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					United Nations Development
Corporation
Financial Statements
For the years ended December 31, 2004 and 2003
and Supplemental Schedules for the
years ended December 31, 2004 and 2003
United Nations Development Corporation
Index of Financial Statements and Supplemental Schedules

                                                                          Page(s)

Report of Independent Auditors                                                1

Financial Statements

  Balance Sheets, December 31, 2004 and 2003                                  2

  Statements of Operations and Retained Earnings, for the years ended
    December 31, 2004 and 2003                                                3

  Statements of Cash Flows, for the years ended
    December 31, 2004 and 2003                                                4

  Notes to Financial Statements                                            5-12

Supplemental Schedules

  Supplemental Schedule of Phases I, II, and III Net Revenues in Excess
    Of Debt Service Requirements, for the year ended December 31, 2004       13

  Supplemental Schedule of Phases I, II, and III Net Revenues in Excess
    Of Debt Service Requirements, for the year ended December 31, 2003       14

 Notes to Supplemental Schedules                                            15
United Nations Development Corporation                                                                                           2
Balance Sheets

                                                                                                         December 31,
                                                                                                 2004                   2003
Assets:

Current assets:
  Cash and cash equivalents                                                               $       3,312,049     $        3,643,338
  Accounts receivable, less allowance for doubtful accounts of
    approximately $3,700 and $3,700 in 2004 and 2003, respectively                                1,808,249              1,080,821
  Current portion of net investment in capital lease                                                188,544                160,065
  Prepaid expenses and other assets, net                                                            706,915              1,070,794

             Total current assets                                                                 6,015,757              5,955,018

Restricted assets                                                                               28,403,133              25,186,941

Net investment in capital lease                                                                 34,575,049              34,796,844

Property and equipment:
  Land                                                                                           3,979,597            3,979,597
  Buildings and building improvements                                                          113,336,938          112,570,630
  Furniture, fixtures and equipment                                                              1,133,309            1,033,894
  Development-in-progress                                                                        4,528,688            2,200,837

                                                                                               122,978,532          119,784,958

    Less: accumulated depreciation and amortization                                            (57,352,948)         (54,344,090)

          Property and equipment, net                                                           65,625,584              65,440,868
            Total assets                                                                  $    134,619,523      $   131,379,671

Liabilities and retained earnings:

Current liabilities (payable from currents assets):
  Accounts payable and accrued expenses                                                   $       1,584,872     $        1,627,949
  Security deposits payable and deferred revenues                                                   384,106                407,625

                                                                                                  1,968,978              2,035,574

Current liabilities (payable from restricted assets):
  Current maturities of long-term debt                                                                    -              3,070,000
  Accrued interest payable                                                                        3,255,506              3,580,581

                                                                                                  3,255,506              6,650,581

             Total current liabilities                                                            5,224,484              8,686,155

Long-term debt                                                                                 130,392,448          128,731,155

             Total liabilities                                                                 135,616,932          137,417,310

Equity and retained earnings                                                                       (997,409)            (6,037,639)

               Total liabilities and equity and retained earnings                         $    134,619,523      $   131,379,671




                            The accompanying notes are an integral part of these financial statements.
United Nations Development Corporation                                                                           3
Statements of Operations and Retained Earnings

                                                                                          For the years ended
                                                                                             December 31,
                                                                                         2004             2003

Revenues:
 Office space                                                                     $    22,044,626     $ 21,219,466
 From capital lease                                                                     7,503,395        7,335,306
 Residential apartments and other income                                                1,581,023        1,532,531
 Parking garages                                                                          678,690          698,538

         Total revenues                                                                31,807,734       30,785,841

Expenses other than depreciation, amortization and interest:
 Administrative salaries and employee benefits                                           1,421,369       1,323,967
 Managing agent's reimbursable salaries and employee benefits                            2,230,224       2,052,112
 Other operating costs                                                                   9,765,627       9,425,617
 Rent and real estate taxes                                                              2,347,287       2,337,347
 Management fees                                                                            87,078          88,827
 Professional fees                                                                         162,337         143,914
        Total expenses before depreciation and
          amortization and interest                                                    16,013,922       15,371,784

