<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
<TABLE>
<C> <S>
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NUMBER 0-12659
U.S. SHELTER CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 57-0769881
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
201 LAVINIA AVENUE
GREENVILLE, SC 29601
(Address of principal executive office)(Zip code)
(864) 242-6631
(Registrant's telephone number)
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 [ ] No [X]
The registrant had 9,629,793 shares of Common Stock outstanding as of May
11, 1998.
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PART I
ITEM 1. FINANCIAL STATEMENTS
U.S. SHELTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in common stock of Insignia Financial Group, Inc.
(Note 3).................................................. $11,796,600 $10,852,872
Cash........................................................ 306,053 370,946
----------- -----------
Total Assets...................................... 12,102,653 11,223,818
----------- -----------
LIABILITIES
Estimated costs during period of liquidation and accrued
liabilities (Note 4)...................................... 872,169 937,062
Taxes payable (Note 5)...................................... 320,000 300,000
----------- -----------
Total Liabilities................................. 1,192,169 1,237,062
----------- -----------
Contingencies and Litigation (Note 6)
NET ASSETS IN LIQUIDATION................................... $10,910,484 $ 9,986,756
=========== ===========
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See notes to unaudited condensed consolidated financial statements.
1
<PAGE> 3
U.S. SHELTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
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<CAPTION>
1998 1997
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<S> <C> <C>
Net Assets in Liquidation as of January 1................... $ 9,986,756 $9,765,376
----------- ----------
Changes during the period:
Realized loss on sale of common stock of Insignia
Financial Group, Inc................................... -- (14,552)
Unrealized gain (loss) on common stock of Insignia
Financial Group, Inc................................... 943,728 (2,123,388)
Federal income tax (expense) benefit...................... (20,000) 45,000
----------- ----------
Net changes during the period.......................... 923,728 (2,092,940)
----------- ----------
Net Assets in Liquidation as of March 31.................... $10,910,484 $7,672,436
=========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
<PAGE> 4
U.S. SHELTER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(LIQUIDATION BASIS)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
1. OPERATIONS PRIOR TO PLAN OF LIQUIDATION AND THE COMPANY'S PLAN OF LIQUIDATION
Prior to the sale of substantially all of the Company's operating assets
and the plan of liquidation, the Company operated in three segments: property
management and leasing, mortgage banking, and real estate interests. The
property management and leasing segment managed apartment complexes and managed
and leased commercial properties. The mortgage banking segment originated loans
on commercial properties. The real estate interests segment sold real estate
owned by the Company, held mortgage loans issued in connection with sales of
properties, and served as a general partner in partnerships organized by the
Company.
On December 31, 1990, the Company obtained shareholder approval and the
Company completed the sale of substantially all of its assets (except Malibu
Savings Bank, a wholly-owned subsidiary of the Company) to Insignia Financial
Group, Inc. ("Insignia"). On November 27, 1991, the Company filed a certificate
of dissolution with the Secretary of the State of Delaware. The Delaware
Chancery Court ordered the Company's existence to continue for the sole purpose
of winding up its affairs, including the prosecution and defense of suits by or
against it, the discharge of its liabilities and the distribution to its
shareholders of any remaining assets.
On January 11, 1991, the Office of Thrift Supervision declared Malibu
Savings Bank insolvent, placed it into receivership, and appointed the
Resolution Trust Company ("RTC") as conservator. Accordingly, Malibu Savings
Bank ceased to exist as a subsidiary of the Company.
Subsequent to commencement of dissolution, the Company's activities have
involved winding up the Company's affairs, including the defense and settlement
of various claims against the Company. The Company commenced liquidation
activities in 1991 and management will attempt to implement a partial
distribution to shareholders subject to the following conditions being met, and
subject to the approval of the Delaware Chancery Court. These conditions are:
(1) the contingent liability, if any, for the MetLife matter (see Note 6) can be
quantified and the amount of such contingent liability, if any, is approved by
the Court, (2) resolution with the Securities and Exchange Commission ("SEC")
occurs (see Note 6), (3) resolution of certain other liabilities, including
certain state and local taxes payable occurs (see Note 5), and (4) any other
matters required to be accomplished by the Delaware Chancery Court prior to the
partial distribution. Upon approval by the Delaware Chancery Court, all
additional assets, if any, will be distributed to shareholders. There were no
distributions to shareholders under the plan of liquidation in the three months
ended March 31, 1998 and 1997, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates -- The accompanying consolidated
financial statements include the accounts of U.S. Shelter Corporation and its
wholly-owned subsidiary, Tandem Development, Inc. All significant intercompany
balances and transactions have been eliminated.
