, end of period
              
              $
              113,215
              
              
              $
              126,837Supplemental
      disclosures of cash flow information:Cash paid during the period
      for:Interest
              
              $
              1,585
              
              
              $
              653Taxes
              
              $
              2,754
              
              
              $
              2,937Non-cash operating, investing
      and financing activities:Mortgage obligation assumed in
      connection with acquisition of hotel property (see Note 7)
              
              $
              —
              
              
              $
              2,315


The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.





6
 Index





UNITED
CAPITAL CORP. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(In
thousands, except per share data)


(Unaudited)


1. Basis of
Presentation
 
 The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) for interim financial information and with the
instructions to Form 10-Q and Article 8 of Regulation S-X, as promulgated by the
Securities and Exchange Commission (“SEC”).  Accordingly, they do not
include all information and footnotes required by GAAP for complete financial
statements.
 
 In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods presented have been recorded.  These financial statements have
been prepared in conformity with the accounting principles, and methods of
applying those accounting principles, as reflected in the audited financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2007 and should be read in conjunction
therewith.  The results of operations for the periods presented are
not necessarily indicative of the results to be expected for the full
year.
 
 In the
general course of its operations, the Company has from time to time restructured
the manner in which it holds its subsidiaries and the underlying assets of its
subsidiaries.  In 2008, a restructuring of the Company’s engineered
products segment took place.  Although there is no effect on the
Company’s consolidated financial results or its financial position, certain
assets of Metex Mfg. Corporation were transferred to new wholly-owned
subsidiaries of the Company.
 
 2. Stockholders’
Equity
 
 Previous
purchases of the Company’s common stock have reduced the Company’s additional
paid-in-capital to zero and have also reduced retained earnings by amounts in
excess of par value.  Any future purchases in excess of par value will
also reduce retained earnings.
 
 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.  Future proceeds from
the issuance of common stock in excess of par value will be credited to retained
earnings until such time that previously recorded reductions have been
recovered.  During the nine months ended September 30, 2008 and 2007,
the Company received proceeds of $9,224 and $4,936 from the exercise of 804 and
544 stock options, respectively.  During the nine months ended
September 30, 2008 and 2007, the Company recorded a tax benefit of $2,830 and
$3,994 to retained earnings related to the exercise of stock
options.
 
 During
the nine months ended September 30, 2008 and 2007, the Company purchased and
retired 607 and 522 shares of common stock for an aggregate purchase price of
$13,325 and $15,681, respectively.
 
 3. Earnings
(Loss) Per Share
 
 The
following table sets forth the computation of basic and diluted earnings (loss)
per share from continuing operations:
  Three
      Months Ended
                    September
      30,
                
                
                Nine
      Months Ended
                    September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Numerator:(Loss) income from continuing
      operations
                
                $
                (7,074
                )
                
                $
                3,689
                
                
                $
                (1,941
                )
                
                $
                14,005Denominator:Basic – weighted-average shares
      outstanding
                
                
                8,502
                
                
                
                8,301
                
                
                
                8,396
                
                
                
                8,288Dilutive effect of employee
      stock options
                
                
                —
                
                
                
                1,755
                
                
                
                —
                
                
                
                1,975Diluted – weighted-average
      shares outstanding
                
                
                8,502
                
                
                
                10,056
                
                
                
                8,396
                
                
                
                10,263Basic
      earnings per share – continuing operations
                
                $
                (.83
                )
                
                $
                .45
                
                
                $
                (.23
                )
                
                $
                1.69Diluted
      earnings per share – continuing operations
                
                $
                (.83
                )
                
                $
                .37
                
                
                $
                (.23
                )
                
                $
                1.37
  7
 Index
  Potentially
dilutive common shares, related to outstanding employee stock options, amounting
to 1,307 and 1,351 shares for the three and nine months ended September 30,
2008, respectively, were not included in the computation of diluted earnings per
share because their effect would have been anti-dilutive.
 
 4. Stock-Based
Compensation
 
 The
Company has two stock option plans, the Incentive and Non-Qualified Stock Option
Plan and the 1988 Joint Incentive and Non-Qualified Stock Option Plan, under
which qualified and non-qualified options may be granted to key employees to
purchase the Company’s common stock at the fair market value on the date of
grant.  Under both plans, the options typically become exercisable in
three equal installments, beginning one year from the date of
grant.  Stock options generally expire ten years from the date of
grant.  Currently, there are no options available for grant under
these plans.
 
 The
Company accounts for all stock-based compensation in accordance with Statement
of Financial Accounting Standards No. 123 (Revised 2004) – “Share-Based
Payment” (“SFAS No. 123R”).  SFAS No. 123R requires the Company
to measure all employee stock-based compensation awards using a fair value
method and record the related expense in the financial statements.
 
 As of
September 30, 2008 and December 31, 2007, the Company had options to purchase
3,945 and 4,749 shares outstanding with a weighted-average exercise price of
$11.99 and $11.91 per share, respectively.  As of September 30, 2008,
these options had a weighted-average remaining contractual term of 2.8 years and
an aggregate intrinsic value of $57,185.  The aggregate intrinsic
value represents the difference between the Company’s closing stock price on
September 30, 2008 ($26.49) and the exercise price of each option, multiplied by
the number of “in-the-money” options.  This amount changes based upon
the fair market value of the Company’s common stock.  During the nine
months ended September 30, 2008, 804 options to purchase 804 shares were
exercised which had a weighted-average exercise price of $11.47 per
share.
 
