UNITED STATES
 SECURITIES AND EXCHANGE
COMMISSION
 Washington, D.C.
20549
 
 FORM 10-Q
 
 (Mark
One)
 
  ̈QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 June
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  ̈     No
x
  The
registrant had 8,503,434 shares of common stock, $.10 par value, outstanding as
of August 6, 2008.
 
 Index
  UNITED
CAPITAL CORP. AND SUBSIDIARIES
 
 INDEX
 
 
 PAGE
 PART I – FINANCIAL INFORMATIONITEM 1.
                    FINANCIAL STATEMENTSCondensed Consolidated Balance Sheets as of June 30, 2008
      (Unaudited) and December 31, 2007
                    3Condensed Consolidated Statements of Income for the Three and
      Six Months Ended June 30, 2008 and 2007 (Unaudited)
                    4Condensed Consolidated Statements of Cash Flows for the Six
      Months Ended June 30, 2008 and 2007 (Unaudited)
                    5-6Notes to Condensed Consolidated Financial Statements
      (Unaudited)
                    7-13ITEM 2.
                    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
                    13-18ITEM 3.
                    QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET
      RISK
                    18ITEM 4.
                    CONTROLS AND PROCEDURES
                    18PART II – OTHER INFORMATIONITEM 1.
                    LEGAL PROCEEDINGS
                    19ITEM 1A.
                    RISK FACTORS
                    19ITEM 2.
                    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
                    20ITEM 4.
                    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                    20ITEM 6.
                    EXHIBITS
                    21SIGNATURES
                    21
 2
 Index
 UNITEDCAPITAL CORP. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In
thousands, except per share data)
 
 June
      30,
                  2008
              
              
              December
      31, 2007(Unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              110,760
              
              
              $
              129,003Marketable
      securities
              
              
              40,680
              
              
              
              27,191Notes
      and accounts receivable, net
              
              
              9,041
              
              
              
              24,209Inventories
              
              
              5,151
              
              
              
              5,458Prepaid
      expenses and other current assets
              
              
              1,666
              
              
              
              1,787Deferred
      income taxes
              
              
              4,722
              
              
              
              1,143Total
      current assets
              
              
              172,020
              
              
              
              188,791Property,
      plant and equipment, net
              
              
              6,034
              
              
              
              6,249Real
      property held for rental, net
              
              
              77,024
              
              
              
              64,936Investment
      in joint venture
              
              
              5,781
              
              
              
              6,125Noncurrent
      notes receivable
              
              
              1,080
              
              
              
              352Other
      assets
              
              
              4,210
              
              
              
              4,059Noncurrent
      assets of discontinued operations
              
              
              1,537
              
              
              
              1,558Total
      assets
              
              $
              267,686
              
              
              $
              272,070Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Current
      maturities of long-term debt
              
              $
              2,746
              
              
              $
              1,002Accounts
      payable and accrued liabilities
              
              
              10,868
              
              
              
              10,934Income
      taxes payable
              
              
              2,525
              
              
              
              4,343Total
      current liabilities
              
              
              16,139
              
              
              
              16,279Long-term
      debt
              
              
              30,108
              
              
              
              32,334Other
      long-term liabilities
              
              
              15,374
              
              
              
              15,233Deferred
      income taxes
              
              
              9,525
              
              
              
              9,615Total
      liabilities
              
              
              71,146
              
              
              
              73,461Commitments
      and contingenciesStockholders’
      equity:Common
      stock, $.10 par value, authorized 17,500 shares;issued
      and outstanding 8,505 and 8,286 shares, respectively
              
              
              851
              
              
              
              829Retained
      earnings
              
              
              201,241
              
              
              
              196,817Accumulated
      other comprehensive (loss) income, net of tax
              
              
              (5,552
              )
              
              
              963Total
      stockholders’ equity
              
              
              196,540
              
              
              
              198,609Total
      liabilities and stockholders’ equity
              
              $
              267,686
              
              
              $
              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 INCOME
 (Unaudited)
 (In
thousands, except per share data)
 
 Three
      Months Ended
                  June
      30,
              
              
              Six
      Months Ended
                  June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Revenues:Net sales
              
              $
              9,620
              
              
              $
              9,659
              
              
              $
              19,519
              
              
              $
              19,587Revenues from real estate
      operations
              
              
              9,600
              
              
              
              7,971
              
              
              
              18,377
              
              
              
              14,821Total revenues
              
              
              19,220
              
              
              
              17,630
              
              
              
              37,896
              
              
              
              34,408Costs
      and expenses:Cost of sales
              
              
              7,647
              
              
              
              7,335
              
              
              