Operating income before depreciation and amortization, interest
    and loss on redemption of bonds                                                    15,793,812       15,414,057


Depreciation and amortization                                                           (3,013,213)     (2,987,366)

Interest expense, net of interest income of $387,789 and
  $311,956 in 2004 and 2003, respectively                                               (6,111,605)     (7,011,156)

Loss on redemption of the Bonds of 1997 B & C                                           (1,628,764)              -


   Net income                                                                            5,040,230       5,415,535

Retained earnings, beginning of year                                                    (6,037,639)    (11,453,174)

Retained earnings, end of year                                                    $       (997,409)   $ (6,037,639)




                      The accompanying notes are an integral part of these financial statements.
United Nations Development Corporation                                                                      4
Statements of Cash Flow

                                                                                    For the years ended
                                                                                       December 31,
                                                                                   2004             2003

Cash flows from operating activities
 Net income                                                                   $   5,040,230     $     5,415,535
 Adjustments to reconcile net income to net cash flows
   from operating activities:
         Depreciation and amortization                                            3,013,213           2,987,366
         Amortization of investment in capital lease                                221,795              71,725
         Amortization of debt discount and issuance costs                            79,791              54,809
         Amortization of bond premium                                              (152,858)               -
         Loss on redemption of the Bonds of 1997 B & C                            1,628,764                -
   (Increase) decrease in current assets:
         Accounts and accrued interest receivable, net                              (727,428)          (499,843)
         Prepaid expenses and other assets                                           363,879           (178,049)
   Increase in restricted assets                                                  (3,216,192)        (1,829,914)
   Increase (decrease) in current liabilities
     (payable from current assets):
         Accounts payable and accrued expenses                                       (43,077)           (84,168)
         Security deposits payable and deferred revenues                             (23,519)             3,747
   Increase (decrease) in current liabilities
     (payable from restricted assets):
         Rent payable                                                                   -            (3,427,830)
         Accrued interest payable                                                  (325,075)            (68,856)

         Net cash provided by operating activities                                5,859,523           2,444,522

Cash flows from investing activities
 Capital expenditures                                                             (2,895,961)        (1,493,071)

         Net cash used in investing activities                                    (2,895,961)        (1,493,071)

Cash flows from financing activities
 Repayment of long-term debt from restricted assets                                    -             (2,930,000)
 Deposit into escrow fund to extinguish long term debt                        (132,493,537)                -
 Issuance of long-term debt at a premium                                       131,339,232                 -
 Payment of deferred financing costs                                            (2,140,546)            (270,671)
         Net cash used in financing activities                                  (3,294,851)          (3,200,671)

Net decrease in cash and cash equivalents                                          (331,289)         (2,249,220)
Cash and cash equivalents, beginning of year                                      3,643,338           5,892,558

Cash and cash equivalents, end of year                                        $   3,312,049         $ 3,643,338




                  The accompanying notes are an integral part of these financial statements.



                                                                                       4/4/2005 11:40:00 AM
United Nations Development Corporation                                                                       5
Notes to Financial Statements


  1.   Organization and Significant Accounting Policies
       United Nations Development Corporation (the “Corporation”) was established pursuant to
       Chapter 345, Laws of the State of New York, 1968, as amended (the “Act”), as a New York
       public benefit corporation for the purpose of planning and developing the United Nations
       Development District, adjacent to United Nations Headquarters in New York City, in order to
       provide facilities for United Nations-related activities.

       The financial statements of the Corporation have been prepared in conformity with accounting
       principles generally accepted in the United States for governments as prescribed by the
       Governmental Accounting Standards Board, which is the primary standard-setting body for
       establishing governmental accounting and financial reporting principles.

       Pursuant to the Act, the Corporation completed construction of a 39-story office building-hotel at
       One United Nations Plaza in 1976 as part of the Phase I project which includes the buildings at
       763 and 765 United Nations Plaza (“Phase I”). The buildings at 765 and 763 United Nations
       Plaza were sold in April 1999 and September 2000, respectively. The Corporation completed
       construction of a 40-story office building-hotel (“Phase II”) at Two United Nations Plaza in 1984
       and completed construction of a 15-story office-residential building (“Phase III”) at Three United
       Nations Plaza in 1987. The hotel included in Phase I and II was sold effective July 23, 1997.

