SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-7265
AMBASE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2962743
(State of incorporation) (I.R.S. Employer Identification No.)
100 PUTNAM GREEN, 3RD FLOOR
GREENWICH, CONNECTICUT 06830-6027
(Address of principal executive offices) (Zip Code)
(203) 532-2000
(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
At September 30, 2001, there were 46,208,519 shares of registrant's common
stock, $0.01 par value per share, outstanding, excluding 126,488 treasury
shares.
AmBase Corporation
Quarterly Report on Form 10-Q
September 30, 2001
CROSS REFERENCE SHEET FOR
PARTS I and II Page
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................................1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........................................10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................................................11
Item 2. Changes in Securities and Use of Proceeds...........................................................12
Item 3. Defaults Upon Senior Securities.....................................................................12
Item 4. Submission of Matters to a Vote of Security Holders.................................................12
Item 5. Other Information...................................................................................12
Item 6. Exhibits and Reports on Form 8-K....................................................................12
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Third Quarter and Nine Months Ended September 30
(Unaudited)
(in thousands, except per share data)
Third Quarter Nine Months
2001 2000 2001 2000
==== ==== ==== ====
Operating expenses:
Compensation and benefits................... $ 762 $ 876 $ 2,472 $ 2,699
Professional and outside services........... 290 223 681 1,582
Insurance................................... 23 12 51 49
Occupancy................................... 33 23 100 69
Other operating............................. 64 37 142 115
-------- -------- -------- --------
1,172 1,171 3,446 4,514
-------- -------- -------- --------
Operating loss.............................. (1,172) (1,171) (3,446) (4,514)
-------- -------- -------- --------
Interest income............................. 432 766 1,745 2,024
Reversal of withholding obligation reserve.. - - 66,388 -
Other income................................ 67 50 166 8,408
-------- -------- -------- --------
Income (loss) before income taxes........... (673) (355) 64,853 5,918
Income tax expense.......................... (44) (44) (154) (154)
-------- -------- -------- --------
Net income (loss)........................... $ (717) $ (399) $ 64,699 $ 5,764
===== ===== ===== =====
Earnings per common share:
Net income (loss) - basic.................. $ (0.02) $ (0.01) $ 1.40 $ 0.12
Net income (loss) - assuming dilution...... (0.02) (0.01) 1.40 0.12
===== ===== ===== =====
Average shares outstanding.................. 46,209 46,209 46,209 46,202
===== ===== ===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
September 30, December 31
2001 2000
(unaudited)
======== =========
Assets
Cash and cash equivalents......................................................... $ 1,456 $ 4,844
Investment securities - held to maturity (market
value $45,619 and $46,595, respectively)....................................... 45,523 46,547
Investment in SDG, Inc. at cost................................................... 1,250 1,250
Other assets...................................................................... 2,856 461
-------- --------
Total assets...................................................................... $ 51,085 $ 53,102
===== =====
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities.......................................... $ 1,224 $ 1,889
Supplemental retirement plan...................................................... 6,520 6,033
Postretirement welfare benefits................................................... 966 1,053
Other liabilities................................................................. 101 90
Litigation and contingency reserves............................................... 1,672 1,746
Withholding obligation reserve.................................................... -- 66,388
-------- --------
Total liabilities................................................................. 10,483 77,199
-------- --------
Commitments and contingencies..................................................... -- --
-------- --------
Stockholders' equity:
Common stock...................................................................... 463 463
Paid-in capital................................................................... 547,940 547,940
Accumulated deficit............................................................... (507,154) (571,853)
Treasury stock.................................................................... (647) (647)
-------- --------
Total stockholders' equity........................................................ 40,602 (24,097)
-------- --------
Total liabilities and stockholders' equity........................................ $ 51,085 $ 53,102
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30
(Unaudited)
(in thousands)
2001 2000
==== ====
Cash flows from operating activities:
Net income........................................................................ $ 64,699 $ 5,764
Adjustments to reconcile net income to net cash provided (used) by operations:
Other assets...................................................................... (8) 38
Accounts payable and accrued liabilities.......................................... (664) (273)
Reversal of withholding obligation reserve........................................ (66,388) --