 5. Marketable
Securities
 
 The cost,
gross unrealized gains, gross unrealized losses and fair market value of
available-for-sale securities are as follows:
  Cost
                  
                  
                  Gross
                    Unrealized
                    Gains
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  Fair
                    Market
                    ValueSeptember
      30, 2008:Equity
    securities
                  
                  $
                  33,780
                  
                  
                  $
                  2,128
                  
                  
                  $
                  (11,363
                  )
                  
                  $
                  24,545Bonds
                  
                  
                  2,794
                  
                  
                  
                  3
                  
                  
                  
                  (481
                  )
                  
                  
                  2,316$
                  36,574
                  
                  
                  $
                  2,131
                  
                  
                  $
                  (11,844
                  )
                  
                  $
                  26,861December
      31, 2007:Equity
    securities
                  
                  $
                  24,900
                  
                  
                  $
                  1,988
                  
                  
                  $
                  (1,577
                  )
                  
                  $
                  25,311Bonds
                  
                  
                  1,904
                  
                  
                  
                  1
                  
                  
                  
                  (25
                  )
                  
                  
                  1,880$
                  26,804
                  
                  
                  $
                  1,989
                  
                  
                  $
                  (1,602
                  )
                  
                  $
                  27,191
 
 Proceeds/maturities
from the sale of available-for-sale securities as well as the gains and losses
recognized in earnings on available-for-sale securities included in the
determination of net (loss) income are as follows:
 
 Nine
      Months Ended
                    September
      30,2008
                
                
                2007Proceeds/maturities
                
                $
                1,352
                
                
                $
                53,344Gains
      recognized in earnings
                
                $
                138
                
                
                $
                2,954Losses
      recognized in earnings
                
                $
                (16,226
                )
                
                $
                (3,270
                )
 
 Included
in the results of the nine months ended September 30, 2008 are $16,226 in
impairment charges and $11,844 in unrealized losses on the Company’s marketable
security portfolio resulting from the sudden decline in the stock market and
collapse of certain financial institutions in which the Company held an
interest.  The impairment charges are included as a component of Other
Income And (Expense), Net in the Condensed Consolidated Statements of
Operations, while the unrealized losses are recorded, net of tax, in Accumulated
Other Comprehensive Loss in the accompanying Condensed Consolidated Balance
Sheet.  Management does not believe that the unrealized losses are
other-than-temporary given recent conditions and the Company’s ability to hold
such securities in order to allow sufficient time for recovery, however,
continuing market declines may cause this position to be
reexamined.
  8
 Index
  6. Inventories
 
 The
components of inventories are as follows:
  September
      30,
                    2008
                
                
                December
      31, 2007Raw
      materials
                
                $
                2,619
                
                
                $
                2,446Work
      in process
                
                
                356
                
                
                
                542Finished
      goods
                
                
                2,182
                
                
                
                2,470$
                5,157
                
                
                $
                5,458
 
 7. Real
Estate
 
 Property acquisitions
 
 During
January 2008, the Company purchased two commercial properties located in
Michigan for approximately $13,600.  These properties were purchased
using funds available from a property sold during 2007 in connection with a
Section 1031 tax-deferred exchange.  In addition, during July 2008,
the Company purchased a commercial property located in Connecticut for
approximately $700.  This purchase was partially financed by a $500
mortgage which bears interest at 6.73% per annum, is payable monthly based on a
25-year amortization and matures in July 2013.
 
 During
May 2007, the Company purchased a hotel located in Utica, New York for
approximately $16,000 plus closing costs, including the assumption of an
underlying mortgage of $2,315, of which $872 of the purchase price was allocated
to furniture, fixtures and equipment and is included in property, plant and
equipment in the Condensed Consolidated Balance Sheets.  The mortgage
assumed bears interest at 7.5% per annum, with monthly installments of interest
and principal of $30 through December 2015.  The total cost of the
acquisition, less the assumption of the mortgage, is reflected in Acquisition
Of/Additions To Real Estate Assets in the Condensed Consolidated Statements of
Cash Flows.
 
 Property sales
 
 During
the nine months ended September 30, 2007, the Company divested itself of five
commercial properties and two other properties which had a net book value of
$1,185 from its real estate investment and management segment.  The
aggregate proceeds from these transactions were $17,855 resulting in a gain of
$10,002, on a net of tax basis.
 
 At the
time of the sale, proceeds from one of the other properties, amounting to
$15,000, were placed in escrow with a third-party to facilitate a Section 1031
tax-deferred exchange.  In January 2008, the Company utilized
approximately $13,600 of the amount held to purchase a qualified
property.  The remaining balance, plus interest, was remitted to the
Company.
 
 The
results of operations of properties sold prior to September 30, 2008 have been
reclassified to discontinued operations, on a net of tax basis, for the three
and nine months ended September 30, 2007.  Summarized financial
information of these properties is as follows:
 
 Three
      Months Ended
                    September
      30, 2007
                
                
                Nine
      Months Ended
                    September
      30, 2007Revenues
                
                $
                3
                
                
                $
                45Depreciation
      expense
                
                
                —
                
                
                
                3Other
      operating expenses
                
                
                14
                
                
                
                61Loss
      from operations
                
                $
                (11
                )
                
                $
                (19
                )
  9
 Index
 
 Properties held for sale
 
 At
September 30, 2008, the Company considered one of its shopping centers and
retail outlets from its real estate investment and management segment to be held
for sale and reported as discontinued operations.  The results of
operations of this property have been reclassified to discontinued operations,
on a net of tax basis, in the Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 2008 and 2007.  In
addition, the assets and liabilities associated with this property, which
primarily consist of real property, net of accumulated depreciation, have been
reclassified to discontinued operations in the Condensed Consolidated Balance
Sheets at September 30, 2008 and December 31, 2007.  The property,
which had a net book value of approximately $1,500, was sold during the fourth
quarter of 2008.  Proceeds from the sale, amounting to approximately
$12,500, were placed in escrow with a third-party to facilitate a Section 1031
tax-deferred exchange, if a qualified acquisition property can be
identified.
 