As a result of the dissolution of the Company commenced on November 27,
1991, the Company changed its basis of accounting from a going-concern basis to
the liquidation basis of accounting. Under the liquidation basis of accounting,
assets and liabilities are stated at their estimated net realizable value and
estimated costs through the liquidation are provided to the extent reasonably
determinable. All costs incurred in the three months ended March 31, 1998 and
1997, respectively, have been charged to the liability account, Estimated Costs
During Period of Liquidation, that was established upon adoption of the
liquidation basis of accounting. Estimated future costs to be incurred until
liquidation will also be charged to this liability account.
As a result of the change in the Company's basis of accounting from the
going-concern basis to the liquidation basis, assets have been valued at
estimated net realizable value, and liabilities have been reflected at their
estimated settlement amounts including estimated costs to be incurred during the
period of liquidation. The valuation of assets and liabilities is based on
management's estimates and assumptions as of the date of the
3
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U.S. SHELTER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(LIQUIDATION BASIS)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
financial statements; actual realization of the assets and settlement of
liabilities could be higher or lower than the amounts indicated. There are a
number of important factors which could cause actual results to differ from the
estimates, including the settlement amount of claims and other liabilities to be
paid in the liquidation, the amounts to be received for assets which have not
yet been sold, and the time period and actual costs necessary to complete the
plan of liquidation.
The interim financial data as of and for the three months ended March 31,
1998 and 1997, are unaudited and are presented on the liquidation basis of
accounting in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In management's opinion, all adjustments
(consisting only of adjustments of a normal, recurring nature) necessary for a
fair presentation have been included. The December 31, 1997 financial
information was derived from audited consolidated financial statements, but
excludes certain disclosures included in the Company's audit report.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the year
ended December 31, 1997, as well as the other information included in the
Company's annual report filed on Form 10-K. The consolidated statements of
changes in net assets in liquidation for the interim periods presented are not
necessarily indicative of the results for the year ending December 31, 1998 or
any other interim period.
3. INVESTMENT IN COMMON STOCK OF INSIGNIA FINANCIAL GROUP, INC.
The Company's investment in the class A common stock of Insignia is carried
at its estimated market value determined based on closing market prices as
reported by the New York Stock Exchange.
The Company owned 471,864 shares of Insignia common stock at March 31, 1998
and December 31, 1997. The closing market price of the Insignia common stock was
$25 per share and $23 per share at March 31, 1998 and December 31, 1997,
respectively.
Realized and unrealized gains and losses are included in the accompanying
consolidated statements of changes in net assets in liquidation.
4. ESTIMATED COSTS DURING PERIOD OF LIQUIDATION AND ACCRUED LIABILITIES
The Company commenced liquidation activities in 1991 and provided an
estimate of the costs to liquidate the Company at that time. The remaining
estimated costs to liquidate at March 31, 1998 and December 31, 1997, represent
known liabilities and legal, accounting, and other fees necessary to liquidate
and distribute the remaining assets, if any, of the Company. The actual amount
of this liability may vary significantly depending on the length of time
required to complete the plan of liquidation and complexities which may arise in
disposing of the remaining assets and settling certain legal matters (see Note
6).
5. TAXES PAYABLE
Taxes payable consist of the following:
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<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
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Federal Income taxes payable............................... $220,000 $200,000
State and local taxes payable.............................. 100,000 100,000
-------- --------
Total................................................. $320,000 300,000
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</TABLE>
4
<PAGE> 6
U.S. SHELTER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(LIQUIDATION BASIS)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
The Federal income taxes payable, as described below, represent estimated
alternative minimum income taxes payable upon the sale of the Company's
investment in the common stock of Insignia.
The state and local taxes payable represent the Company's estimate of state
and local taxes claimed in prior years by various state and local taxing
authorities.
No other taxes have been provided for Federal and state income tax purposes
due to the availability of net operating loss carryforwards of approximately
$15.8 million for Federal purposes and $14.9 million for state purposes at March
31, 1998 and December 31, 1997. These net operating loss carryforwards are
available to offset future income, with certain limitations, and begin to expire
in 2003. Alternative minimum income taxes are expected to be payable under the
alternative minimum income tax provisions of the Internal Revenue Code because
only a portion of the Federal net operating loss carryforwards can be utilized
to offset alternative minimum taxable income. Although the payment of Federal
alternative minimum income tax usually gives rise to a credit against future
regular Federal income tax liabilities, the liquidation position of the Company
makes it unlikely that any deferred tax asset created by the payment of the
alternative minimum income tax will ever be realized. Therefore, the Company has
not recorded a deferred tax asset related to the payment of Federal alternative
minimum tax.
