FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _______ to
Commission File Number 0-13881
CITY INVESTING COMPANY LIQUIDATING TRUST
(Exact name of registrant as specified in its charter)
Delaware 13-6859211
(State of organization) (I.R.S. Employer Identification No.)
853 Broadway, Suite 1607 10003-4703
New York, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 473-1918
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
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
At September 30, 2004 there were 38,979,372 Trust Units of Beneficial Interest
outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CITY INVESTING COMPANY LIQUIDATING TRUST
Statements of Operations
Third Quarter and Nine Months ended September 30
(Unaudited)
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Third Quarter Nine Months
(Amounts in thousands, except per unit data) 2004 2003 2004 2003
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(Losses) gains on dispositions of assets, net $(38) $(39) $(311) $60
Interest, dividend and other income 239 264 790 1,192
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Total income 201 225 479 1,252
Administrative expenses 1,559 47 1,757 245
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Net income $(1,358) $178 $(1,278) $1,007
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Net income per unit $(0.03) $0.01 $(0.03) $0.03
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Outstanding units 38,979 38,979 38,979 38,979
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Balance Sheets
(Unaudited)
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September 30, December 31,
($ in thousands) 2004 2003
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Assets
Cash and cash equivalents $141 $78
U.S. Treasuries 81,650 82,991
Restricted funds 4 4
Investments 27 27
Mortgage receivable, net of deferred gain 1,004 1,004
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Total assets $82,826 $84,104
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Liabilities and trust equity
Trust equity $82,826 $84,104
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Total liabilities and trust equity $82,826 $84,104
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See accompanying notes to financial statements.
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CITY INVESTING COMPANY LIQUIDATING TRUST
Statements of Cash Flows
Nine Months ended September 30
(Unaudited)
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($ in thousands) 2004 2003
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Cash flows from operating activities:
Net income (loss) $(1,278) $1,007
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on sale of real estate - (183)
Amortization of premium of investment securities 615 1,042
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Net cash (used for) provided by operating activities (663) 1,866
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Cash flows from investing activities:
Proceeds from sale of real estate - 685
Maturities/sales of investment securities 392,660 60,305
Purchases of investment securities (391,934) (62,497)
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Net cash provided by (used for) investing activities 726 (1,507)
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Net increase in cash and cash equivalents 63 359
Cash and cash equivalents at beginning of period 78 158
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Cash and cash equivalents at end of period $141 $517
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Statement of Changes in Trust Equity
Nine Months ended September 30
(Unaudited)
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($ in thousands) 2004 2003
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Balance at beginning of period $84,104 $83,180
Net income (1,278) 1,007
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Balance at September 30 $82,826 $84,187
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See accompanying notes to financial statements.
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CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements
(Unaudited)
Note 1 - Organization
The accompanying financial statements for the City Investing Company Liquidating
Trust (the "Trust") are unaudited. In the opinion of the Trustees, the interim
financial statements reflect all adjustments necessary for a fair presentation
of the financial position and income and expenses of the Trust as prepared on a
Federal income tax basis. Results for interim periods are not necessarily
indicative of results for the full year. The unaudited interim financial
statements presented herein should be read in conjunction with the Trust's
financial statements filed in its annual report on Form 10-K for the year ended
December 31, 2003. The December 31, 2003 financial information included herein
has been extracted from the Trust's audited financial statements on Form 10-K.
Note 2 - Basis of Accounting
The accompanying financial statements have been prepared on the basis of
accounting used for Federal income tax purposes. Accordingly, certain revenue
and the related assets are recognized when received rather than when earned;
certain expenses are recognized when paid rather than when the obligation is
incurred; and assets are reflected at their tax basis.
Note 3 - Gains (Losses) on Dispositions of Assets
Gains (losses) on dispositions of assets, net, include expenses attributable to
litigation exposures that relate to periods before the liquidation of City
Investing Company ("City").
Note 4 - Investment Securities
Investment securities, all of which mature within one year, consist of U.S.
