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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995
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 1-8709
CANAL CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0102492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
717 Fifth Avenue
New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 826-6040
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) or the Act:
Common Stock, $.01 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. Yes X No
The aggregate market value of the voting stock held by nonaffiliates of
the registrant at January 18, 1996, was $644,000. The number of shares of
Common Stock, $.01 par value, outstanding at January 18, 1996 was
4,326,929.
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX
Description Page
PART I
ITEM 1. Business............................................ 1
ITEM 2 Properties.......................................... 7
ITEM 3. Legal Proceedings................................... 8
ITEM 4. Submission of Matters to a Vote of Stockholders..... 11
PART II
ITEM 5. Market for Registrant's Common Stock and Related
Stockholder Matters................................. 14
ITEM 6. Selected Financial Data............................. 15
ITEM 7. Management's Discussion and Analysis of the
Results of Operations............................... 17
ITEM 8. Financial Statements and Supplementary Data......... 29
ITEM 9. Disagreements on Accounting and Financial
Disclosure.......................................... 29
PART III
ITEM 10. Directors and Executive Officers of the Registrant.. 30
ITEM 11. Executive Compensation.............................. 31
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management...................................... 35
ITEM 13. Certain Relationships and Related Transactions...... 37
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................. 39
i
PART I
Item 1. Business
A. General
The Registrant, Canal Capital Corporation ("Canal" or the "Company"),
incorporated in the state of Delaware in 1964, commenced business
operations through a predecessor in 1936.
Canal is engaged in two distinct businesses -- the management and
further development of its agribusiness related real estate properties and
art operations consisting mainly of the acquisition of art for resale. In
the past, Canal engaged in the trading of and investing in securities.
These activities were severely curtailed in fiscal 1991 and not engaged in
at all in fiscal years 1992 through 1995; however, the Company continues to
hold certain long-term investments which were acquired prior to 1991.
Canal's real estate properties located in six midwest states are
primarily associated with its former agribusiness related operations. Each
property is adjacent to a stockyard operations (which operates on land
leased from the company) and consists of an Exchange Building (commercial
office space), land and structures leased to third parties (meat packing
facilities, rail car repair shops, truck stops, lumber yards and various
other commercial and retail businesses) as well as vacant land available
for development or resale. In connection with the 1989 sale of its
stockyards operations, Canal entered into a master lease (the "Lease") with
the purchaser covering approximately 139 acres of land and certain
facilities used by the stockyards operations. The Lease is a ten year
lease renewable at the purchaser's option for an additional ten year
period, with escalating annual rentals. In addition, Canal retained the
right to receive income from certain volume based rental income leases with
t w o m e at packing companies located near the stockyards. See
"Agribusiness".
Its principal real estate operating revenues are derived from the
Lease, income from the volume based rental leases with meat packing
companies located near the stockyards, rental income from its five Exchange
Buildings
1
(commercial office space), lease income from land and structures leased to
various commercial and retail enterprises and proceeds from the sale of
real estate properties. Canal has continued its program of developing what
was excess stockyard property. See "Real Estate Operations".
Canal's art dealing operations consist primarily of the purchase for
resale of contemporary art and the purchase for resale of antiquities
primarily from ancient Mediterranean cultures. See "Art Operations".
B. Real Estate Operations
General
Real estate operations, which relate primarily to Canal's former
agribusiness operations, resulted in operating income of $2.2 million,
while contributing $4.6 million to Canal's revenues for fiscal 1995. Canal
is involved in the management, development or sale of its agribusiness
related real estate properties at its former stockyard locations, the lease
of certain property underlying the stockyards operations sold by Canal in
1989 and the revenue from various volume based rental agreements with meat
packing companies located near the stockyards.
As of October 31, 1995, there are approximately 347 acres of
undeveloped land owned by Canal adjacent to its former stockyards. Canal
is continuing the program, which it started several years ago, to develop
or sell this property. In December 1995, the company sold approximately 7
acres of land located in South St. Paul, Minnesota.
Agribusiness
Under the Lease, Canal has net leased 139 acres of land as well as
certain stockyard facilities at five of its former stockyard locations to
the group which purchased the stockyard operations. This lease is a 10
year lease, renewable at the purchaser's option for an additional ten year
period, with annual rentals of $750,000 per year for the first year
escalating to $1.0 million per year for the fourth through the tenth years
and $1.0 million per year adjusted for CPI increases thereafter. Canal
will be entitled to receive additional rent if the stockyard's livestock
volume or cash flow (as defined) exceeds certain levels.
2
In addition, Canal retained the right to receive income from certain
volume based rental income leases with two meat packing companies located
near the stockyards in Sioux City, Iowa and Fargo, North Dakota. The Sioux
City, Iowa lease is a fifty year lease expiring in 2017 with John Morrell &
Co. ("Morrell"). The lease calls for Morrell to pay Canal a per head fee
for
all hogs slaughtered at Morrell s plant that were not purchased at the
Sioux City stockyards. The Fargo, North Dakota lease is also a fifty year
lease expiring in 2028 with B&H Investment Company ("B&H"). This lease
calls for B&H to pay Canal a per head fee for all cattle slaughtered at
B&H s plant that were not purchased at the Fargo stockyards. For
information on the revenues generated by these leases see Note 3 to the
Consolidated Financial Statements. Both the Fargo, North Dakota and the
Sioux City, Iowa leases are the subject of ongoing litigation. For further
information about this litigation see "Item 3 - Legal Proceedings" and Note
15 to the Consolidated Financial Statements.
Risk
Real estate activities in general may involve various degrees of risk,
such as competition for tenants, general market conditions and interest
rates. Furthermore, there can be no assurance that Canal will be
successful in the development, lease or sale of its agribusiness related
real estate properties.
Competition
Canal competes in the area of agribusiness related real estate
development with other regional developers, some of which are substantially
larger and have significantly greater financial resources than Canal. To a
certain extent, Canal's agribusiness revenues are dependent on the ability
of the stockyard operations purchaser and the various meat packers with
whom Canal has yardage agreements to successfully compete in their
respective businesses.
C. Art Operations
Operations
Canal sells its art primarily through two sources, in galleries and at
art auctions. In the case of sales in galleries, the Company has
consignment arrangements with various art galleries in Europe and the
United States. In these arrangements Canal consigns its pieces at specific
prices to the gallery.
3
In the case of auctions, the Company primarily consigns its art pieces
to the two largest auction houses for their spring and fall art auction
seasons. The Company assigns a minimum acceptable price on the pieces
consigned. The auction house negotiates a commission on the sale of major
pieces. The pieces can be withdrawn at any time before or during the
auction.
There are no significant differences between the prices obtained in
galleries and those obtained at auction.
Art operations resulted in an operating loss of $0.7 million while
contributing $0.3 million to Canal's revenues for fiscal 1995. These
operations consist of the purchase and resale of antiquities through
various consignment and joint venture agreements in the United States and
Europe and the purchase for resale of contemporary art.
Salander-O'Reilly
In November 1989, Canal entered into a cost and revenue sharing
agreement with the Salander-O'Reilly Galleries in New York City, in
connection with their exclusive representation of Jules Olitski, a world
renowned artist of contemporary paintings. Canal purchased a number of
Olitski paintings for resale. This agreement expired December 1, 1994.
Canal currently operates independently of Salander-O Reilly Galleries in
its marketing efforts.
Risk
Dealing in art in general involves various degrees of risk. There can
be no assurance that the operations will be profitable. The success of a
program of this nature is dependent at least in part, on general economic
conditions, including supply, demand, international monetary conditions and
inflation. There can be no assurance that Canal will be able to sell its
art inventory at a price greater than or equal to its acquisition costs or
be able to turn over its art inventory at a desirable rate. In addition,
forgery and counterfeiting are risks inherent in the art industry.
However, Canal and its associates, through their experience and certain
precautionary
4
measures taken in the purchasing process, are confident that this risk has
been minimized. Moreover, there are security risks associated with
collections of antiquities and art, including problems of security in their
storage, transportation and exhibition. Canal has procured sufficient
insurance to cover such risks.
Competition
Canal competes in its art operations with investment groups and other
dealers, some of whom are substantially larger and have greater financial
resources and staff than Canal. There may be a number of institutions and
private collectors and dealers who may attempt to acquire the same pieces
of art at the same time as Canal, particularly at auction. Similarly,
there may be a number of dealers offering similar pieces of art, hereby
exerting a downward pressure on prices.
D. Securities Portfolio
General
C a nal no longer engages in trading activities but does have
investments in certain companies in which it, together with other entities,
some of which are affiliates, comprise a group for regulatory purposes.
These investments (in each of which Canal's ownership interest is less than
4%) are considered long-term in nature and are carried at the lower of
adjusted cost or net realizable value, as the Company and the other members
of the group can be deemed to have significant influence over operating and
financial policies of these companies. It is important to note that it is
the group (as defined) that can exercise influence over these companies,
not Canal. Accordingly, these situations do not qualify for consolidation
as a method of reporting. Adjusted cost includes all mark-to-market
adjustments through the date at which significant influence is deemed to
exist. These investments will be adjusted to net realizable value if any
decline in market value from carrying value is deemed other than temporary.
5
Canal has an agreement with an investment advisor who is affiliated
with a director who is also a shareholder and the Chairman of Canal. The
investment advisor has discretionary authority over the securities trading
and investment activities, if any, of Canal. This agreement may be
terminated by either party by 90 days prior written notice to the other.
The investment advisor is paid investment advisory fees quarterly based on
25% of net realized gains less any net unrealized losses. At October 31,
1 9 95, Canal had net realized and unrealized investment losses of
approximately $2.0 million available to offset against future net realized
gains in determining advisory fees payable.
E. Employees
At December 31, 1995, Canal had 7 employees.
6
ITEM 2. Properties
Canal's real estate properties located in six Midwest states are
primarily associated with its former agribusiness related operations. Each
property is adjacent to a stockyard operation (which operates on land
leased from the company) and consists of an Exchange Building (commercial
office space), land and structures leased to third parties (meat packing
facilities, rail car repair shops, truck stops, lumber yards and various
other commercial and retail businesses) as well as vacant land available
for development or resale. As landlord, Canal's management
responsibilities include leasing, billing, repairs and maintenance and
overseeing the day to day operations of its properties. Canal's properties
at October 31, 1995 include:
Subject Avail-
to the Leased able for
Year Total Exchange Master to Third
Develop-
Location Acquired Site(2) Bldgs. Lease(1) Parties ment (3)
St. Joseph, MO 1942 127 2 37 2 86
West Fargo, ND 1937 66 13 0 0 53
S. St. Paul, MN 1937 217 6 30 55 126 (7)
Sioux City, IA 1937 127 2 24 55 46
Omaha, NE 1976 85 2 17 34 32
Sioux Falls, SD 1937 43 0 31 8 4
Total 665 25 139 154 347
The following schedule shows the average occupancy rate and average rental
rate at each of Canal's five Exchange Buildings:
1995 1994
Occupancy Average(5) Occupancy Average(5)
Location Rate Rental Rate Rate Rental Rate
St. Joseph, MO 75% $ 4.75 73% $ 4.75
West Fargo, ND(4) N/A N/A N/A N/A
S. St. Paul, MN 98% $14.25 96% $13.90
Sioux City, IA 68% $ 3.40 69% $ 3.50
Omaha, NE 55% $ 4.73 62% $ 4.75
NOTES
(1) Leased to the purchaser of Canal's stockyard operations.
(2) For information with respect to mortgages and pledges see Note 7 to
the Consolidated Financial Statements.
(3) For information related to this see Note 2(c) to the Consolidated
Financial Statements.
(4) Canal has closed this building and is offering it for sale.
(5) Per square foot.
(6) With the exception of S. St. Paul, MN which has one tenant (State of
Minnesota) representing 50% of the building's rental income none of
the leases relating to the above Exchange Buildings represents 10% or
more of rental income.
(7) In December 1995, Canal sold seven acres of land at this location.
7
ITEM 3. Legal Proceedings
Canal and its subsidiaries are from time to time involved in
litigation incidental to their normal business activities, none of which,
in the opinion of management, will have a material adverse effect on the
consolidated financial condition and operations of the Company. In
addition, Canal or its subsidiaries are party to the following litigation:
Federal Beef Processors, Inc. v. Union Stockyards Company of Fargo
This action involves Union Stockyards Company of Fargo ( Union ), a
wholly owned subsidiary of Canal. It is an action which involves claims
which are similar to some of the claims brought by B&H Investment Co.
( B&H ) against Union several years ago which was dismissed in 1994
following a decision by the Minnesota Court of Appeals in favor of Union.
The dispute involves a Lease Agreement relating to certain real estate
owned by Union and leased to Federal Beef Processors, Inc. ( Federal
Beef ). Federal Beef operates a meat packing plant on the leased premises,
and it is a related entity to B&H, which previously operated the packing
plant. By the terms of the Lease Agreement, Federal Beef s obligation to
pay additional rent is suspended during any period that Union fails to
provide adequate yardage service (under the terms of a separate Yardage
Agreement between the parties) that materially affects the business of
Federal Beef.
Federal Beef filed a Complaint on June 2, 1995 in the District Court
for Cass County, North Dakota, for damages claimed to be suffered as a
result of Union s alleged failure to provide adequate maintenance and
cleaning services for the livestock pens used by Federal Beef under the
Yardage Agreement. The damages sought by Federal Beef are in an
unspecified amount consisting of the additional rent paid by Federal Beef
during the time Union allegedly was in breach of the Lease Agreement and
the Yardage Agreement. As of June 1995, Federal Beef alleged it was
entitled to the return of additional rent in excess of $70,000. In
addition, Federal Beef seeks all direct and consequential damages allegedly
suffered by Federal Beef because of the claimed breach, including loss of
profits from animals allegedly damaged by reason of the condition of the
pens. Federal Beef subsequently filed an Amended Complaint in which it has
also sought a determination that it is entitled to exercise an option to
purchase the leased premises under the terms of the Lease Agreement for a
price measured by the unimproved value of the leased premises.
8
Union has filed an Answer and Complaint denying the allegations in the
Amended Complaint, seeking a determination that Federal Beef s claims are
frivolous, and asking for an award of Union s reasonable attorneys fees
and costs in connection with the defense of the action. In July 1995,
Union successfully defeated a motion by Federal Beef for an order which
would have allowed Federal Beef to deposit into Court all rent payments due
from Federal Beef to Union pending the outcome of the litigation. As a
result, Federal Beef has continued to make all rent payments due under the
Lease Agreement while reserving its alleged claims against Union.
Management does not believe that the revenues generated by this lease
will be materially affected in resolving this dispute.
John Morrell & Co. v. Canal Capital Corporation
On October 6, 1993, an action was commenced against Canal by John
Morrell & Co. ("plaintiff") in the District Court for Woodbury County,
State of Iowa. Plaintiff amended the action on November 30, 1993. The
lawsuit arises out of the alleged breach by Canal, as lessor, of a lease
agreement relating to certain real estate on which plaintiff operates a
meat packing plant in Sioux City, Iowa. Plaintiff alleges in the suit a
breach of the lease by Canal as a result of Canal's sale of the Sioux City
stockyard operation in 1989 and its failure to renegotiate the rental terms
of the lease. Plaintiff alleges that Canal is obligated, as lessor, to
provide animals from the Sioux City stockyards to meet plaintiff's needs in
operating the packing plant on the leased property. Plaintiff alleges
that, as a result of Canal's failure to provide sufficient animals to meet
plaintiff's needs, plaintiff has been forced to obtain animals from sources
other than the stockyards at an additional cost and has been forced to pay
additional rent under the lease agreement. Plaintiff seeks relief in the
form of damages in an unspecified amount and a renegotiation of the rental
terms of the lease.
The parties have agreed to suspend activity in the litigation while
the parties explore the possible resolution of the matter. In the
meantime, plaintiff has agreed to pay the rent/yardage payments to Canal
according to the lease without prejudice to the claims of either plaintiff
or Canal. The agreement may be terminated by either party upon 30-days
written notice.
Management does not believe that the revenues generated by this lease
will be materially affected in resolving this dispute.
9
Former Portland Stockyard Property
In December 1988, the Company sold a parcel of real estate in
Multnomah County, Oregon and, in connection therewith, agreed to share the
costs of the correction of adverse environmental conditions on such
property with the buyer. Pursuant to the cost sharing agreement, $1.1
million of the sales price was placed in escrow to secure the Company's
performance of its cost sharing obligations, which were not limited to that
amount. In 1991 the Company received an estimate from the buyer that the
correction costs might be in the range of $2 to $5 million. Under the cost
sharing agreement, the Company's obligation is to pay 50% of the first
$400,000 and 90% of the next $425,000 of costs and 95% of all costs
thereafter. The Company had objected to the buyer's definition of costs
which require sharing in connection with
certain demands of the buyer for release of funds from escrow and had
stopped payment of those funds from the escrow. This dispute was the
subject of an arbitration which was recently resolved in favor of the
buyer. As a result, those funds were released from escrow and the escrow
has been substantially depleted. At October 31, 1993, the Company accrued
$400,000 representing management's estimate of its additional contingent
liability in this matter. This amount is included as a liability in
accrued litigation settlement at October 31, 1995.
Sioux City, Iowa - Demolition Notice
On October 25, 1994, Canal received a Placard Notice (the "Notice")
from the City of Sioux City, Iowa (the City ) ordering the demolition of
four structures located on Canal's property. The Notice claims that the
structures are delapidated, unsafe and must be demolished. While exact
costs are not available, Canal estimates demolition costs at $750,000 to
$1,000,000. Canal is currently negotiating with the City for the sale of
the four structures covered by the Notice and approximately 15 acres of
land to the City. If these negotiations are successful the responsibility
for any demolition required would be with the City. Additionally, Canal
has filed an appeal of this Notice with City Inspection Services Manager
and is awaiting a hearing date. If this matter cannot be settled as
described above, Canal will pursue alternative means of challenging this
Notice.
Pine Valley Meats, Inc. v. Canal Capital Corporation
On May 5, 1995 an action was commenced against Canal by Pine Valley
Meats, Inc. ( Plaintiff ) in the County Court for Dakota County, State of
Minnesota. The lawsuit arises out of the alleged breach by Canal of a
10
certain cattle walkway agreement (the walkway agreement ) relating to the
passage of cattle over land owned by Canal in South St. Paul, Minnesota.
