<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1999
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)
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 []
The registrant had 9,629,793 shares of Common Stock outstanding as of May 10,
1999.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
U.S. SHELTER CORPORATION
CONDENSED STATEMENTS OF NET ASSETS IN LIQUIDATION
MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998
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<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(unaudited) (1)
<S> <C> <C>
ASSETS
Investment in common stock of
Insignia Financial Group, Inc. -
New (Note 3) $4,311,364 $ 3,717,222
Investment in common stock of
Apartment Investment and
Management Company (Note 3) 3,989,458 --
Investment in preferred convertible class E
stock of Apartment Investment and
Management Company (Note 3) -- 4,515,998
Cash and cash equivalents 564,788 28,132
Dividends receivable (Note 3) -- 681,305
---------- -----------
Total Assets 8,865,610 8,942,657
---------- -----------
LIABILITIES
Estimated costs during period of liquidation
and accrued liabilities (Note 4) 263,354 942,302
Taxes payable (Note 5) 260,000 260,000
---------- -----------
Total Liabilities 523,354 1,202,302
---------- -----------
NET ASSETS IN LIQUIDATION $8,342,256 $ 7,740,355
========== ===========
</TABLE>
(1) Derived from audited financial statements as of and for the year ended
December 31, 1998.
See notes to unaudited condensed financial statements.
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U.S.SHELTER CORPORATION
CONDENSED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
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<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net Assets in Liquidation as of January 1 $7,740,355 $ 9,986,756
---------- -----------
Changes during the period:
Unrealized gain on common stock 559,750 943,728
Unrealized loss on preferred stock (53,399) --
Realized gain on sale of common stock 13,631 --
Dividends and interest earned 81,919 --
Federal income tax expense -- (20,000)
---------- -----------
Net changes during the period 601,901 923,728
---------- -----------
Net Assets in Liquidation as of March 31 $8,342,256 $10,910,484
========== ===========
</TABLE>
See notes to unaudited condensed financial statements.
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U.S. SHELTER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (LIQUIDATION BASIS)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
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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 months ended March 31, 1999 and 1998,
respectively.
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 the extent reasonably determinable. All costs incurred in the three
months ended March 31, 1999 and 1998, respectively, 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 three
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months ended September 30, 1998, a provision of $164,500 for additional
estimated costs during the period of liquidation was recorded due to the
Company's reassessment, at that time, of the length of the remaining
period until liquidation. A provision of $410,000 related to settlement
of certain litigation was provided during the three months ended
December 31, 1998 (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.
The interim financial data as of and for the three months ended March 31,
1999 and 1998, 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,
1998 financial information was derived from audited financial statements,
but excludes certain disclosures included in the Company's audit report.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31,
1998, as well as the other information included in the Company's annual
report filed on Form 10-K. The 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, 1999 or any
other interim period.
Cash and 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
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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 statements of net assets in liquidation at March 31, 1999
and December 31, 1998 as "Insignia Financial Group, Inc. New" common
stock.
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.
The Company owned 306,575 shares of Insignia Financial Group, Inc. - New
common at March 31, 1999 and December 31, 1998. The closing market price
was $14.063 and $12.125 per share at March 31, 1999 and December 31, 1998,
respectively.
The Company owned 110,054 shares of AIMCO Class A common stock at March
31, 1999 and 122,054 shares of AIMCO cumulative preferred convertible
Class E stock at December 31, 1998. The closing market price of the AIMCO
Class A common stock was $36.25 per share at March 31, 1999 and the
closing market price of the AIMCO cumulative preferred convertible Class E
stock was $37 per share at December 31, 1998.
Realized and unrealized gains and losses are included in the accompanying
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 March 31, 1999 and 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 three months ended September 30, 1998, a provision of $164,500
for additional estimated costs during the period of liquidation was
recorded due to the Company's reassessment, at that time, of the length of
the remaining period until liquidation. Additionally, $410,000 was
provided during the three months ended December 31, 1998 for the Company's
settlement of the Metlife litigation in March 1999 (see discussion in Note
6).