              15,181
              
              
              
              14,755Real estate
      operations:Mortgage interest
      expense
              
              
              536
              
              
              
              200
              
              
              
              1,050
              
              
              
              395Depreciation
      expense
              
              
              965
              
              
              
              728
              
              
              
              1,901
              
              
              
              1,428Other operating
      expenses
              
              
              4,521
              
              
              
              3,582
              
              
              
              8,887
              
              
              
              6,771General and administrative
      expenses
              
              
              1,622
              
              
              
              1,570
              
              
              
              3,412
              
              
              
              3,189Selling
expenses
              
              
              990
              
              
              
              842
              
              
              
              1,924
              
              
              
              1,751Total costs and
      expenses
              
              
              16,281
              
              
              
              14,257
              
              
              
              32,355
              
              
              
              28,289Operating
income
              
              
              2,939
              
              
              
              3,373
              
              
              
              5,541
              
              
              
              6,119Other
      income (expense):Interest and dividend
      income
              
              
              1,261
              
              
              
              1,780
              
              
              
              2,815
              
              
              
              3,588Other income and (expense),
      net
              
              
              (234
              )
              
              
              773
              
              
              
              (211
              )
              
              
              6,484Total other
    income
              
              
              1,027
              
              
              
              2,553
              
              
              
              2,604
              
              
              
              10,072Income
      from continuing operations before income taxes
              
              
              3,966
              
              
              
              5,926
              
              
              
              8,145
              
              
              
              16,191Provision
      for income taxes
              
              
              1,489
              
              
              
              2,227
              
              
              
              3,012
              
              
              
              5,875Income
      from continuing operations
              
              
              2,477
              
              
              
              3,699
              
              
              
              5,133
              
              
              
              10,316Discontinued
      operations:Income
      from discontinued operations, net of tax provision of $23, $24, $45 and
      $40, respectively
              
              
              35
              
              
              
              36
              
              
              
              67
              
              
              
              60Net
      gain on disposal of discontinued operations, net of tax provision of $69
      and $701, respectively
              
              
              —
              
              
              
              105
              
              
              
              —
              
              
              
              1,052Income
      from discontinued operations
              
              
              35
              
              
              
              141
              
              
              
              67
              
              
              
              1,112Net
      income
              
              $
              2,512
              
              
              $
              3,840
              
              
              $
              5,200
              
              
              $
              11,428Basic
      earnings per share:Income from continuing
      operations
              
              $
              .30
              
              
              $
              .45
              
              
              $
              .61
              
              
              $
              1.25Income from discontinued
      operations
              
              
              —
              
              
              
              .01
              
              
              
              .01
              
              
              
              .13Net income per
      share
              
              $
              .30
              
              
              $
              .46
              
              
              $
              .62
              
              
              $
              1.38Diluted
      earnings per share:Income from continuing
      operations
              
              $
              .26
              
              
              $
              .36
              
              
              $
              .53
              
              
              $
              .99Income from discontinued
      operations
              
              
              —
              
              
              
              .01
              
              
              
              .01
              
              
              
              .11Net income per share assuming
      dilution
              
              $
              .26
              
              
              $
              .37
              
              
              $
              .54
              
              
              $
              1.10
 
 
 
 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)
 
 Six
      Months Ended
                June
      30,2008
              
              
              2007Cash flows from operating
      activities:Net income
              
              $
              5,200
              
              
              $
              11,428Adjustments to reconcile net
      income to net cash provided by (used in) operating
    activities:Depreciation
      and amortization
              
              
              2,129
              
              
              
              1,663Gain
      on disposal of discontinued operations, net of tax
              
              
              —
              
              
              
              (1,052
              )Litigation
      award from prior condemnation
              
              
              —
              
              
              
              (5,665
              )Net
      loss (gain) on sale of available-for-sale securities
              
              
              417
              
              
              
              (654
              )Net
      realized and unrealized gain on derivative instruments
              
              
              (222
              )
              
              
              (163
              )Income
      from equity investment
              
              
              (46
              )
              
              
              (95
              )Deferred
      income taxes
              
              
              (162
              )
              
              
              1,964Other,
      net
              
              
              72
              
              
              
              89Changes
      in assets and liabilities:Notes
      and accounts receivable, net
              
              
              (583
              )
              
              
              (10,025
              )Inventories
              
              
              307
              
              
              
              (258
              )Prepaid
      expenses and other current assets
              
              
              121
              
              
              
              (92
              )Other
      assets
              
              
              (260
              )
              
              
              (851
              )Accounts
      payable and accrued liabilities
              
              
              (86
              )
              