Litigation and contingency reserves uses.......................................... (74) (353)
Other liabilities................................................................. 411 256
Accretion of discount - investment securities..................................... (1,702) (1,981)
Other, net........................................................................ 37 14
-------- --------
Net cash provided (used) by operating activities.................................. (3,689) 3,465
-------- --------
Cash flows from investing activities:
Maturities of investment securities - held to maturity............................ 60,295 74,965
Purchases of investment securities - held to maturity............................. (57,569) (80,643)
Fixed assets purchase............................................................. (2,434) -
Other, net........................................................................ 9 -
-------- --------
Net cash provided (used) by investing activities.................................. 301 (5,678)
-------- --------
Cash flows from financing activities:
Stock options exercised........................................................... -- 153
-------- --------
Net cash provided by financing activities......................................... -- 153
-------- --------
Net decrease in cash and cash equivalents......................................... (3,388) (2,060)
Cash and cash equivalents at beginning of period.................................. 4,844 2,646
-------- --------
Cash and cash equivalents at end of period........................................ $ 1,456 $ 586
===== =====
Supplemental cash flow disclosures:
Income taxes paid................................................................. $ 177 $ 75
===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization
The accompanying consolidated financial statements of AmBase Corporation and
subsidiaries (the "Company") are unaudited and subject to year-end adjustments.
All material intercompany transactions and balances have been eliminated. In the
opinion of management, the interim financial statements reflect all adjustments,
consisting only of normal recurring adjustments unless otherwise disclosed,
necessary for a fair statement of the Company's financial position and results
of operations. Results for interim periods are not necessarily indicative of
results for the full year. Certain reclassifications have been made to the prior
year consolidated financial statements to conform with the current year
presentation. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP"). The
preparation of financial statements in conformity with GAAP requires management
to make certain estimates and assumptions, that it deems reasonable, 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 such estimates and assumptions.
The Company continues to evaluate a number of possible acquisitions, and is
engaged in the management of its remaining assets and liabilities, including the
contingent and alleged liabilities, as described in Part II - Item 1. The
Company intends to aggressively contest all pending and threatened litigation
and governmental proceedings, as well as pursue all sources for contributions to
settlements. The unaudited interim financial statements presented herein should
be read in conjunction with the Company's consolidated financial statements
filed in its Annual Report on Form 10-K for the year ended December 31, 2000.
The Company's main source of non-operating revenue is interest earned on
investment securities and cash equivalents and rental income on the leased
portion of the building owned by the Company. The Company's management expects
that operating cash needs for the remainder of 2001 will be met principally by
the Company's current financial resources, and the receipt of non-operating
revenue consisting of interest income on investment securities and cash
equivalents and rental income.
Note 2 - Legal Proceedings
The Company has certain alleged liabilities and is a defendant in certain
lawsuits. The accompanying consolidated financial statements do not include
adjustments that might result from an ultimate unfavorable outcome of these
uncertainties. Although the basis for the calculation of the litigation and
contingency reserves are regularly reviewed by the Company's management and
outside legal counsel, the assessment of these reserves includes an exercise of
judgment and is a matter of opinion. At September 30, 2001, the litigation and
contingency reserves were $1,672,000. For a discussion of alleged liabilities
and lawsuits, see Part II - Item 1.
In connection with the liquidation of City Investing Company ("City") the
Company, among others, contractually assumed certain tax liabilities of City,
which, prior to September 1985, owned all the outstanding shares of common stock
of the Company. Other liabilities were assumed by, among others, City Investing
Company Liquidating Trust (the "Trust"). For all periods through 1992, the only
issue that had remained in dispute with the Internal Revenue Service ("IRS") was
with respect to withholding taxes in connection with a Netherlands Antilles
finance subsidiary of City ("Withholding Obligation"). In May 2001 the United
States Tax Court ("Tax Court") ruled in favor of City, holding that City was not
liable for the payment of the withholding taxes. The attorneys in the NV
Withholding Obligation case have informed the Company that the IRS had until
September 24, 2001 to file a Notice of Intention to Appeal, and no such notice
was filed; therefore, in accordance with Section 7481 of the Internal Revenue
Code, the Tax Court's decision is final. See Part I - Item 2 - Financial
Condition for further information.
