<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 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 __________
Commission File Number 0-12659
U.S. SHELTER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 57-0769881
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Lavinia Avenue
Greenville, SC 29601
(Address of principal executive office)(Zip code)
(864) 242-6631
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 par value
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant based on the last sale price as reported on the
over-the-counter bulletin board on March 22, 1999 was $2,106,517. The registrant
had 9,629,793 shares of Common Stock outstanding as of March 22, 1999.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business
U.S. Shelter Corporation (the "Company") was founded in 1972 to acquire
and manage apartment properties for long-term investment purposes. The Company
operated under private ownership from 1972 until 1979, when it became a publicly
owned and traded company.
During the latter part of the 1980's, the Company incurred losses in
excess of $68,500,000 related to real estate partnerships, real estate
development activities and the need to establish reserves for Malibu Savings
Bank ("Malibu"), its savings and loan subsidiary. As a result, the Company had a
negative net worth of approximately $38,800,000 at September 30, 1990 and was in
default on all of its secured debt. In an effort to avoid the possible
bankruptcy of the Company and the complete loss of each stockholder's investment
in the Company, on July 23, 1990, the Company entered into a Management
Agreement (the "Management Agreement") with Insignia Financial Group, Inc.
("Insignia"), and the Company, certain of its subsidiaries and Insignia entered
into an Asset Purchase Option Agreement (the "Asset Agreement") on the same
date. Under the Management Agreement, Insignia had the sole and exclusive
authority to negotiate settlement and restructuring agreements with the
Company's creditors pending Insignia's determination whether to exercise its
option under the Asset Agreement to acquire substantially all of the Company's
assets and assume specified liabilities of the Company. On December 31, 1990,
the Company obtained stockholder approval and the Company completed the sale of
substantially all its assets to Insignia. On January 11, 1991, the Office of
Thrift Supervision ("OTS") declared Malibu insolvent, placed it in receivership,
created a new Federal Mutual Savings Association to receive Malibu's assets, and
appointed the Resolution Trust Company as conservator. The OTS indicated that
Malibu was in an "unsafe and unsound condition" because of its negative tangible
capital position and that "there was no prospect for replenishment of such
capital without Federal assistance." On March 14, 1995 the Company was finally
notified that it was relieved of any liability associated with Malibu.
In approving the Asset Agreement, the stockholders approved the
dissolution and liquidation of the Company. On November 27, 1991 a Certificate
of Dissolution was filed with the Delaware Secretary of State. Although formally
dissolved on this date, the Company continued to exist pursuant to the Delaware
General Corporation Law for a period of three years to wind up its affairs.
During this three-year winding up period, a number of claims were made against
the Company. Because these matters could not be resolved during the three-year
period, the Company has received from the Delaware Chancery Court extensions of
the Company's existence. The Company is currently operating under the authority
of an extension from the Chancery Court.
<PAGE> 3
Item 2. Properties
The Company does not own any material physical properties.
Item 3. Legal Proceedings
Metropolitan Life Insurance Company v. Masonite Corporation, et al.
The Company was one of several defendants in a lawsuit named by
Metropolitan Life Insurance Company ("MetLife"). In the action Metlife sought
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 claimed breach of warranty against the Company based on
allegedly defective work and improper materials. The action was filed in July
1996 and was settled during March, 1999. The Company recorded a provision of
$625,000 for the settlement of this matter during the year ended December 31,
1998, offset by a reduction in estimated legal fees of $215,000 to defend the
lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE> 4
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is traded only sporadically in the
over-the-counter market under the symbol "USSS." Transactions in the
over-the-counter market generally reflect inter-dealer prices, without retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
The following table sets forth the best available information of the range of
high and low bid prices of the Company's Common Stock by quarter during 1997 and
1998. Because the Company's Common Stock is traded in the over-the-counter
market, reliable trading information is difficult to obtain.