              
              1,239Income
      taxes payable
              
              
              (1,818
              )
              
              
              (2,403
              )Other
      long-term liabilities
              
              
              141
              
              
              
              (31
              )Net
      cash provided by (used in) operating activities of continuing
      operations
              
              
              5,210
              
              
              
              (4,906
              )Operating
      activities of discontinued operations
              
              
              21
              
              
              
              (36
              )Net
      cash provided by (used in) operating activities
              
              
              5,231
              
              
              
              (4,942
              )Cash flows from investing
      activities:Purchase
      of available-for-sale securities
              
              
              (24,902
              )
              
              
              (12,927
              )Proceeds/maturities
      from sale of available-for-sale securities
              
              
              997
              
              
              
              28,427Proceeds
      from sale of real estate assets
              
              
              —
              
              
              
              2,855Release
      of proceeds held in escrow on sale of real estate
              
              
              15,000
              
              
              
              —Net
      proceeds from litigation award from prior condemnation
              
              
              —
              
              
              
              5,665Proceeds
      from sale of derivative instruments
              
              
              242
              
              
              
              156Principal
      payments on notes receivable
              
              
              23
              
              
              
              1,373Acquisition
      of property, plant and equipment
              
              
              (455
              )
              
              
              (111
              )Acquisition
      of/additions to real estate assets
              
              
              (13,533
              )
              
              
              (14,428
              )Distributions
      from joint venture
              
              
              390
              
              
              
              391Net
      cash (used in) provided by investing activities
              
              
              (22,238
              )
              
              
              11,401
 
 Continued
  5
 Index
 UNITED
CAPITAL CORP. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 (Unaudited)
 
 Six
      Months Ended
                June
      30,2008
              
              
              2007Cash flows from financing
      activities:Principal
      payments on mortgage obligations
              
              
              (482
              )
              
              
              (232
              )Purchase
      and retirement of common stock
              
              
              (12,808
              )
              
              
              (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 financing activities
              
              
              (1,236
              )
              
              
              (7,033
              )Net
      decrease in cash and cash equivalents
              
              
              (18,243
              )
              
              
              (574
              )Cash
      and cash equivalents, beginning of period
              
              
              129,003
              
              
              
              76,688Cash
      and cash equivalents, end of period
              
              $
              110,760
              
              
              $
              76,114Supplemental
      disclosures of cash flow information:Cash paid during the period
      for:Interest
              
              $
              1,050
              
              
              $
              388Taxes
              
              $
              1,959
              
              
              $
              2,285Non-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 six months ended June 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 six months ended June 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 six months ended June 30, 2008 and 2007, the Company purchased and retired
585 and 522 shares of common stock for an aggregate purchase price of $12,808
and $15,681, respectively.
 
 3. Earnings Per
Share
 
 The
following table sets forth the computation of basic and diluted earnings per
share from continuing operations:
 
 Three
      Months Ended
                    June
      30,
                
                
                Six
      Months Ended
                    June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Numerator:Income from continuing
      operations
                
                $
                2,477
                
                
                $
                3,699
                
                
                $
                5,133
                
                
                $
                10,316Denominator:Basic – weighted-average shares
      outstanding
                
                
                8,405
                
                
                
                8,285
                
                
                
                8,342
                
                
                
                8,282Dilutive effect of employee
      stock options
                
                
                1,211
                
                
                
                1,966
                
                
                
                1,374
                
                
                
                2,084Diluted – weighted-average
      shares outstanding
                
                
                9,616
                
                
                
                10,251
                
                
                
                9,716
                
                
                
                10,366Basic
      earnings per share – continuing operations
                
                $
                .30
                
                
                $
                .45
                
                
                $
                .61
                
                
                $
                1.25Diluted
      earnings per share – continuing operations
                
                $
                .26
                
                
                $
                .36
                
                
                $
                .53
                
                
                $
                .99
 
 7
 Index
 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
June 30, 2008 and December 31, 2007, the Company had 3,945 and 4,749 stock
options outstanding with a weighted-average exercise price of $11.99 and $11.91
per share, respectively.  As of June 30, 2008, these stock options had
a weighted-average remaining contractual term of 3.0 years and an aggregate
intrinsic value of $30,352.  The aggregate intrinsic value represents
the difference between the Company’s closing stock price on June 30, 2008
($19.20) and the exercise price of each stock 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 six months
ended June 30, 2008, 804 stock options 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
                  ValueJune
      30, 2008:Equity
    securities
                
                $
                47,805
                
                
                $
                906
                
                
                $
                (10,523
                )
                
                $
                38,188Bonds
                
                
                2,510
                
                
                