The Company's management, after consultation, with its accounting, tax and legal
advisors reversed its Withholding Obligation reserve of $66,388,000 during the
quarter ended June 30, 2001. This decision was based upon (i) an analysis of the
favorable ruling in the Tax Court, (ii) the Company's case pending in the United
States District Court for the Southern District of New York against the Trust
(the "City Trust NY Action") (for further information see Part II - Item 1 -
Legal Proceedings, AmBase Corporation v. City Investing Company Liquidating
Trust et al. and the Company's Annual Report on Form 10-K for the year ended
December 31, 2000) and (iii) the $9,500,000, (plus interest), escrow account
which was part of the Company's June 2000 settlement agreement with SF Holdings,
as further discussed in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For a further discussion with regard to the Withholding Obligation proceeding,
see Item 2 - Financial Condition and Part II - Item 1 - Legal Proceedings,
Dispute with Internal Revenue Service over Withholding Obligations (Netherlands
Antilles).
See Part II - Item 1 - Legal Proceedings, for a discussion of Supervisory
Goodwill Litigation.
Note 3 - Cash and Cash Equivalents
Highly liquid investments, consisting principally of funds held in short-term
money market accounts, are classified as cash equivalents.
Note 4 - Investment Securities
Investment securities - held to maturity consist of U.S. Treasury Bills with
original maturities of one year or less and are carried at amortized cost based
upon the Company's intent and ability to hold these investments to maturity.
Investment securities - held to maturity at September 30, 2001 and December 31,
2000 consist of the following:
September 30, 2001 December 31, 2000
===================================== =====================================
Cost or Cost or
Carrying Amortized Fair Carrying Amortized Fair
(in thousands) Value Cost Value Value Cost Value
====== ========== ======= ======== ======== ======
U.S. Treasury Bills $ 45,523 $ 45,523 $ 45,619 $ 46,547 $ 46,547 $ 46,595
======= ======= ====== ====== ====== ======
The gross unrealized gains on investment securities were $96,000 at September
30, 2001 and $48,000 at December 31, 2000.
Other investment securities consist of convertible preferred and/or common stock
in AMDG, Inc., which were purchased through private placements, are classified
as other assets, and are carried at cost which approximates market value;
$350,000 at September 30, 2001 and December 31, 2000.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 5 - Income Taxes
The Company and its 100% owned domestic subsidiaries file a consolidated federal
income tax return. The Company recognizes both the current and deferred tax
consequences of all transactions that have been recognized in the financial
statements, calculated based on the provisions of enacted tax laws, including
the tax rates in effect for current and future years. Net deferred tax assets
are recognized immediately when a more likely than not criterion is met; that
is, unless a greater than 50% probability exists that the tax benefits will not
actually be realized sometime in the future. The Company has calculated a net
deferred tax asset of $27 million as of September 30, 2001 and December 31,
2000, arising primarily from net operating loss carryforwards/carrybacks
("NOL"), alternative minimum tax ("AMT") credits and the excess of book over tax
reserves (not including the anticipated tax effects of NOL's expected to be
generated from the Company's tax basis in Carteret Savings Bank, F.A. and
subsidiaries ("Carteret"), resulting from the election decision, as more fully
described below). A valuation allowance has been established for the entire net
deferred tax asset, as management, at the current time, has no basis to conclude
that realization is more likely than not.
As a result of the Office of Thrift Supervision's December 4, 1992 placement of
Carteret in receivership, under the management of the Resolution Trust
Corporation ("RTC")/Federal Deposit Insurance Corporation ("FDIC"), and proposed
Treasury Reg. ss.1.597-4(g), the Company had previously filed its 1992 and
subsequent federal income tax returns with Carteret disaffiliated from the
Company's consolidated federal income tax return. Based upon the impact of
Treasury Reg. ss.1.597-4(g), which was issued in final form on December 20,
1995, a continuing review of the Company's tax basis in Carteret, and the impact
of prior year tax return adjustments on the Company's 1992 federal income tax
return as filed, the Company decided not to make an election pursuant to final
Treasury Reg. ss.1.597-4(g) to disaffiliate Carteret from the Company's
consolidated federal income tax return effective as of December 4, 1992 (the
"election decision").