Year Ended December 31: High Low
- ----------------------- ---- ---
1997
First Quarter 1/8 1/32
Second Quarter N/A
Third Quarter 1/32 1/32
Fourth Quarter 1/8 1/32
1998
First Quarter 5/8 5/32
Second Quarter 7/32 5/32
Third Quarter 7/32 3/16
Fourth Quarter 1/4 7/32
As of March 22, 1999 there were approximately 2,146 holders of record
of the Company's Common Stock.
The Company has not made any distributions to stockholders within the
last three fiscal years. The Company does not intend to make any distributions
to stockholders until the known claims against the Company are resolved, or
until an amount is placed into an escrow account for settlement of such
liabilities.
Item 6. Selected Consolidated Financial Data
The following information is qualified in its entirety by the
consolidated financial statements of the Company. The following selected
consolidated financial data as of the dates and for the periods indicated were
derived from the audited consolidated financial statements of the Company
contained elsewhere in this Form 10-K, except data as of December 31, 1996 and
1995, and data for the year ended December 31, 1995, which was derived from
audited consolidated financial statements of the Company not included in this
Form 10-K. The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company and the related notes thereto, appearing elsewhere in this Form 10-K.
<PAGE> 5
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C>
Statements of Net Assets Data:
Total Assets $8,942,657 $11,223,818 $11,319,406 $10,134,370
Total Liabilities $1,202,302 1,237,062 1,554,030 2,144,048
Net Assets $7,740,355 9,986,756 9,765,376 7,990,322
Statements of Changes in Net Assets
Data:
Realized and Unrealized
Gains(Losses) on
Common stock $(2,666,885) $ 221,380 $ 1,668,498 $ 4,878,751
Realized and Unrealized Gains
on Preferred Stock 244,108 0 0 0
Dividends and Interest 709,005 0 0 0
Increase in Estimated
Costs to Liquidate (574,500) 0 0 0
Other Income 1,871 0 106,556 19,309
Income Tax Benefit 40,000 0 0 0
Changes in Net Assets (2,246,401) 221,380 1,775,054 4,898,060
</TABLE>
Information prior to the year ended December 31, 1995 has been omitted from the
above table of selected consolidated financial data as it has not been compiled
by the Company. Prior to March 14, 1995, the Company was uncertain as to whether
it would be relieved of liability in connection with the placement of Malibu
into receivership by the OTS. See "Business."
Item 7. 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.
As previously discussed, the Company sold substantially all of its
assets to Insignia 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 December 31, 1998, the Company's
activities have been limited to continuing its winding up and liquidation.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The Company's net assets in liquidation were $7,740,355 at December 31,
1998 compared to $9,986,756 at December 31, 1997, representing a decrease in net
assets of $2,246,401. This decrease is primarily attributable to unrealized
losses on common stock of Insignia (the "Insignia Stock") held by the Company
during 1998.
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 assets are Insignia common stock and Apartment
Investment and Management Company ("AIMCO") cumulative preferred convertible
Class E stock (the "AIMCO Stock"). The AIMCO Stock was obtained by the Company
in its fourth quarter as a result of the merger of the residential property
management operations of Insignia with AIMCO. The common stock of Insignia held
by the Company at December 31, 1998 relates primarily to the commercial real
estate
<PAGE> 6
services, residential brokerage and mortgage banking operations of Insignia
which were spun-off by Insignia during 1998. The Company owned 306,575 shares of
Insignia Stock at December 31, 1998 and 471,864 shares at December 31, 1997. The
closing price per share of the Insignia Stock at December 31, 1998 and 1997, was
$12.125 and $23, respectively. The Company recorded an unrealized loss on the
Insignia Stock of $2,669,260 for the year ended December 31, 1998 compared to an
unrealized gain of $235,932 for the year ended December 31, 1997. The Company
also owned 122,054 shares of AIMCO Stock at December 31, 1998. The closing price
per share of AIMCO Stock at December 31, 1998 was $37, and the Company recorded
an unrealized gain on the AIMCO Stock of $244,108 for the year ended December
31, 1998. For financial reporting purposes, the Company adjusts its investment
in stocks to market value at the end of each financial reporting period.