       The majority of the Corporation’s office space in One, Two, and Three UN Plaza is leased to the
       United Nations, foreign missions to the United Nations, or United Nations Children’s Fund
       (“UNICEF”). The renewal of these leases, among other considerations, is dependent upon these
       organizations remaining viable.

       The accompanying financial statements include all funds and account groups of the Corporation.
       The following is a summary of its significant accounting policies:

       Basis of accounting
       The Corporation uses the accrual basis of accounting. Revenue is recognized when it is earned,
       and expenses are recognized when they are incurred.

       Cash, cash equivalents and restricted assets
       Cash, cash equivalents and restricted assets consist mainly of authorized, short-term government
       investments with maturities of three months or less when purchased. These investments are
       stated at cost which approximates fair value because of the short maturity of the instruments.

       The Corporation manages its credit and market risk as it is authorized to invest only in United
       States Government and State obligations, repurchase agreements with respect to Government
       obligations, time deposits up to the federally insured limit, and demand deposits with banks
       meeting certain capital stock and surplus minimums. These investments mature over periods
       within several days to six months from each year-end. Since the Corporation has the positive
       intent and ability to hold its investments to maturity, they are classified as held-to-maturity and
       are stated at amortized cost, which approximates the fair value of these investments.

       Investments are held by the Corporation’s trustee and custodian in the Corporation’s name.




                                                                                    4/4/2005 11:40:00 AM
United Nations Development Corporation                                                                    6
Notes to Financial Statements

      Investment in capital lease
      The Corporation leases space to UNICEF under a lease that qualifies as a capital lease, which is
      stated at its net investment. Income is recognized over the life of the lease.

      Property and equipment
      Property and equipment are stated at cost less accumulated depreciation and amortization.
      Expenditures for maintenance and repairs are charged to operations as incurred. Significant
      renovations, which improve and extend the useful life of an asset, are capitalized.

      Included in Building and Building Improvements are development-in-progress costs of
      $4,528,688 and $2,200,837 as of December 31, 2004 and 2003, respectively.

      On a periodic basis, management assesses whether there are any indicators that the value of the
      Corporation’s real estate properties may be impaired. A property’s value is impaired only if
      management’s estimate of the aggregate future cash flows (undiscounted and without interest
      charges) to be generated by the property are less than the carrying value of the property. To the
      extent impairment has occurred, the loss shall be measured as the excess of the carrying amount
      of the property over the estimated fair value of the property.

      Depreciation is computed by the straight-line method over the following periods: buildings - 50
      years; building improvements - 3 to 25 years; and furniture, fixtures and equipment - 3 to 10
      years. Land represents a leasehold interest (Note 5) and is being amortized over the term of the
      lease.

      As of December 31, 2004, management does not believe there is an impairment in the carrying
      value of property and equipment or the net investment in the capital lease.

      Debt premium / discount and issuance costs
      The Corporation capitalizes costs incurred in conjunction with the issuance of its long-term debt.
      Amortization of such issuance costs and any associated premium or discount related to the
      Corporation’s long-term debt is computed by the effective interest method over the terms of the
      related debt and is included in depreciation and amortization on the Statements of Operations and
      Retained Earnings. Amortization of issuance costs relating to long-term debt and the debt
      discount relating to the 1997 Refunding Bonds, Series B and C (the “Bonds of 1997 B & C”) was
      $79,791 and $54,809 for each of the years ended December 31, 2004 and 2003, respectively.
      Amortization of the bond premium relating to the 2004 Refunding Bonds, Series A (Senior Lien)
      (the “2004 Bonds”) was $152,858 for the year ended December 31, 2004.

      Income Taxes
      As a public benefit corporation, the Corporation is a not-for-profit organization exempt from
      corporate federal and state income taxes under Section 501(c) (3) of the Internal Revenue
      Code. Accordingly, no provision for taxes or deferred taxes has been provided for in these
      financial statements.

      Use of estimates
      The preparation of financial statements in conformity with accounting principles generally
      accepted in the United States 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.




                                                                                   4/4/2005 11:40:00 AM
United Nations Development Corporation                                                                      7
Notes to Financial Statements

       Reclassification
       Certain reclassifications have been made to the 2003 balances to conform with the 2004
       presentation.