 Summarized
financial information for the property held for sale and accounted for as
discontinued operations is as follows:
 
 Three
      Months Ended
                      September
      30,
                    
                    
                    Nine
      Months Ended
                      September
      30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Revenues
                    
                    $
                    67
                    
                    
                    $
                    66
                    
                    
                    $
                    200
                    
                    
                    $
                    199Depreciation
      expense
                    
                    
                    —
                    
                    
                    
                    12
                    
                    
                    
                    21
                    
                    
                    
                    37Income
      from operations
                    
                    $
                    67
                    
                    
                    $
                    54
                    
                    
                    $
                    179
                    
                    
                    $
                    162
 
 8. Derivative
Financial Instruments
 
 Management
maintains a diversified portfolio of cash equivalents and investments in a
variety of securities, primarily U.S. investments in common and preferred equity
issues, as well as corporate bonds, and participates on a limited basis in
transactions involving derivative financial instruments, including short stock
sales and put and/or call options.  At September 30, 2008 and December
31, 2007, the fair value of such derivatives was ($647) and ($15), respectively,
which is recorded as a component of accounts payable and accrued liabilities in
the Condensed 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 $438 and
$149 in net realized and unrealized gains from derivative instruments for the
nine months ended September 30, 2008 and 2007, respectively, which are included
in Other Income And (Expense), Net in the Condensed Consolidated Statements of
Operations.
 
 9. Fair Value
Measurements
 
 The
Company adopted Statement of Financial Accounting Standards No. 157, “Fair
Value Measurements” (“SFAS No. 157”), on January 1, 2008.  SFAS
No. 157 applies to all assets and liabilities that are being measured and
reported on a fair value basis.  As defined in SFAS No. 157, fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date.  SFAS No. 157 also establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value.  The statement requires that assets and liabilities
carried at fair value be classified and disclosed in one of the following three
categories:
 
 Level
1:  Quoted market prices in active markets for identical assets or
liabilities.
 Level
2:  Observable market based inputs or unobservable inputs that are
corroborated by market data.
 Level
3:  Unobservable inputs reflecting the reporting entity’s own
assumptions.
 
 SFAS No.
157 establishes a hierarchy which requires an entity to maximize the use of
quoted market prices and minimize the use of unobservable inputs.  An
asset or liability’s level is based on the lowest level of input that is
significant to the fair value measurement.
  10
 Index
  The
following table sets forth the Company’s financial assets and liabilities that
were measured at fair value on a recurring basis during the period, by level
within the fair value hierarchy:
 
 Fair
      Value Measurements as of
                    September
      30, 2008Total
                
                
                Level
      1
                
                
                Level
      2
                
                
                Level
      3Marketable
      securities
                
                $
                26,861
                
                
                $
                20,915
                
                
                $
                5,946
                
                
                $
                —Derivative
      financial instruments
                
                $
                (647
                )
                
                $
                (647
                )
                
                $
                —
                
                
                $
                —
 
 In
February 2008, the Financial Accounting Standards Board (“FASB”) issued Staff
Position No. 157-2, which delays the effective date of SFAS No. 157 for one year
for all nonfinancial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring
basis.  Based on this guidance, the Company expects to adopt the
provisions of SFAS No. 157 as they relate to long-lived assets effective January
1, 2009 and it is not expected to have a material impact on the Company’s
financial statements.
 
 On
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an Amendment of FASB Statement No. 115” (“SFAS No.
159”).  The Statement permits entities to choose to measure many
financial instruments and certain other items at fair value.  The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions.  This Statement is expected to expand the use
of fair value measurement, which is consistent with the FASB’s long-term
measurement objectives for accounting for financial instruments.  SFAS
159 became effective for fiscal years beginning after November 15,
2007.  The Company has elected not to implement the fair value option
with respect to any additional financial instruments (other than those
previously required under other GAAP rules or standards); therefore, the
adoption of SFAS 159 had no impact on the Company’s financial position or
results of operations.
 
 10.         
Pension Plan
 
 The
Company has a noncontributory defined benefit pension plan that covers
substantially all full-time employees of the engineered products and real estate
investment and management segments.  The plan provides defined
benefits based on years of service and compensation level.
 
 Net
periodic pension cost consists of the following:
 Three
      Months Ended
                    September
      30,
                
                
                Nine
      Months Ended
                    September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Service
      cost
                
                $
                (75
                )
                
                $
                (95
                )
                
                $
                (225
                )
                
                $
                (260
                )Interest
      cost
                
                
                (180
                )
                
                
                (164
                )
                
                
                (530
                )
                
                
                (493
                )Expected
      return on plan assets
                
                
                196
                
                
                
                180
                
                
                
                601
                
                
                
                551Net
      periodic pension cost
                
                $
                (59
                )
                
                $
                (79
                )
                
                $
                (154
                )
                
                $
                (202
                )
 
 The
Company contributed $700 to the pension plan during the nine months ended
September 30, 2007.  During the fourth quarter of 2008, the Company
contributed $1,500 to the pension plan.
  11
 Index
 
 11.        
Comprehensive (Loss) Income
 
 The
components of comprehensive (loss) income are as follows:
 Three
      Months Ended
                    September
      30,
                
                
                Nine
      Months Ended
                    September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      (loss) income
                
                $
                (7,033
                )
                
                $
                12,665
                
                
                $
                (1,833
                )
                
                $
                24,093Other
      comprehensive (loss) income, net of tax:Change
      in net unrealized (loss) gain on available-for-sale securities, net of tax
      effect of $5,306, $153, $5,489 and ($425), respectively
                
                
                (9,852
                )
                
                
                (285
                )
                
                
                (10,193
                )
                
                
                789Reclassification
      adjustment for net losses realized in net (loss) income, net of tax effect
      of ($5,278), ($340), ($1,954) and ($161), respectively
                
                
                9,802
                
                
                
                630
                
                
                
                3,628
                
                
                
                300Comprehensive
      (loss) income
                
                $
                (7,083
                )
                
                $
                13,010
                
                
                $
                (8,398
                )
                
                $
                25,182
 
 The
components of accumulated other comprehensive (loss) income, net of tax are as
follows:
  September
      30,
                    2008
                
                
                December
      31,
                    2007Net
      unrealized (loss) gain on available-for-sale securities, net of tax effect
      of ($3,399) and $136, respectively
                
                $
                (6,314
                )
                
                $
                251Unrecognized
      net gains from pension plan, net of tax effect of $383
                
                
                712
                
                
                
                712Accumulated
      other comprehensive (loss) income, net of tax
                
                $
                (5,602
                )
                
                $
                963
 
 12.        
Business Segments
 
 The
Company operates through three business segments: real estate investment and
management, hotel operations and engineered products.  The real estate
investment and management segment is engaged in the business of investing in and
managing real estate properties located throughout the United
States.  The hotel operations segment owns and operates three hotels
located in 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 sold
worldwide.
 