At December 31, 1998, the Company has accrued a dividend receivable
resulting from a one-time special dividend declared by AIMCO in December 1998 of
$5.582 per share of its AIMCO cumulative preferred convertible Class E stock.
There was no dividend receivable accrued at December 31, 1997 because the
Company acquired the AIMCO Stock during the fourth quarter of 1998.
The Company provided for estimated costs to liquidate in 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. During the year ended December 31, 1998, a provision of $164,500
for additional estimated costs during the period of liquidation was recorded due
to the Company's reassessment of the length of the remaining period until
liquidation. Additionally, as discussed below, $410,000 was provided during the
year ended December 31, 1998 for the Company's settlement of a legal matter in
March 1999.
The Company was one of several defendants in a lawsuit named by
Metropolitan Life Insurance Company ("MetLife"). In the action, MetLife sought
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 claimed breach of warranty against the Company based on
allegedly defective work and improper materials. The action was filed in July
1996 and was settled during March, 1999. The Company provided $625,000 during
the year ended December 31, 1998 due to the settlement of this matter, offset by
a reduction in estimated legal fees of $215,000 to defend the lawsuit. See
"Legal Proceedings".
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
The Company's net assets in liquidation were $9,986,756 at December 31,
1997 compared to $9,765,376 at December 31, 1996, representing an increase in
net assets of $221,380. This increase is primarily attributable to unrealized
gains on Insignia Stock held by the Company during 1997.
The Company owned 471,864 shares of Insignia Stock at December 31, 1997
and 494,864 shares of Insignia Stock at December 31, 1996, and the closing price
per share on such dates was $23 and $22.50, respectively. The Company recorded
an unrealized gain on the Insignia Stock of $235,932 for the year ended December
31, 1997 compared to $1,608,308 for the year ended December 31, 1996. For
financial reporting purposes, the
<PAGE> 7
Company adjusts its investment in stocks to market value at each financial
reporting period.
As previously discussed, the Company provided for estimated costs to
liquidate in 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 stock held by the Company.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the "Year 2000 Compliance" issue. As
the year 2000 approaches, such systems may be unable to accurately process
certain databased information.
The Company is in a state of liquidation and has been since 1991. The
Company's accounting records consist primarily of manual accounting records;
furthermore, the Company does not use any computer-based operating systems
(other than basic word processing functions) to conduct any of its liquidation
activities.
The Company has no dependencies on vendors or third parties such that
the Year 2000 could have any material adverse effect on the Company's
activities. The Company does have significant investments (relative to the
Company's financial statements) in AIMCO Stock and Insignia Stock, both of whose
securities are traded on national exchanges. Accordingly, both AIMCO and
Insignia disclose their Year 2000 Compliance progress in their respective
filings on Form 10-K and Form 10-Q.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not invest in derivative financial instruments.
However, at December 31, 1998, the Company had significant investments in the
preferred convertible stock of Apartment Investment and Management Company
("AIMCO Stock") and in the common stock of Insignia Financial Group, Inc.
("Insignia Stock"). The Company has reflected these investments in its
consolidated financial statements at fair value, as required by the liquidation
basis of accounting. The fair value of the AIMCO Stock was $4,515,998 and the
fair value of the Insignia Stock was $3,717,222 at December 31, 1998, based on
closing market prices on national exchanges at that date. These investments are
not held by the Company for trading purposes. These investments are subject to
market fluctuations, and the Company believes that fluctuations in the value of
these investments could have a material effect on the Company's financial
condition and changes in financial condition.
The Company does not face other types of market risk.
<PAGE> 8
Item 8. Financial Statements
See pages F-1 through F-8 annexed hereto.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
William D. Richardson, age 59, is the sole director and President of
the Company and has served the Company in these capacities since 1991. Mr.
Richardson is an attorney in private practice and has been so for more than the
past five years.