  2.   Restricted Assets and Liabilities
       The Corporation is required to fund certain accounts and funds, as stipulated in the Indenture for
       the 2004 Bonds as of December 31, 2004, to pay current and future obligations. Details of
       restricted assets, principally investments in United States Government obligations, and related
       liabilities for Phases I, II, and III as of December 31, 2004 and 2003, are as follows:

                                                                                             Current
                                                                                            Liabilities
                                                                                          (Payable from
                                                                        Restricted          Restricted
                                                                         Assets              Assets)

       2004:
         Phases I, II, and III                                        $ 28,403,133       $     3,255,506

       2003:
         Phases I, II, and III                                        $ 25,186,941       $     6,650,581


  3.   Long-term Debt
       Long-term debt, exclusive of current maturities of $0 and $3,070,000 as of December 31, 2004
       and 2003, consists of:

                                                                             December 31,
                                                                         2004            2003

       Bonds of 2004, Series A - Senior                             $ 126,720,000         $        -
       Bonds of 1997, Series B - Senior                                         -          91,325,000
       Bonds of 1997, Series C - Subordinate                                    -          37,000,000
       Bond of 1980, due on August 1, 2025 with
        8% interest, payable semi-annually                               1,250,000           1,250,000
       Bond of 1978, due on July 1, 2028 with
        8% interest, payable semi-annually                                287,500             287,500
                                                                      128,257,500         129,862,500
       Add: Unamortized Bond Premium                                    4,466,374                   -
       Less: Unamortized Debt Discount & Issuance Costs                (2,331,426)         (1,131,345)

                                                                    $ 130,392,448      $ 128,731,155




                                                                                  4/4/2005 11:40:00 AM
United Nations Development Corporation                                                                      8
Notes to Financial Statements

      2004 Refunding Bonds, Series A
      The 2004 Refunding Bonds, Series A (Senior Lien) (“2004 Bonds”) were issued on January 29,
      2004 pursuant to an Indenture of Trust dated as of December 1, 1992 (the “1992 Indenture”)
      between the Corporation and JPMorgan Chase Bank formerly The Chase Manhattan Bank
      (successor to Chemical Bank), as Trustee, as amended and supplemented by a supplemental
      indenture as of March 1, 1995 (the “First Supplemental Indenture”) and further supplemented as
      of January 1, 1997 (the “Second Supplemental Indenture”), and July 1, 1997 (the “Third
      Supplemental Indenture”), and July 1, 1998 (the “Fourth Supplemental Indenture”), and January
      29, 2004 (the “Fifth Supplemental Indenture,” collectively the “Supplemental Indentures”). The
      2004 Bonds were issued at a premium of $4,619,232 with a face amount of $126,720,000 and the
      net proceeds from the bond issuance were used to redeem the Bonds of 1997 B & C.

      Interest is payable semi-annually on January 1 and July 1 at various rates, ranging from 4.00% to
      5.25%. Interest expense is reflected at a constant effective yield (including amortization of
      premium and issue costs). The 2004 Bonds are subject to mandatory annual redemption of
      principal in increasing amounts starting in 2007 thru 2026.

      The 2004 Bonds are collateralized by (i) the net revenues of Phases I, II and III; and (ii) amounts
      in the funds and accounts held by the trustee.

      The Corporation incurred deferred financing costs amounting to $2,411,217 in connection with
      the issuance of the 2004 Bonds.

      All assets held by the trustee under the terms of the 1992 Indenture have been classified as
      restricted assets (Note 2).

      Bonds of 1997 B&C
      The Bonds of 1997 B&C were issued on July 23, 1997 pursuant to an Indenture of Trust (the
      “1992 Indenture”) dated as of December 1, 1992 between the Corporation and JPMorgan Chase
      Bank, formerly The Chase Manhattan Bank (successor to Chemical Bank), as Trustee, as
      amended and supplemented by a supplemental indenture as of March 1, 1995 (the “First
      Supplemental Indenture”) and further supplemented as of January 1, 1997 (the “Second
      Supplemental Indenture”) and July 1, 1997 (the “Third Supplemental Indenture”) and July 1,
      1998 (the “Fourth Supplemental Indenture, collectively the “Supplemental Indentures”). The
      bond proceeds, together with other funds of the Corporation, were used to defease the 1992
      Bonds and the remaining portion of the 1995 Bonds.