Plaintiff contends that the walkway agreement is a permanent easement
thereby requiring Canal to maintain a cattle walkway for their use in
perpetuity. Canal s position is that the walkway agreement is in fact a
license and can be terminated at Canal s discretion. Canal did close the
cattle walkway for several weeks in April 1995.
In June 1995, plaintiff sought and won a temporary injunction
requiring Canal to continue to maintain the cattle walkway for plaintiff s
use until the rights of the parties can be determined at trial. Plaintiff
is seeking a permanent injunction determining that the walkway agreement
creates an easement as well as unspecified damages for lost profits when
the walkway was closed.
On January 5, 1996, the Dakota County Court ruled that the walkway
agreement constituted a license only and denied the plaintiff s request for
a permanent injunction. Trial on the damage issue is scheduled for April
15, 1996.
Management does not believe that a damage award in this case is likely
or that if damages were awarded that they would be of a material amount.
ITEM 4. Submission of Matters to a Vote of Shareholders
None.
11
Executive Officers of the Registrant
The following table sets forth the names, ages, business backgrounds
and areas of responsibility of the executive officers of the Registrant:
Positions and Other Current and Prior
Offices with Positions During the
Name Age the Registrant Past Five Years
Michael E. Schultz 59 President and Chief Attorney, partner in
Executive Officer Ehrenkranz, Ehrenkranz
since September 1991 & Schultz, law firm,
and a Director for for more than five
more than five years. years. Executive Vice
President, Special Pro-
jects, Intelogic Trace,
Inc. until December 8,
1994.
Asher B. Edelman 56 Chairman of the Controlling General
Part-
Board since ner, Plaza Securities
September 1991 and Company for more than
prior thereto Vice five years and of Asco
Chairman of the Partners (the General
Board and Chairman Partner of Arbitrage
of the Executive Securities Company),
Committee for more broker-dealer, for more
than five years. than five years;
President of A.B.
Edelman Management
Company, Inc. (the
General Partner of
Edelman Value Partners,
Inc.) For more than
five years. Chairman
of the Board of Datapoint
Corporation, computer
manufacturing and
distribution, for
more than five years.
Chairman of the Board
of Intelogic Trace, Inc.,
computer and telecom-
munications equipment
servicing, until December
8, 1994.
12
Reginald Schauder 46 Vice President- Controller from
Finance, Secretary July 1985 to
and Treasurer since January 1989
January 1989.
There are no family relationships between any of the aforementioned
executive officers of the Registrant, and such executive officers were
elected to serve for a term of one year or until the election and
qualification of their respective successors.
13
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stock Matters
On April 30, 1992 the Securities and Exchange Commission approved an
order granting the application of the New York Stock Exchange, Inc. for
removal of the Common Stock of Canal from listing and registration on the
Exchange under the Securities Exchange Act of 1934. Currently, Canal's
stock is traded over-the-counter through the "pink sheets". The high and
low price ranges of Canal's common stock for the eight quarters ended
October 31, 1995 as reported on the "pink sheets" were:
Fiscal 1995 Fiscal 1994
Quarter Ended High Low High Low
October 31 ................. $ 3/16 -- $ 1/16 $ 1 1/2 -- $ 1/2
July 31 .................... 3/16 -- 3/16 1 3/8 -- 3/8
April 30 ................... 1/4 -- 1/8 1 3/8 -- 1/8
January 31 ................. 1/2 -- 1/4 1/16 -- 1/16
There were no cash dividends paid during fiscal 1995 or 1994. Canal
is subject to restrictions on the payment of cash dividends under certain
debt agreements. As of January 18, 1996, Canal had approximately 1,500
holders of record of its common stock, par value $.01 per share.
14
Item 6. Selected Consolidated Financial Data
The following data have been derived from consolidated financial
statements that have been audited by Todman & Co., CPAs, P.C., independent
accountants. The information set forth below is not necessarily indicative
of the results of future operations and should be read in conjunction with
the consolidated financial statements and notes thereto appearing elsewhere
in this annual report on Form 10-K.
(In Thousands, Except per share data)
Year Ended October 31, 1995 1994 1993 1992 1991
Operating Data:
Revenues from
continuing operations $4,854(5) $8,460(4) $4,535(3) $6,968(2) $11,280(1)
Net income (loss)
from continuing
operations ($1,518)(9)$1,362(8)($2,160)(7)($4,674)(6)($5,296)
Extraordinary gain
on retirement of
debt 0 0 366 857 0
Net income (loss) ($1,518) $1,362 ($1,794) ($3,817) ($5,296)
provision for
preferred stock
dividend (193) (313) (113) (97) 131
Net income (loss)
applicable to
common shares ($1,711) $1,049 ($1,907) ($3,914) ($5,427)
Earnings (loss) per
common and common
equivalent share
(Note 2(I)): (10)
Net income (loss)
before extraordinary
item ($0.40) $0.23 ($0.52) ($1.10) ($1.25)
Extraordinary item 0.00 0.00 0.08 0.20 0.00
Net income (loss) $ (0.40) $ 0.23 ($0.44) ($0.90) ($1.25)
15
Item 6. Selected Consolidated Financial Data (cont d)
(In Thousands, Except per share data)
Year Ended October 31, 1995 1994 1993 1992 1991
Earnings (loss) per
common and common
equivalent share
assuming full dilution
(Note 2(I)): (10)
Net income (loss)
before extraordinary
item $(0.37) $ 0.20 ($0.52) ($1.10) ($1.25)
Extraordinary item 0.00 0.00 0.08 0.20 0.00
Net income/(loss) $(0.37) $ 0.20 ($0.44) ($0.90) ($1.25)
Cash dividends paid $ 0.00 $ 0.00 $0.00 $0.00 $0.00
Notes:
(1) The revenue increase is due primarily to Canal s sale of a substantial
portion of its antiquities inventory, which was effected in order to
strengthen liquidity and reduce the level of outstanding debt.
(2) The revenue decrease is due primarily to a reduction in art sales
which was offset to a certain extent by increased real estate revenues
and the company s cessation of its securities trading and investing
which activity had resulted in a $1.2 million loss for fiscal 1991.
(3) The revenue decrease is due primarily to a reduction in art sales.
(4) The revenue increase is due primarily to an increase of $2.3 million
in real estate sales and the reversal of a loss provision established
in fiscal 1992 in connection with a judgment against a subsidiary of
the company.
(5) The revenue decrease is due primarily to a decrease of $2.1 million in
real estate sales and the absence of a $1.5 million judgment reversal
in 1994 against a subsidiary of the company.
16
Item 6. Selected Consolidated Financial Data (cont d)
(6) Includes $400,000 (see Note 6) and a $1.6 million provision for
litigation settlement (see Note 15).
(7) Includes an $873,000 write-off in connection with lease termination
(see Note 11), a $400,000 provision for litigation settlement (see
Note 15), and a $300,000 valuation allowance to the art inventory (see
Note 10).
(8) Includes the reversal of a $1.5 million loss provision established in
fiscal 1992 in connection with a judgement against a subsidiary of a
company, a $0.6 million gain on property sales and a $0.3 million gain
on the sale of long-term investments offset by a $0.3 million loss on
the write down of long-term investments and $0.2 million increase in
the art inventory valuation reserve.
(9) Includes the absence of a judgment reversal of $1.5 million in 1994
against a subsidiary of the company, and a $0.5 million increase in
the art inventory valuation reserve, absence of $0.3 million gain on
sale of long-term investments, and $0.2 million increase in interest
expense partially offset by a $0.6 million gain on real estate sales.
(10) Common and common equivalent shares were calculated to give effect to
certain common stock equivalents and common stock equivalent share -
fully diluted to give effect to certain convertible notes issued in
March 1994.
(11) For discussion of material uncertainties, see Note 15.
17
Item 6. Selected Consolidated Financial Data (cont d)
(In Thousands)
Year Ended October 31, 1995 1994 1993 1992 1991
Balance sheet data:
Current assets $ 963 $ 1,416 $ 1,321 $ 3,110 $ 15,732
Property on operating
leases, net (1) 8,385 8,708 9,784 10,494 11,665
Art inventory non-
current 4,900 5,744 6,074 7,079 0
Other assets 3,955 4,260 5,184 6,339 7,240
Total Assets $18,203 $20,128 $22,363 $27,022 $34,637
Current Liabilities $ 2,710 $ 6,122 $15,015 $17,670 $ 9,763
Long-term debt 11,379 8,062 2,394 2,502 13,948
Stockholders Equity 4,114 5,944 4,954 6,850 10,926
Total Liabilities
& Stockholders Equity $18,203 $20,128 $22,363 $27,022 $34,637
Common shares
outstanding at year-
end 4,327 4,327 4,327 4,327 4,327
Notes:
(1) Certain prior amounts have been reclassified to conform to current
year s presentation.
(2) For discussion of material uncertainties and commitments, see Notes 11
and 15 to the consolidated financial statements.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations - General
While the Company is currently operating as a going concern, certain
significant factors raise substantial doubt about the Company's ability to
continue as a going concern. First, the Company has suffered significant
losses from operations in six of the last seven years. Second, the Company
is involved in litigation with major tenants in Sioux City, Iowa and Fargo,
North Dakota. Third and last, the Company has a continuing environmental
liability associated with a 1988 sale of property located in Portland,
Oregon. The financial statements include a reserve of $400,000 associated
with the environmental liability, but do not include any adjustments that
might result from the resolution of these other uncertainties.
Canal recognized a net loss of $1.5 million for 1995 as compared to
the 1994 net income of $1.4 million and the 1993 net loss of $1.8 million.
After recognition of preferred stock dividend payments of $193,000 in 1995,
$313,000 in 1994 and $113,000 in 1993, the results attributable to common
stockholders were a net loss of $1.7 million in 1995, net income of $1.0
in 1994 and a net loss of $1.9 million in 1993.
Canal's revenues from continuing operations consist of revenues from
its real estate and art operations. Due to general economic conditions
and more specifically a depressed national art market, Canal's aggregate
revenues from art sales and the prices at which sales were made have
significantly declined in recent years. During fiscal years 1992 and 1991,
the Company sold several large pieces of art to fulfill part of its current
cash needs and to reduce
the level of its art inventories. These sales were made at amounts below
the Company's costs. There were no similar sales in fiscal 1995 nor does
management anticipate any significant sales of this nature to occur in
fiscal 1996. Revenues in 1995 decreased by $3.6 million to $4.9 million as
compared with 1994 revenues which had increased by $3.9 million to $8.5
million from 1993 revenues of $4.5 million. The 1995 decrease is due
primarily to a $2.1 million reduction in real estate sales and the 1994
inclusion of the reversal of a $1.5 million loss provision established in
fiscal 1992 in connection with a judgment against a subsidiary of the
company. The 1994 increase is
due primarily to a $2.3 million increase in revenues from the sale of real
estate and the inclusion of the reversal of a $1.5 million loss provision
as discussed above.
19
1995 vs. 1994
Canal's 1995 net loss of $1.5 million was due primarily to a $0.7
million loss from art operations (which included a $0.5 million increase in
the art inventory valuation reserve), a $0.3 million write down of the
Company s long-term investment, an increase in interest expense of
approximately $0.3 million due to rate increases and a $0.1 million
increase in general and administrative expenses associated primarily with
increased legal fees. The 1994 results included the reversal of a $1.5
million loss provision established in fiscal 1992 in connection with a
judgment against a subsidiary of the Company, a $0.6 million gain on the
sale of real estate and a $0.3 million gain on the sale of long-term
investments. These were offset by a $0.3 million write down of the
Company's long-term investments and a $0.2 million increase in the art
inventory valuation reserve.
Real Estate Revenues
Real estate revenues for 1995 of $4.6 million accounted for 94.6% of
the 1995 revenues as compared to revenues of $8.3 million or 97.5% for
1994. Real estate revenues are comprised of rental income from Exchange
Building (commercial office space) rentals and other lease income from the
rental of vacant land and certain structures (45.5% and 25.7%), Ground
lease income (21.2% and 11.5%), volume based rental income (15.9% and 9.7%)
and sale of
real estate and other income (17.4% and 53.1%) for 1995 and 1994,
respectively. The 1995 decrease is due primarily to a $2.1 million
decrease in the sale of real estate and the inclusion in the 1994 revenues
of the reversal of a $1.5 million loss provision established in fiscal 1992
in connection with a judgment against a subsidiary of the Company.
Real Estate Expenses
Real estate expenses for 1995 of $2.4 million decreased by $1.8
million (43.3%) from $4.2 million in 1994. Real estate expenses are
c o m prised of labor, operating and maintenance (40.9% and 21.7%),
depreciation and amortization (15.2% and 9.9%), taxes other than income
taxes (22.1% and 12.2%), cost of real estate sold (18.0% and 54.2%) and
general and administrative expenses (3.8% and 2.0%) for 1995 and 1994,
respectively. The 1995 decrease in real estate expenses is due primarily
to the $2.1 million decrease in aggregate real estate sales for fiscal
1995. Additionally, the percentage swings in year to year comparisons is
due primarily to the $1.9 million decrease in the cost of real estate sold.
20
Art Operations
Management estimates it may take two to five years to dispose of its
current art inventory. The Company's ability to dispose of its art
inventory
is dependent at least in part, on general economic conditions, including
s u p p l y, demand, international monetary conditions and inflation.
Additionally, the art market itself is a very competitive market.
Accordingly, there can be no assurance that Canal will be successful in
disposing of its art inventory within the time frame discussed above.
Canal has its art inventory appraised by an independent appraiser
annually. The 1995 appraisal covered approximately 78% of the inventory
value. The appraised values estimate the current market value of each
piece giving consideration to Canal's practices of engaging in consignment,
private and public auction sales. The net realizable value of the
remaining 22% of the inventory was estimated by management based in part on
operating history and in part on the results of the independent appraisals
done. In fiscal 1995 Canal recognized a $500,000 valuation allowance
against its art inventory, thereby, increasing the total valuation
allowance to $1,000,000 as of October 31, 1995 as compared to $500,000 and
$300,000 at October 31, 1994 and 1993, respectively. These estimates were
based in part on the Company's history of losses sustained on art sales in
the current and previous years.
The valuation allowance represents management's best estimate of the
loss that will be incurred by the Company in the normal course of business.
The estimate is predicated on past history and the information that was
available at the time that the financial statements were prepared. The
provision contemplates the loss that could result if the level of sale
anticipated was achieved.
The nature of art makes it difficult to determine a replacement value.
The most compelling evidence of a value in most cases is an independent
appraisal. The price at which pieces are consigned is usually in line with
appraisals and above the cost of the piece. The amount classified as
current represents management's best estimate of the minimum amount of
inventory that will be sold in this market. Management believes that the
provision discussed above has effectively reduced inventory to its
estimated net realizable value. The Company will continually monitor the
market for its product and will make adjustments to the value of its art
inventory as such adjustments become necessary.
21
The Company's plan to sell inventory at auction is contemplated in the
normal course of business. Auction in this context is one of the usual
channels used for disposal of its art inventory. The proceeds from these
sales are used to reduce the Company's outstanding debt and finance current
operations. If these sales are not made the Company has alternate means of
raising cash such as sales of investments, sale of real estate, raising of
new capital and further rescheduling of debt. Some of these measures were
s u ccessfully implemented in fiscal 1995. Because of the available
alternatives the Company does not anticipate any extraordinary losses
associated with the art inventory in fiscal 1996.
Art Revenues
Art revenues for 1995 increased $53,000 or 25.5% from $207,000 in
1994. Art revenues are comprised of proceeds from the sale of antiquities
and contemporary art (94.7% and 100.0%) and commission income (primarily
from the Salander-O'Reilly agreement) on sale of art owned by third parties
(5.3% and 0.0%) for 1995 and 1994, respectively. The Company's art
inventory was reduced by $0.4 million and $0.3 in fiscal years 1995 and
1994, respectively.
Art Expenses
Art expenses for 1995 of $1.0 million increased by $0.5 million
(103.2%) from $0.5 million in 1994. Art expenses (excluding valuation
reserves) consisted of the cost of art sold (83.6% and 73.3%) and selling,
general and administrative expenses (16.4% and 26.7%) for 1995 and 1994,
respectively. Included in art expenses is a $0.5 million and a $0.2
million valuation allowance against the Company's art inventory (see Note
10 to the Consolidated Financial Statements) for fiscal years 1995 and
1994, respectively. The 1995 increase is due primarily to a $198,000
(94.6%) increase in the cost of art sold.
General and Administrative
General and administrative expenses for 1995 of $1.4 million increased
$0.1 million (9.1%) from $1.3 million in 1994. The major components of
general and administrative expenses are officers salaries (30.5% and
31.0%), rent (5.7% and 7.5%), legal and professional fees (17.1% and
11.9%), insurance (11.4% and 16.4%) and office salaries (10.4% and 9.0%)
for 1995 and
22
1994, respectively. The percentage decreases in officers salaries,
insurance and office salaries is a result of the aggregate increase in
total general and administrative expenses as a result of the increases in
legal fees. The percentage increase in legal and professional fees reflect
increased legal expenses associated with the new lawsuit in Fargo, North
Dakota (see Note 15 to the Consolidated Financial Statements).
Gain on Sale of Long-term Investments
Canal recognized gains on the sale of long-term investments of
$333,000 in fiscal 1994. The proceeds from these sales of approximately
$500,000 was used to reduce the outstanding balance of short-term
borrowings.
Write Down of Long-Term Investments
Canal recognized losses of $286,000 and $344,000 on the write down of
long-term investments in fiscal 1995 and 1994, respectively. The 1995 loss
includes $114,000 to write down the Company s investment in Intelogic
Trace, Inc. to zero. As per Canal's policy (see Note 2(B)) these losses
reflect adjustments to the carrying value of these investments to
managements estimate of their net realizable value.
Interest and Other Income
Interest and other income for 1995 decreased 9.2% to $164,000. These
amounts are comprised primarily of dividend and interest income and to a
lesser extent the proceeds from the sale of non-essential assets.