Item 11. Executive Compensation
William D. Richardson, the sole director and President of the Company,
received $60,000 from the Company during the year ended December 31, 1998 as
compensation for his services and for the use of his business office by the
Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 22, 1999, certain
information with respect to (i) the persons known by the Company to own
beneficially more than five percent of the outstanding shares of the Company's
Common Stock and (ii) the number of shares owned by the sole director and
President of the Company. Except as otherwise indicated, the stockholders listed
in the table below have sole voting and investment powers with respect to the
Company's Common Stock owned by them and beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission.
<PAGE> 9
<TABLE>
<CAPTION>
Name and Address of Total Number of Shares Percent of
Beneficial Owner Beneficially Owned Class
- ------------------- ---------------------- ----------
<S> <C> <C>
N. Barton Tuck, Jr. 1,000,135 10.4%
237 Providence Square
Greenville, SC 29615
Edmund B. Cronin, Jr. 607,807 6.3%
3040 Williams Drive
Fairfax, VA 22031
Charles C. Mickel Custodian, 523,123 5.4%
Charles Clark Mickel, Jr.
714 Crescent Avenue
Greenville, SC 29601
William D. Richardson 10,000 *
201 Lavinia Avenue
Greenville, SC 29601
</TABLE>
- ---------------------------
* Less than 1%
Item 13. Certain Relationships and Related Transactions
William D. Richardson, the sole director and President of the Company,
received $60,000 from the Company during the year ended December 31, 1998 as
compensation for his services and for the use of his business office by the
Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) and (2) List of Financial Statements.
See Table of Contents to Financial Statements set forth herein at page
F-1.
(a)(3) List of Exhibits.
27 Financial Data Schedule
<PAGE> 10
U.S. SHELTER CORPORATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page(s)
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS (Liquidation Basis):
Statements of Net Assets in Liquidation as of December 31,
1998 and 1997 F-3
Statements of Changes in Net Assets in Liquidation for the
Years Ended December 31, 1998, 1997 and 1996 F-4
Notes to Financial Statements F-5 - F-8
F-1
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
To the Director and Shareholders of
U.S. Shelter Corporation:
We have audited the accompanying statements of net assets in liquidation of U.S.
Shelter Corporation (the "Company") as of December 31, 1998 and 1997, and the
related statements of changes in net assets in liquidation for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the shareholders of the
Company approved a plan of liquidation which was executed by the State of
Delaware on November 27, 1991. As a result, the Company changed its basis of
accounting from the going-concern basis to the liquidation basis effective
November 27, 1991.
In our opinion, such financial statements present fairly, in all material
respects, the net assets in liquidation of the Company as of December 31, 1998
and 1997, and the changes in its net assets in liquidation for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles applied on the basis described in the preceding
paragraph.
As discussed in notes 2 and 4 to the financial statements, because of the
inherent uncertainty of valuation when a company is in liquidation, the amounts
realizable from the disposition of the remaining assets and the amounts that
creditors agree to accept in settlement of the obligations due them may differ
materially from the amounts shown in the accompanying financial statements.