The Company has made numerous requests to the RTC/FDIC for tax information
pertaining to Carteret and the resulting successor institution, Carteret Federal
Savings Bank ("Carteret FSB"); however all of the information still has not been
received. Based on the Company's election decision, as described above, and the
receipt of some of the requested information from the RTC/FDIC, the Company has
amended its 1992 consolidated federal income tax return to include the federal
income tax effects of Carteret and Carteret FSB. The Company is still in the
process of amending its consolidated federal income tax returns for 1993 and
subsequent years.
The Company anticipates that, as a result of filing a consolidated federal
income tax return with Carteret FSB, a total of approximately $170 million of
tax NOL's will be generated from the Company's tax basis in Carteret/Carteret
FSB of which $158 million are still available for future use. Based on the
Company's filing of its amended 1992 consolidated federal income tax return to
include the federal income tax effects of Carteret FSB (the "1992 Amended
Return"), approximately $56 million of NOL's are generated for tax year 1992
which expire in 2007, with the remaining approximate $102 million of NOL's to be
generated, based on Carteret FSB tax losses, expiring no earlier than 2008.
These NOL's would be available to offset future taxable income, in addition to
the NOL's as further detailed below.
Based upon the Company's federal income tax returns as filed from 1993 to 2000
(subject to IRS audit adjustments), and excluding the NOL's generated from the
Company's tax basis in Carteret/Carteret FSB, as noted above, at September 30,
2001 the Company has NOL's aggregating approximately $20 million, available to
reduce future federal taxable income which expire if unused beginning in 2009.
The Company's federal income tax returns for years subsequent to 1992 have not
been reviewed by the IRS.
The utilization of NOL's are subject to limitations under U.S. federal income
tax laws. In addition, the Company has approximately $21 million of AMT credit
carry forwards ("AMT Credits"), which are not subject to expiration.
The Company has filed several carryback claims with the IRS (the "Carryback
Claims"), seeking refunds from the IRS of alternative minimum and other federal
income taxes paid by the Company in prior years plus applicable IRS interest.
The Carryback Claims are currently being reviewed by the IRS. The Company can
give no assurances that the Carryback Claims will be allowed by IRS, the final
amount of the refunds, if any, or when they might be received.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which follows, should be read in conjunction with the consolidated
financial statements and related notes, which are contained in Item 1, herein.
FINANCIAL CONDITION
The Company's assets at September 30, 2001 aggregated $51,085,000 consisting
principally of cash and cash equivalents of $1,456,000 and investment securities
of $45,523,000. At September 30, 2001, the Company's liabilities, including
reserves for contingent and alleged liabilities, described in Part II - Item 1,
aggregated $10,483,000. Total stockholders equity was $40,602,000.
In connection with the liquidation of City Investing Company ("City") the
Company, among others, contractually assumed certain tax liabilities of City,
which, prior to September 1985, owned all the outstanding shares of Common Stock
of the Company. Other liabilities were assumed by, among others, City Investing
Company Liquidating Trust (the "Trust"). For all periods through 1992, the only
issue that had remained in dispute between City and the Internal Revenue Service
("IRS") was with respect to withholding obligations in connection with a
Netherlands Antilles finance subsidiary of City (the "Withholding Issue"). The
IRS had contended that the withholding of tax on interest payments were due by
City in connection with City's Netherlands Antilles finance subsidiary for the
years 1979 through 1985 (the "Withholding Obligation"). In May 2001 the United
States Tax Court (the "Tax Court")ruled in favor of City, holding that City was
not liable for the payment of withholding taxes. The attorneys in the
Withholding Obligation case have informed the Company that the IRS had until
September 24, 2001 to file a Notice of Intention to Appeal, and no such notice
was filed; therefore, in accordance with Section 7481 of the Internal Revenue
Code, the Tax Court's decision is final. See Part I - Item 2 - Financial
Condition for further information.