Interest Expense
Interest expense increased $0.2 million (15.6%) to $1.5 million in
1995. The increase reflects increases in the average interest rates
charged Canal which was offset to a certain extent by reductions in the
average balance of long-term debt outstanding. Interest rates on Canal's
variable rate mortgage notes increased to an average of 11.78% in 1995 as
compared to an average of 9.1% in 1994 and an average of 8.5% in 1993. At
October 31, 1995 Canal had reduced the outstanding face value of these
notes from the original $20.0 million to $7.6 million.
23
1994 vs. 1993
Canal's 1994 net income of $1.3 million was due primarily to the
reversal of a $1.5 million loss provision established in fiscal 1992 in
connection with a judgment against a subsidiary of the Company, a $0.6
million gain on the sale of real estate and a $0.3 million gain on the sale
of long-term investments. These were offset by a $0.3 million write-down
of the Company's long-term investments and a $0.2 million increase in the
art inventory valuation reserve.
Real Estate Revenues
Real estate revenues for 1994 of $8.3 million accounted for 97.5% of
the 1994 revenues as compared to revenues of $4.3 million or 94.2% for
1993. Real estate revenues are comprised of rental income from Exchange
Building (commercial office space) rentals and other lease income from the
rental of vacant land and certain structures (25.7% and 49.5%), Ground
lease income (11.5% and 23.4%), volume based rental income (9.7% and 13.0%)
and sale of
real estate and other income (53.1% and 14.1%) for 1994 and 1993,
respectively. The 1994 increase is due primarily to a $2.3 million
increase in the sale of real estate and the reversal of a $1.5 million loss
provision established in fiscal 1992 in connection with a judgment against
a subsidiary of the Company.
Real Estate Expenses
Real estate expenses for 1994 of $4.2 million increased by $1.6
million from $2.6 million in 1993 (64.8%). Real estate expenses are
c o m prised of labor, operating and maintenance (21.7% and 46.5%),
depreciation and amortization (9.9% and 21.6%), taxes other than income
taxes (12.2% and 21.1%), cost of real estate sold (54.2% and 8.4%) and
general and administrative expenses (2.0% and 2.5%) for 1994 and 1993,
respectively. The 1994 increase and the swings in year to year comparisons
is due primarily to the $2.1 million increase in the cost of real estate
sold. Included in 1993 real estate expenses is a $0.4 million provision
for litigation settlement associated with the Company's former Portland
Stockyard Property (see Note 15).
24
Art Operations
Management estimates it may take two to five years to dispose of its
current art inventory. The Company's ability to dispose of its art
inventory is dependent at least in part, on general economic conditions,
including supply, demand, international monetary conditions and inflation.
Additionally, the art market itself is a very competitive market.
Accordingly, there can be no assurance that Canal will be successful in
disposing of its art inventory within the time frame discussed above.
Canal has its art inventory appraised by an independent appraiser
annually. The 1994 appraisal covered approximately 80% of the inventory
value. The appraised values estimate the current market value of each
piece giving consideration to Canal's practices of engaging in consignment,
private and public auction sales. The net realizable value of the
remaining 20% of the inventory was estimated by management based in part on
operating history and in part on the results of the independent appraisals
done. In fiscal 1994 the Company increased the valuation allowance against
its art inventory (see Note 10 to the Consolidated Financial Statements) to
reduce the inventory value to its estimated net realizable value to
$500,000 from its 1993 level of $300,000. These estimates were based in
part on the Company's history of losses sustained on art sales in the
current and previous years.
The valuation allowance represents management's best estimate of the
loss that will be incurred by the Company in the normal course of business.
The estimate is predicated on past history and the information that was
available at the time that the financial statements were prepared. The
provision contemplates the loss that could result if the level of sale
anticipated was achieved.
The nature of art makes it difficult to determine a replacement value.
The most compelling evidence of a value in most cases is an independent
appraisal. The price at which pieces are consigned is usually in line with
appraisals and above the cost of the piece. The amount classified as
current represents management's best estimate of the minimum amount of
inventory that will be sold in this market. Management believes that the
provision on the current portion of the inventory has effectively reduced
inventory to its estimated net realizable value. The Company will
continually monitor the market for its product and will make adjustments to
the value of its art inventory as such adjustments become necessary.
25
Art Revenues
Art revenues for 1994 decreased $56,000 (21.4%) from $264,000 in 1993.
Art revenues are comprised of proceeds from the sale of antiquities and
contemporary art (100.0% and 98.6%) and commission income (primarily from
the Salander-O'Reilly agreement) on sale of art owned by third parties
(0.0% and 1.4%) for 1994 and 1993, respectively. The Company's art
inventory was reduced by $0.3 million and $0.2 in fiscal years 1994 and
1993, respectively.
Art Expenses
Art expenses for 1994 of $0.5 million decreased by $0.3 million
(39.0%) from $0.8 million in 1993. Art expenses (excluding valuation
reserves) consisted of the cost of art sold (73.3% and 67.1%), selling,
general and administrative expenses (26.7% and 32.7%) and depreciation and
amortization expenses (0.0% and 0.2%) for 1994 and 1993, respectively.
Included in art expenses is a $0.2 million and a $0.3 million valuation
allowance against the current portion of the Company's art inventory (see
Note 10) for fiscal years
1994 and 1993, respectively. The 1994 decrease is due primarily to a
$123,000 (37.1%) reduction in the cost of art sold associated with the
decrease in art sales discussed above and to an $86,000 (52.8%) reduction
in the art operations selling, general and administrative expenses as a
result of Canal's closing its Daedalus Gallery in London.
General and Administrative
General and administrative expenses for 1994 of $1.3 million decreased
$0.4 million (25.7%) from $1.7 million in 1993. The major components of
general and administrative expenses are officers salaries (31.0% and
23.0%), rent (7.5% and 20.4%), legal and professional fees (11.9% and
19.0%), insurance (16.4% and 8.5%) and office salaries (9.0% and 7.0%) for
1994 and 1993, respectively. The percentage increases in officers salaries
and office salaries is a result of the aggregate decrease in total general
and administrative expenses. The percentage increase in insurance expense
relects increased premiums combined with increased deductible copayments on
certain of the Company's insurance policies. The percentage decrease in
rent is due to the Company's 1993 move to smaller corporate offices in New
York City and the percentage decrease in legal and professional fees is due
to a reduction in the level of ongoing litigation.
26
Write-off in Connection with Lease Termination
The 1993 write-off was associated with the early termination of the
Company's New York City office space. The $873,000 write-off consisted of
the cost of leasehold improvements (90.4%) and associated deferred leasing
expenses (9.6%). There was no similar expense in 1994.
Gain on Sale of Long-term Investments
Canal recognized gains on the sale of long-term investments of
$333,000 and $329,000 in fiscal 1994 and 1993, respectively. The proceeds
from these sales (approximately $500,000 in each year) were used to reduce
the outstanding balance of short-term borrowings.
Write Down of Long-Term Investments
During 1994 Canal recognized a loss of $344,000 on the write down of
long-term investments. As per Canal's policy (see Note 1(B)) this loss
reflects an adjustment of the carrying value of these investments to
managements estimate of their net realizable value. There was no similar
transaction in fiscal 1993.
Interest and Other Income
Interest and other income for 1994 decreased $0.2 million (52.1%).
Included in the 1993 results were accounting and management fees charged to
a third party and proceeds from the sales of excess office furniture and
equipment. There were no similar transactions in fiscal 1994.
Interest Expense
Interest expense decreased $0.2 million (12.0%) to $1.3 million in
1994. The decrease reflects reductions in the average balance of long-term
debt outstanding offset to a certain extent by increases in the average
interest rates charged Canal. Interest rates on Canal's variable rate
mortgage notes increased to an average of 9.1% in 1994 as compared to an
average of 8.5% in 1993 and an average of 8.9% in 1992. At October 31,
1994 Canal had reduced the outstanding face value of these notes from the
original $20.0 million to $8.0 million.
27
Extraordinary Gain on Retirement of Debt
In fiscal 1993 Canal repurchased $1.5 million of its outstanding
Variable Rate Mortgage Note at a significant discount resulting in a net
extraordinary gain of $365,760. There was no similar transaction in fiscal
1994.
Inflation
With the sale of its stockyard operations, Canal's operations are less
subject to inflation than previously. Its chief area of exposure is now
the impact inflation brings to interest rates since most of Canal's debt
agreements carry variable interest rates.
28
Capital Resources and Liquidity
While the Company is currently operating as a going concern, certain
significant factors raise substantial doubt about the Company's ability to
continue as a going concern. First, the Company has suffered significant
losses from operations in six of the last seven years. Second, the Company
is involved in litigation with major tenants in Sioux City, Iowa and
Fargo, North Dakota. Third and last, the Company has a continuing
environmental liability associated with a 1988 sale of property located in
Portland, Oregon. The financial statements include a reserve of $400,000
associated with the environmental liability, but does not include any
a d justments that might result from the resolution of these other
uncertainties.
On May 22, 1985, Canal completed the sale of $20 million face value of
Variable Rate Mortgage Notes, due May 15, 1993. As discussed more fully
below, Canal has extended these notes to may 15, 1998 under essentially the
same terms and conditions. The notes carry interest at the highest of four
variable rates, determined on a quarterly basis. The new agreement, among
other things, prohibits Canal from becoming an investment company as
defined by the Investment Company Act of 1940; requires Canal to maintain
minimum net worth; restricts Canal s ability to pay cash dividends or
repurchase stock; requires principal prepayments to be made only out of the
proceeds from the sale of certain assets; and requires the accrual of
additional interest (to be paid at maturity) of two, three and four percent
per annum for the fiscal years commencing May 15, 1995, 1996 and 1997,
respectively. In consideration for the new agreement, Canal agreed to pay
a fee to the noteholders of 2% of the principal amount outstanding as of
May 15, 1995.
On September 20, 1995, the company issued $1,032,000 of variable rate
mortgage notes due September 15, 1998, the proceeds of which were used to
repay in full the Company s secured credit line and a $650,000 note the
Company issued in 1993. The purchasers of these notes included an
investment partnership controlled by the company s Chairman and the
company s Chief Executive Officer and members of his family. The notes
issued have essentially the same terms and conditions as the notes
discussed above. These notes, among other things, prohibits Canal from
becoming an investment company as defined by the Investment Company Act of
1940; requires Canal to maintain minimum net worth; restricts Canal s
ability to pay cash dividends or repurchase stock; requires principal
prepayments to be made only out of the proceeds from the sale of certain
assets, and requires the accrual of additional interest (to be paid at
maturity) of two, three and four percent per annum for the fiscal years
commencing September 15, 1995, 1996 and 1997, respectively.
29
Net cash provided by operations in fiscal 1995 was $0.2 million. Cash
and cash equivalents increased somewhat in 1995. Substantially all of the
1995 cash from operations coupled with the proceeds from new debt, the net
proceeds from the sale of real estate of $0.3 million and the proceeds from
the sale of art of $0.3 million was used to reduce short term borrowings,
accrued expenses and outstanding debt.
During 1995 Canal reduced short term borrowings by $0.8 million, its
variable rate mortgage notes by $0.3 million and other long-term debt by
$0.7 million. Canal incurred new long-term debt in connection with these
reductions of $1.0 million. The net 1995 debt reduction was $0.8 million.
At October 31, 1995 the Company's current liabilities exceeded current
assets by $1.7 million, a decrease of $3.0 million from 1994. The only
required principal repayments under Canal's debt agreements for 1996 will
be from the proceeds from the sale of certain assets (if any) and
approximately $0.1 million on various fixed mortgages.
As discussed more fully in Note 3, the Company leases 139 acres of
land (at five locations) to a stockyard operator. This lease represents
approximately 25% of the Company's annual revenues. To date, the stockyard
operator has met all of its obligations under the lease. Management does
not anticipate any changes in this situation for the remainder of the
lease.
Management believes that the 1996 cash flow from operations will be
sufficient to support its ongoing operations.
30
ITEM 8. Financial Statements and Supplemental Data
The response to this item is included in Item 14(A) of the report.
ITEM 9. Disagreements on Accounting and Financial Disclosure
None.
31
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The following information with respect to the principal occupation or
employment of each director and the name and principal business of the
Company or other organization in which such occupation or employment is
carried on, and in regard to other affiliations and business experience
during the past five years, has been furnished to the Company by the
respective directors.
Asher B. Edelman, age 56, has been Chairman of the Board since
September 1991 and prior thereto Vice Chairman of the Board and Chairman of
the Executive Committee since February, 1985; has been General Partner of
Plaza Securities Company, an investment partnership, since July 1979;
General Partner of Asco Partners, a general partner of Arbitrage Securities
Company, a broker/dealer, since July 1984; and General Partner of Arbitrage
Securities Company, from January 1977 until June 1984; President of A.B.
Edelman Management Company, Inc. (The General Partner of Edelman Value
Partners, Inc.) for more than five years. Mr. Edelman is a Director,
Chairman of the Board, and Chairman of the Executive Committee of Datapoint
Corporation ("Datapoint"). Mr. Edelman was a Director, Chairman of the
Board and Chairman of the Executive Committee of Intelogic Trace, Inc.
("Intelogic") until December 8, 1994.
Gerald N. Agranoff, age 49, has been a Director since 1984, was
General Partner, Asco Partners (the General Partner of Arbitrage Securities
Company ("Arbitrage Securities") from July 1984 through December 1991; a
General Partner of Arbitrage Securities, a broker/dealer, and of Plaza
Securities Company ("Plaza"), an investment partnership for more than five
years; Vice President of A.B. Edelman Management Company, Inc. (the General
Partner of Edelman Value Partners, Inc.) For more than five years; Trustee,
Management Assistance Inc. Liquidating Trust ("Management Assistance
Trust") since February, 1986; General Counsel to Plaza and Arbitrage
Securities for more than five years; Director of Bull Run Corporation since
December 1990; General Counsel of Datapoint Corporation since October, 1994
and a Director since 1991; and was a Director of Intelogic from December,
1991 to December 8, 1994.
Michael E. Schultz, age 59, has been President and Chief Executive
Officer since September 1991 and a Director since 1985; and has been a
partner in the law firm of Ehrenkranz, Ehrenkranz & Schultz for more than
five years. Mr. Schultz was Executive Vice President-Special Projects for
32
Intelogic since November 1992 and a Director since July, 1985 until
December 8, 1994.
T h e Board of Directors has designated an Executive Committee
consisting of Messrs. Edelman and Schultz. The Board of Directors has
delegated to the Executive Committee general authority with respect to most
matters that would otherwise be considered by the full Board.
During fiscal 1995 the Board of Directors did not hold any meetings,
but the Executive Committee held nine meetings, all of which were attended
by both Mr. Edelman and Mr. Schultz.
ITEM 11. Executive Compensation
The following table summarizes the compensation of the Company's Chief
Executive Officer and the only other executive officer of the Company whose
salary for fiscal 1995 exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal
Position Year Salary
Michael E. Schultz 1995 $ 162,500
President and Chief
Executive Officer 1994 $ 150,000
1993 $ 150,000
Asher B. Edelman 1995 $ 162,500
Chairman of the Board
and Executive 1994 $ 150,000
Committee
1993 $ 150,000
The Company pays certain expenses related to Mr. Edelman's European
offices as well as his travel expenses between Europe and the U.S. These
expenses totaled $87,000, $86,000 and $64,000 for fiscal years 1995, 1994
and 1993, respectively.
33
Aggregate Option Exercises in Last
Fiscal Year and Fiscal Year End Option Value
Value of
Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at
Name Options at Fiscal Year End Fiscal Year End
Michael E. Schultz 255,500* $ -0-
Asher B. Edelman 20,000* $ -0-
* All options were exercisable at October 31, 1995.
Retirement Plans
The Canal Capital Corporation Retirement Plan (the "Retirement Plan")
provides benefits to eligible employees of the Company and its subsidiaries
and affiliates. Directors who are not employees are not eligible to
participate in the Retirement Plan. The Retirement Plan is administered by
the Company. All Company contributions under the Retirement Plan were
deposited with an insurance company and invested in a group annuity
contract through May 30, 1985. Thereafter, all Company contributions have
been held in trust under a Trust Agreement between the Company and the
Executive Committee of the Board of Directors, as trustee. Contributions
to the Retirement Plan are determined on an actuarial basis, without
individual allocation.
In October 1991, each of three executive officers of the Company
voluntarily withdrew from participation in the Retirement Plan. As a
result of prior service, Mr. Edelman has a deferred annual accumulated
benefit of approximately $1,300 as of October 31, 1995. Mr. Schultz has no
benefit under the Retirement Plan. For further information on the
Retirement Plan see Note 9.
34
COMPENSATION OF DIRECTORS
Fees and Expenses; Other Benefits
Directors who are not officers of the Company do not receive cash
compensation for service as Directors. The options were granted December
1991. Directors are reimbursed for expenses incurred in attending Board
and Committee meetings, including those for travel, food and lodging.
Stock Options for Directors
The Company maintains an option plan for the benefit of directors of
the Company -- the 1985 Directors' Stock Option Plan (the "1985 Plan"),
which was approved by the stockholders of the Company on March 12, 1986.
Pursuant to the 1985 Plan, a maximum of 264,000 shares of common
stock, $0.01 par value per share, of the Company have been reserved for
issuance to directors and members of the Executive Committee of the Company
and its subsidiaries.
Options granted under the 1985 Plan are nonqualified stock options and
have an exercise price equal to 100% of fair market value of the shares on
the date of grant. The options may be exercised no earlier than one year
from the date of grant and no later than ten years after the date of grant.
Under the 1985 Plan, options covering 22,000 shares are automatically
granted to each new director upon the effective date of his election to
office and options covering 5,500 shares are automatically granted to each
new member of the Executive Committee upon the effective date of his
appointment to office. In addition, the 1985 Plan was amended on December
18, 1991 to provide an automatic grant of options covering 25,000 shares to
each current and new director who is not an employee of the Company
including Mr. Agranoff. The 1985 Plan is administered by the Board of
Directors of the Company.