 The
accounting policies of the Company’s segments are the same as those described in
the Summary of Significant Accounting Policies included in the Notes to
Consolidated Financial Statements in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2007.
 
 Operating
results of the Company's business segments are as follows:
  Three
      Months Ended
                    September
      30,
                
                
                Nine
      Months Ended
                    September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      revenues and sales:Real estate investment and
      management
                
                $
                4,956
                
                
                $
                4,927
                
                
                $
                15,423
                
                
                $
                14,614Hotel
operations
                
                
                4,483
                
                
                
                4,886
                
                
                
                12,393
                
                
                
                10,020Engineered
    products
                
                
                9,109
                
                
                
                9,332
                
                
                
                28,628
                
                
                
                28,919$
                18,548
                
                
                $
                19,145
                
                
                $
                56,444
                
                
                $
                53,553Operating
      income (loss):Real estate investment and
      management
                
                $
                2,670
                
                
                $
                3,147
                
                
                $
                8,998
                
                
                $
                9,022Hotel
operations
                
                
                661
                
                
                
                1,131
                
                
                
                872
                
                
                
                1,483Engineered
    products
                
                
                69
                
                
                
                393
                
                
                
                802
                
                
                
                1,785General corporate
      expenses
                
                
                (802
                )
                
                
                (729
                )
                
                
                (2,533
                )
                
                
                (2,229
                )2,598
                
                
                
                3,942
                
                
                
                8,139
                
                
                
                10,061Other
      income (expense), net
                
                
                (13,641
                )
                
                
                865
                
                
                
                (11,037
                )
                
                
                10,937(Loss)
      income from continuing operations before income taxes
                
                $
                (11,043
                )
                
                $
                4,807
                
                
                $
                (2,898
                )
                
                $
                20,998
  12
 Index
  13.        
Commitments and Contingencies
 
 The
Company has undertaken the completion of environmental studies and/or remedial
action at its 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 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 such events are not expected to change these
estimates, 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 had approximately $9,400 and $9,500 recorded in accounts payable and
accrued liabilities and other long-term liabilities at September 30, 2008 and
December 31, 2007, respectively, to cover such matters.
 
 The
Company has an employment agreement with its Chairman, President and Chief
Executive Officer (the “Officer”) which provides for a base salary of $800 per
annum plus a discretionary bonus as determined by the Compensation and Stock
Option Committee of the Board of Directors.  In the event of
termination or a change in control, as defined in the employment agreement, the
Company is required to pay the Officer a lump sum severance payment equal to
three years salary and purchase outstanding options.  The employment
agreement provides for successive one-year terms, unless either the Company or
the Officer gives the other written notice that the employment agreement is
terminated, and also provides a death benefit which the Company secures through
an insurance policy.
 
 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 Condensed Consolidated Financial Statements, depending on the
anticipated payment date.  Based on the facts presently available, the
Company does not believe that the disposition of matters that are pending or
asserted will have a material adverse effect on the Company’s consolidated
financial position or results of operations.  However, new or
additional facts or an adverse judgment by a court, arbitrator or a settlement
could adversely impact the Company’s results of operations in any given
period.
 
 14.         Use
of Estimates
 
 The
preparation of consolidated financial statements in conformity with GAAP
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.
  13
 Index
 
 15.        
Reclassifications
 
 Certain
prior year amounts have been reclassified 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 or as otherwise
    noted)
  The
following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements of United Capital Corp. (the “Company”) and
related notes thereto.
 
 Results
of Operations:  Three and Nine Months Ended September 30, 2008 and
2007
 
 Total
revenues for the nine months ended September 30, 2008 were $56,444, an increase
of $2,891 or 5% from the comparable 2007 period, primarily due to the
acquisition of a hotel in May 2007.  Net loss for the first nine
months of 2008 was ($1,833) or ($.22) per basic share.  Included in
these results are $16,226 in impairment charges and $11,844 in unrealized losses
on the Company’s marketable security portfolio resulting from the sudden decline
in the stock market and collapse of certain financial institutions in which the
Company held an interest.  The impairment charges are included as a
component of Other Income And (Expense), Net in the Condensed Consolidated
Statement of Operations, while the unrealized losses are recorded, net of tax,
in Accumulated Other Comprehensive Loss in the accompanying Condensed
Consolidated Balance Sheets.  Net income for the nine months ended
September 30, 2007 was $24,093 or $2.91 per basic share.  The prior
year results include $10,002 in gains on the sale of real estate, on a net of
tax basis.  The Company did not sell any real estate properties during
the first nine months of 2008.  In addition, the results of 2007
include $5,208 more from litigation awards in connection with a property
condemned by the City of New York in 2001.
 
 For the
quarter ended September 30, 2008, total revenues were $18,548, a decrease of
$597 or 3%, compared to the comparable 2007 period.  Net loss for the
three months ended September 30, 2008 was ($7,033), or ($.83) per basic share,
which includes impairment charges of $15,777 on the Company’s marketable
security portfolio as noted above.  For the quarter ended September
30, 2007, net income was $12,665 or $1.53 which includes $8,950 in gains on the
sale of real estate, net of tax.
 
 The
growing weakness in the economy, exacerbated by recent credit market turmoil,
together with higher year-over-year raw material, energy, freight and other
costs, has pressured results in most of the Company’s business
segments.   These factors are expected to continue to impact the
Company in the fourth quarter and into the next year.  The Company has
implemented various price increases to help offset higher costs and is working
to further streamline operations, control expenses and maximize cash flow from
operations.  While the success of these efforts and the depth and
duration of the current negative economic environment and its impact on the
Company are uncertain, management believes the Company’s strong balance sheet
and diverse mix of businesses leave it well positioned to weather the
downturn.
 