      The Bonds of 1997 B&C maturing after July 1, 1999 are subject to redemption on or after July 1,
      1999 at the option of the Corporation, either in whole or in part on any date, at a redemption price
      equal to the principal amount of the bonds to be redeemed, together with the interest accrued
      thereon to the date fixed for redemption.

      The Bonds of 1997 B&C are secured by (i) the net revenues of Phases I, II, and III; and (ii)
      amounts in the funds and accounts held by the trustee.

      All assets held by the trustee under the terms of the 1992 Indenture have been classified as
      restricted assets (Note 2).




                                                                                  4/4/2005 11:40:00 AM
United Nations Development Corporation                                                                    9
Notes to Financial Statements

      In January 2004, the Bonds of 1997 B&C were redeemed in connection with the issuance of the
      2004 Refunding Bonds, Series A (Senior Lien). The Corporation recognized a loss of $1,628,764
      in connection with the early redemption of the Bonds of 1997 B&C.

      1997 Refunding Bonds, Series B
      The 1997 Refunding Bonds, Series B were issued in the original amount of $124,825,000.

      Interest is payable semi-annually on January 1 and July 1 at various rates, ranging from 4.20% to
      5.60%. The 1997 Refunding Bonds, Series B were subject to mandatory annual redemption of
      principal in increasing amounts from years 1999 through 2026.

      1997 Refunding Bonds, Series C
      The 1997 Refunding Bonds, Series C were issued in the amount of $37,000,000. The payment
      of principal and interest on these Bonds is subordinated to the payment of principal and interest
      on the 1997 Refunding Bonds, Series B.

      Interest is payable semi-annually on January 1 and July 1 at various rates, ranging from 5.40% to
      5.60%. The 1997 Refunding Bonds, Series C were subject to mandatory annual redemption of
      principal in increasing amounts from years 2012 through 2026.

      Bonds of 1973
      The Bonds of 1973 were issued pursuant to the terms of a trust agreement entered into with
      Citibank, N.A., as trustee, dated May 1, 1973, to pay for the cost of Phase I. At December 31,
      2004 and 2003, $39,150,000 and $40,255,000, respectively, of the Bonds of 1973 remained
      outstanding. In December 1983, the Corporation irrevocably placed $32,360,392 in cash and
      U.S. Treasury obligations in an escrow fund held by U.S. Bank Trust National Association,
      formerly State Street Bank and Trust Company, N.A., (successor trustee to Citibank, N.A.) as
      trustee. Such cash and the principal and interest payments related to the U.S. Treasury
      obligations are to be used solely to satisfy the principal and interest of the Bonds of 1973.
      Consequently, the Bonds of 1973 are considered extinguished and are no longer reported as
      liabilities. The Bonds of 1973 are due to mature on May 1, 2023.

      Maturities of long-term debt

       The principal repayments are due as follows:

       Year ending December 31,                                         Amount
       2007                                                          $ 2,560,000
       2008                                                              2,670,000
       2009                                                              4,285,000
       Thereafter                                                      118,742,500
          Total debt obligation                                        128,257,500
          Less current maturities of long-term debt                           -
          Total long-term debt                                       $ 128,257,500




                                                                                 4/4/2005 11:40:00 AM
United Nations Development Corporation                                                                    10
Notes to Financial Statements

       Interest costs
       The Corporation incurred interest expense of $6,499,394 in 2004 and $7,323,112 in 2003 net of
       capitalized interest costs of $151,900 and $84,715, respectively. Cash paid for interest totaled
       $7,049,436 in 2004 and $7,337,159 in 2003.

       Fair Value of Long-Term Debt
       Based on quoted market prices, the fair value of the long-term debt approximates its carrying
       value. Different assumptions or changes in future market conditions could significantly affect
       estimated fair value.