                25
                
                
                
                (43
                )
                
                
                2,492$
                50,315
                
                
                $
                931
                
                
                $
                (10,566
                )
                
                $
                40,680December
      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 and the resulting gross realized
gains and losses included in the determination of net income are as
follows:
 Six
      Months Ended
                    June
      30,2008
                
                
                2007Proceeds/maturities
                
                $
                997
                
                
                $
                28,427Gross
      realized gains
                
                $
                32
                
                
                $
                2,259Gross
      realized losses
                
                $
                (449
                )
                
                $
                (1,605
                )
 
 6. Inventories
 
 The
components of inventories are as follows:
 June
      30,
                    2008
                
                
                December
      31, 2007Raw
      materials
                
                $
                2,612
                
                
                $
                2,446Work
      in process
                
                
                380
                
                
                
                542Finished
      goods
                
                
                2,159
                
                
                
                2,470$
                5,151
                
                
                $
                5,458
  8
 Index
 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.
 
 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 Sheet.  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 six months ended June 30, 2007, the Company divested itself of five
commercial properties and one other property which had a net book value of
$1,102 from its real estate investment and management segment.  The
aggregate proceeds from these transactions were $2,855 resulting in a gain of
$1,052, on a net of tax basis.
 
 The
results of operations of properties sold prior to June 30, 2008 have been
reclassified to discontinued operations, on a net of tax basis, for the three
and six months ended June 30, 2007.  Summarized financial information
of these properties is as follows:
 
 Three
      Months Ended
                    June
      30, 2007
                
                
                Six
      Months Ended
                    June
      30, 2007Revenues
                
                $
                13
                
                
                $
                42Depreciation
      expense
                
                
                1
                
                
                
                3Other
      operating expenses
                
                
                6
                
                
                
                47Income
      (loss) from operations
                
                $
                6
                
                
                $
                (8
                )
 
 Properties
held for sale
 
 As of
June 30, 2008, the Company considered one of its shopping centers and retail
outlets from its real estate and investment 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 Income for
the three and six months ended June 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 June 30, 2008 and December 31, 2007.
 
 Summarized
financial information for the property held for sale and accounted for as
discontinued operations is as follows:
 
 Three
      Months Ended
                  June
      30,
                
                
                Six
      Months Ended
                  June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Revenues
                
                $
                66
                
                
                $
                66
                
                
                $
                133
                
                
                $
                133Depreciation
      expense
                
                
                8
                
                
                
                12
                
                
                
                21
                
                
                
                25Income
      from operations
                
                $
                58
                
                
                $
                54
                
                
                $
                112
                
                
                $
                108
 
 9
 Index
 
 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 June 30, 2008 and December 31,
2007, the fair value of such derivatives was ($35) 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 $222 and
$163 in net realized and unrealized gains from derivative instruments for the
six months ended June 30, 2008 and 2007, respectively, which are included in
other income and expense, net in the Condensed Consolidated Statements of
Income.
 
 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.
 
 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 June 30, 2008Total
                
                
                Level
      1
                
                
                Level
      2
                
                
                Level
      3Marketable
      securities
                
                $
                40,680
                
                
                $
                34,897
                
                
                $
                5,783
                
                
                $
                —Derivative
      financial instruments
                
                $
                (35
                )
                
                $
                (35
                )
                
                $
                —
                
                
                $
                —
 
 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
 Index
 
 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
                  June
      30,
                
                
                Six
      Months Ended
                  June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Service
      cost
                
                $
                (75
                )
                
                $
                (95
                )
                
                $
                (150
                )
                
                $
                (165
                )Interest
      cost
                
                
                (180
                )
                
                
                (164
                )
                
                
                (350
                )
                
                
                (329
                )Expected
      return on plan assets
                
                
                201
                
                
                
                184
                
                
                
                405
                
                
                
                371Net
      periodic pension cost
                
                $
                (54
                )
                
                $
                (75
                )
                
                $
                (95
                )
                
                $
                (123
                )
 
 11. Comprehensive
Income
 
 The
components of comprehensive income are as follows:
 Three
      Months Ended
                  June
      30,
                
                
                Six
      Months Ended
                  June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      income
                
                $
                2,512
                
                
                $
                3,840
                
                
                $
                5,200
                
                
                $
                11,428Other
      comprehensive (loss) income, net of tax:Change
      in net unrealized (loss) gain on available-for-sale securities, net of tax
      effect of $2,180, ($732), $3,497 and ($595), respectively
                
                
                (4,048
                )
                
                
                1,359
                
                
                
                (6,494
                )
                