 Real
Estate Operations
 
 The
Company’s real estate operations consist of the real estate investment and
management and hotel operations segments.  The operating results for
these segments are as follows:
 
 Three
      Months Ended
                    September
      30, 2008
                
                
                Nine
      Months Ended
                    September
      30, 2008Real
                    Estate
                
                
                Hotel
      Operations
                
                
                Total
                
                
                Real
      Estate
                
                
                Hotel
      Operations
                
                
                TotalRevenues
                
                $
                4,956
                
                
                $
                4,483
                
                
                $
                9,439
                
                
                $
                15,423
                
                
                $
                12,393
                
                
                $
                27,816Mortgage
      interest expense
                
                
                63
                
                
                
                475
                
                
                
                538
                
                
                
                178
                
                
                
                1,410
                
                
                
                1,588Depreciation
      expense
                
                
                627
                
                
                
                330
                
                
                
                957
                
                
                
                1,799
                
                
                
                1,059
                
                
                
                2,858Other
      operating expenses
                
                
                1,596
                
                
                
                3,017
                
                
                
                4,613
                
                
                
                4,448
                
                
                
                9,052
                
                
                
                13,500Income
      from operations
                
                $
                2,670
                
                
                $
                661
                
                
                $
                3,331
                
                
                $
                8,998
                
                
                $
                872
                
                
                $
                9,870
  14
 Index
  Three
      Months Ended
                    September
      30, 2007
                
                
                Nine
      Months Ended
                    September
      30, 2007Real
                    Estate
                
                
                Hotel
      Operations
                
                
                Total
                
                
                Real
      Estate
                
                
                Hotel
      Operations
                
                
                TotalRevenues
                
                $
                4,927
                
                
                $
                4,886
                
                
                $
                9,813
                
                
                $
                14,614
                
                
                $
                10,020
                
                
                $
                24,634Mortgage
      interest expense
                
                
                62
                
                
                
                204
                
                
                
                266
                
                
                
                188
                
                
                
                473
                
                
                
                661Depreciation
      expense
                
                
                480
                
                
                
                357
                
                
                
                837
                
                
                
                1,361
                
                
                
                904
                
                
                
                2,265Other
      operating expenses
                
                
                1,238
                
                
                
                3,194
                
                
                
                4,432
                
                
                
                4,043
                
                
                
                7,160
                
                
                
                11,203Income
      from operations
                
                $
                3,147
                
                
                $
                1,131
                
                
                $
                4,278
                
                
                $
                9,022
                
                
                $
                1,483
                
                
                $
                10,505
 
 Real Estate Investment and Management
 
 Revenues
from the real estate investment and management segment were $4,956 for the three
months ended September 30, 2008, an increase of less than 1% compared to the
corresponding period of 2007.  For the nine months ended September 30,
2008, revenues from this segment increased $809 or 5.5% to $15,423, compared to
the corresponding nine month period of 2007.  These increases are
primarily due to additional revenues ($269 and $777 for the three and nine month
periods, respectively) from two properties purchased in January 2008, partially
offset by a non-recurring transaction ($200) during the third quarter of
2007.  Revenues from the Company’s real estate portfolio are generally
derived from properties with single tenant, long-term
leases.  Therefore, rental revenues recognized under GAAP do not
fluctuate significantly, but are affected by future lease renewals or
terminations and by the purchase or sale of additional properties.
 
 Mortgage
interest expense increased slightly in the third quarter of 2008 due to a
mortgage obtained in connection with the purchase of a commercial property in
July.  The mortgage ($500) bears interest at 6.73% per annum, is
payable monthly based on a 25-year amortization and matures in July
2013.  In the nine month period ended September 30, 2008, mortgage
interest declined $10 from that of the same 2007 period as a result of
continuing mortgage amortization, partially offset by interest from the new
obligation.
 
 Depreciation
expense associated with real properties held for rental increased $147 for the
quarter ended September 30, 2008 and $438 for the first nine months of 2008,
compared to the corresponding periods of 2007.  These increases are
the result of additions to real estate assets over the past twelve
months.  During this time the Company purchased three commercial
properties for approximately $14,300 and incurred approximately $3,500 in
capital improvements adding $159 and $400 to the third quarter and year-to-date
2008 depreciation expense.
 
 Other
operating expenses associated with the management of real properties increased
$358 for the quarter and $405 for the nine months ended September 30, 2008,
compared to the corresponding periods of 2007.  These increases are
the result of higher property maintenance expenses ($212 and $134, respectively)
and professional fees ($80 and $207, respectively) which were incurred as a
result of the timing of necessary repairs, tenant turnover and legal matters
which occurred in the period.  Future expenses may vary as a result of
property age, location and vacancies.
 
 Hotel Operations
 
 Hotel
revenues decreased $403 or 8.2% to $4,483 for the third quarter of 2008,
compared to the corresponding quarter of 2007, primarily as a result of the
continued rise in transportation costs and the overall weakness in the U.S.
economy which has resulted in a reduction in both consumer and business
travel.  As a result, the Company expects lodging demand to continue
to decline through the remainder of 2008 and into 2009.  For the nine
months ended September 30, 2008, hotel revenues increased $2,373 or 23.7% to
$12,393, compared to the same nine month period of 2007, primarily due to the
additional hotel revenues ($3,175) received as a result of the May 2007
acquisition of a hotel located in Utica, New York (the “Utica
Hotel”).  This increase is partially offset by the decline in revenues
due to the weakening economic conditions previously mentioned.
 