  4.   Leases
       As Lessee:
       City of New York
       Under a lease agreement, dated August 1, 1972, as amended (the “1972 Lease”), and a lease
       agreement dated May 8, 1981, as amended (the “1981 Lease”), the Corporation leases from the
       City Phase I and the underlying land, Phase II, and Phase III and the underlying land. The lease
       was most recently amended effective January 1, 2003 to amend the calculation of Consolidated
       Surplus. The Corporation continues to occupy and operate the office unit of the space. Rent
       payable to the City under the 1972 Lease, and the 1981 Lease (collectively, the “City Leases”) is
       subordinate to debt service on the 2004 Bonds. The City Leases contain the following provisions:

       a.    The terms of the City Leases will continue until all obligations issued in connection with
             Phases I, II, and III are paid, but not beyond December 18, 2071 and May 7, 2080 for the
             1972 Lease and the 1981 Lease, respectively.

       b.    The City Leases may be terminated at any time by the City provided that the City purchases
             the Corporation’s interests under the City Leases for amounts at least sufficient to pay the
             Corporation’s obligations with respect to Phases I, II, and III.

       c.    The Corporation pays rent equivalent to full real estate taxes on the portions of One and
             Two United Nations Plaza not occupied by the United Nations, missions to the United
             Nations or used as a community facility. Pursuant to a 1994 amendment to the City Leases,
             the Corporation’s rent on account of Three UN Plaza was permanently fixed at $481,000
             annually effective July 1, 1994 through the expiration of the City Leases. Total base rent
             expense was $1,269,683 and $1,258,951 for the years ended December 31, 2004 and 2003,
             respectively.

       d.    Rent is payable only from revenues remaining after payment of operating expenses and
             other obligations, including debt service, of Phases I, II, and III.

       e.    In addition to the amounts described in (c) above, the 1981 Lease obligates the Corporation
             to pay additional rent, subject to Board of Directors’ approval, of an amount equal to ninety
             percent of Consolidated Surplus, as defined, provided that the minimum amount payable
             shall be the greater of $85,000 or the Applicable United Nations Rent Surplus, as defined,
             but in no event more than the Consolidated Surplus for such fiscal year. At its annual
             meeting on April 7, 2005, the Board of Directors set aside a reserve for the entire amount of
             the Consolidated Surplus in the amount of $4,746,314 to fund planning costs.
             Consequently, there is no additional rent payable to the City as of December 31, 2004. In
             connection with fiscal 2003, the Board of Directors elected on April 21, 2004 to reserve
             $4,106,709, the entire amount of the Consolidated Surplus for fiscal 2003. Consequently,
             there was no additional rent payable to the City for 2003.




                                                                                  4/4/2005 11:40:00 AM
United Nations Development Corporation                                                                   11
Notes to Financial Statements



      Phase II Ground Lease
      The Corporation holds a 99-year leasehold on the land underlying Phase II. The lease will
      terminate in 2079. Gross annual rentals totaled $250,000 for each of the years ended December
      31, 2004 and 2003. Annual rental payments of $250,000 are required for each of the next twenty-
      one years and, in the last fifty-four years of the lease term, may be increased based on changes in
      the Consumer Price Index. The Corporation has an option to purchase the land based upon its fair
      market value on the exercise date less the principal amount of the Bond of 1980 (Note 4). This
      option may be exercised at any time between August 1, 2020 and July 31, 2025. At
      December 31, 2004, aggregate future minimum rentals under this lease approximated
      $18,750,000, if the purchase option is not exercised. The current owner of the hotel is obligated
      to pay its share of such ground lease obligation, which currently amounts to $51,000 per annum.

      As Lessor:
      Phase I
      The One United Nations Plaza office unit is leased to third parties, principally the United Nations.
      Certain of these leases contain renewal options to extend the terms of the lease at either
      predetermined fixed rates or future market rates as provided in the lease agreements. The
      remaining terms of these leases range from approximately 1 to 5 years (assuming no lease
      extensions) with fixed minimum rentals, exclusive of operating expense escalations, of
      approximately $8.7 million in 2005, $8.2 million in 2006, $8.1 million in 2007, and $2.0 million
      in 2008.