During the 1995 fiscal year, no options under the 1985 plan were
granted and no options previously granted were exercised. However, during
fiscal 1995 71,500 options granted in June, 1985 expired. At October 31,
1995, options covering an aggregate of 30,500 shares were outstanding under
the 1985 Plan and were held by members of the Board of Directors and
Executive Committee. The exercise price per share of all outstanding
options under the 1985 Plan ranges from $0.13 to $0.25. The expiration
dates for outstanding options under the 1985 Plan range from December 2001
to January 2003.
35
The Board of Directors gave a small raise to each of the company s
executive officers in 1995, which was the first increase in four fiscal
years and was intended as a cost of living adjustment. The salary of Mr.
Schultz, the CEO of the company, was determined in 1991 when he joined the
company.
Asher B. Edelman
Michael E. Schultz
Gerald N. Agranoff
Compensation Committee
Interlocks and Insider Participation
The Board of Directors (comprised of Asher B. Edelman, Chairman of the
Board and Chairman of the Executive Committee, Gerald N. Agranoff and
Michael E. Schultz, President and Chief Executive Officer) determines the
compensation of the Chief Executive Officer and the Company's other
executive officers and administers the Company's 1984 Stock Option Plan and
1985 Stock Option Plan for Directors.
In connection with the Company's investment program, the Executive
Committee of the Board of Directors, through Mr. Edelman, invests funds of
the Company in securities of other companies. Pursuant to an investment
management agreement between the Company and Edelman Management (the
" I n vestment Management Agreement"), Edelman Management was granted
discretionary power with respect to such funds of the Company and, for
investment advisory and management services, is entitled to receive an
advisory fee quarterly based on 25% of the realized gains less any net
unrealized losses in the portfolio. Due to accumulated investment losses,
the Company did not incur any advisory fees during the 1995 fiscal year.
The Agreement may be terminated by either party by 90 days prior written
notice to the other.
Certain funds of the Company have been invested in the securities of
other companies in which Mr. Edelman, other directors of the Company or
their affiliates are directors or officers, or in which one or more of such
persons may also have invested. Since November 1, 1992, such companies
included Datapoint and Intelogic. The Company has filed with the SEC
Schedules 13D
jointly with Plaza, Mr. Edelman, Edelman Management, Edelman Limited
36
Partnership, certain investment partnerships of which Mr. Edelman is sole
or controlling general partner, certain of the companies referred to in the
preceding sentence and other persons, indicating that the filing parties
constitute groups for purposes of such filings with respect to the
acquisition of securities in the companies referred to in the preceding
sentence.
On December 8, 1994, Intelogic completed a reorganization under the
Federal Bankruptcy laws. As a result, there are no longer interlocking
directorships between Intelogic and the Company. However, the Company is
still subject to certain restrictions under SEC regulations relating to the
future sale of these securities.
ITEM 12. Securities Ownership of Certain Beneficial Owners and Management
To the knowledge of the Company, the only beneficial owners of 5% or
more of the voting stock of the Company (other than those listed below
under "Securities Owned by Management") as of January 18, 1996 were:
SECURITIES BENEFICIALLY OWNED
No. of Common Shares Percent of Class
Name Beneficially owned (a) of Common Stock
Asher B. Edelman 1,481,019 (c) 34.07
Michael E. Schultz 312,135 (c) 6.81
William G. Walters 1,234,440 (b) 23.17
(a) Under applicable regulations of the Securities and Exchange
Commission (the "SEC"), a person who has or shares the power to direct the
voting or disposition of stock is considered a "beneficial owner". Each
individual referred to in the above table has the sole power to direct the
voting and disposition of the shares shown.
(b) The number reported herein for Mr. Walters includes 234,440
shares owned by Whale Securities Co., L.P., of which Mr. Walters is Chief
Executive Officer and an option for 1,000,000 shares held in Mr. Walters
retirement plan. The shares in Mr. Walters retirement plan are issuable
upon conversion of a $150,000 (principal amount) 7% Convertible Note due
December 31, 1996. Mr. Walters has sole power to vote and dispose of the
shares described herein.
(c) For additional information about beneficial ownership see
"Securities Owned by Management" below.
37
SECURITIES OWNED BY MANAGEMENT
The following table sets forth certain information as of January 18,
1996, with respect to the beneficial ownership of the Company's Common
Stock with respect to all persons who are directors, each of the executives
named in the Executive Compensation Table and by all directors and officers
as of the most practical date. Unless otherwise indicated, the percentage
of stock owned constitutes less than one percent of the outstanding Common
Stock and the beneficial ownership for each person consists of sole voting
and sole
investment power.
No. of Common Shares Percent of Class
Name Beneficially owned (a) of Common Stock
Gerald Agranoff 25,000 (b)
Asher B. Edelman 1,481,019 (c)(d) 34.07
Reginald Schauder 23,600 (e)
Michael E. Schultz 312,135 (f) 6.81
All Directors and Officers
as a group (4 persons) 1,841,754 39.60
(a) Under applicable regulations of the Securities and Exchange
Commission (the "SEC"), a person who has or shares the power to direct the
voting or disposition of stock is considered a "beneficial owner". Each
director and officer referred to in the above table has the sole power to
direct the voting and disposition of the shares shown, except as otherwise
set forth in footnotes (c), (d) and (f) below.
(b) Includes 25,000 shares subject to options which are presently
exercisable.
(c) The number reported herein excludes 26,620 shares of common stock
held by Canal Capital Corporation Retirement Plan. Mr. Edelman serves as
a trustee of the Canal Capital Corporation Retirement Plan.
38
(d) The number reported herein for Mr. Edelman includes 20,000 shares
subject to options granted to Mr. Edelman which are presently exercisable,
8,400 shares owned by Aile Blanche, Inc., of which Mr. Edelman is the sole
stockholder, 3,399 shares owned by Felicitas Partners, L.P. ("Felicitas"),
the general partner of which is Citas Partners ("Citas") of which Mr.
Edelman is the controlling general partner, and 1,012,220 shares owned by
A.B. Edelman Limited Partnership ("Edelman Limited Partnership"), of which
Mr. Edelman is the sole general partner and 31,300 shares held in Mr.
Edelman's retirement plan. Aile Blanche, Inc. has the sole power to vote
and dispose of the shares owned by it, which power is exercisable by Mr.
Edelman as President. Felicitas has the sole power to vote and dispose of
the sales owned by it, which power is exercisable by Mr. Edelman as the
controlling general partner of Citas. Edelman Limited Partnership has the
sole power to vote and dispose of the shares owned by it, which power is
exercisable by Mr. Edelman as the sole general partner of Edelman Limited
Partnership.
The number reported herein for Mr. Edelman includes 214,150 shares of
common stock owned by Mr. Edelman's wife, 2,900 shares held in his wife's
retirement plan and 188,650 shares of common stock held in three Uniform
Gifts to Minors Act accounts for the benefit of Mr. Edelman's children of
which Mr. Edelman is the custodian, but excludes 38,865 shares of common
stock owned by Mr. Edelman's former wife, 140,110 shares of common stock
held in three Uniform Gifts to Minors Act accounts for the benefit of Mr.
Edelman's children, of which Mr. Edelman's former wife is the custodian and
590,186 shares of common stock held in three trusts for the benefit of Mr.
Edelman's children, as to which Mr. Edelman expressly disclaims beneficial
ownership.
(e) Includes 23,500 shares subject to options which are presently
exercisable.
(f) Includes 255,500 shares subject to option which are presently
exercisable.
The number reported herein excludes 26,620 shares of common stock held
by the Canal Capital Corporation Retirement Plan. Mr. Schultz serves as a
trustee of the Canal Capital Corporation Retirement Plan. The number
reported herein for Mr. Schultz also excludes 590,186 shares of common
stock held in three trusts for the benefit of Mr. Edelman's children. Mr.
Schultz serves as the trustee for each of the trusts.
During the fiscal year ended October 31, 1995, Michael E. Schultz,
President and Chief Executive Officer pf the Company, inadvertently omitted
to file a Form 5 with respect to 1,194 shares of $1.30 Exchangeable
Preferred
39
Stock received by Mr. Schultz in fiscal 1995 and 73,619 shares of $1.30
Exchangeable Preferred Stock received by trusts for the benefit of Mr.
Edelman s daughters, of which Mr. Schultz is the trustee. The Form 5 was
filed after the omission to file was brought to Mr. Schultz s attention.
ITEM 13. Certain Relationships and Related Transactions
See: "Compensation Committee Interlocks and Insider
Participation"
40
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) 1. Financial Statements and Notes
See accompanying index to consolidated financial statements.
(a) 2. Schedules and Supplementary Note
None
(a) 3. Exhibits
See accompanying index to exhibits.
(b) Reports on Form 8-K
During the quarter ended October 31, 1995 the Company filed
no reports on Form 8-K.
41
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 the
25th day of January, 1995.
CANAL CAPITAL CORPORATION
By: /s/ Michael E. Schultz
Michael E. Schultz
President and Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
President and Chief
/s/ Michael E. Schultz Executive Officer and Director
Michael E. Schultz (Principal Executive Officer) January 25, 1996
Vice President-Finance
Secretary and Treasurer
/s/ Reginald Schauder (Principal Financial and
Reginald Schauder Accounting Officer) January 25, 1996
/s/ Asher B. Edelman Chairman of the Board
Asher B. Edelman and Director January 25, 1996
/s/ Gerald N. Agranoff
Gerald N. Agranoff Director January 25,
1996
42
FORM 10-K -- ITEM 14(a)(1) and (2)
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
The following documents are filed as part of this report:
(a) 1. Financial Statements --
Report of Independent Public Accountants................ F-2
Consolidated Balance Sheets October 31, 1995 and 1994... F-3
Consolidated Statements of Operations for the years
ended October 31, 1995, 1994 and 1993................ F-5
Consolidated Statements of Cash Flows for the
years ended October 31, 1995, 1994 and 1993.......... F-7
Consolidated Statements of Stockholders' Equity for
the years ended October 31, 1995, 1994 and 1993...... F-8
Notes to Consolidated Financial Statements.............. F-9
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Canal Capital Corporation:
We have audited the accompanying consolidated balance sheet of Canal
Capital Corporation (a Delaware corporation) and subsidiaries as of October
31, 1995 and 1994 and the related consolidated statements of operations,
cash flows and stockholders' equity for each of the three years in the
period ended October 31, 1995. 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 audit 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,
e v i dence 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Canal Capital
Corporation and subsidiaries as of October 31, 1995 and 1994, and the
results of their operations and cash flows for each of the three years in
the period ended October 31, 1995, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Notes 1 and
15 to the financial statements, the Company has suffered recurring losses
from operations in six of the last seven years and has a working capital
deficit at October 31, 1995, is involved in litigation with a major tenant
in Sioux City, Iowa and Fargo, North Dakota and has an indeterminate
continuing liability for its share of the costs of environmental
remediation associated with the sale of property located in Portland,
Oregon. All of these matters raise substantial doubt about the company s
ability to continue as a going concern. Management's plans in regard to
these matters are also described in Notes 1 and 15.
The financial statements do not include any adjustments that might
result from the outcome of the litigation, the recognition of the Company's
share of the costs associated with the correction of the adverse
environmental condition or other uncertainties. Furthermore, the financial
statements do not include any adjustments that might result from the going
concern uncertainty.
New York, N.Y. TODMAN & CO., CPAs, P.C.
December 27, 1995 Certified Public Accountants (N.Y.)
F-2
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 AND 1994
1995 1994
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2(J) $ 114,750 $ 33,595
Notes and accounts receivable, net (Note 6) 241,778 675,927
Art Inventory (net of a valuation allowance
of $500,000 at October 31, 1995 and 1994,
respectively) (Notes 2(E) and 10) 500,000 500,000
Prepaid expenses 106,600 111,775
TOTAL CURRENT ASSETS 963,128 1,321,297
NON-CURRENT ASSETS:
Property of operating leases, net of
accumulated depreciation of $6,074,482
and $5,694,754 for 1995 and 1994,
respectively (Note 17) 8,384,975 8,707,662
Art inventory non-current (net of
valuation allowance of $500,000 and
$0) at October 31, 1995 and 1994,
respectively (Notes 2(E) and 10) 4,900,595 5,744,132
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-3
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 AND 1994 (cont d)
OTHER ASSETS:
Property held for development or resale
(Note 2(C)) 3,000,000 3,304,000
Long-term investments (Note 5) 480,091 765,962
Deferred leasing and financing costs
(Note 2(F) 147,913 23,989
Other long-term notes receivable 83,104 0
Deposits and other 243,546 260,471
3,954,714 4,354,422
$18,203,412 $20,127,513
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-4
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 AND 1994
1995 1994
LIABILITIES & STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 7) $ 0 $ 787,305
Accounts payable and accrued expenses 2,618,467 1,918,384
Accrued litigation settlement (Note 15) 0 0
Income taxes payable 40,881 50,000
Current portion of long-term debt (Note 7) 51,000 3,366,000
TOTAL CURRENT LIABILITIES 2,710,348 6,121,689
Long-term debt, less current portion (Note 7) 10,346,967 8,061,407
Long-term debt, related party 1,032,275 0
11,379,242 8,061,407
Commitments and Contingencies
(Notes 11 and 15) 0 0
Stockholders Equity: (Notes 12 and 13)
Preferred Stock $0.01 par value:
5,000,000 shares authorized; 2,358,542 and
2,055,194 shares issued and outstanding
and aggregate liquidation preference of
$23,585,420 and $20,551,940 at October 31,
1995 and 1994, respectively 23,585 20,552
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-5
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 AND 1994 (cont d)
1995 1994
Common Stock, $0.01 par value:
10,000,000 shares authorized; 5,313,794
shares issued at October 31, 1995
and 1994, respectively 53,138 53,138
Additional Paid-in Capital $ 26,468,008 $ 26,262,346
Accumulated Deficit (9,690,693) (7,979,331)
Less-Valuation reserve (Notes 9 and 16) (1,736,671) (1,408,743)
Less-986,865 shares of common stock
held in treasury, at cost (11,003,545) (11,003,545)
4,113,822 5,944,417
$ 18,203,412 $ 20,127,513
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-6
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993
Real Estate Operations:
Real Estate Revenues:
Sale of real estate $ 770,012 $ 2,861,194 $ 543,181
Rental income 2,090,068 2,125,030 2,112,488
Ground lease income 972,500 946,772 1,000,000
Volume based rental income 729,335 798,489 554,507
Litigation settlement
reversal Note (15) 0 1,500,000 0
Other income 31,892 21,457 60,639
4,593,807 8,252,942 4,270,815
Real Estate Expenses:
Cost of real estate sold 431,736 2,292,258 181,114
Labor, operating and maintenance 980,626 918,256 1,008,232
Depreciation and amortization 364,594 418,227 467,589
Taxes other than income taxes 530,202 517,200 456,552
Provision for litigation
settlement 0 0 400,000
General and administrative 90,888 85,920 54,883
2,398,046 4,231,861 2,568,370
Income From Real Estate
Operations 2,195,761 4,021,081 1,702,445
Art Operations:
Art Revenues:
Sales 246,550 207,350 260,222
Other revenues 13,740 0 3,669
260,290 207,350 263,891
The Accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-7
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 (cont d)
1995 1994 1993
Art Expenses:
Cost of art sold $ 407,557 $ 209,461 $ 543,181
Valuation reserve 500,000 200,000 300,000
Depreciation and
Amortization 0 0 1,420
Selling, general and
administrative 79,803 76,458 162,080
987,360 485,919 796,457
Loss from art operations (727,070) (278,569) (532,566)
General and Administrative
Expense (1,380,415) (1,265,793) (1,703,861)
Write-off in connection
with lease termination
(Note 11) 0 0 (873,000)
Income (loss) from operations 88,276 2,476,719 (1,406,982)
Other Income (Expense):
Gain on sale of long-term
investments 0 33,278 329,000
Loss on write down of long-
term investments (285,871) (343,529) 0
Interest & other income 164,209 180,791 377,514
Interest expense (1,484,828) (1,284,928) (1,459,358)
(1,606,490) (1,114,388) (752,844)
The Accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-8
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 (cont d)
1995 1994 1993
Income (loss) before provision
for income taxes and
extraordinary gain (1,518,214) 1,362,331 (2,159,826)
Provision for income taxes
(Note 8) 0 0 0
Net income (loss) before
extraordinary gain (1,518,214) 1,362,331 (2,159,826)
Extraordinary gain on
retirement of debt, (net of
taxes of $0 in 1993 (Note 7)) 0 0 365,760
Net Income (Loss) (1,518,214) 1,362,331 (1,794,066)
Preferred Stock Dividend (193,148) (313,556) (112,532)
Net Income (Loss) Applicable
to Common Shares ($1,711,362) $1,048,775 ($1,906,598)
Earnings (Loss) per Common
and Common Equivalent
Share (Note 2)(I)):
Income (Loss) Before
Extraordinary Item ($0.40) $0.20 ($0.52)
Extraordinary Item 0.00 0.00 0.08
Net Income (Loss) ($0.40) $0.23 ($0.44)
The Accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-9
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 (cont d)
1995 1994 1993
Earnings (Loss) per Common
and Common Equivalent Share
Assuming Full Dilution
(Note 2(I)):
Income (Loss) Before
Extraordinary Item ($0.37) $0.20 ($0.52)
Extraordinary Item 0.00 0.00 0.08
Net Income (Loss) ($0.37) $0.20 ($0.44)
The Accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-10
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993
Cash Flows from Operating
Activities:
Net Income (Loss) ($1,518,214) $ 1,362,331 ($1,794,066)
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Provided (Used) by Operating
Activities:
Write-off in connection with
lease termination 0 0 873,000
Provision for litigation
settlement 0 (1,500,000) 400,000
Extraordinary gain on retirement
of debt 0 0 (365,760)
Depreciation and Amortization 412,505 430,248 649,968
Gain on sales of real estate (338,276) (568,936) (362,067)
Gain from sale of long-term
investments 0 (333,278) (329,000)
Valuation reserve-art inventory 500,000 200,000 300,000
Loss on write down of long-term
investments 285,871 343,529 0
Changes in Assets and Liabilities:
Notes and accounts receivable, net 351,045 (232,832) 1,125,675
Art inventory, net 343,537 329,342 338,108
Prepaid expenses and other, net (540,079) (48,725) 8,543
Payables and accrued expenses,
net 690,964 (1,413,823) (832,934)
Net Cash Provided (Used) by
Operating Activities 187,353 (1,432,144) 11,467
The Accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-11
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 (cont d)
1995 1994 1993
Cash Flows from Investing
Activities:
Proceeds from sale of long-
term investments $ 0 $ 489,928 $ 500,000
Proceeds from sales of
real estate 770,012 2,861,194 543,181
Capital expenditures (91,740) (97,440) (92,379)
Net Cash Provided by
Investing Activities 678,272 3,253,682 950,802
Cash Flows from Financing
Activities:
Proceeds from long-term debt 1,032,275 500,000 0
Repayment of short-term
borrowings (787,305) (1,729,000) (890,450)
Repayment of long-term
debt obligations (1,029,440) (582,693) (1,073,658)
Net Cash Used by Financing
Activities (784,470) (1,811,693) (1,964,108)
Net Increase (Decrease) in Cash
and Cash Equivalents 81,155 9,845 (1,001,839)
Cash and Cash Equivalents
at Beginning of Year 33,595 23,750 1,025,589
Cash and Cash Equivalents
at End of Year $ 114,750 $ 33,595 $ 23,750
The Accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-12
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 (cont d)
Note: In fiscal 1995, 1994 and 1993, $193,148, $313,556 and $112,532,
respectively, of preferred stock dividends were paid through the
issuance of 303,348, 271,830 and 227,240, respectively, shares of
preferred stock.
The Accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-13
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
COMMON STOCK PREFERRED STOCK
NUMBER NUMBER
OF OF
SHARES AMOUNT SHARES AMOUNT
BALANCE, OCTOBER 31, 1992 5,313,794 $ 53,138 1,556,124 $ 15,561
NET LOSS 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 227,240 2,273
RESERVE 0 0 0 0
BALANCE, OCTOBER 31, 1993 5,313,794 $ 53,138 1,783,364 $ 17,834
NET INCOME 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 271,830 2,718
RESERVE 0 0 0 0
BALANCE, OCTOBER 31, 1994 5,313,794 $ 53,138 2,055,194 $ 20,552
NET LOSS 0 0 0 0
PREFERRED STOCK DIVIDEND 0 0 303,348 3,033
RESERVE 0 0 0 0
BALANCE, OCTOBER 31, 1995 5,313,794 $ 53,138 2,358,542 $ 23,585
The Accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-14
CANAL CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993 (cont d)
ADDITIONAL TREASURY
PAID-IN ACCUMULATED VALUATION STOCK
CAPITAL DEFICIT RESERVE AT COST
BALANCE, OCT. 31, 1992 $25,813,954 ($7,121,508) ($907,140)($11,003,545)
NET LOSS 0 (1,794,066) 0 0
PRFD STOCK DIVIDEND 116,845 (112,532) 0 0
RESERVE 0 0 (108,395) 0
BALANCE, OCT. 31, 1993 $25,930,799 ($9,028,106) ($1,015,535)($11,003,545)
NET INCOME 0 1,362,331 0 0
PRFD STOCK DIVIDEND 331,547 (313,556) 0 0
RESERVE 0 0 (393,208) 0
BALANCE, OCT. 31, 1994 $26,262,346 ($7,979,331)($1,408,743)($11,003,545)
NET LOSS 0 (1,518,214) 0 0
PRFD STOCK DIVIDEND 205,662 (193,148) 0 0
RESERVE 0 0 (327,928) 0
BALANCE, OCT. 31, 1995 $26,468,008 ($9,690,693) ($1,736,671)($11,003,545)
The Accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-15
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Canal Capital Corporation ("Canal"), incorporated in the state of
Delaware in 1964, commenced business operations through a predecessor in
1936. Canal was a wholly-owned subsidiary of Canal-Randolph Corporation
until June 1, 1984, when Canal-Randolph Corporation distributed to its
stockholders all of the outstanding shares of Canal's common stock, under a
plan of complete liquidation.
Canal is engaged in two distinct businesses - the management of its
agribusiness related real estate properties and art operations, consisting
mainly of the acquisition of art for resale. In the past, Canal engaged in
the trading of and investing in securities. Canal's trading activities
were severely curtailed in fiscal 1991 and not engaged in at all in fiscal
years 1992 through 1995.
While the Company is currently operating as a going concern, certain
significant factors raise substantial doubt about the Company's ability to
continue as a going concern. First, the Company has suffered significant
losses from operations in six of the last seven years and as of October 31,
1995 the company has a working capital deficiency of approximately
$1,747,000. Second, the Company is involved in litigation with major
tenants in Sioux City, Iowa and Fargo, North Dakota. Third, the Company
has a continuing environmental liability associated with a sale of property
located in Portland Oregon. The financial statements include a reserve of
$400,000 associated with the environmental liability, but does not include
any adjustments that might result from the resolution of these other
uncertainties.
In the past three years, Canal has made significant cuts in
expenditures, primarily in salaries and other overhead expenses and plans
to continue to reduce the level of its art inventories to enhance current
cash flows.
Management believes that its cost cutting program and planned
reduction of its art inventory will enable it to finance its current
business activities. There can, however, be no assurance that Canal will
be able to effectuate its planned art inventory reductions or that its cost
cutting program in itself will be sufficient to fund operating cash
requirements.
F-16
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Principles of Consolidation -- The consolidated financial
statements include the accounts of Canal Capital Corporation ("Canal") and
its subsidiaries ( the Company ). Investments in which ownership interest
range from 20% to 50% or less owned joint ventures are accounted for under
the equity method. These joint ventures are not, in the aggregate,
material in relation to the financial position or results of operations of
Canal. The carrying amount of such investments was $150,000 for 1995 and
$156,000 at October 31, 1995 and 1994, respectively, and is included in
other assets. The operating results of joint ventures accounted for on the
equity method, for fiscal year 1995, 1994 and 1993 were not material to
financial statement presentation and were therefore included in other
income from real estate operations. All significant intercompany balances
and transactions have been eliminated in consolidation.
B) Long-term Investments -- Due to Canal's desire to further expand
its other business lines and to reduce its level of debt outstanding, these
activities were severely curtailed during fiscal 1991. There were no such
activities in fiscal 1992 through 1995. Canal's program of trading and
investing in listed marketable securities, was conducted through a wholly-
owned subsidiary and were reflected at market value in its financial
statements. Realized and unrealized gains and losses on Canal's current
portfolio were recognized in operating results. Realized gains and losses
on sales of securities were determined on the first-in, first out method.
Canal has investments in certain companies in which it, together
with other affiliated entities, comprise a reporting group for regulatory
purposes. All of these investments are considered long-term in nature and
carried at the lower of adjusted cost or net realizable value because Canal
and its affiliates have significant influence over operating and financial
policies of these entities. It is important to note that it is the group
(as defined) that can exercise influence over these companies, not Canal.
Accordingly, these situations do not qualify for consolidation as a method
of reporting. These investments are adjusted to net realizable value if a
decline in market value from carrying value is deemed other than temporary.
None of these holdings represents more than a 4% ownership by Canal in the
respective entities.
F-17
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
C) Properties and Related Depreciation -- Properties are stated at
cost less accumulated depreciation. Depreciation is provided on the
straight-line method over the estimated useful lives of the properties.
Such lives are estimated from 35 to 40 years for buildings and from 5 to 20
years for improvements and equipment.
Property held for Development or Resale -- Property held for
development or resale consist of approximately 347 acres of undeveloped
land not currently utilized for corporate purposes nor included in any of
the present operating leases. The Company constantly evaluates proposals
received for the purchase, leasing or development of this asset. The land
is valued at cost which does not exceed the net realizable value.
D) Expenditures for maintenance and repairs are charged to operations
as incurred. Significant renewals and betterments are capitalized. When
properties are sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any gain or loss
is reflected in current income.
E) Art Inventory - Inventory of art is valued at the lower of cost,
including direct acquisition and restoration expenses, or net realizable
value on a specific identification basis. Net realizable value is
determined in part by independent appraisal. Independent appraisals
covered approximately 78% and 80% of the inventory value at October 31,
1995 and 1994, respectively. The remaining 22% and 20% at October 31, 1995
and 1994, respectively was estimated by management based in part on the
independent appraisals done. However, because of the nature of art
inventory, such determination is very subjective and, therefore, the
estimated values could differ significantly from the amount ultimately
realized.
The cost of art is generally specified on the purchase invoice.
When individual art is purchased as part of a group or collection of art,
cost is allocated to individual pieces by management using the information
available to it. A significant portion of the art inventory remains in
inventory longer than a year. Consequently, for financial statement
purposes, Canal has classified a portion of its inventory as non-current
assets (see Note 10). Antiquities and contemporary art represented 54%
($2,923,332) and 46% ($2,477,263) and 56% ($3,516,869) and 44% ($2,727,263)
of total art inventory at October 31, 1995 and 1994, respectively.
F-18
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
F) Deferred Leasing and Financing Costs -- Costs incurred in
obtaining new leases and long-term financing are deferred and amortized on
the straight-line method over the terms of the related leases or debt
agreements, as applicable.
G) Revenue Recognition -- Revenues from art sales are recognized
using the specific identification method, when the piece is shipped to the
purchaser. Art owned by Canal which is on consignment, joint venture, or
being examined in contemplation of sale is not removed from inventory and
not recorded as a sale until notice of sale or acceptance has been
received. Lease and rental revenues are recognized ratably over the period
covered. All real estate leases are accounted for as operating leases.
Revenues from real estate sales are recognized generally when title to the
property passes. Revenues from the sale of long-term investments, if any,
are recognized, on a specific identification method, on a trade date basis
and unrealized gains or losses on Canal's marketable securities portfolio
are recognized in the period of occurrence.
H) Income Taxes -- Canal and its subsidiaries file a consolidated
Federal income tax return. Deferred income taxes, if any, are provided for
temporary differences between financial reporting and taxable basis of
assets and liabilities.
I) Net Earnings (Loss) Per Share -- Earnings (loss) per common
equivalent share for 1995 were computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents outstanding during the year. The number of common shares was
increased by the number of shares issuable on the exercise of options when
the market price of the common stock exceeds the exercise price of the
options. This increase in the number of common shares was reduced by the
number of common shares that are assumed to have been purchased with the
proceeds from the exercise price of the options; those purchases were
assumed to have been made at the average price of the common stock during
that part of the year when the market price of the common stock exceeded
the exercise price of the options.
Earnings (loss) per common share assuming full dilution for 1995
was determined on the assumption that the convertible notes issued in 1995
were converted on the date of the issue. Net income was adjusted for the
interest net of its tax effect. The fully diluted computation also gives
recognition for the year end market price of the Company's shares under the
treasury stock method.
F-19
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
For the fiscal 1993 common stock equivalents were not included in
computing earnings per common share as such inclusion would have been anti-
dilutive. Fully diluted earnings per share would also have been anti-
dilutive for fiscal 1993.
For the years ended October 31, 1995, 1994 and 1993, the weighted
average number of shares used in earnings per common share and common
equivalent share computation were 4,351,680; 4,475,566; and 4,326,929,
respectively. For the years ended October 31, 1995, 1994 and 1993,
weighted average number of shares used in the computation of earnings per
share assuming full dilution were 4,601,680; 5,169,896; and 4,326,929,
respectively.
J) Statements of Cash Flows -- The company considers all short-term
investments with a maturity of three months or less to be cash equivalents.
Cash equivalents primarily include bank, broker and time deposits with an
original maturity of less than three months. These investments are carried
at cost, which approximates market value. Canal made federal and state
income tax payments of $47,000, $55,000 and $79,000 and interest payments
o f $1,485,000, $1,285,000 and $1,459,000 in 1995, 1994 and 1993,
respectively.
K) Accounting Estimates -- The preparation of financial statements in
c o n f ormity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
L ) Reclassification -- Certain prior year amounts have been
reclassified to conform to the current year's presentation.
3. STOCKYARD OPERATIONS SALE
On October 31, 1989, Canal sold most of its stockyards assets to a
group formed by a former Executive Vice President and Director of the
Company. Not included in the sale was certain land and some facilities
previously used by the stockyards operations. Canal entered into a master
lease (the "Lease")
F-20
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
with the purchaser covering this land and facilities at five locations.
The lease is a 10-year lease, renewable at the purchaser s option for an
additional 10-years, with annual rentals of $750,000 per year for the first
year escalating to $1 million per year for the fourth through the tenth
years and $1 million adjusted for CPI increases thereafter. Canal could be
entitled to receive additional rent if the stockyards livestock value or
cash flow (as defined) exceeds certain levels. In addition, Canal retained
the right to receive income from certain volume based rental income
agreements with various meat packing companies located near the stockyards.
The income from the ground lease is included in Canal's operating results
as Real Estate operations.
Revenues from the volume based rental agreements for the three years
ended October 31, 1995 were:
(Thousands of Dollars) 1995 1994 1993
Sioux City, Iowa $ 629 $ 591 $ 541
Fargo, North Dakota (1) 100 207 14
$ 729 $ 798 $ 555
(1) Amount reflected for 1994 includes approximately $108,000 of
rents due from fiscal 1993 which were collected in fiscal 1994 as
a result of litigation (see Note 15 to the Consolidated Financial
Statements).
4. MARKETABLE SECURITIES
At October 31, 1995 and 1994, Canal held no marketable securities in
its current portfolio. This reflects Canal's desire to further develop its
other business lines and to reduce its level of outstanding debt.
Additionally, there were no investing activities for the three year period
ended October 31, 1995.
F-21
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Commencing January 1, 1986, Canal paid investment advisory fees to a
securities broker-dealer which has discretionary authority over the
securities trading activities of Canal and which is affiliated with a
director who is also a shareholder and chairman of Canal. Investment
advisory fees are paid quarterly based on 25% of net realized gains less
any net unrealized depreciation in the portfolio, as defined. As a result
of the major stock market decline of October 19, 1987, Canal had
accumulated realized and unrealized losses available to offset future
advisory fees which might have been otherwise payable. Accordingly, at
October 31, 1995, Canal had remaining net realized and unrealized losses of
approximately $2.0 million which remain available to offset future net
realized gains in determining advisory fees payable.
5. LONG-TERM INVESTMENTS
At October 31, the long-term investments consisted of the following:
(Thousands of Dollars) 1995 1994
Aggregate market value..................... $ 481 $ 969
Aggregate carrying value................... $ 480 $ 766
Canal has investments in the equity securities of a company in which
other entities affiliated with Canal also have made investments and which
entities together comprise a group for regulatory reporting purposes. It
is important to note that it is the group (as defined) that can exercise
influence over these companies, not Canal. Accordingly, these situations
do not qualify for consolidation as a method of reporting. At October 31,
1995, 100% of the market value of Canal's long-term investments was
invested in equity securities of this company in which such parties held 5%
or more of the outstanding equity securities of the issuer. Certain of
Canal's officers and directors also serve as officers and/or directors of
this company.
During fiscal 1995, Canal recognized a loss on write down of long-term
investments of $286,000. Included in this amount was a $114,000 loss to
write down the carrying value of the company s investment in Intelogic
Trace, Inc. to zero reflecting managements estimate of its net realizable
value. Canal recognized a loss on write down of long-term investments of
$344,000 in fiscal 1994. There was no loss recognized in fiscal 1993.
F-22
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. NOTES AND ACCOUNTS RECEIVABLE
Included in notes and accounts receivable at October 31, 1995 and
1994, respectively, were the current portion of notes receivable in the
amount of $60,000 and $176,000 from real estate and other sales. Notes and
accounts receivable is shown net of a provision for doubtful accounts in
the amount of $0 and $4,000 for fiscal 1995 and 1994 respectively.
7. BORROWINGS
At October 31, 1995, substantially all of Canal's real properties, the
stock of certain subsidiaries, the long-term investments and a substantial
portion of its antiquities inventories are pledged as collateral for the
following obligations:
October 31,
(Thousands of Dollars) 1995 1994
Variable rate mortgage notes
due May 15, 1998 ................................ $ 7,635 $ 7,960
Variable Rate Mortgage Notes
due September 15, 1998.......................... 1,032 0
11% mortgage note; original principal amount
$1,697; due April 1, 2011; payable in monthly
installments (including interest) of $17....... 1,356 1,391
9.5% mortgage note; original principal amount
$472; due November 1, 2012; payable in monthly
installments (including interest) of $4........ 416 425
10 1/2% mortgage note (adjusted periodically to
prime plus 1 3/4%); original principal amount
$556 due January 15, 2013; payable in monthly
installments (including interest) of $6........ 491 501
Other ........................................... 500 1,150
Total ........................................... 11,430 11,427
Less -- current maturities ...................... 51 3,366
Long-term debt $11,379 $ 8,061
F-23
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
On May 22, 1985, Canal completed the sale of $20 million face value of
Variable Rate Mortgage Notes, due May 15, 1993. As discussed more fully
below, Canal has extended these notes to May 15, 1998 under essentially the
same terms and conditions. The notes carry interest at the highest of four
variable rates, determined on a quarterly basis. At October 31, 1995, the
interest rate was 12.25%. This rate remained unchanged at November 15,
1995 and for the next successive 90-day period. The average interest rate
on these notes during 1995 was 11.78%.
The new agreement, among other things, prohibits Canal from becoming
an investment company as defined by the Investment Company Act of 1940;
requires Canal to maintain minimum net worth; restricts Canal's ability to
pay cash dividends or repurchase stock; requires principal prepayments to
be made only out of the proceeds from the sale of certain assets; and
requires the accrual of additional interest (to be paid at maturity) of
two, three and four percent per annum for the fiscal years commencing May
15, 1995, 1996 and 1997, respectively. In consideration for the new
agreement, Canal agreed to pay a fee to the noteholders of 2% of the
principal amount outstanding as of May 15, 1995.
On September 20, 1995, the Company issued $1,032,000 of variable rate
mortgage notes due September 15, 1998 to a group which includes an
investment partnership controlled by the Company s Chairman and the
Company s Chief Executive Officer and members of his family. The notes
issued have essentially the same terms and conditions as the notes
discussed above. These notes, among other things, prohibits Canal from
becoming an investment company as defined by the Investment Company Act of
1940; requires Canal to maintain minimum net worth; restricts Canal s
ability to pay cash dividends or repurchase stock; requires principal
prepayments to be made only out of the proceeds from the sale of certain
assets, and requires the accrual of additional interest (to be paid at
maturity) of two, three and four percent per annum for the fiscal years
commencing September 15, 1995, 1996 and 1997, respectively.