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5. TAXES PAYABLE
Taxes payable consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------- -----------------
<S> <C> <C>
Federal income taxes payable $ 160,000 $ 160,000
State and local taxes payable 100,000 100,000
---------------- -----------------
$ 260,000 $ 260,000
================ =================
</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.
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 both March 31, 1999 and 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).
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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 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.
********
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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 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, 1999, the Company's activities have
been limited to continuing its winding up and liquidation.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
The Company's net assets in liquidation were $8,342,256 at March 31,
1999, compared to $7,740,355 at December 31, 1998, representing an increase in
net assets in liquidation of $601,901 during the three month period. This is
primarily attributable to unrealized gains on the Company's investment in common
stock of Insignia Financial Group, Inc. - New (the "Insignia Stock") during the
three months ended March 31, 1999.
Realized and unrealized gains and losses on investment securities are
included in determining net assets under the liquidation basis of accounting.
For financial reporting purposes, the Company adjusts its investment in stocks
to market value at the end of each financial reporting period. At March 31,
1999, the Company's principal assets are the Insignia Stock and Apartment
Investment and Management Company Class A common stock (the "AIMCO Stock"). The
AIMCO Stock, formerly AIMCO cumulative convertible Class E preferred stock until
its conversion to Class A common stock during January 1999, was obtained by the
Company in October 1998 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 March 31, 1999
relates primarily to the commercial real estate services brokerage and mortgage
banking operations of Insignia which were spun-off by Insignia during late 1998.
The Company owned 306,575 shares of the Insignia Stock at March 31, 1999 and
December 31, 1998. The closing price per share of the Insignia Stock at March
31, 1999 and December 31, 1998 was $14.063 and $12.125, respectively. The
Company recorded an unrealized gain on the Insignia Stock of $594,142 for the
three months ended March 31, 1999 compared to an unrealized gain on Insignia
Stock of $943,728 for the three months ended March 31, 1998, due primarily to
market fluctuations in the price of the Insignia Stock.
At the date of the conversion of the AIMCO cumulative convertible Class
E preferred stock during January 1999, the Company received an equivalent number
of shares of AIMCO Common Class A Stock. The Company recorded an unrealized loss
on preferred stock of $53,399 at that time. After the conversion into common
stock, the Company sold 12,000 shares of the AIMCO Stock in order to pay a legal
settlement during the three month period (see further discussion regarding
settlement below). The Company owned 110,054 shares of the AIMCO Stock at March
31, 1999. The Company recorded an unrealized loss on AIMCO common stock of
$34,392 from the date of conversion through March 31, 1999.
The Company earns dividends on its investment in AIMCO Stock, which is
reflected in the three months ended March 31, 1999. No dividends were earned by
the Company in the three months ended March 31, 1998, as the Company's
investment in AIMCO began in the fourth quarter of 1998.
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The Company provided for estimated costs to liquidate effective
beginning in 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. During the three months
ended September 30, 1998, a provision for $164,500 of additional estimated costs
during the period of liquidation was recorded due to the Company's reassessment,
at that time, of the length of the remaining period until liquidation.
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
three months 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."
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 investments 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 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not invest in derivative financial instruments.
However, at March 31, 1999, the Company had significant investments in the Class
A common 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 financial statements at fair
value, as required by the liquidation basis of accounting. The fair value of the
AIMCO Stock was $3,989,458 and the fair value of the Insignia Stock was
$4,311,364 at March 31, 1999, 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, however,
and the Company believes fluctuations in
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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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 to the financial statements).
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.
No reports on Form 8-K were filed during the period.
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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 May 13, 1999.
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.
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 564,788
<SECURITIES> 8,300,822
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,865,610
<CURRENT-LIABILITIES> 523,354
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 523,354
<SALES> 0
<TOTAL-REVENUES> 601,901
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 601,901
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