The Company's management, after consultation, with its accounting, tax and legal
advisors reversed its Withholding Obligation reserve of $66,388,000 during the
quarter ended June 30, 2001 which was recorded as other income in the Company's
Consolidated Statement of Operations. This decision was based upon (i) an
analysis of the favorable ruling in the Tax Court, (ii) the Company's case
pending in the United States District Court for the Southern District of New
York against the Trust (the "City Trust NY Action") (for further information see
Part II - Item 1 - Legal Proceedings, AmBase Corporation v. City Investing
Company Liquidating Trust et al. and the Company's Annual Report on Form 10-K
for the year ended December 31, 2000) and (iii) the $9,500,000, (plus interest),
escrow account which was part of the Company's June 2000 settlement agreement
with SF Holdings, as further discussed in the Company's Annual Report on Form
10-K for the year ended December 31, 2000.
For a further discussion, see Part II - Item 1 - Legal Proceedings, Dispute with
Internal Revenue Service over Withholding Obligations (Netherlands Antilles).
At September 30, 2001, the litigation and contingency reserves were $1,672,000.
For a discussion of alleged liabilities, lawsuits and governmental proceedings,
see Part II - Item 1.
The Company has certain alleged liabilities and is a defendant in certain
lawsuits. Based upon an assessment of these proceedings the Company believes the
ultimate outcome of the proceedings will not have a material adverse effect on
its financial condition and results of operations. The accompanying consolidated
financial statements do not include adjustments that might result from an
ultimate unfavorable outcome of these uncertainties. Although the basis for the
calculation of the litigation and contingency reserves are regularly reviewed by
the Company's management and outside legal counsel, the assessment of these
reserves includes an exercise of judgment, and is a matter of opinion. For a
discussion of alleged liabilities and lawsuits see Part II - Item 1.
For the nine months ended September 30, 2001, cash of $3,689,000 was used by
operations, including the payment of prior year accruals and operating expenses,
partially offset by the receipt of interest income. The cash needs of the
Company for the first nine months of 2001 were principally satisfied by interest
income received on investment securities and cash equivalents, and the Company's
current financial resources. Management believes that the Company's cash
resources are sufficient to continue operations for 2001.
For the nine months ended September 30, 2000, cash of $3,465,000 was provided by
operations, as a result of amounts received in connection with the Company's
litigation settlement with SF Holdings, and the receipt of interest income,
partially offset by the payment of prior year accruals and operating expenses.
The Company continues to evaluate a number of possible acquisitions and is
engaged in the management of its remaining assets and liabilities, including the
contingent and alleged liabilities, as described above. Extensive discussions
and negotiations are ongoing with respect to certain of these matters. The
Company intends to aggressively contest all pending and threatened litigation
and governmental proceedings, as well as pursue all sources of contributions to
settlements.
In April 2001 the Company through a wholly-owned subsidiary purchased a 14,000
square feet office building in Greenwich, CT for approximately $2.4 million.
Approximately 2,100 square feet is used by the Company for its executive offices
with the remaining square footage leased to unaffiliated third parties. There
are no material commitments for capital expenditures as of September 30, 2001.
Inflation has had no material impact on the business and operations of the
Company.
Results of Operations
Summarized financial information of the Company for the third quarter and nine
months ended September 30 is as follows:
Third Quarter Nine Months
2001 2000 2001 2000
==== ==== ==== ====
Operating expenses:
Compensation and benefits................... $ 762 $ 876 $ 2,472 $ 2,699
Professional and outside services........... 290 223 681 1,582
Insurance................................... 23 12 51 49
Occupancy................................... 33 23 100 69
Other operating............................. 64 37 142 115
-------- -------- -------- --------
1,172 1,171 3,446 4,514
-------- -------- -------- --------
Operating loss.............................. (1,172) (1,171) (3,446) (4,514)
-------- -------- -------- --------
Interest income............................. 432 766 1,745 2,024
Reversal of withholding obligation reserve.. - - 66,388 -
Other income................................ 67 50 166 8,408
-------- -------- -------- --------
Income (loss) before income taxes........... (673) (355) 64,853 5,918
Income tax expense.......................... (44) (44) (154) (154)
-------- -------- -------- --------
Net income (loss) .......................... $ (717) $ (399) $ 64,699 $ 5,764
===== ===== ===== =====
The Company's main source of non-operating revenue is interest income earned on
investment securities and cash equivalents. The Company's management expects
that operating cash needs for the remainder of 2001 will be met principally by
the Company's current financial resources and the receipt of non-operating
revenue consisting of interest income earned on investment securities and cash
equivalents.