In March 1994 the Company borrowed $500,000 from an individual. The
Company executed a $350,000 note due December 31, 1996 and a $150,000
convertible note also due December 31, 1996. The $150,000 note is
convertible at the holder s option into one million (1,000,000) shares of
the Company's common stock. The notes pay quarterly interest at the rate
of 7% per annum and are secured by 125,000 shares of Datapoint Corporation
common stock owned by the Company. The proceeds from this loan were used
by the Company to meet its obligations under its secured credit line.
F-24
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In July, 1993, Canal completed the renegotiation of its secured line
of credit with Rabobank Nederland for an additional three year period
ending March 31, 1996. Among other things, the revised terms require the
Company to maintain a minimum net worth of $5 million, pay interest at the
rate of prime plus 1.5% (increasing to 2.0% and 2.5% in the second and
third years of the agreement, respectively) on any outstanding borrowings
and repay the line of credit through a combination of scheduled repayments
and participation by the bank in the proceeds from sale of certain assets
by March 31, 1996. On September 20, 1995 this line of credit was repaid in
full from the proceeds of the company s issuance of $1,032,000 of Variable
Rate Mortgage Notes due September 15, 1998.
As part of the Company's 1993 repurchase of $1.5 million of its
outstanding variable rate mortgage notes, Canal executed a $650,000 note
payable due May 31, 1994. The holder of this note extended the due date
of the payment to September 15, 1998. On September 20, 1995 this line of
credit was repaid in full from the proceeds of the company s issuance of
$1,032,000 of Variable Rate Mortgage Notes due September 15, 1998.
The scheduled maturities and sinking fund requirements of long-term
debt during the next five years are as follows (thousands of dollars):
1996-$51; 1997-$600; 1998-$8,767; 1999-$100; 2000-$100
8. INCOME TAXES
Statement of Financial Accounting Standard No. 109 - Accounting for
income taxes, which establishes accounting and reporting standards for the
effects of income taxes that result from an enterprise's activities during
the current year and preceding years became effective for the Company for
its fiscal year ended October 31, 1994. Its implementation had no material
effect on the financial statements of the Company. Under FAS 109, the
utilization of the net operating loss carryforwards are not presented as
extraordinary items.
F-25
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company has carryforward losses which are available to offset
future federal and state taxable income. For federal income tax reporting
purposes, such losses expire as follows:
Year Ending Amount
2006 $3,633,545
2008 1,750,455
2010 1,008,964
$6,392,964
Deferred income tax assets as of October 31, 1995, 1994 and 1993, due
primarily to net operating losses, have been reduced to zero by valuation
reserves of $2,557,186, $1,939,891 and $2,457,814, respectively due to
uncertainties concerning their realization.
The following is a reconciliation of the federal income tax rate to
the actual effective income tax rate as a percentage of pretax income:
1995 1994 1993
Statutory federal income
tax rate 34.0% 34.0% 34.0%
State and local income tax rate,
net of federal tax benefit 5.9 5.9 5.9
Other 0.1 0.1 0.1
40.0 40.0 40.0
Less: Deferred income tax
valuation allowance 40.0 40.0 40.0
- % - % - %
F-26
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Deferred taxes result from different methods being applied in the
recognition of certain revenues and expenses for financial statement and
tax reporting purposes called temporary differences.
Some of the temporary differences giving rise to deferred taxes and
the tax effect of each were as follows:
(Thousands of Dollars) 1995 1994 1993
Accelerated depreciation and
amortization ................... $ 198 $ 89 $ 84
Real estate activities ........... 0 0 0
Unrealized investment gains
and losses, net ................ 285 10 0
Other, net ....................... (483) (99) (84)
$ - $ - $ -
9. PENSION PLANS
Canal has a defined benefit pension plan covering substantially all of
its salaried employees (the "Plan"). The benefits are based on years of
service and the employee's compensation earned each year. The Company's
funding policy is to contribute the amount that can be deducted for federal
income tax purposes. Accordingly, the Company will make a contribution of
approximately $160,000 for fiscal 1995 and has made contributions of
approximately $150,000 for fiscal 1994 and $328,000 for fiscal 1993. A
portion of the 1993 fiscal year contribution consisted of a transfer of
marketable securities with a market value of approximately $231,000 at the
time of transfer. These publicly traded securities have a ready market and
can be freely traded by the Plan subject to the Securities and Exchange
Commission Rule 144. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be
earned in the future. Assets of the plan were invested in U.S. Government
securities, common stocks and antiquities.
F-27
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated balance sheets at October 31, 1995
and 1994.
Plan Year
(Thousands of Dollars) 1995 1994
Actuarial present value of benefit
obligations:
Accumulated benefit obligation, including
vested benefits of $1,521 and $1,383 in
1995 and 1994, respectively ............. $ 1,526 $ 1,385
Additional benefit due to assumed future
compensation levels ......................... 14 11
Projected benefit obligation (1) .............. 1,540 1,396
Plan assets at fair value ..................... 729 814
Projected benefit obligation in excess
of plan assets .............................. 811 591
Unrecognized net asset ........................ 177 202
Unrecognized net loss ......................... (1,927) (1,621)
Valuation reserve to recognize accrued pension
costs in the consolidated balance sheets .... 1,736 1,409
Accrued pension cost included among accrued
expenses in the consolidated balance sheets.. $ 797 $ 581
(1) The vast majority of the projected benefit obligation is related
to the Company's former stockyard employees.
F-28
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Net periodic pension cost for plan years ended October 31, 1995, 1994
and 1993 included the following components:
Plan Year
(Thousands of Dollars) 1995 1994 1993
Service costs - benefits earned during
the period ............................ $ 6 $ 5 $ 14
Interest cost on projected benefit
obligation ............................ 114 109 115
(Return) loss on assets .............. 34 374 (297)
Net amortization and deferral .......... (121) (465) 207
Net period pension cost ................ $ 33 $ 23 $ 39
Assumptions used in computing the 1995, 1994 and 1993 pension cost
were:
1995 1994 1993
Discount rate ........................... 7.25% 8.50% 7.50%
Rate of increase in compensation
level ................................. 5.75% 7.00% 6.00%
Expected long-term rate of return
on assets ............................. 10.00% 10.00% 10.00%
10. ART OPERATIONS
Canal's art dealing operations consist primarily of the purchase for
resale of contemporary art and purchase for resale of antiquities primarily
from ancient Mediterranean cultures. Canal s art dealing operations are
c a rried on through various consignment agreements relating to its
antiquities and contemporary art inventories.
F-29
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Salander-O'Reilly - In November 1989, Canal entered into a cost and
revenue sharing agreement with the Salander-O'Reilly Galleries in New York
City, in connection with their exclusive representation of Jules Olitski, a
world renowned artist of contemporary paintings. Canal purchased a number
of Olitski paintings for resale. This Agreement expired December 1, 1994.
Canal currently operates independently of Salander-O Reilly Galleries in
its marketing efforts.
In the second quarter of 1993 Canal closed the last of the galleries
it had operated, the Daedalus Ancient Art Gallery located in London,
England. Canal continues to engage in certain consignment agreements both
in the United States and in Europe.
Management estimates it may take two to five years to dispose of its
current art inventory. The Company's ability to dispose of its art
inventory is dependent at least in part, on general economic conditions,
including supply, demand, international monetary conditions and inflation.
Additionally, the art market itself is very competitive. Accordingly,
there can be no assurance that Canal will be successful in disposing of its
art inventory within the time frame discussed above.
Canal has its art inventory appraised by an independent appraiser
annually. The 1995 appraisal covered approximately 78% of the inventory
value. The appraised values estimate the current market value of each
piece giving consideration to Canal's practices of engaging in consignment,
private and public auction sales. The net realizable value of the
remaining 22% of the inventory was estimated by management based in part on
operating history and in part on the results of the independent appraisals
done. In fiscal 1995 Canal recognized a $500,000 valuation allowance
against its art inventory, thereby, increasing the total valuation
allowance to $1,000,000 as of October 31, 1995 as compared to $500,000 and
$300,000 at October 31, 1994 and 1993, respectively. These estimates were
based in part on the Company's history of losses sustained on art sales in
the current and previous years.
F-30
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The nature of art makes it difficult to determine a replacement value. The
most compelling evidence of a value in most cases is an independent
appraisal. The price at which pieces are consigned is usually in line with
appraisals and above the cost of the piece. The amount classified as
current represents management's best estimate of the amount of inventory
that will be sold in this market. Management believes that the provision
discussed above has effectively reduced inventory to its estimated net
realizable value.
The Company's plan to sell inventory at auction is contemplated in the
normal course of business. Auction in this context is one of the usual
channels used for disposal of its art inventory. The proceeds from these
sales are used to reduce the Company's outstanding debt and finance current
operations. If these sales are not made, the Company has alternate means
of raising cash such as sales of investments, sale of real estate, raising
of new capital and further rescheduling of debt. Some of these measures
were successfully implemented in fiscal 1995. Because of the available
alternatives the Company does not anticipate any extraordinary losses
associated with the art inventory in fiscal 1996.
Canal's art operations have generated operating losses of $0.7
million, $0.3 million and $0.2 million on revenues of $0.3 million, $0.2
million and $0.3 million for the years ended October 31, 1995, 1994 and
1993, respectively. Art sales have resulted primarily through activities
in conjunction with sales of antiquities. Canal's management believes that
through its consignment and joint venture agreements as well as other
potential distribution outlets Canal will continue to deal in antiquities.
T h e Company had $1,600,000 and $586,000 of art inventory on
consignment with third party dealers at October 31, 1995 and 1994,
respectively.
Antiquities and contemporary art represented 54% ($2,923,322) and 46%
($2,477,263) and 56% ($3,516,869) and 44% ($2,727,263) of total art
inventory at October 31, 1995 and 1994, respectively.
F-31
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
ART INVENTORY - The Company classified its art inventory as follows:
(In 000's) Current Portion Non-Current Portion Total
1995 1994 1995 1994 1995 1994
Antiquities $ 900 $ 900 $ 2,523 $2,867 $ 3,423 $ 3,767
Contemporary 100 100 2,877 2,877 2,977 2,977
Valuation
Allowance (500) (500) (500) 0 ( 1,000) (500)
Net Value $ 500 $ 500 $ 4,900 $5,744 $ 5,400 $ 6,244
The amount recorded as the current portion of art inventory represents
management's estimate of the inventory expected to be sold during the next
twelve months. The Company recorded a valuation allowance against the
current portion of its inventory to reduce it to its estimated net
realizable value based on the history of losses sustained on inventory
items sold in the current and previous years.
Art sales for the three years ended October 31, 1995, 1994, and 1993
were as follows:
(in 000's) 1995 1994 1993
Antiquities $ 246 $ 207 $ 261
Contemporary 14 0 3
$ 260 $ 207 $ 264
F-32
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. LEASE COMMITMENTS
Canal currently occupies 4,200 square feet of commercial office space
in New York City for its headquarters operation. This space is under a
five year lease expiring December 31, 1998.
During the third fiscal quarter of 1993 Canal negotiated the early
termination of the lease on its then New York City office space. In
connection with the termination of this lease, Canal recognized an $873,000
write-off of the leasehold improvements and deferred leasing costs
associated with this lease.
The following is a schedule of future minimum payments required under
operating leases that have initial or remaining noncancellable terms in
excess of one year as of October 31, 1995:
Year ended October 31, (Thousands of Dollars)
1996 ........................................ $ 154
1997 ........................................ 154
1998 ........................................ 154
1999 ........................................ 26
Minimum payments required ....................... 488
Rental income under subleases ................... 126
Net minimum payments required ................... $ 362
F-33
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Rent expense under these and other operating leases for the years
ended October 31, 1995, 1994 and 1993 were as follows:
(Thousands of Dollars) 1995 1994 1993
Minimum rentals ................... $ 116 $ 116 $ 706
Less: sublease rentals ........... (40) (33) (366)
$ 76 $ 83 $ 340
12. STOCK OPTION PLAN
Under Canal's 1984 Employee and 1985 Directors Stock Option Plans,
$550,000 and 264,000 shares, respectively, of Canal's common stock have
been reserved for option grants. The purchase price of shares subject to
each option granted, under the Employee and Directors Plans, will not be
less than 85% and 100%, respectively, of their fair market value at the
date of grant. At October 31, 1995 the purchase price of shares subject to
each option granted equaled 100% of the fair market value on the date of
grant. Options granted under both plans are exercisable for 10 years from
the date of grant, but no option will be exercisable earlier than one year
from the date of grant. Under the Employee Plan, stock appreciation rights
may be granted in connection with stock options, either at the time of
grant of the options or at any time thereafter. No stock appreciation
rights have been granted under this plan. At October 31, 1995, there were
327,000 exercisable options outstanding under these plans.
F-34
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Transactions under these plans are summarized as follows:
Shares Option Price Range
Balance outstanding October 31, 1993.... 474,100 $0.013-$8.625
Options granted ........................ 0 - -
Options expired ........................ (74,500) $0.013-$8,625
Balance outstanding October 31, 1994.... 399,600 $0.013-$8.625
Options granted ........................ 0 - -
Options expired ........................ (72,600) $4.890-$6.705
Balance outstanding October 31, 1995.... 327,000 $0.013-$8.625
13. PREFERRED STOCK ISSUANCE
On October 15, 1986 Canal exchanged 986,865 shares of its $1.30
Exchangeable Preferred Stock ("the Preferred Stock") for a like amount of
its outstanding common stock. Since the exchange, the Company has issued
an additional 1,371,677 shares in the form of stock dividends for a total
outstanding at October 31, 1995 of 2,358,542. All of the Preferred Stock
has a par value of $0.01 per share and a liquidation preference of $10 per
share. The Preferred Stock is subject to optional redemption, in exchange
for Canal's 13% Subordinated Notes, by Canal, in whole or in part at any
time on or after September 30, 1988 at the redemption price of $10 per
share. Dividends on the Preferred Stock accrue at an annual rate of $1.30
per share and are cumulative. Dividends are payable quarterly in cash or
in Preferred Stock at Canal's option. Payment commenced December 31, 1986.
To date, twenty-six of the thirty-six quarterly payments have been paid in
additional stock resulting in the issuance of 1,371,677 shares recorded at
their fair value at the time of issuance. Canal is restricted from paying
cash dividends by certain of its debt agreements (See Note 7). The last
cash dividend paid on Canal's preferred stock was in September 1989.
Additionally, the December 31, 1995 preferred stock dividend will be paid
in additional stock.
In August 1994, the Board of Directors of the Company agreed to
approve a proposal for the exchange of all of its outstanding $1.30
Exchangeable Preferred Stock for shares of its common stock on a basis of
2.5 shares of
F-35
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
common stock for each share of preferred stock. Such proposal must be
presented to the holders of the preferred stock for approval of the holders
of at least 66 2/3% of the outstanding preferred stock. The exchange was
to be coupled with a public offering of the company s stock. The public
offering was canceled, therefore, the Company has taken no further action
in this matter.
VOTING RIGHTS - The holders of the Preferred Stock shall not have any
voting rights except as set forth in the following paragraphs.
The following actions must be approved by holders of 66 2/3% of the
shares of Preferred Stock, voting as a class: (I) any amendment to the
Certificate of Incorporation of Canal which would materially alter the
relative rights and preferences of the Preferred Stock so as to adversely
affect the holders thereof; and (ii) issuance of securities of any class of
Canal's capital stock ranking prior (as to dividends or upon liquidation,
dissolution or winding up) to the Preferred Stock. The holders of the
Preferred Stock shall be entitled to specific enforcement of the foregoing
covenants and to injunctive relief against any violation or threatened
violation thereof.
Whenever quarterly dividends payable on the Preferred Stock are in
arrears in the aggregate amount at least equal to six full quarterly
dividends (which need not be consecutive), the number of directors
constituting the Board of Directors of Canal shall be increased by two and
the holders of the Preferred Stock shall have, in addition to the rights
set forth above, the special right, voting separately as a single class, to
elect two directors of Canal to fill such newly created directorships at
the next succeeding annual meeting of shareholders (and at each succeeding
annual meeting of shareholders thereafter until such cumulative dividends
have been paid in full).
F-36
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. FINANCIAL INFORMATION FOR BUSINESS SEGMENTS
As a result of the sale of the Stockyard Operations and curtailment of
the securities trading and investing program, Canal is engaged in two lines
of business: Art operations and real estate.
The following summary presents segment information relating to these
lines of business except for the respective revenues, operating income and
t h e reconciliation of operating income with pre-tax income which
information is presented on Canal's income statement.
October 31,
(Thousands of Dollars) 1995 1994 1993
Identifiable assets:
Art ............................... $ 5,408 $ 6,286 $ 7,119
Real estate ...................... 11,630 12,677 14,004
Corporate ......................... 1,165 1,165 1,540
$ 18,203 $ 20,128 $ 22,663
(Thousands of Dollars) 1995 1994 1993
Capital expenditures:
Art ............................... $ 0 $ 0 $ 0
Real estate ....................... 75 29 90
Corporate ......................... 17 68 3
$ 92 $ 97 $ 93
Income from real estate operations includes gains (losses) on sales of
real estate of $0.3 million, $0.6 million and $0.5 million in 1995, 1994
and 1993, respectively. Art identifiable assets include approximately $1.6
million and $0.6 million of art inventory in galleries or on consignment
abroad as of October 31, 1995 and 1994, respectively.
F-37
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. LITIGATION
Canal and its subsidiaries are from time to time involved in
litigation incidental to their normal business activities, none of which,
in the opinion of management, will have a material adverse effect on the
consolidated financial condition of the Company. In addition, Canal or its
subsidiaries are party to the following litigations:
Federal Beef Processors, Inc. v. Union Stockyards Company of Fargo
This action involves Union Stockyards Company of Fargo ( Union ), a
wholly owned subsidiary of Canal. It is an action which involves claims
which are similar to some of the claims brought by B&H Investment Co.