 As a
result of mortgages secured on two of the Company’s hotels during 2007, mortgage
interest expense related to the Company’s hotel properties increased $271 and
$937 for the current quarter and first nine months of 2008, respectively,
compared to the corresponding periods of 2007.  As a result of these
additional mortgages, interest expense for the full year of 2008 will be higher
than that of 2007.
  15
 Index
 
 Depreciation
expense associated with the Company’s hotel operations decreased $27 for the
third quarter of 2008, compared to the corresponding 2007 period, primarily due
to a non-recurring adjustment ($37).  For the first nine months of
2008, depreciation expenses from this segment increased $155, compared to the
first nine months of 2007, primarily attributable to depreciation expense ($248)
related to the Utica Hotel acquired in May 2007.  Depreciation expense
of the Company’s hotel operations for the full year of 2008 should be higher
than that reported in 2007 due to this acquisition.  Depreciation
expense for 2009 should be more comparable to that of 2008, unless the Company
acquires additional hotel properties or experiences significant expenditures for
capital improvements.
 
 Other
operating expenses related to the management of the Company’s hotels decreased
$177 to $3,017 for the three months ended September 30, 2008, compared to the
corresponding quarter of 2007, primarily as a result of the lower revenues,
noted above.  For the nine months ended September 30, 2008, other
operating expenses increased $1,892 to $9,052, compared to the corresponding
period of 2007, primarily due to the additional operating expenses of the Utica
Hotel ($2,411).  This increase is partially offset by decreases in
hotel operating expenses as a result of the lower revenues.
 
 The
growing weakness in the economy, exacerbated by recent credit market turmoil,
has pressured results in the Company’s hotel operations.   This
condition is expected to continue to impact this segment in the fourth quarter
and into the next year.  The Company is working to streamline
operations, control expenses and maximize cash flow from
operations.  The success of these efforts and the depth and duration
of the current negative economic environment and its impact on future hotel
operations are uncertain.
 
 Engineered
Products
 
 The
operating results of the engineered products segment are as
follows:
 
 Three
      Months Ended
                    September
      30,
                
                
                Nine
      Months Ended
                    September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      sales
                
                $
                9,109
                
                
                $
                9,332
                
                
                $
                28,628
                
                
                $
                28,919Cost
      of sales
                
                
                7,201
                
                
                
                7,241
                
                
                
                22,382
                
                
                
                21,996Selling,
      general and administrative expenses
                
                
                1,839
                
                
                
                1,698
                
                
                
                5,444
                
                
                
                5,138Operating
      income
                
                $
                69
                
                
                $
                393
                
                
                $
                802
                
                
                $
                1,785
 
 Net sales
of the engineered products segment decreased $223 or 2.4% for the three months
ended September 30, 2008 and $291 or 1.0% for the nine months ended September
30, 2008, compared with the results of the corresponding 2007
periods.  These decreases are primarily related to a decrease in
demand for the Company’s automotive products line, partially offset by increases
in demand for the Company’s engineered products and transformer product
lines.  The decline in sales of the Company’s automotive products
primarily resulted from the significant reduction in North American automotive
production and the general slowdown in the global vehicle market.  As
this decline is continuing through the remainder of the year, the Company
expects 2008 sales of its automotive product line to be less than such sales in
2007.
 
 Cost of
sales as a percentage of net sales increased 1.5% and 2.1% in the three and nine
months ended September 30, 2008, respectively, compared to the corresponding
periods in 2007.  These increases are primarily related to an increase
in operating costs ($165 and $497 for the quarter and nine month periods,
respectively) which primarily includes certain salaried positions which were
vacant during 2007.
 
 Selling,
general and administrative expenses of the engineered products segment increased
$141 or 8.3% for the three month period ended September 30, 2008 and $306 or
6.0% for the nine month period ended September 30, 2008, compared to the
corresponding periods of 2007.  These increases for the quarter and
nine month periods are primarily due to increases in payroll and payroll related
expenses ($100 and $239, respectively) which primarily relate to certain
salaried positions which were vacant during 2007.
  16
 Index
 
 General
and Administrative Expenses
 
 General
and administrative expenses not associated with the manufacturing operations
increased $73 for the third quarter of 2008 and $304 for the first nine months
of 2008, compared to such expenses incurred for the comparable 2007 periods,
which are primarily related to non-recurring transactions ($77 and $257,
respectively) in 2007.
 
 Other
Income and Expense, Net
 
 The
components of other income and (expense), net in the Condensed Consolidated
Statements of Operations are as follows:
  Three
      Months Ended
                    September
      30,
                
                
                Nine
      Months Ended
                    September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      loss on available-for-sale securities
                
                $
                (15,671
                )
                
                $
                (970
                )
                
                $
                (16,088
                )
                
                $
                (316
                )Litigation
      award from prior condemnation
                
                
                457
                
                
                
                —
                
                
                
                457
                
                
                
                5,665Net
      realized and unrealized gain (loss) on derivative
    instruments
                
                
                216
                
                
                
                (14
                )
                
                
                438
                
                
                
                149Other,
      net
                
                
                16
                
                
                
                (10
                )
                
                
                —
                
                
                
                (8
                )$
                (14,982
                )
                
                $
                (994
                )
                
                $
                (15,193
                )
                
                $
                5,490
 
 Included
in the results for the nine months ended September 30, 2008 are $16,226 in
impairment charges and $11,844 in unrealized losses on the Company’s marketable
security portfolio resulting from the sudden decline in the stock market and
collapse of certain financial institutions in which the Company held an
interest.  The impairment charges are included in net loss on
available-for-sale securities, above, while the unrealized losses are recorded,
net of tax, in Accumulated Other Comprehensive Loss in the accompanying
Condensed Consolidated Balance Sheet.
 
 Included
in other income and expense, net are amounts received in connection with a
litigation award from a property condemned by the City of New York in
2001.
 