                
                1,107Reclassification
      adjustment for net  losses (gains) realized in net income, net
      of tax effect of ($147), $204, $11 and $195, respectively
                
                
                271
                
                
                
                (379
                )
                
                
                (21
                )
                
                
                (363
                )Amortization
      of unrecognized net gains from pension plan, net of tax effect of
      ($18)
                
                
                —
                
                
                
                34
                
                
                
                —
                
                
                
                —Comprehensive
      (loss) income
                
                $
                (1,265
                )
                
                $
                4,854
                
                
                $
                (1,315
                )
                
                $
                12,172
 
 The
components of accumulated other comprehensive (loss) income, net of tax are as
follows:
 June
      30,
                    2008
                
                
                December
      31,
                    2007Net
      unrealized (loss) gain on available-for-sale securities, net of tax effect
      of ($3,372) and $136, respectively
                
                $
                (6,264
                )
                
                $
                251Unrecognized
      net gains from pension plan, net of tax effect of $383
                
                
                712
                
                
                
                712Accumulated
      other comprehensive (loss) income, net of tax
                
                $
                (5,552
                )
                
                $
                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.
  11
 Index
 
 Operating
results of the Company's business segments are as follows:
 Three
      Months Ended
                    June
      30,
                
                
                Six
      Months Ended
                    June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      revenues and sales:Real estate investment and
      management
                
                $
                5,360
                
                
                $
                4,930
                
                
                $
                10,467
                
                
                $
                9,687Hotel
operations
                
                
                4,240
                
                
                
                3,041
                
                
                
                7,910
                
                
                
                5,134Engineered
    products
                
                
                9,620
                
                
                
                9,659
                
                
                
                19,519
                
                
                
                19,587$
                19,220
                
                
                $
                17,630
                
                
                $
                37,896
                
                
                $
                34,408Operating
      income (loss):Real estate investment and
      management
                
                $
                3,263
                
                
                $
                2,986
                
                
                $
                6,328
                
                
                $
                5,875Hotel
operations
                
                
                315
                
                
                
                475
                
                
                
                211
                
                
                
                352Engineered
    products
                
                
                184
                
                
                
                636
                
                
                
                733
                
                
                
                1,392General corporate
      expenses
                
                
                (823
                )
                
                
                (724
                )
                
                
                (1,731
                )
                
                
                (1,500
                )2,939
                
                
                
                3,373
                
                
                
                5,541
                
                
                
                6,119Other
      income, net
                
                
                1,027
                
                
                
                2,553
                
                
                
                2,604
                
                
                
                10,072Income
      from continuing operations before income taxes
                
                $
                3,966
                
                
                $
                5,926
                
                
                $
                8,145
                
                
                $
                16,191
 
 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 June 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.
  12
 Index
 
 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.
 
 15. Reclassifications
 
 Certain
prior year amounts have been reclassified to present them on a basis consistent
with the current year.
 
  ITEM2.
                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 Six Months Ended June 30, 2008 and
2007
 
 Total
revenues for the three and six months ended June 30, 2008 increased 9% and 10%
to $19,220 and $37,896, respectively, from that reported in the comparable
periods of 2007, primarily due to the acquisition of a hotel in May
2007.  Net income for the second quarter of 2008 was $2,512 or $.30
per basic share, compared to net income of $3,840 or $.46 per basic share for
the same period in 2007.  Net income for the first half of 2008 was
$5,200 or $.62 per basic share, compared to net income of $11,428 or $1.38 per
basic share for the six months ended June 30, 2007.  The results of
the first quarter of 2007 include a $5,665 litigation award from a property
condemned by the City of New York in 2001.
 
 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
                    June
      30, 2008
                
                
                Six
      Months Ended
                    June
      30, 2008Real
                    Estate
                
                
                Hotel
      Operations
                
                
                Total
                
                
                Real
      Estate
                
                
                Hotel
      Operations
                
                
                TotalRevenues
                
                $
                5,360
                
                
                $
                4,240
                
                
                $
                9,600
                
                
                $
                10,467
                
                
                $
                7,910
                
                
                $
                18,377Mortgage
      interest expense
                
                
                56
                
                
                
                480
                
                
                
                536
                
                
                
                115
                
                
                
                935
                
                
                
                1,050Depreciation
      expense
                
                
                594
                
                
                
                371
                
                
                
                965
                
                
                
                1,172
                
                
                
                729
                
                
                
                1,901Other
      operating expenses
                
                
                1,447
                
                
                
                3,074
                
                
                
                4,521
                
                
                
                2,852
                
                
                
                6,035
                
                
                