( B&H ) against Union several years ago which was dismissed in 1994
following a decision by the Minnesota Court of Appeals in favor of Union.
The dispute involves a Lease Agreement relating to certain real estate
owned by Union and leased to Federal Beef Processors, Inc. ( Federal
Beef ). Federal Beef operates a meat packing plant on the leased premises,
and it is a related entity to B&H, which previously operated the packing
plant. By the terms of the Lease Agreement, Federal Beef s obligation to
pay additional rent is suspended during any period that Union fails to
provide adequate yardage service (under the terms of a separate Yardage
Agreement between the parties) that materially affects the business of
Federal Beef.
Federal Beef filed a Complaint on June 2, 1995 in the District Court
for Cass County, North Dakota, for damages claimed to be suffered as a
result of Union s alleged failure to provide adequate maintenance and
cleaning services for the livestock pens used by Federal Beef under the
Yardage Agreement. The damages sought by Federal Beef are in an
unspecified amount consisting of the additional rent paid by Federal Beef
during the time Union allegedly was in breach of the Lease Agreement and
the Yardage Agreement. As of June 1995, Federal Beef alleged it was
entitled to the return of additional rent in excess of $70,000. In
addition, Federal Beef seeks all direct and consequential damages allegedly
suffered by Federal Beef because of the claimed breach, including loss of
profits from animals allegedly damaged by reason of the condition of the
pens. Federal Beef subsequently filed an Amended Complaint in which it has
also sought a determination that it is entitled to exercise an option to
purchase the leased premises under the terms of the Lease Agreement for a
price measured by the unimproved value of the leased premises.
F-38
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Union has filed an Answer and Counterclaim denying the allegations in
the Amended Complaint, seeking a determination that Federal Beef s claims
are frivolous, and asking for an award of Union s reasonable attorneys
fees and costs in connection with the defense of the action. In July 1995,
Union successfully defeated a motion by Federal Beef for an order which
would have allowed Federal Beef to deposit into Court all rent payments due
from Federal Beef to Union pending the outcome of the litigation. As a
result, Federal Beef has continued to make all rent payments due under the
Lease Agreement while reserving its alleged claims against Union.
Management does not believe that the revenues generated by this lease
will be materially affected in resolving this dispute.
John Morrell & Co. v. Canal Capital Corporation
On October 6, 1993, an action was commenced against Canal by John
Morrell & Co. ("Plaintiff") in the District Court for Woodbury County,
State of Iowa. Plaintiff further amended the action on November 30, 1993.
The lawsuit arises out of the alleged breach by Canal, as lessor, of a
lease agreement relating to certain real estate on which Plaintiff operates
a meat packing plant in Sioux City, Iowa. Plaintiff alleges in the suit a
breach of
the lease by Canal as a result of Canal's sale of the Sioux City stockyard
operation in 1989 and its failure to renegotiate the rental terms of the
lease. Plaintiff alleges that Canal is obligated as lessor to provide
animals from the Sioux City stockyards to meet plaintiff's needs in
operating the packing plant on the leased property. Plaintiff alleges
that, as a result of Canal's failure to provide sufficient animals to meet
plaintiff's needs, plaintiff has been forced to obtain animals from sources
other than the stockyards at an additional cost and has been forced to pay
additional rent under the lease agreement. Plaintiff seeks relief in the
form of damages in an unspecified amount and a renegotiation of the rental
terms of the lease.
The parties have agreed to suspend activity in the litigation while
the parties explore the possible resolution of the matter. In the
meantime, plaintiff has agreed to pay the rent/yardage payments to Canal
according to the lease, without prejudice to the claims of either plaintiff
or Canal. The agreement may be terminated by either party upon 30-days
written notice.
F-39
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Management does not believe that the revenues generated by this lease
will be materially affected in resolving this dispute.
Former Portland Stockyard Property
In December 1988 the Company sold a parcel of real estate in Multnomah
County, Oregon and in connection therewith, agreed to share the costs of
the correction of adverse environmental conditions on such property with
the buyer. Pursuant to the cost sharing agreement, $1.1 million of the
sales price was placed in escrow to secure the Company's performance of its
cost sharing obligations, which were not limited to that amount. In 1991
the Company received an estimate from the buyer that the correction costs
might be in the range of $2 to $5 million. Under the cost sharing
agreement, the Company's obligation is to pay 50% of the first $400,000 and
90% of the next $425,000 of costs and 95% of all costs thereafter. The
Company had objected to the buyer's definition of costs which require
sharing in connection with certain demands of the buyer for release of
funds from escrow and had stopped payment of those funds from the escrow.
This dispute was the subject of an arbitration, which was recently resolved
in favor of the buyer. As a result, those funds were released from escrow,
and the escrow has been substantially depleted. At October 31, 1993, the
C o mpany accrued $400,000 representing management's estimate of its
additional contingent liability in this matter. This amount is included as
a liability in accrued litigation settlement at October 31, 1995.
Sioux City, Iowa - Demolition Notice
On October 25, 1994, Canal received a Placard Notice (the "Notice")
from the City of Sioux City, Iowa (the City ) ordering the demolition of
four structures located on Canal's property. The Notice claims that the
structures are dilapidated, unsafe and must be demolished. While exact
costs are not available, Canal estimates demolition costs at $750,000 to
$1,000,000. Canal is currently negotiating with the City for the sale of
the four structures covered by the Notice and approximately 15 acres of
land to the City. If these negotiations are successful the responsibility
for any demolition required would be with the City. Additionally, Canal
has
F-40
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
filed an appeal of the Notice with City Inspection Services Manager and is
awaiting a hearing date. If this matter cannot be settled as described
above, Canal will pursue alternative means of challenging this Notice.
Pine Valley Meats, Inc. v. Canal Capital Corporation
On May 5, 1995 an action was commenced against Canal by Pine Valley
Meats, Inc. ( Plaintiff ) in the County Court for Dakota County, State of
Minnesota. The lawsuit arises out of the alleged breach by Canal of a
certain cattle walkway agreement (the walkway agreement ) relating to the
passage of cattle over land owned by Canal in South St. Paul, Minnesota.
Plaintiff contends that the walkway agreement is a permanent easement
thereby requiring Canal to maintain a cattle walkway for their use in
perpetuity. Canal s position is that the walkway agreement is in fact a
license and can be terminated at Canal s discretion. Canal did close the
cattle walkway for several weeks in April 1995.
In June 1995, plaintiff sought and won a temporary injunction
requiring Canal to continue to maintain the cattle walkway for plaintiff s
use until the rights of the parties can be determined at trial. Plaintiff
is seeking a permanent injunction determining that the walkway agreement
creates an easement and unspecified damages for lost profits when the
walkway was closed.
On January 5, 1996, the Dakota County Court ruled that the walkway
agreement constituted a license only and denied the plaintiff s request for
a permanent injunction. Trial on the damage issue is scheduled for April
15, 1996.
Management does not believe that a damage award in this case is likely
or that if damages were awarded that they would be of a material amount.
F-41
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. VALUATION RESERVE
The Valuation Reserve represents the excess of the additional minimum
pension liability required under the provisions of SFAS No. 87 over the
unrecognized prior service costs of former stockyard employees. Such
excess arose due to the decline in the market value of pension assets
available for the pension benefits of the former employees, which benefits
were frozen at the time the stockyard operations were sold in 1989. The
excess will effectively be expensed over time as actuarial computations of
annual pension cost (made in accordance with SFAS No. 87) recognize the
deficiency that exists.
17. PROPERTY ON OPERATING LEASES
T h e following schedule provides an analysis of the Company's
investment in property on operating leases by location as of October 31,
1995:
(IN THOUSANDS)
Accumulated
Location Land Improvements Depreciation Value
St. Joseph, MO $ 869 $ 304 $ (156) $ 1,017
West Fargo, ND 3 283 (196) 90
S. St. Paul, MN 675 2,981 (492) 3,164
Sioux City, IA 1,480 3,705 (3,611) 1,574
Omaha, NE 1,437 2,348 (1,469) 2,316
Sioux Falls, SD 118 98 (71) 145
Corporate Office 0 158 (79) 79
$ 4,582 $ 9,877 $ (6,074) $ 8,385
F-42
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following is a schedule by years of minimum future rentals on
operating leases as of October 31, 1995: (5)
(IN THOUSANDS)
Volume
Year Ending Rental Ground Based
October 31, Income (1) Lease(2) Income(3) Total
1996 $ 2,200 $ 1,000 $ 0 $ 3,200
1997 2,300 1,000 0 3,300
1998 2,400 1,000 0 3,400
1999 2,500 1,000 0 3,500
2000 (4) 2,600 0 0 2,600
$ 12,000 $ 4,000 $ 0 $ 16,000
(1) Consists of rental income from Exchange Building (commercial office
space), lease income from vacant land and structures and other rental
income.
(2) Ground Lease covers approximately 139 acres leased to the purchaser
of Canal's former stockyard operations.
(3) Excludes any estimate of volume based income from the Sioux City, IA
and the Fargo, ND leases due to the uncertainty of these future
revenues. However, Canal s volume based income averaged $600,000
annually for the past five years.
(4) The stockyard ground lease has a five year renewal option which can be
exercised on essentially the same terms that currently exist. Canal
anticipates that this option will be exercised.
(5) All real estate leases are accounted for as operating leases.
F-43
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. Recent Accounting Pronouncements
In October 1995 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 119 Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments
effective for the Company at December 31, 1994. The Company does not
presently have nor has it had any derivative type instruments.
The Financial Accounting Standards Board has issued a Statement of
Financial Accounting Standards 121 Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of (the Statement )
which, when adopted could have a material impact on the results of
operations and financial position of the Company in the year of adoption.
The application of this Statement, which will be effective for fiscal years
beginning after December 15, 1995, and requires the Company to carry real
estate projects no longer under development, at the lower of cost or fair
value less cost to sell. If the sum of the expected future net cash flow
(undiscounted and without interest charges) is less than the carrying
amount of undeveloped projects, an impairment loss would be recognized.
The Company, consistent with existing generally accepted accounting
principles, currently states the majority of its land and land under
development at the lower of cost or net realizable value. The Company has
not quantified the effect on the Company.
Other pronouncements issued by the Financial Accounting Standards
Board with future effective dates are either not applicable or not material
to the consolidated financial statements of the Company.
The Company applies APB Opinion 25 and related interpretation in
account for its stock option plan. Accordingly, no compensation cost has
been recognized for years ended October 31, 1995 and 1994. Also, no stock
options were issued during fiscal 1995.
In October 1995, the Financial Accounting Standards Board issued
Statement (SFAS) No. 123, Accounting for Stock Based Compensation which
becomes effective for transactions entered into in fiscal years that begin
after December 15, 1995. This statement requires that the fair value based
method is applied to stock options awarded during 1995 and thereafter in
F-44
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
order to measure the compensation cost at the grant date and recognize it
over its vesting period. However, this statement also allows an entity to
continue to measure compensation costs for these plans pursuant to APB
Opinion 25. Entities electing to remain with the accounting treatment
under APB Opinion 25 must make proforma disclosures of net income and
earnings per share, as if the fair value based method of accounting
pursuant to SFAS No. 123 had been applied. Since the Company has not
issued any stock options during fiscal 1995, no additional disclosure
requirement is deemed necessary. The Company intends to adopt the
disclosure requirements for this statement effective for fiscal year ending
October 31, 1996, while continuing to measure compensation cost using APB
25.
F-45
CANAL CAPITAL CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. QUARTERLY INFORMATION (UNAUDITED)
FINANCIAL INFORMATION FOR THE INTERIM PERIODS OF FISCAL 1995 IS PRESENTED
BELOW:
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
(THOUSANDS OF DOLLARS, 1995 1995 1995 1995
EXCEPT PER SHARE DATA)
REVENUES $1,143 $ 987 $1,707 $ 1,017
NET INCOME (LOSS) ($62) ($109) ($136) ($1,211)
NET INCOME (lOSS) APPLICABLE
TO COMMON SHARES ($131) ($151) ($181) ($1,248)
NET INCOME (LOSS) PER COMMON
EQUIVALENT SHARES ($0.03) ($0.03) ($0.04) ($0.30)
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT
SHARE-FULLY DILUTED ($0.03) ($0.03) ($0.04) ($0.30)
PER SHARE AMOUNTS FOR COMMON AND EQUIVALENT SHARES WAS RECALCULATED FOR THE
FISCAL QUARTER ENDED JULY 31, 1994 ($0.38) TO GIVE EFFECT TO CERTAIN COMMON
STOCK EQUIVALENTS AND FOR COMMON EQUIVALENT SHARE-FULLY DILUTED ($0.32) TO
GIVE EFFECT TO THE ISSUANCE OF CERTAIN CONVERTIBLE NOTES ISSUED IN MARCH
1994.
F-46
CANAL CAPITAL CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. QUARTERLY INFORMATION, CONTINUED (UNAUDITED)
FINANCIAL INFORMATION FOR THE INTERIM PERIODS OF FISCAL 1994 IS PRESENTED
BELOW:
QUARTER ENDED
JAN. 31, APRIL 30, JULY 31, OCT. 31,
(THOUSANDS OF DOLLARS, 1994 1994 1994 1994
EXCEPT PER SHARE DATA)
REVENUES $1,067 $ 967 $3,898 $ 2,528
NET INCOME (LOSS) $214 ($144) $1,746 ($254)
NET INCOME (lOSS) APPLICABLE
TO COMMON SHARES $185 ($195) $1,699 ($640)
NET INCOME (LOSS) PER COMMON
EQUIVALENT SHARES $0.04 ($0.05) $ 0.38 ($0.14)
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT
SHARE-FULLY DILUTED $0.04 ($0.05) $ 0.32 ($0.14)
PER SHARE AMOUNTS FOR COMMON AND EQUIVALENT SHARES WAS RECALCULATED FOR THE
FISCAL QUARTER ENDED JULY 31, 1994 ($0.38) TO GIVE EFFECT TO CERTAIN COMMON
STOCK EQUIVALENTS AND FOR COMMON EQUIVALENT SHARE-FULLY DILUTED ($0.32) TO
GIVE EFFECT TO THE ISSUANCE OF CERTAIN CONVERTIBLE NOTES ISSUED IN MARCH
1994.
F-47
FORM 10-K - ITEM 14(a)(3)
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
(a) 3. Exhibits -
The following exhibits required by Item 601 of Regulations S-K are
filed as part of this report. For convenience of reference, the exhibits
are listed according to the numbers appearing in Table I to Item 601 of
Regulation S-K. Each exhibit which is incorporated by reference and the
document in which such exhibit was originally filed are indicated in
parentheses immediately following the description of such exhibit.
Exhibit No.
3(a) Restated Certificate of Incorporation (filed as Exhibit 3(a)
to the Registrant's Registration Statement on Form 10 filed
with the Securities and Exchange Commission on May 3, 1984
(the "Form 10") and incorporated herein by reference).
3(b) B y l a ws (filed as Exhibit 3(b) to the Registrant's
Registration Statement on Form 10 and incorporated herein
by reference).
3(c) Certificate of Amendment of the Restated Certificate of
Incorporation dated September 22, 1988 (filed as Exhibit
3(c) to the Registrant's Form 10-K filed January 29, 1989
and incorporated herein by reference).
4(a) Form of Variable Rate Mortgage Note (filed as Exhibit 4(a)
to the Registrant's Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on May 15, 1985
(the "Form S-1") and incorporated herein by reference).
4(b) Form of Indenture, dated as of April 1, 1985, between United
Stockyards Corporation and Manufacturers Hanover Trust
Company, as Trustee (filed as Exhibit 4(b) to the Form S-1
and incorporated herein by reference).
10(a) 1984 Stock Option Plan (1) (see Exhibit A included in the
R e gistrant's Proxy Statement dated January 31, 1985,
relating to the annual meeting of stockholders held March
1 8 , 1985, which exhibit is incorporated herein by
reference).
E-1
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(b) Form of Incentive Stock Option Agreement (filed as Exhibit
10(b) to the Registrant's Form 10-K filed January 31, 1986
and incorporated herein by reference).
10(c) Form of Nonstatutory Stock Option Agreement (filed as
Exhibit 110(c) to the Registrant's Form 10-K filed January
31, 1986 and incorporated herein by reference).
10(d) Canal-Randolph Corporation ("CRC") Agreement of Lease, dated
August 30, 1978, between CRC and the Registrant filed as
Exhibit 10(a) to the Registrant's Form 10 and incorporated
herein by reference).
10(e) Rent Escalation Letters, dated February 1, 1982, June 21,
1982 and April 4, 1983, from Canal-Randolph Associates to
the Company (filed as Exhibit 10(b) to the Registrant's Form
10 and incorporated herein by reference).
10(f) Lease Agreement, dated March 1, 1984, between Stockyards
Development Corporation and the Company, as a lessor and
Triad Corporation, as lessee (filed as Exhibit 10(c) to the
Registrant's Form 10 and incorporated herein by reference).
10(g) Supplemental Lease Agreement, dated March 1, 1984, between
Stockyards Development Corporation and the Company and Triad
Corporation (filed as Exhibit 10(d) to the Registrant's Form
10 and incorporated herein by reference).
10(h) Lease, dated November 30, 1967, by and between Sioux City
Stock Yards, a division of the Company ("Sioux City Stock
Yards"), and Armour and Company ("Armour") (filed as Exhibit
10(e) to the Registrant's form 10 and incorporated herein by
reference).
10(i) Amendment to Lease, dated as of June 4, 1977, by and between
the Company and Armour (filed as Exhibit 10(f) to the
Registrant's Form 10 and incorporated herein by reference).
E-2
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(j) Lease amendment and Easement Grant, dated as of April 1,
1968, by and between Sioux City Stockyards and Armour (filed
a s E xhibit 10(g) to the Registrant's Form 10 and
incorporated herein by reference).
10(k) Assignment and Acceptance with Consent, dated as of July 31,
1980, between Armour and Iowa Meat Processing Company ("Iowa
Meat") (filed as Exhibit 10(h) to the Registrant's Form 10
and incorporated herein by reference).
10(l) Processing Company consent to Assignment and Acceptance,
dated as of August 14, 1980, of the Company (filed as
Exhibit 10(i) to the Registrant's Form 10 and incorporated
herein by reference).