Deloitte & Touche LLP
Greenville, South Carolina
March 11, 1999
F-2
<PAGE> 12
U.S. SHELTER CORPORATION
STATEMENTS OF NET ASSETS IN LIQUIDATION
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
INVESTMENT IN PREFERRED CONVERTIBLE CLASS E
STOCK OF APARTMENT INVESTMENT AND
MANAGEMENT COMPANY (NOTE 3) $4,515,998 $ --
INVESTMENT IN COMMON STOCK OF INSIGNIA
FINANCIAL GROUP, INC. - NEW (NOTE 3) 3,717,222 --
INVESTMENT IN COMMON STOCK OF INSIGNIA
FINANCIAL GROUP, INC. (NOTE 3) -- 10,852,872
CASH AND CASH EQUIVALENTS 28,132 370,946
DIVIDENDS RECEIVABLE (NOTE 3) 681,305 --
---------- -----------
TOTAL ASSETS 8,942,657 11,223,818
---------- -----------
LIABILITIES
ESTIMATED COSTS DURING PERIOD OF LIQUIDATION
AND ACCRUED LIABILITIES (NOTE 4) 942,302 937,062
TAXES PAYABLE (NOTE 5) 260,000 300,000
---------- -----------
TOTAL LIABILITIES 1,202,302 1,237,062
---------- -----------
NET ASSETS IN LIQUIDATION $7,740,355 $ 9,986,756
========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 13
U.S. SHELTER CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
NET ASSETS IN LIQUIDATION AS OF
JANUARY 1 $ 9,986,756 $ 9,765,376 $7,990,322
----------- ----------- ----------
CHANGES DURING THE YEAR:
Unrealized gain (loss) on common stock (2,669,260) 235,932 1,608,308
Unrealized gain on preferred stock 244,108 -- --
Realized gain (loss) on sale of common stock 2,375 (14,552) 60,190
Dividends and interest earned 709,005 -- --
Increase in estimated costs during period of
liquidation and accrued liabilities (Notes 4 and 6) (574,500) -- --
Other income 1,871 -- 106,556
Federal income tax benefit 40,000 -- --
----------- ----------- ----------
Net changes during the year (2,246,401) 221,380 1,775,054
----------- ----------- ----------
NET ASSETS IN LIQUIDATION AS OF
DECEMBER 31 $ 7,740,355 $ 9,986,756 $9,765,376
=========== =========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 14
U.S. SHELTER CORPORATION
NOTES TO FINANCIAL STATEMENTS (LIQUIDATION BASIS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
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
distribution to shareholders subject to the following conditions being
met, and subject to the approval of the Delaware Chancery Court (the
"Court"). These conditions are: (1) resolution of certain liabilities,
including certain state and local taxes payable (see Note 5), or
an amount is placed into an escrow account for settlement of such
liabilities, and (2) any other matters required to be accomplished by the
Court prior to the distribution. There were no distributions to
shareholders under the plan of liquidation in the three years ended
December 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND USE OF ESTIMATES - 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
F-5
<PAGE> 15
the extent reasonably determinable. All costs incurred in the three years
ended December 31, 1998 have been charged to the liability account,
Estimated Costs During Period of Liquidation, that was initially
established upon adoption of the liquidation basis of accounting. During
the year ended December 31, 1998, a provision for additional estimated
costs during the period of liquidation was recorded due to the Company's
reassessment of the length of the remaining period until liquidation and
the settlement of certain litigation (see Note 6).
As a result of the change in the Company's basis of accounting from the
going-concern basis to the liquidation basis, assets in all years have
been valued at estimated net realizable value, and liabilities in all
years 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 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.
CASH & CASH EQUIVALENTS - The Company considers all highly liquid
investments with an original maturity of three months or less when
purchased to be cash equivalents.
3. INVESTMENTS
In September 1998, as a result of the proposed merger of the residential
property management operations of Insignia with Apartment Investment and
Management Company ("AIMCO"), Insignia shareholders approved the spin-off
and distribution by Insignia to its stockholders of all of the outstanding
common stock of Insignia/ESG Holdings, Inc., a subsidiary of Insignia
("Holdings"). Holdings includes primarily the commercial real estate
service, residential brokerage, and mortgage banking operations of
Insignia. As a result of this distribution, each holder of shares of Class
A common stock of Insignia received two shares of Holdings common stock
for each three shares of Insignia common stock held. The shares of
Insignia common stock continued to represent issued and outstanding shares
of Insignia common stock ("Class A New common stock").
In October 1998, Insignia completed its merger with AIMCO, and on October
7, 1998, shareholders of Insignia Class A New common stock received AIMCO
cumulative preferred convertible Class E shares in exchange for shares of
Insignia Class A New common stock at a rate of approximately 0.262 AIMCO
cumulative preferred convertible Class E shares per share of Insignia
Class A New common stock. Accordingly, the Company received 122,054 shares
of AIMCO preferred stock at that time.