 Discontinued
Operations
 
 Income
from operations on properties sold and accounted for as discontinued operations
was $41 and $108, on a net of tax basis, for the three and nine months ended
September 30, 2008, respectively, versus $26 and $86 for the comparable 2007
periods.  Net gains on the disposal of real estate assets accounted
for as discontinued operations were $8,950 and $10,002, on a net of tax basis,
for the three and nine months ended September 30, 2007, respectively (see Note 7
of Notes to Condensed Consolidated Financial Statements).  Prior year
amounts have been reclassified to reflect results of operations of real
properties held for sale as of September 30, 2008 or sold during 2007 as
discontinued operations.  As of September 30, 2008, the Company
classified one property as held for sale, which had a net book value of
approximately $1,500, and was sold during the fourth quarter of
2008.  Proceeds from the sale, amounting to approximately $12,500,
were placed in escrow with a third-party to facilitate a Section 1031
tax-deferred exchange, if a qualified acquisition property can be
identified.  No properties have been sold during the nine months ended
September 30, 2008.
 
 Liquidity
and Capital Resources
 
 Net cash
provided by operating activities was $9,686 and $10,822 for the nine months
ended September 30, 2008 and 2007, respectively.  The decrease in
operating cash flows results principally from decreases in operating income
before depreciation ($1,342) and interest and dividend income ($1,291) as well
as changes in working capital ($848).  These decreases are partially
offset by the effect of current and deferred income taxes ($1,534) and the
contribution to the Company’s defined benefit pension plan in 2007
($700).
 
 Net cash
used in investing activities was $23,969 for the nine months ended September 30,
2008 versus net cash provided by investing activities of $34,526 for the same
period in 2007.  This change primarily results from the timing of the
purchase or sale of available-for-sale securities ($66,210) and a litigation
award received from a property condemnation ($5,208), partially offset by the
use of proceeds received on sale of real estate assets, including those deferred
in connection with tax deferred exchanges.
  17
 Index
 
 Net cash
used in financing activities was $1,505 for the nine months ended September 30,
2008, compared to net cash provided by financing activities of $4,801 for the
same period of 2007.  This decrease primarily results from additional
proceeds from mortgages obtained during 2007 in excess of that obtained during
2008 ($11,500) and additional tax benefits related to the exercise of stock
options ($1,114) recorded in the prior year.  These decreases were
partially offset by increases from the exercise of stock options ($4,288) and a
decrease in the purchase and retirement of common stock ($2,356) during the
current year, as compared to 2007.
 
 Previous
purchases of the Company’s common stock have reduced the Company’s additional
paid-in capital to zero and have also reduced retained earnings by amounts in
excess of par value.  Any future purchases in excess of par value will
also reduce retained earnings.  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.  Future proceeds from the issuance of common
stock in excess of par value will be credited to retained earnings until such
time that previously recorded reductions have been recovered.
 
 At
September 30, 2008, the Company’s cash and marketable securities totaled $140.1
million and working capital was $148.3 million compared to cash and marketable
securities of $156.2 million and working capital of $172.5 million at December
31, 2007.  Included in the results of the nine months ended September
30, 2008 are $16,226 in impairment charges and $11,844 in unrealized losses on
the Company’s marketable security portfolio resulting from the sudden decline in
the stock market and collapse of certain financial institutions in which the
Company held an interest.  The impairment charges are included as a
component of Other Income And (Expense), Net in the Condensed Consolidated
Statement of Operations, while the unrealized losses are recorded, net of tax,
in Accumulated Other Comprehensive Loss in the accompanying Condensed
Consolidated Balance Sheet.  Management does not believe that the
unrealized losses are other-than-temporary given recent conditions and the
Company’s ability to hold such securities in order to allow sufficient time for
recovery, however, continuing market declines may cause this position to be
reexamined.
 
 Management
continues to believe that while there has been a decline in the value of certain
real estate properties, the overall real estate market in the United States
continues to be 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
puts the Company in an opportune position to fund acquisitions and grow its
portfolio, if and when attractive long-term opportunities become
available.
 
 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.  These investments are recorded initially at cost and
subsequently adjusted for equity in earnings and cash contributions and
distributions.  The debt of the joint venture in which the Company
currently has an ownership interest is a non-recourse obligation and is
collateralized by the entity’s real property.  The Company believes
that the value of the underlying property and its operating cash flows are
sufficient to satisfy its obligations.  The Company isnot obligated for the
debts of the joint venture, but could decide to satisfy them in order to protect
its investment.  In such event, the Company’s capital resources and
financial condition would be reduced and, in certain instances, the carrying
value of the Company’s investment and its results of operations would be
negatively impacted.
 
 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 or borrowings.  The primary source of capital to fund
additional real estate acquisitions and to make additional high-yield mortgage
loans may come from existing funds, 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 or debt securities.
  18
 Index
 
 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.  Given the
level of cash and other interest bearing investments held by the Company,
declines in U.S. interest rates have adversely impacted the Company’s earnings
in 2008.
 
 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
Condensed Consolidated Balance Sheets.
 
 The
Company manufactures its products in the United States and Mexico and sells its
products in those markets as well as in Europe, South America and
Asia.  As a result, the Company’s operating results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in the foreign markets in which the Company distributes its
products.  Most of the Company’s sales are denominated in U.S.
dollars.  Net sales of the Company’s engineered products segment
denominated in Euros were 7.9% and 8.7% for the three and nine months ended
September 30, 2008 and 7.3% and 8.5% for the three and nine months ended
September 30, 2007, respectively.  As such, a portion of the Company’s
receivables are exposed to fluctuations with the U.S.
dollar.  However, the Company does not believe this risk to be
material to its overall financial position as the Company’s historical results
have not been significantly impacted by foreign exchange gains or
losses.  Accordingly, the Company has not entered into forward
exchange contracts to hedge this exposure.  If such exposure increased
in the future, the Company may reexamine this practice to minimize the
associated risks.
 
 The
growing weakness in the economy, exacerbated by recent credit market turmoil,
together with higher year-over-year raw material, energy, freight and other
costs, has pressured results in most of the Company’s business
segments.   These factors are expected to continue to impact the
Company in the fourth quarter and into the next year.  The Company has
implemented various price increases to help offset higher costs and is working
to further streamline operations, control expenses and maximize cash flow from
operations.  While the success of these efforts and the depth and
duration of the current negative economic environment and its impact on the
Company are uncertain, management believes the Company’s strong balance sheet
and diverse mix of businesses leave it well positioned to weather the
downturn.
 