10(m) Agreement, dated April 25, 1964, by and between Sioux City
Stock Yards and Floyd Valley Packing Company ("Floyd
Valley") (filed as Exhibit 10(j) to the Registrant's Form 1
and incorporated herein by reference).
10(n) Supplemental Agreement, dated November 24, 1964, by and
between Sioux City Stock Yards and Floyd Valley (filed as
Exhibit 10(k) to the Registrant's Form 10 and incorporated
herein by reference).
10(o) Letter, dated August 14, 1989, from the Company to John
Morrell & Co. (filed as Exhibit 10(1) to the Registrant's
Form 10 and incorporated herein by reference).
10(p) Agreement, dated as of December 31, 1979, by and between the
Company and Weinstein International Corp. (filed as Exhibit
10(m) to the Registrant's Form 10 and incorporated herein by
reference).
E-3
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(q) Indenture of Lease, dated September 14, 1973, by and between
Indiana Farm Bureau Cooperative Association, Inc. and
Indianapolis Stockyards Corporation (filed as Exhibit 10(n)
to the Registrant's Form 10 and incorporated herein by
reference).
10(r) Indenture, dated July 31, 1936, by and between Plankinton
Packing Company ("Plankinton") and Milwaukee Stock Yards
Company ("Milwaukee Stock Yards") (filed as Exhibit 10(o) to
t h e Registrant's Form 10 and incorporated herein by
reference).
10(s) Indenture, dated July 31, 1936, by and between Plankinton
and Milwaukee Stock Yards Company (filed as Exhibit 10(p) to
t h e Registrant's Form 10 and incorporated herein by
reference).
10(t) Agreement, dated June 11, 1964, by and between P&L Company
and the Company (filed as Exhibit 10(g) to the Registrant's
Form 10 and incorporated herein by reference).
10(u) Agreement, dated August 28, 1978, by and between Peck
Enterprises, Inc. and the Company (filed as Exhibit 10(r) to
the Registrant's Form 10 and incorporated by reference).
10(v) Letter, dated July 11, 1980, of Milwaukee Stock Yards (filed
a s E xhibit 10(s) to the Registrant's Form 10 and
incorporated herein by reference).
10(w) Mortgage and Indenture of Trust, dated as of November 1,
1972, by and between the City of Sioux City, Iowa and the
Northwestern National City Bank of Minneapolis, as Trustee
(filed as Exhibit 10(t) to the Registrant's Form 10 and
incorporated herein by reference).
E-4
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(x) Lease Agreement, dated as of November 1, 1972, between the
City of Sioux City, Iowa and the Company (filed as Exhibit
10(u) to the Registrant's Form 10 and incorporated herein by
reference).
10(y) Revolving Credit and Security Agreement, dated as of October
29, 1985, between the Company, Drovers First American Bank
of South St. Paul and Marine Midland Bank, N.A. (filed as
Exhibit 10(y) to the Registrant's Form 10 filed January 29,
1986 and incorporated herein by reference).
10(z) Lease Agreement, dated as of March 17, 1985, between the
Company and Atlantic Richfield Company (filed as Exhibit
10(z) to the Registrant's Form 10-K filed January 29, 1986
and incorporated herein by reference).
10(aa) 1985 Directors' Stock Option Plan (1) (See Exhibit A
included in the Registrant's Proxy Statement dated January
31, 1986, relating to the annual meeting of stockholders
held March 12, 1986, which exhibit is incorporated herein by
reference).
10(ab) Form of Directors' Stock Option Agreement (filed as Exhibit
10(ab) to the Registrant's Form 10-K filed January 29, 1986
and incorporated herein by reference).
10(ac) Amendment to Lease, dated as of December 5, 1986, by and
between Stockyards Development Corporation and the Company
and Stockyards 85 Partnership (filed as Exhibit 10(ac) to
the Registrant's Form 10-K filed January 29, 1987, and
incorporated herein by reference).
10(ad) Agreement for Investment Advisory and Financial Management
Services, dated January 2, 1986, by and between the Company
and Arbitrage Securities Company (filed as Exhibit 10(ad) to
the Registrant's Form 10-K filed January 29, 1987, and
incorporated herein by reference).
E-5
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(ae) Lease, dated May 1, 1954, by and between the Sioux Falls
Stockyards Company and Messrs. Herman R., Robert Q., Dwight
D., and John W. Sutherland (filed as Exhibit 10(ae) to the
R e g istrant's Form 10-K filed January 29, 1987, and
incorporated herein by reference).
10(af) Lease, dated September 1, 1954 by and between the Sioux
Falls Stockyards Company and Messrs. Herman R., Robert Q.,
Dwight D., and John W. Sutherland (filed as Exhibit 10(af)
to the Registrant's Form 10-K filed January 29, 1987, and
incorporated herein by reference).
10(ag) Amendment to Lease, dated as of December 17, 1982 by and
between the Sioux Falls Stockyards Company and Sutherland
Lumber and Material Co. and Sutherland's Home Improvement
Co., Inc. (filed as Exhibit 10(ag) to the Registrant's Form
10-K filed January 29, 1987, and incorporated herein by
reference).
10(ah) Real Estate Purchase Agreement, dated September 17, 1988 by
and between the Company and the American National Bank and
Trust Company (filed as Exhibit 10(ah) to the Registrant's
Form 8-K filed October 24, 1988 and incorporated herein by
reference).
10(ai) A s s ignment of Agreement for Investment Advisory and
Financial Management Services dated January 2, 1986, Exhibit
number 10(ad) to A.B. Edelman Management Company (filed as
Exhibit 10(ai) to the Registrant's Form 10-K filed January
29, 1989 and incorporated herein by reference).
10(aj) Agreement for Antiquities Venture dated October 26, 1988, by
and between the Company and Edward H. Merrin Gallery (filed
as Exhibit 10(aj) to the Registrant's Form 10-K filed
January 29, 1989 and incorporated herein by reference).
E-6
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(ak) Purchase Agreement, dated October 31, 1989 by and between
USK Acquisition Corporation, Canal Capital Corporation,
Omaha Livestock Market, Inc., Sioux Falls Stock Yards
Company and Indianapolis Stockyards Corporation (filed as
Exhibit 10(ak) to the Registrant's Form 8-K filed November
9, 1989 and incorporated herein by reference).
10(al) Letter Agreement dated October 31, 1989 to USK Acquisition
Corporation from Canal Capital Corporation, Omaha Livestock
M a r k et, Inc., Sioux Falls Stock Yards Company and
Indianapolis Stockyards Corporation (filed as Exhibit 10(al)
to the Registrant's Form 8-K filed November 9, 1989 and
incorporated herein by reference).
10(am) Master Ground Lease, dated October 27, 1989 by and between
USK Acquisition Corporation, Canal Capital Corporation,
Omaha Livestock Market, Inc. and Sioux Falls Stock Yards
Company (filed as Exhibit 10(am) to the Registrant's Form 8-
K filed November 9, 1989 and incorporated herein by
reference).
10(an) E s crow Agreement dated October 31, 1989 between USK
Acquisition Corporation, Canal Capital Corporation, Omaha
Livestock Market, Inc., Sioux Falls Stockyards Company,
Indianapolis Stockyards Corporation, Norwest Bank South
Dakota, N.A. and Lawyers Title Insurance Corporation, as
Escrow Agent (filed as Exhibit 10(an) to the Registrant's
Form 8-K filed November 9, 1989 and incorporated herein by
reference).
10(ao) Sublease Agreement, dated January 3, 1990 by and between
Canal Capital Corporation and Gruntal & Co. (filed as
Exhibit 10(ao) to the Registrant's Form 10-K filed January
15, 1990 and incorporated herein by reference).
E-7
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(ap) Sublease Agreement, dated January 11, 1990 by and between
Canal Capital Corporation and Global Leasing Services (filed
as Exhibit 10(ap) to the Registrant's Form 10-K filed
January 25, 1990 and incorporated herein by reference).
10(aq) Agreement for contemporary art venture (with respect to
Jules Olitski), dated November 22, 1989 by and between Canal
Capital Corporation and Salander-O'Reilly Contemporary, Inc.
(filed as Exhibit 10(aq) to the Registrant's Form 10-K filed
January 25, 1990 and incorporated herein by reference).
10(ar) Amendment to the Agreement for Antiquities Venture dated
April 11, 1990 by and between Edward H. Merrin Gallery and
Canal Capital Corporation (filed as Exhibit 10(ar) to the
R e g i strant's Form 10-K filed January 22, 1991 and
incorporated herein by reference).
10(as) Amendment to the Revolving Credit Agreement dated May 31,
1 9 90 by and between Cooperative Centrale Raiffersen-
Boerenleenbank B.A. (Rabobank Nederland) and Canal Capital
Corporation (filed as Exhibit 10(as) to the Registrant's
Form 10-K filed January 22, 1991 and incorporated herein by
reference).
10(at) Security Agreement dated May 31, 1990 by and between
Cooperative Centrale Raiffersen-Boerenleenbank B.A.
(Rabobank Nederland) and Canal Capital Corporation (filed as
Exhibit 10(at) to the Registrant's Form 10-K filed January
22, 1991 and incorporated herein by reference).
10(au) Release and Agreement dated December 12, 1990 by and between
Meritor Savings Bank, Continental American Life Insurance
Company and Canal Capital Corporation (filed as Exhibit
10(au) to the Registrant's Form 10-K filed January 22, 1991
and incorporated herein by reference).
E-8
CANAL CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS, CONTINUED
Exhibit No.
10(av) Amendment and Waiver to the Revolving Credit Agreement dated
J u l y 31, 1991 by and between Cooperative Centrale
Raiffersen-Boerenleenbank B.A. (Rabobank Nederland) and
Canal Capital Corporation (filed as Exhibit 10(av) to the
R e g i strant's Form 10-K filed January 17, 1992 and
incorporated herein by reference).
10(aw) Amendment to the Agreement for Antiquities Venture dated
July 1, 1991 by and between The Merrin Group, Inc. and Canal
A r t s Corporation (filed as Exhibit 10(aw) to the
R e g i strant's Form 10-K filed January 27, 1992 and
incorporated herein by reference).
10(ax) Amendment and Restated Credit Agreement dated March 31, 1993
b y and between Cooperative Centrale Raiffersen-
Boerenleenbank B.A. (Rabobank Nederland) and Canal Capital
Corporation (filed as Exhibit 10(ax) to the Registrant's
Form 10-K filed January 28, 1994 and incorporated herein by
reference).
10(ay) Amendment to Security Agreement dated March 31, 1993 by and
between Cooperative Centrale Raiffersen-Boerenleenbank B.A.
(Rabobank Nederland) and Canal Capital Corporation (filed as
Exhibit 10 (ay) to the Registrant's Form 10-K filed January
28, 1994 and incorporated herein by reference).
10(az) Amendment to Security Agreement dated March 31, 1993 by and
between Cooperative Centrale Raiffersen-Boerenleenbank
(Rabobank Nederland) and Canal Arts Corporation (filed as
Exhibit 10 (az) to the Registrant's Form 10-K filed January
28, 1994 and incorporated herein by reference).
10(ba) Amendment to Security Agreement dated March 31, 1993 by and
between Cooperative Centrale Raiffersen-Boerenleenbank
(Rabobank Nederland) and Canal Arts Corporation (filed as
Exhibit 10 (ba) to the Registrant's Form 10-K filed January
28, 1994 and incorporated herein by reference).
E-9
Exhibit No.
10(bb) Note Exchange Agreement dated May 15, 1993 by and between
Hanseatic Corporation, Guaranty Reassurance Company and
Canal Capital Corporation (filed as Exhibit 10 (bb) to the
R e g i strant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(bc) Amended and Restated $3,000,000 Variable Rate Mortgage Note
Due May 15, 1996 by and between Guaranty Reassurance Company
and Canal Capital Corporation (filed as Exhibit 10 (bc) to
the Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(bd) Amended and Restated $5,800,000 Variable Rate Mortgage Note
Due May 15, 1996 by and between Deltec Asset Management
Corporation and Canal Capital Corporation (filed as Exhibit
10 (bd) to the Registrant's Form 10-K filed January 27, 1995
and incorporated herein by reference).
10(be) Security Agreement dated May 15, 1993 by and between
Hanseatic Corporation, Guaranty Reassurance Company, Canal
Arts Corporation and Canal Capital Corporation (filed as
Exhibit 10 (be) to the Registrant's Form 10-K filed January
27, 1995 and incorporated herein by reference).
10(bf) Collateral Agency Agreement dated May 15, 1993 by and
between Hanseatic Corporation, Guaranty Reassurance Company
and Canal Capital Corporation (filed as Exhibit 10 (bf) to
the Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(bg) Assignment of Mortgage - Minnesota dated May 15, 1993 by and
between Chemical Bank, Hanseatic Corporation and Guaranty
Reassurance Company (filed as Exhibit 10 (bg) to the
R e g i strant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(bh) First Amendment to Mortgage - Minnesota dated May 15, 1993
by and between Hanseatic Corporation, Guaranty Reassurance
Company and Canal Capital Corporation (filed as Exhibit 10
(bh) to the Registrant's Form 10-K filed January 27, 1995
and incorporated herein by reference).
E-10
Exhibit No.
10(bi) Assignment of Mortgage - Iowa dated May 15, 1993 by and
between Chemical Bank, Hanseatic Corporation and Guaranty
Reassurance Company (filed as Exhibit 10 (bi) to the
R e g i strant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(bj) First Amendment to Mortgage - Iowa dated May 15, 1993 by and
between Hanseatic Corporation, Guaranty Reassurance Company
and Canal Capital Corporation (filed as Exhibit 10 (bj) to
the Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(bk) Assignment of Mortgage - South Dakota dated May 15, 1993 by
a n d between Chemical Bank, Hanseatic Corporation and
Guaranty Reassurance Company (filed as Exhibit 10 (bk) to
the Registrant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(bl) First Amendment to Mortgage - South Dakota dated May 15,
1 9 9 3 by and between Hanseatic Corporation, Guaranty
Reassurance Company, Sioux Falls Stockyards Company and
Canal Capital Corporation (filed as Exhibit 10 (bl) to the
R e g i strant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(bm) $350,000 Promissory Note dated March 25, 1994 by and between
C o wen & Company Custodian F/B/O William G. Walters,
Individual Retirement Account and Canal Capital Corporation
(filed as Exhibit 10 (bm) to the Registrant's Form 10-K
f i l e d January 27, 1995 and incorporated herein by
reference).
10(bn) $150,000 Convertible Promissory Note dated March 25, 1994 by
and between Cowen & Company Custodian F/B/O William G.
Walters, Individual Retirement Account and Canal Capital
Corporation (filed as Exhibit 10 (bn) to the Registrant's
Form 10-K filed January 27, 1995 and incorporated herein by
reference).
E-11
Exhibit No.
10(bo) Stock Pledge and Security Agreement dated March 28, 1994 by
and between Cowen & Company Custodian F/B/O William G.
Walters, Individual Retirement Account, Tenzer, Greenblatt,
Fallon & Kaplan and Canal Capital Corporation (filed as
Exhibit 10 (bo) to the Registrant's Form 10-K filed January
27, 1995 and incorporated herein by reference).
10(bp) Agreement of Lease dated January 14, 1994 by and between The
Equitable Life Assurance Society of the United States,
Intelogic Trace Incorporated, Datapoint Corporation and
Canal Capital Corporation (filed as Exhibit 10 (bp) to the
R e g i strant's Form 10-K filed January 27, 1995 and
incorporated herein by reference).
10(bq) First Amendment to Amended and Restated Variable Rate
Mortgage Note due May 15, 1998 dated May 15, 1995 by and
between Deltec Asset Management Corporation and Canal
Capital Corporation.
10(br) First Amendment to Amended and Restated Variable Rate
Mortgage Note due May 15, 1998 dated May 15, 1995 by and
between Guaranty Reassurance Corporation and Canal Capital
Corporation.
10(bs) Note Exchange Agreement dated September 15, 1995 by and
between Michael E. Schultz Defined Benefit Trust, Edelman
Value Partners, L.P., Lora K. Schultz, SES Trust, Roger A.
Schultz Pension Plan and Canal Capital Corporation.
10(bt) $150,000 Promissory Note dated September 15, 1995 by and
between Michael E. Schultz Defined Benefit Trust and Canal
Capital Corporation.
10(bu) $150,000 Promissory Note dated September 15, 1995 by and
between Edelman Value Partners, L.P. and Canal Capital
Corporation.
10(bv) $182,275 Promissory Note dated September 15, 1995 by and
between Lora K. Schultz and Canal Capital Corporation.
E-12
Exhibit No.
10(bw) $300,000 Promissory Note dated September 15, 1995 by and
between SES Trust and Canal Capital Corporation.
10(bx) $250,000 Promissory Note dated September 15, 1995 by and
between Roger A. Schultz Pension Plan and Canal Capital
Corporation.
11 Statement re: computation of per share earnings. This
exhibit has not been included because such computation can
be clearly determined from the consolidated financial
statements included as part of this report on Form 10-K.
22 Subsidiaries of the Registrant.
E-13
INVESTOR INFORMATION
Annual Meeting Corporate Headquarters
The Annual Meeting of Shareholders 7l7 Fifth Avenue
of Canal Capital Corporation will New York, NY 10022
be held in our offices at 717
Fifth Avenue, 4th floor, New York,
NY, on a date to be announced.
Stock Certificates
The Board of Directors of Canal Inquiries regarding change of
Capital Corporation urges all name or address, or to replace
shareholders to vote their shares lost certificates should be made
in person or by proxy and thus directly to American Stock
participate in the decisions that Transfer and Trust Co., 40 Wall
will be made at the annual meeting. Street, New York, NY 10005 or
telephone (718) 921-8200
Stock Listing
Canal Capital Corporation common stock Auditors
is traded on the over-the-counter Todman & Co.
market through the "pink sheets". 120 Broadway
New York, NY 10271
Investment Analyst Inquiries General Counsel
Analyst inquires are welcome. Proskauer Rose Goetz & Mendelsohn
1585 Broadway
Phone or write: Michael E. Schultz, New York, NY 10036
President at (212) 826-6040 (212) 969-3000
iii