                8,887Income
      from operations
                
                $
                3,263
                
                
                $
                315
                
                
                $
                3,578
                
                
                $
                6,328
                
                
                $
                211
                
                
                $
                6,539
  13
 Index
 
 Three
      Months Ended
                    June
      30, 2007
                
                
                Six
      Months Ended
                    June
      30, 2007Real
                    Estate
                
                
                Hotel
      Operations
                
                
                Total
                
                
                Real
      Estate
                
                
                Hotel
      Operations
                
                
                TotalRevenues
                
                $
                4,930
                
                
                $
                3,041
                
                
                $
                7,971
                
                
                $
                9,687
                
                
                $
                5,134
                
                
                $
                14,821Mortgage
      interest expense
                
                
                62
                
                
                
                138
                
                
                
                200
                
                
                
                126
                
                
                
                269
                
                
                
                395Depreciation
      expense
                
                
                474
                
                
                
                254
                
                
                
                728
                
                
                
                881
                
                
                
                547
                
                
                
                1,428Other
      operating expenses
                
                
                1,408
                
                
                
                2,174
                
                
                
                3,582
                
                
                
                2,805
                
                
                
                3,966
                
                
                
                6,771Income
      from operations
                
                $
                2,986
                
                
                $
                475
                
                
                $
                3,461
                
                
                $
                5,875
                
                
                $
                352
                
                
                $
                6,227
 
 Real
Estate Investment and Management
 
 Revenues
from the real estate investment and management segment increased $430 or 8.7% to
$5,360 for the quarter ended June 30, 2008 and $780 or 8.1% to $10,467 for the
six months ended June 30, 2008, compared to the corresponding periods of
2007.  Theses increases are primarily due to additional revenues ($269
and $508 for the three and six month periods, respectively) from two properties
purchased in January 2008 and ($142 and $283 for the three and six month
periods, respectively) from a new tenant whose rent commenced during the
beginning of this year.  The addition of the two properties purchased
should provide the Company with an additional $1,000 in revenues during the
current year.  The new tenant, a large clothing retailer, recently
filed for bankruptcy and, therefore, the effect this will have on revenues for
the remainder of the term of the lease is uncertain.  In general,
rental revenues from the Company’s real estate properties do not fluctuate
significantly due to the long-term nature of the Company’s
leases.  However, future rental revenues could be affected by lease
renewals, terminations, step-ups and escalations and by the purchase or sale of
additional properties.
 
 Mortgage
interest expense decreased $6 or 9.7% for the second quarter of 2008 and $11 or
8.7% for the first half of 2008, compared to the corresponding 2007 periods, as
a result of continuing mortgage amortization.  Mortgage interest
expense on existing obligations of the Company’s real estate investment and
management segment will continue to decline with scheduled principal
reductions.  At June 30, 2008, the outstanding mortgage balance on the
Company’s real estate investment properties was below $3,800.  At the
end of the current year, based on scheduled amortizations, only three of the
Company’s current real estate properties will remain encumbered.
 
 Depreciation
expense associated with real properties held for rental increased $120 for the
quarter ended June 30, 2008 and $291 for the six months ended June 30, 2008,
compared to the corresponding periods of 2007.  These increases are
primarily attributable to depreciation expense ($128 and $241 for the three and
six month periods, respectively) related to additions to real estate assets over
the past twelve months.  As a result of the purchase of two commercial
properties during the current year and other expenditures for capital
improvements incurred during the current and prior year, depreciation expense on
the Company’s properties for each of the quarters and full year of 2008 should
be higher than that reported in the corresponding 2007 periods.
 
 Other
operating expenses associated with the management of real properties increased
$39 or 2.8% for the current quarter ended June 30, 2008 and $47 or 1.7% for the
six months ended June 30, 2008, compared to the corresponding periods of
2007.  The increase for the quarter was primarily related to an
increase in professional fees ($75), partially offset by a decrease in utilities
($60).  The increase for the six month period was primarily related to
an increase in professional fees ($127), partially offset by a decrease in
property maintenance expenses ($78).  Operating expenses, such as
property maintenance and utility costs, could fluctuate in the future from those
previously incurred due to the extent of the property age, location and
vacancies.
 
 Hotel
Operations
 
 Hotel
revenues increased $1,199 or 39.4% to $4,240 for the three months ended June 30,
2008 and $2,776 or 54.1% to $7,910 for the six months ended June 30, 2007,
compared to the corresponding 2007 periods, primarily as the result of
additional hotel revenues ($1,551 and $3,175 for the three and six month
periods, respectively) received as a result of the May 2007 acquisition of a
hotel located in Utica, New York (the “Utica Hotel”).  Revenues at the
Company’s other hotels declined during the second quarter of 2008 due to the
weakening economic conditions of the United States which are expected to
continue during the second half of 2008.
  14
 Index
 
 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 $342 and
$666 for the current quarter and first half 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.
 