      Phase II
      The office space portion of Two United Nations Plaza building is leased to third parties,
      principally the United Nations, with the exception of the space used by the Corporation’s
      administrative office and garage operations. Certain of these leases contain renewal options to
      extend the terms of the lease at either predetermined fixed rates or future market rates as provided
      in the lease agreements. The remaining terms of these leases range from approximately 1 to 5
      years (assuming no lease extensions) with fixed minimum rentals, exclusive of operating expense
      escalations, of approximately $9.3 million in 2005, $8.6 million in 2006, $8.0 million in 2007,
      and $2.0 million in 2008.

      The Hotel space at Two United Nations Plaza is leased to a third party hotel operator for a term
      equal to that under the Phase II ground lease. Under the terms of the Hotel lease, the Hotel is
      responsible for its allocable portion of the building operating expenses, including ground lease
      rent.

      Phase III
      All rentable space in Phase III, except for the space used by the residential apartments and the
      Corporation’s garage operations, is leased to UNICEF. In 1994, the Corporation’s lease with
      UNICEF for UNICEF’s space in Phase III was amended. Under the lease amendment,
      UNICEF’s base rent, exclusive of operating expense escalations, was fixed at approximately $5.9
      million annually effective January 12, 1994, and the lease term was extended to 2026. In
      connection with the lease amendment, the City agreed to transfer title to Three UN Plaza to
      UNICEF on expiration of the lease term, without any additional payment from UNICEF, subject
      to UNICEF meeting certain conditions, and the Corporation agreed to transfer to the City its
      ownership interest in a portion of Three UN Plaza. The amended lease with UNICEF is
      accounted for as a capital lease.




                                                                                  4/4/2005 11:40:00 AM
United Nations Development Corporation                                                                 12
Notes to Financial Statements

       Net investment in capital lease
       The components of the net investment in capital lease as of December 31, 2004 and 2003, is as
       follows:

                                                                            December 31,
                                                                        2004            2003

       Total minimum lease payments to be received                 $ 125,262,648      $ 131,088,818
       Less: Unearned income                                          90,499,055         96,131,909
       Less: Current portion of net investment in capital lease          188,544            160,065

       Total net investment in capital lease (long-term)           $   34,575,049     $   34,796,844

       At December 31, 2004 the minimum lease payments for each of the next five years are
       $5,865,958, exclusive of operating expense escalations.

  5.   Retirement Plans
       The Corporation has a Simplified Employee Pension retirement plan (SEP) covering substantially
       all employees. Employees who are at least 21 years of age and have completed one year of
       service are eligible to participate in the plan. The Corporation’s contributions, which are made
       directly to each individual Employee SEP account, range from 12% to approximately 14% of the
       eligible employee’s pay. Contributions to the plan amounted to $151,425 and $127,040 for the
       years ended December 31, 2004 and 2003, respectively.

       During 2004, the Corporation funded a deferred compensation plan under Section 457 of the
       Internal Revenue Code for certain of its employees. Charges to operations for this plan amounted
       to $55,411 and $49,174 for the years ended December 31, 2004 and 2003, respectively.




                                                                                4/4/2005 11:40:00 AM
United Nations Development Corporation                                                                                                                                                                          13
Supplemental Schedule of Phases I, II, and III
Net Revenues in Excess of Debt Service Requirements

                                                                                                                       For the year ended December 31, 2004


                                                                Phase I                             Phase II                           Phase III                              Total


Residential Apartments and Other Income
  Revenues (Note A)                                                                     $     858,335                       $     722,688                       $    1,581,023
  Operating expenses                                                                                 -    $     858,335          (234,144)    $     488,544           (234,144)    $    1,346,879


Office Space
  Revenues and income from capital lease              $ 10,685,429                          11,359,197                          7,503,395                       $ 29,548,021       $
  Operating expenses                                    (4,295,198) $     6,390,231         (4,288,802)        7,070,395        (2,593,590)        4,909,805        (11,177,590)       18,370,431


Parking Garages
  Revenues                                                                                    532,247                             146,443                       $      678,690
  Operating expenses                                                                          (301,950)         230,297          (122,460)           23,983           (424,410)          254,280


Interest Income                                                             140,144                             141,155                              71,518                              352,817


Gross Revenues                                                            6,530,375                            8,300,182                           5,493,850                           20,324,407


General and Administrative Expenses                                        (745,004)                           (720,720)                           (364,768)                           (1,830,492)