6. CONTINGENCIES AND LITIGATION
The Company is one of several defendants in a lawsuit filed by Metropolitan
Life Insurance Company ("MetLife"). In the action, MetLife seeks damages for
siding installed on apartment buildings it owns in West Palm Beach, Florida.
According to the complaint, MetLife purchased the property from the Company in
1989 and claims breach of warranty against the Company based on allegedly
defective work and improper materials. The action was filed in July 1996 and is
in the early stages of discovery. The Company has denied the allegations of the
complaint and is contesting the matter. The Company is not able to determine the
ultimate outcome of this litigation and, accordingly, no amounts have been
provided in the accompanying financial statements for this matter.
The Company has failed to file periodic reports required to be filed with
the SEC by Section 13(a) of the Securities Exchange Act of 1934, as amended, and
the regulations promulgated thereunder. On March 3, 1998, the Company notified
the SEC's Division of Enforcement regarding its failure to file required
periodic reports, explaining the reasons therefor and seeking relief from any
actions that may be brought by the SEC against the Company. The Company is in
settlement discussions with the SEC and is unable to determine what action, if
any, the SEC will take against the Company.
7. COMMON STOCK OF THE COMPANY
As described in Note 1, the Company has adopted the liquidation basis of
accounting. Accordingly, the presentation of per share data in the accompanying
consolidated statements of changes in net assets in liquidation has been
omitted.
For all periods presented, the Company had 20,000,000 authorized shares of
common stock, $1 par value and 9,629,793 shares of common stock issued and
outstanding.
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto.
The Company sold substantially all of its assets to Insignia Financial
Group, Inc. on December 31, 1990, and on November 27, 1991 filed a Certificate
of Dissolution with the Delaware Secretary of State. As a result, the Company
changed its basis of accounting from a going-concern basis to a liquidation
basis. During the period ended March 31, 1998, the Company's activities have
been limited to continuing its winding up and liquidation.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
The Company's net assets in liquidation were $10,910,484 at March 31, 1998
compared to $9,986,756 at December 31, 1997, representing an increase in net
assets of $923,728. This increase is primarily attributable to unrealized gains
on Class A Common Stock of Insignia (the "Insignia Stock") held by the Company.
Realized and unrealized gains and losses on investment securities are
included in determining net assets under the liquidation basis of accounting.
The Company's principal asset is Insignia Stock, of which the Company owned
471,864 shares at March 31, 1998 and at December 31, 1997. The closing price per
share of the Insignia Stock at March 31, 1998 and December 31, 1997 was $25 and
$23, respectively. The Company recorded an unrealized gain on the Insignia Stock
of $943,728 for the quarter ended March 31, 1998 compared to an unrealized loss
of $2,123,388 for the quarter ended March 31, 1997. For financial reporting
purposes, the Company adjusts its investment in Insignia Stock to market value
at the end of each financial reporting period.
The Company provided for estimated costs to liquidate effective beginning
fiscal year 1991, when the Company changed its basis of accounting from a
going-concern basis to the liquidation basis. Accordingly, estimated costs
through the liquidation period were provided at that time and all costs since
then have been charged against such liability.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no short-term or long-term debt facilities available. Cash
used to pay the costs of winding up and liquidation comes primarily from
proceeds on the sale of Insignia Stock held by the Company. A claim against the
Company is pending and another could be asserted against the Company. No
assurance can be given that such claims will be resolved in a manner favorable
to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not invest in derivative financial instruments.
6
<PAGE> 8
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company has failed to file certain periodic reports required to be
filed by it pursuant to applicable federal securities laws. The Company has
notified the Division of Enforcement (the "Staff") of the Securities and
Exchange Commission of this matter and is currently in settlement discussions
with the Staff.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on June 26, 1998.
U.S. SHELTER CORPORATION
By: /s/ WILLIAM D. RICHARDSON
------------------------------------
William D. Richardson
Sole Director and President*
- ---------------
* There are no officers of the registrant other than the President.
7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 306,053
<SECURITIES> 11,796,600
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,102,653
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,192,169
<SALES> 0
<TOTAL-REVENUES> 943,728
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 20,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 923,728
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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