The Company recorded a net loss of $717,000 or $0.02 per share for the third
quarter ended September 30, 2001. For the nine month period ended September 30,
2001 the Company recorded net income of $64,699,000 or $1.40 per share. The nine
month period ended September 30, 2001 includes non-recurring other income
representing the reversal of the Withholding Obligation reserve as further
discussed in Financial Condition, above. Excluding this other income the Company
would have reported a net loss of $1,689,000, for the nine months ended
September 30, 2001.
The Company recorded a net loss of $399,000 or $0.01 per share for the third
quarter ended September 30, 2000. For the nine months ended September 30, 2000
the Company recorded net income of $5,764,000 or $0.12 per share. The nine month
period ended September 30, 2000 includes $8,250,000 of other income representing
net proceeds received in connection with the Company's litigation settlement
with SF Holdings. Excluding this other income the Company would have reported a
net loss of $2,486,000 for the nine months ended September 30, 2000.
Compensation and benefits decreased to $762,000 and $2,472,000 in the third
quarter and nine months ended September 30, 2001, respectively, compared with
$876,000 and $2,699,000 in the respective 2000 periods. The decreases are
primarily due to a decrease in employment levels and a related decrease in the
accrual for 2001 incentive compensation, which is not guaranteed, as compared to
prior year accruals.
Professional and outside services expenses were $290,000 in the third quarter
ended September 30, 2001, and $681,000 in the nine months ended September 30,
2001, compared to $223,000 and $1,582,000 in the respective 2000 periods. The
decreased amounts for the nine month period in 2001 compared with the year 2000
period is due to a decrease in Supervisory Goodwill litigation expenses which
were incurred in the year 2000 periods.
Occupancy expenses increased to $33,000 and $100,000 in the third quarter and
nine months ended September 30, 2001, respectively compared with $23,000 and
$69,000 in the respective 2000 periods principally due to the costs of office
relocation and costs relating to building ownership. Occupancy expenses have not
been reduced by tenant reimbursements or rental income which is included with
other income in the Consolidated Statement of Operations.
Interest income in the third quarter and nine months ended September 30, 2001
decreased to $432,000 and $1,745,000 respectively, from $766,000 and $2,024,000
in the respective 2000 periods. The decreases were attributable to a decreased
yield on investments held in 2001 compared with 2000.
Other income of $67,000 and $166,000 for the third quarter and nine months ended
September 30, 2001 respectively, is attributable to rental income earned by the
Company during the period of building ownership and the continued collection of
a receivable previously considered uncollectible. Other income of $8,408,000 in
the nine months ended September 30, 2000, respectively is principally
attributable to $8,250,000 of net proceeds received in June 2000, relating to
the SF Holdings litigation settlement as noted above. The additional other
income in the 2000 periods is due to the continued collection of a receivable
previously considered uncollectible.
As further discussed in Financial Condition above the nine month period ended
September 30, 2001 includes a $66,388,000 Withholding Obligation reserve
reversal which is reflected as other income in the Consolidated Statement of
Operations.