 Depreciation
expense associated with the Company’s hotel operations increased $117 and $182
for the second quarter and six month period ended June 30, 2008, respectively,
compared to the corresponding 2007 periods.  These increases are
primarily attributable to depreciation ($117 and $248 for the three and six
month periods, respectively) related to the Utica Hotel acquired in May
2007.  Depreciation expense of the Company’s hotel operations for 2008
will increase over that reported in 2007 due to this acquisition.
 
 Other
operating expenses related to the management of the Company’s hotels increased
$900 to $3,074 for the second quarter of 2008 and $2,069 to $6,035 for the first
half of 2008, compared to the corresponding periods of 2007, primarily due to
the additional operating expenses of the Utica Hotel ($1,124 and $2,411 for the
three and six month periods, respectively).
 
 The
declining economy has had a negative effect on the lodging industry and created
an uncertain operating environment which could continue to adversely effect the
Company’s future hotel revenues and profits.
 
 Engineered
Products
 
 The
operating results of the engineered products segment are as
follows:
 
 Three
      Months Ended
                    June
      30,
                
                
                Six
      Months Ended
                    June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      sales
                
                $
                9,620
                
                
                $
                9,659
                
                
                $
                19,519
                
                
                $
                19,587Cost
      of sales
                
                
                7,647
                
                
                
                7,335
                
                
                
                15,181
                
                
                
                14,755Selling,
      general and administrative expenses
                
                
                1,789
                
                
                
                1,688
                
                
                
                3,605
                
                
                
                3,440Operating
      income
                
                $
                184
                
                
                $
                636
                
                
                $
                733
                
                
                $
                1,392
 
 Net sales
of the engineered products segment decreased less than 1% for both the quarter
and six month period ended June 30, 2008, compared with the results of the
corresponding 2007 periods, primarily related to a decrease in demand for the
Company’s automotive products line.  This was partially offset by
increases in demand for the Company’s engineered products and transformer
product lines during the second quarter.  The decline in sales of the
Company’s automotive products primarily resulted from the shut down of certain
plants by General Motors, the Company’s largest customer in this
segment.  As this decline is continuing through the second half of
2008, 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 3.6% and 2.4% in the three and six
months ended June 30, 2008, compared to the corresponding periods in
2007.  The increase for the quarterly period is primarily related to
an increase in operating costs ($261) which includes certain salaried positions
which were vacant during 2007 as well as an increase in certain costs such as
maintenance ($70) and travel ($22).  The increase for the year-to-date
period was also effected by an increase in the cost of raw materials ($220),
primarily copper and steel components.
 
 Selling,
general and administrative expenses of the engineered products segment increased
$101 or 6.0% for the quarter ended June 30, 2008 and $165 or 4.8% for the six
months ended June 30, 2008, compared to the corresponding periods of
2007.  These increases for the quarter and six month periods are
primarily due to increases in payroll and payroll related expenses ($94 and
$139, respectively) and travel expenses ($48 and $32, respectively), partially
offset by a decrease in professional fees ($71 and $56,
respectively).
 
 General
and Administrative Expenses
 
 General
and administrative expenses not associated with the manufacturing operations
increased $99 or 13.7% for the second quarter of 2008 and $231 or 15.4% for the
first half of 2008, compared to such expenses incurred for the comparable 2007
periods.  The increases for the quarter and six month periods are
primarily related to non-recurring transactions ($61 and $180, respectively) in
2007 and increases in 2008 travel expenses ($37 and $68,
respectively).
  15
 Index
 
 Other
Income and Expense, Net
 
 The
components of other income and expense, net in the Condensed Consolidated
Statements of Income are as follows:
  Three
      Months Ended
                    June
      30,
                
                
                Six
      Months Ended
                    June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Litigation
      award from prior condemnation
                
                $
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                5,665Net
      realized and unrealized gain on derivative instruments
                
                
                192
                
                
                
                92
                
                
                
                222
                
                
                
                163Net
      (loss) gain on sale of available-for-sale securities
                
                
                (417
                )
                
                
                679
                
                
                
                (417
                )
                
                
                654Other,
      net
                
                
                (9
                )
                
                
                2
                
                
                
                (16
                )
                
                
                2$
                (234
                )
                
                $
                773
                
                
                $
                (211
                )
                
                $
                6,484
 
 Included
in other income and expense, net during the first half of 2007 is a $5,665
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 $35 and $67, on a net of tax basis, for the three and six months ended June
30, 2008, respectively, versus $36 and $60 for the comparable 2007
periods.  Net gains on the disposal of real estate assets accounted
for as discontinued operations were $105 and $1,052, on a net of tax basis, for
the three and six months ended June 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 June 30, 2008 or sold during 2007 as discontinued
operations.  As of June 30, 2008, the Company classified one property
as held for sale.  No properties have been sold during the six months
ended June 30, 2008.
 