Ground Rent                                                                                                    (250,000)                                                                 (250,000)


Interest Expense on the Bonds of 1978 and 1980                                                                 (123,000)                                                                 (123,000)


Real Estate Taxes to the City of New York                                                                      (827,604)                                                                 (827,604)


Base Rent to the City of New York (Note B)                                  (71,263)                           (717,420)                           (481,000)                           (1,269,683)


Net Revenues (Note C)                                                     5,714,108                            5,661,438                           4,648,082                           16,023,628


Debt Service Requirements (Note D)                                        (1,584,327)                         (2,904,600)                         (2,112,436)                          (6,601,363)


Net Revenues in Excess of Debt Service Requirements                  $    4,129,781                       $    2,756,838                      $    2,535,646                       $    9,422,265




                                                      The accompanying notes are an integral part of these financial statements
                                                                                                                                                                                                     As of 03.31.05
United Nations Development Corporation                                                                                                                                                                        14
Supplemental Schedule of Phases I, II, and III
Net Revenues in Excess of Debt Service Requirements

                                                                                                                       For the year ended December 31, 2003


                                                                Phase I                             Phase II                           Phase III                           Total


Residential Apartments and Other Income
  Revenues (Note A)                                                                     $     850,356                       $     682,175                       $ 1,532,531
  Operating expenses                                                                                 -    $     850,356          (206,981)    $     475,194         (206,981)   $ 1,325,550


Office Space
  Revenues and income from capital lease              $ 10,291,509                          10,927,957                          7,335,306                       $ 28,554,772    $
  Operating expenses                                    (4,317,024)   $   5,974,485         (3,901,637)        7,026,320        (2,372,094)        4,963,212    (10,590,755)        17,964,017


Parking Garages
  Revenues                                                                                    495,525                             203,013                       $   698,538
  Operating expenses                                                                          (252,454)         243,071          (126,142)           76,871         (378,596)          319,942


Interest Income                                                             113,995                             113,935                              54,181                            282,111


Gross Revenues                                                            6,088,480                            8,233,682                           5,569,458                        19,891,620


General and Administrative Expenses                                        (736,910)                           (737,925)                           (382,663)                         (1,857,498)


Ground Rent                                                                                                    (250,000)                                                              (250,000)


Interest Expense on the Bonds of 1978 and 1980                                                                 (123,000)                                                              (123,000)


Real Estate Taxes to the City of New York                                                                      (828,396)                                                              (828,396)


Base Rent to the City of New York (Note B)                                  (69,677)                           (708,274)                           (481,000)                         (1,258,951)


Net Revenues (Note C)                                                     5,281,893                            5,586,087                           4,705,795                        15,573,775


Debt Service Requirements (Note D)                                        (2,455,204)                         (4,501,208)                         (3,273,606)                       (10,230,018)


Net Revenues in Excess of Debt Service Requirements                   $   2,826,689                       $    1,084,879                      $    1,432,189                    $    5,343,757




                                                      The accompanying notes are an integral part of these financial statements
                                                                                                                                                                                                   As of 03.31.05
United Nations Development Corporation                                                                15
Notes to Supplemental Schedules

A.   Residential Apartments and Other Income:

     Phase II revenues represent payment from the hotel operator of its proportionate share of ground
     rent, real estate taxes and rent to the city at Two U.N. Plaza.

B.   Base Rent to the City of New York:

     Payments of base rent to the City of New York are subordinate to the Phase I, II, and III debt
     service requirements.

C.   Net Revenues:

     Net revenues include interest income and all operating revenues and expenses, except for
     depreciation, amortization, interest expense and loss on redemption of the Bonds of 1997 B&C.

D.   Debt Service Requirements:

     Debt service requirements include interest and principal on the 1997 Refunding Bonds, Series
     B&C and the 2004 Refunding Bonds, Series A (Senior Lien). The 2004 Refunding Bonds, Series
     A (Senior Lien) does not require any principal payments prior to 2007 and they are subject to
     mandatory annual redemption of principal at increasing amounts through 2026. Debt service
     requirement excludes the early redemption of the 1997 Refunding Bonds, Series B&C during
     2004.

				
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