The income tax provisions of $44,000 and $154,000 in the third quarter and nine
months ended September 30, 2001 and September 30, 2000, respectively, are
primarily attributable to provisions for state taxes. Income taxes applicable to
operating income (loss) are generally determined by applying the estimated
effective annual income tax rates to pretax income (loss) for the year-to-date
interim period. Income taxes applicable to unusual or infrequently occurring
items are provided in the period in which such items occur.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company holds short-term investments as a source of liquidity. The Company's
interest rate sensitive investments at September 30, 2001 and December 31, 2000
with maturity dates of less than one year consist of the following:
2001 2000
========================== ======================
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands) ---------- ------- -------- ------
U.S. Treasury Bills......................... $ 45,523 $ 45,619 $ 46,547 $ 46,595
======== ======= ======= =======
Weighted average interest rate.............. 3.40% 5.80%
======= ======
The Company's current policy is to minimize the interest rate risk of its
short-term investments by investing in U.S. Treasury Bills with maturities of
less than one year. There were no significant changes in market exposures or the
manner in which interest rate risk is managed during the period.
STOCKHOLDER INQUIRIES
Stockholder inquiries, including requests for the following: (i) change of
address; (ii) replacement of lost stock certificates; (iii) Common Stock name
registration changes; (iv) Quarterly Reports on Form 10-Q; (v) Annual Reports on
Form 10-K; (vi) proxy material; and (vii) information regarding stock holdings,
should be directed to:
American Stock Transfer and Trust Company
59 Maiden Lane
New York, NY 10038
Attention: Shareholder Services
(800) 937-5449 or (718) 921-8200 Ext. 6820
In addition, the Company's public reports, including Quarterly Reports on Form
10-Q, Annual Reports on Form 10-K and Proxy Statements, can be obtained through
the Securities and Exchange Commission EDGAR Database over the Internet, at
www.sec.gov.
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The information contained in Item 8 - Note 11 in AmBase's Annual Report on Form
10-K for the year ended December 31, 2000 and in AmBase's Quarterly Reports on
Form 10-Q for the quarterly periods ending March 31, 2001 and June 30, 2001 are
incorporated by reference herein and the defined terms set forth below have the
same meaning ascribed to them in those reports. There have been no material
developments in such legal proceedings, except as set forth below.
(a) The Company is or has been a defendant in a number of lawsuits or
proceedings.
Marshall Manley v. AmBase Corporation. The Court has fixed November 5, 2001 as
the date for the new trial. Manley seeks reimbursement of certain alleged
payments he made to the Trustee in the bankruptcy proceedings of the law firm of
Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey of approximately $2.4
million plus interest arguing that he served at such firm at the request of the
Company.
Dispute with Internal Revenue Service over Withholding Obligations (Netherlands
Antilles).
On May 24, 2001 the Tax Court ruled in favor of City, holding that City is not
liable for the payment of withholding taxes on interest payments in connection
with City's Netherlands Antilles finance subsidiary for the years 1979 through
1985.
The attorneys in the NV Withholding Obligation Case have informed the Company
that the IRS had until September 24, 2001 to file a Notice of Intention to
Appeal, and no such notice was filed; therefore, in accordance with Section 7481
of the Internal Revenue Code, the Tax Court's decision is final.
The actions described above are in various stages. Although the Company's
management believes it is unlikely, if the aggregate of any such judgments were
to exceed the resources available, these matters could have a material adverse
effect on the Company's financial condition and results of operations. Due to
the nature of these proceedings, the Company and its counsel are unable to
express any opinion as to their probable outcome.
(b) Other
AmBase Corporation v. City Investing Company Liquidating Trust, et al. - New
York Court Action. On October 26, 2001, a pre-trial conference was held before
Judge Stanton, during which he authorized the Company to supplement its prior
opposition to the pending motion to dismiss. Those supplemental memoranda and
affidavits are to be filed no later than November 26, 2001. Thereafter, the
Trust shall have an opportunity to reply. No assurance can be given regarding
the ultimate outcome of this litigation.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Does not apply.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Does not apply.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Does not apply.
Item 5. OTHER INFORMATION
Does not apply.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Form 8-K
Registrant filed one Current Report on Form 8-K prior on the filing of
this Form 10-Q for the quarter ended September 30, 2001 as follows:
Date Event Reported
August 27, 2001 Correction to Internal Revenue Service
Notice of Intention to Appeal Date
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMBASE CORPORATION
By JOHN P. FERRARA
Vice President, Chief Financial Officer and Controller
(Principal Financial and
Accounting Officer)
Date: November 14, 2001