 Liquidity
and Capital Resources
 
 Net cash
provided by operating activities was $5,231 for the six months ended June 30,
2008, compared to net cash used in operating activities of $4,942 for the same
period in 2007.  This change results principally from a decrease in
the change in notes and accounts receivables, net ($9,442), due to the timing of
the receipt of proceeds from the sale of marketable securities
($8,985).
 
 Net cash
used in investing activities was $22,238 for the six months ended June 30, 2008
versus net cash provided by investing activities of $11,401 for the same period
in 2007.  This change primarily results from the timing of the
purchase or sale of available-for-sale securities ($39,405) and a litigation
award received from a property condemnation ($5,665) in 2007, partially offset
by the release of proceeds held in escrow on sale of real estate in 2008
($15,000).
 
 Net cash
used in financing activities was $1,236 and $7,033 for the six months ended June
30, 2008 and 2007, respectively.  This decrease primarily results from
additional proceeds from the exercise of stock options ($4,288) and a decrease
in the purchase and retirement of common stock ($2,873) during the first half of
2008, as compared to the first half of 2007.  Additional tax benefits
related to the exercise of stock options ($1,114) recorded in the prior year
partially offset this decline.
 
 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 June
30, 2008, the Company’s cash and marketable securities totaled $151.4 million
and working capital was $155.9 million compared to cash and marketable
securities of $156.2 million and working capital of $172.5 million at December
31, 2007.  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.
  16
 Index
 
 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.
 
 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,
changes in U.S. interest rates could impact the Company’s earnings.
 
 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 8.8% and 9.1% for the three and six months ended June
30, 2008 and 9.3% and 9.0% for the three and six months ended June 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
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.
  17
 Index
 
 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.
 
 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 six
months ended June 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.
 
 18
 Index
 
 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,
the Company removed the action to the U.S. Court for the Southern District of
New York and 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.
 
 
 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.
 
 19
 Index
 
 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 June 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
                
                
                Approximate
      Dollar Value that May Yet Be Purchased Under the Plans or
      ProgramsApril
      1, 2008 — April 30, 2008
                
                
                4
                
                
                $
                23.56
                
                
                
                4
                
                
                $
                2,949May
      1, 2008 — May 31, 2008
                
                
                559
                
                
                $
                21.80
                
                
                
                113
                
                
                $
                363June
      1, 2008 — June 30, 2008
                
                
                6
                
                
                $
                23.38
                
                
                
                6
                
                
                $
                9,824Total
                
                
                569
                
                
                $
                21.83
                
                
                
                123
 
 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 (valued in the table above at
$19.20 per share which is the closing price of the Company’s common stock on
June 30, 2008) of the Company’s common stock, to be made from time to time in
the open market at prevailing market prices or in privately negotiated
transactions, and to commence after the dollars ($224) from the previous
authorization has been exhausted.  These authorizations are ongoing
and do not have an expiration date.
 
 
 ITEM
4.                      SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 On June
17, 2008, the Company held its Annual Meeting of Stockholders, whereby the
stockholders voted to elect Directors and approve performance criteria for the
payment of bonuses to the Company’s Chief Executive Offer as
follows:
 
 
 Election
of Directors:
 For
                
                WithheldA.F.
      Petrocelli
                7,408,363
                
                
                627,921Michael
      T.
      Lamoretti
                7,393,173
                
                
                643,111Howard
      M.
      Lorber
                7,363,039
                
                
                673,245Robert
      M.
      Mann
                8,021,600
                
                
                14,684Anthony
      J.
      Miceli
                7,380,857
                
                
                655,427Arnold
      S.
      Penner
                7,958,244
                
                
                78,040Michael
      J.
      Weinbaum
                7,393,173
                
                
                643,111
 
 
 Approval
of Performance Criteria for the Payment of Bonuses to the Company’s Chief
Executive Officer:
  For
                
                Against
                
                Abstain7,797,990
                
                238,126
                
                168
 
 20
 Index
 
 ITEM6.                      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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 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:  August
      6, 2008By:
                  /s/
      Anthony J. MiceliAnthony
      J. MiceliVice
      President, Chief Financial Officerand
      Secretary of the Company
  21