In November 1998, Holdings reassumed the original corporate name, Insignia
Financial Group, Inc. Holdings shares also reassumed Insignia's original
New York Stock Exchange trading symbol, IFS, and trading of the former
Holdings' common shares under Insignia's original trading symbol commenced
on November 2, 1998. The name and trading symbol of Holdings common stock
changed at that time. The shares of the former Holdings common stock are
included in the consolidated statements of net assets in liquidation at
December 31, 1998 as "Insignia Financial Group, Inc. - New" common stock.
The Company owned 306,575 shares of Insignia Financial Group, Inc. - New
common stock and 471,864 shares of Insignia common stock at December 31,
1998 and 1997, respectively. The closing market price was $12.125 per
share of Insignia Financial Group, Inc. - New common stock and $23 per
share of Insignia common stock at December 31, 1998 and 1997,
respectively.
F-6
<PAGE> 16
The Company owned 122,054 shares of AIMCO cumulative preferred convertible
Class E stock at December 31, 1998. The closing market price of the
preferred convertible stock was $37 per share at December 31, 1998.
On December 21, 1998, AIMCO declared a one-time special dividend of $5.582
per share of its preferred convertible Class E stock. This dividend was
payable on January 15, 1999 to the stockholders of record on December 31,
1998 and was accrued by the Company as a dividend receivable at December
31, 1998. Upon payment of this one-time special dividend, each share of
the Series E cumulative preferred convertible stock automatically
converted into one share of AIMCO Class A common stock. In addition to
such one-time special dividend, the Company also was paid other dividends
on the cumulative preferred convertible Class E stock of AIMCO.
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 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 settling certain remaining liabilities (see Note 5) and
disposing of the remaining assets. The remaining estimated costs to
liquidate at December 31, 1998 represent known liabilities and estimated
legal, accounting, and other fees necessary to liquidate and distribute
the remaining assets, if any, of the Company. During the year ended
December 31, 1998, a provision of $164,500 for additional estimated costs
during the period of liquidation was recorded due to the Company's
reassessment of the length of the remaining period until liquidation.
Additionally, $410,000 was provided during the year ended December 31,
1998 for the Company's settlement of the Metlife litigation in March 1999
(see discussion in Note 6).
5. TAXES PAYABLE
Taxes payable consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Federal income taxes payable $160,000 $200,000
State and local taxes payable 100,000 100,000
-------- --------
Total $260,000 $300,000
======== ========
</TABLE>
The Federal income taxes payable, as described below, represent estimated
alternative minimum income taxes payable upon the sale of the Company's
investments.
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.
F-7
<PAGE> 17
No other taxes have been provided for Federal and state income tax
purposes due to the availability of net operating loss carryforwards of
approximately $15.2 million for Federal purposes and $14.9 million for
state purposes at December 31, 1998. 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. LITIGATION
The Company was one of several defendants in a lawsuit filed by
Metropolitan Life Insurance Company ("Metlife"). In the action, Metlife
sought 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 claimed breach of warranty against
the Company based on allegedly defective work and improper materials. The
action was filed in July 1996 and was settled in March 1999. The Company's
share of the settlement was $625,000. Such amount, net of a $215,000
reduction in estimated legal fees, was provided as additional Estimated
Costs During Period of Liquidation at December 31, 1998 (see Note 4).
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.
********
F-8
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 March 30, 1999.
U.S. SHELTER CORPORATION
/s/ William D. Richardson
---------------------------
William D. Richardson
Sole Director and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacities and on the date indicated.
Signature Title Date
/s/ William D. Richardson Sole Director and
- ------------------------- President* March 30, 1999
- --------------
*There are no officers of the registrant other than the President.
<PAGE> 19
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule (for SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 28,132
<SECURITIES> 8,233,220
<RECEIVABLES> 681,305
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,942,657
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,202,302
<SALES> 0
<TOTAL-REVENUES> (1,711,901)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (574,500)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,246,401)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