Treasuries and are carried at original cost, net of premium amortization
recorded at interest collection dates. The fair value of U.S. Treasuries is
based on quoted market prices. Investment securities consist of the following:
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September 30, 2004 December 31, 2003
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Carrying Amortized Fair Carrying Amortized Fair
($ in thousands) Value Cost Value Value Cost Value
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U.S. Treasuries $81,650 $81,650 $81,660 $82,991 $82,991 $83,053
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The gross unrealized gains/(losses) on investment securities amounted to the
following:
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September 30, December 31,
($ in thousands) 2004 2003
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Gross unrealized gains $10 $68
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Gross unrealized (losses) - (6)
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Note 5 - Restricted Funds
Restricted funds at September 30, 2004 and December 31, 2003 represent a rent
deposit of $4,000.
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CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements (continued)
(Unaudited)
Note 6 - Investments
Investments are as follows:
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September 30, December 31,
($ in thousands) 2004 2003
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Oklahoma Energy Corp. $27 $27
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The Trust holds 310,810 shares of Oklahoma Energy Corp. common stock, which are
carried at their tax basis. At September 30, 2004 and December 31, 2003, the
fair market value of the Oklahoma Energy stock, based on the average of quoted
market prices, was $311 and $31, respectively.
Note 7 - Real Estate
In February 2000, the Trust sold 39 percent of certain real estate acreage for
$2,410,000 in cash, which resulted in a recognized long-term capital gain, net
of expenses, of $610,000. In May 2000, the Trust sold its remaining real estate
acreage for $478,000 in cash and a non-recourse promissory note of $3,683,000,
payable in five equal annual installments plus interest at 8 percent. The May
2000 sale resulted in a recognized long-term capital gain, net of expenses, of
$171,000 and deferred gain of $1,173,000. The deferred gain of $1,173,000 was
recorded as a reduction to the $3,683,000 mortgage receivable. In June 2002 and
2003, cash payment installments of $907,000 and $850,000, were received which
resulted in a recognized long-term gain, net of expenses, of $183,000 in each of
the years and net interest income of $222,000 and $177,000, respectively. The
deferred gain of $469,000 at September 30, 2004 and December 31, 2003, is netted
against the gross mortgage receivable of $1,473,000 at September 30, 2004 and
December 31, 2003. A one-year extension of the non-recourse promissory note to
pay only interest in 2004 and principal and interest in 2005 and 2006 was
requested by the mortgagor and was approved by the holders of the mortgage. In
June 2004, net interest income of $110,000 was received. It is projected that
the remaining deferred gain of $469,000 will be subject to expenses estimated to
be $102,000.
Note 8 - Litigation and Other Contingent Liabilities
In accordance with the Trust Agreement, the Trust has assumed the obligation to
make payments, where required, to discharge certain litigation and other
contingent liabilities of City Investing Company which existed at September 25,
1985, or which have subsequently arisen. The Trust is subject to possible claims
by the United States Environmental Protection Agency and other third parties.
Lease Commitment. The Trust has leased office space at 853 Broadway, Suite 1607,
New York, NY 10003-4703 since July 1, 2002. The five-year lease can be cancelled
after two years without penalty in the event of the liquidation of the Trust.
Base annual lease expense beginning July 1, 2002, was approximately $24,000
during the first year of the lease, escalating to an estimated $27,000 during
the last year of the lease.
Note 9 - Future Distributions of Trust Assets
Pending resolution of possible claims by the Environmental Protection Agency and
other third parties, see Note 8 to Financial Statements - Litigation and Other
Contingent Liabilities, the Trust is unable to make any dividend payments or
liquidation distributions.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
It is difficult to compare amounts in comparable periods, as the financial
statements of the Trust are prepared on the basis of accounting used for Federal
income tax purposes; that is, certain amounts are reflected in the financial
statements when such amounts are received or paid.