 The
Company has undertaken the completion of environmental studies and/or remedial
action at its’ two New Jersey facilities and has recorded a liability for the
estimated investigation, remediation and administrative costs associated
therewith.  See Note 13 of Notes to Condensed Consolidated Financial
Statements for further discussion of this matter.
 
 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 liabilities have 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 Condensed Consolidated Financial Statements, depending on the
anticipated payment date.  Based on the facts presently available, the
Company does not believe that the disposition of matters that are pending or
asserted will have a material adverse effect on the Company’s consolidated
financial position or results of operations.  However, new or
additional facts or an adverse judgment by a court, arbitrator or a settlement
could adversely impact the Company’s results of operations in any given
period.
 
 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.
  19
 Index
 
 Refer to
the Company’s 2007 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.  There were no
material changes to the Company’s critical accounting policies during the nine
months ended September 30, 2008.
  ITEM
      3.
                  QUANTITATIVE AND QUALITATIVE
      DISCLOSURE OF MARKET
RISK
 
 Not
applicable, as the Company is a smaller reporting company.
  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-15(e) and
15d-15(e).  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.
 
 The
Company’s internal control over financial reporting is a process designed by, or
under the supervision of, the Chief Executive Officer and Chief Financial
Officer and effected by the Company’s Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of the
Company’s financial reporting and the preparation of the Company’s financial
statements for external purposes in accordance with generally accepted
accounting principles (United States).  Internal control over
financial reporting includes policies and procedures that pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of the Company’s assets, provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
the Company’s financial statements in accordance with generally accepted
accounting principles (United States), and that the Company’s receipts and
expenditures are being made only in accordance with the authorization of the
Company’s Board of Directors and management, and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the
Company’s financial statements.
 
 During
the second quarter of 2008, the Company assumed the management and accounting
functions of its Connecticut and Georgia hotels.  There have been no
other 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
      1.
                  LEGAL
      PROCEEDINGS
 In May
2008, an insurance company for one of the Company’s subsidiaries, purchased as
part of a bankruptcy reorganization, filed suit in Supreme Court of the State of
New York against such entity’s other insurance companies seeking, among other
things, contribution for insurance settlements from carriers, some of which now
claim to be exhausted.  The complaint also names the Company’s
subsidiary and several underlying claimants with whom such settlements were
reached.  The action challenges the exhaustion of the underlying
policies and seeks contribution as well as a declaration of the rights, duties
and liabilities of the parties under the insurance policies.  In June
2008, the Company removed the action to the U.S. Court for the Southern District
of New York.  Plaintiffs and certain defendants contested the
removal.  In October 2008, a stipulation was reached to remand certain
issues to State Court while staying the remaining issues in Federal
Court.  Plaintiffs have also argued to dismiss the underlying
claimants.  The Company intends to vigorously defend this
matter.  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 Condensed
Consolidated Financial Statements, depending on the anticipated payment
date.  Based on the facts presently available, the Company does not
believe that the disposition of matters that are pending or asserted will have a
material adverse effect on the Company’s consolidated financial position or
results of operations.  However, new or additional facts or an adverse
judgment by a court, arbitrator or a settlement could adversely impact the
Company’s results of operations in any given period.
  20
 Index
  ITEM
      1A.
                    RISK
    FACTORS
 
 The
significant factors known to the Company that could materially effect the
Company’s business, financial position or results of operations are set forth
under Item 1A of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007, which are incorporated herein by reference.
 
 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
2007 Annual Report on Form 10-K for a discussion of risk factors that could
impact the Company’s future financial performance and/or cause actual results to
differ significantly from those expressed or implied by such
statements.
 
 ITEM
      2.
                      UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF
PROCEEDS
 
 The
following table details the Company’s repurchases of common stock during the
three months ended September 30, 2008:
  Issuer
Purchases of Equity Securities
 (In
thousands, except per share data)
 
 Period
                
                Total
      Number of Shares Purchased
                
                
                Average
      Price Paid per Share
                
                
                Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
                
                
                Maximum
      Number of Shares that May Yet Be Purchased Under the Plans or
      ProgramsJuly
      1, 2008 — July 31, 2008
                
                
                1
                
                
                $
                19.35
                
                
                
                1
                
                
                
                508September
      1, 2008 — September 30, 2008
                
                
                20
                
                
                $
                24.56
                
                
                
                20
                
                
                
                488Total
                
                
                21
                
                
                $
                24.24
                
                
                
                21
 
 As
previously announced, the Board of Directors have approved repurchase plans for
the Company’s common stock, which may be made from time to time in the open
market at prevailing market prices or in privately negotiated
transactions.  In June 2008, the Board of Directors approved the
repurchase of up to an additional 500 shares.  Prior authorizations
were granted in dollars.  At June 30, 2008, the Company reported
$9,824 remaining to be purchased under such plans which included the 500 shares
authorized in June (valued at $19.20 per share, the closing price of the
Company’s common stock on June 30, 2008) as prior authorizations had not been
fulfilled.  At September 30, 2008, all prior plans have been completed
and 488 shares of the most recent authorization remain to be
purchased.  This authorization is ongoing and does not have an
expiration date.
 
 ITEM
      6.
                      EXHIBITS
 31.1
              Certification
      of the Chief Executive Officer pursuant to Rule 13a-15(e) and
      15d-15(e).
 31.2
              Certification
      of the Chief Financial Officer pursuant  to Rule 13a-15(e) and
      15d-15(e).
 32.1
              Certification
      of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
 32.2
              Certification
      of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
 
 
 
 21
 Index
  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.Date:  November
      5, 2008By:
              /s/
      Anthony J. MiceliAnthony
      J. MiceliVice
      President, Chief Financial Officer and Secretary of the
      Company
  22