The Trust recorded a net loss of $1,358,000 ($0.03 per unit) in the third
quarter of 2004 and a net loss of $1,278,000 ($0.03 per unit) in the nine-month
period ended September 30, 2004, compared with net income of $178,000 ($0.01 per
unit) and net income of $1,007,000 ($0.03 per unit) in the corresponding 2003
periods. The reported gains (losses) on the dispositions of assets, net, reflect
losses of $38,000 in the third quarter and $311,000 in the nine-month period of
2004 as compared to losses of $39,000 and gains of $60,000 in the respective
2003 periods. Legal fees relating to issues attributable to periods before the
liquidation of City are reflected as losses on dispositions of assets, net and
amounted to $38,000 in the third quarter of 2004 and legal fees and a payment in
settlement of litigation exposure were $311,000 in the nine-month period ended
September 30, 2004 compared to legal fees of $39,000 and $123,000 in the
corresponding 2003 periods. In June 2003, a cash payment installment of $850,000
was received in respect of a prior sale of real estate which resulted in a
recognized long-term gain, net of expenses, of $183,000 and net interest income
of $177,000. A deferred gain of $469,000 at September 30, 2004 and December 31,
2003, is netted against a gross mortgage receivable of $1,473,000 at September
30, 2004 and December 31, 2003. A one-year extension of the non-recourse
promissory note to pay only interest in 2004 and principal and interest in 2005
and 2006 was requested by the mortgagor and was approved by the holders of the
mortgage. In June 2004, net interest income of $110,000 was received. It is
projected that the remaining deferred gain of $469,000 will be subject to
expenses estimated to be $102,000.
Interest, dividend and other income, principally consisting of interest earned
on the investment of cash equivalents and investment securities, was $239,000
and $790,000 in the third quarter and nine months ended September 30, 2004, and
$264,000 and $1,192,000 in the corresponding 2003 periods. The decreases in the
2004 periods were primarily attributable to lower interest rates in 2004 versus
2003 periods. Administrative expenses were $1,559,000 and $1,757,000 for the
third quarter and nine months of 2004, compared with $47,000 and $245,000 for
the comparable 2003 periods. In 2004, the increases were due to insurance
premium expenses for environmental liability coverage for a ten-year period and
professional liability coverage through October 25, 2006 in addition to six-year
run-off coverage to be effective on the date the Trust is liquidated.
At September 30, 2004, the Trust had cash and cash equivalents and U. S.
Treasuries of $81,791,000. The Trustees believe that such cash resources and
investment securities are sufficient to meet all anticipated liquidity
requirements.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Trust carried out an
evaluation, under the supervision and with the participation of the Trust's
management, including the Trustee who is the functional equivalent of the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Trust's internal disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15. That Rule requires that such controls and
procedures assure that information required to be included in the Trust's
periodic SEC filings is recorded, processed, summarized and reported within the
time periods specified by the rules and forms. Based upon that evaluation, the
Trustees concluded that the Trust's internal disclosure controls and procedures
are effective in assuring that information required to be disclosed by the Trust
in its periodic SEC filings is accurate and communicated to the Trust's
management in order to allow timely decisions regarding required disclosure.
There have not been any significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of such evaluation.
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PART II. OTHER INFORMATION
In May 2004, Eben W. Pyne resigned his position as Trustee, having served the
Trust since its September 25, 1985 inception. Charles R. Carson, investment
banker and former Treasurer of City Investing Company from 1978 to 1985 has
accepted an appointment as successor Trustee.
ITEM 1. LEGAL PROCEEDINGS
The information contained under Legal Proceedings in the Trust's Annual Report
on Form 10-K for the year ended December 31, 2003 is incorporated by reference
herein. For information concerning a Settlement Agreement resolving all claims
asserted in the third-party complaint brought by Rheem Manufacturing Company
against the Trust in Maytag Corporation v. Rheem Manufacturing Company v. City
Investing Company, et al. (Civ. Action 1-01-0137-22) in the United States
District Court for the District of South Carolina, see Note 8 to Financial
Statements - Litigation and Other Contingent Liabilities contained in the
Trust's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2004.
Pending resolution of possible claims, see Note 8 to Financial Statements -
Litigation and Other Contingent Liabilities, the Trust is unable to make any
dividend payments or liquidation distributions.
ITEM 2. CHANGES IN SECURITIES
Trust Units of Beneficial Interest. On August 3, 2004, the Trustees amended the
Trust Agreement to extend the existence of the Trust (and thereby the existence
of the Trust Units) until the earlier of (a) the complete distribution of the
Trust Estate or (b) September 25, 2005, unless an earlier termination is
required by the applicable laws of the State of Delaware or by the action of the
Beneficiaries as provided in Section 4.2 of the Trust Agreement or a later
termination is required by the Trustees pursuant to Section 6.2 (q) of the Trust
Agreement.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31. Certification Pursuant to Section 302(a) of the Sarbanes-Oxley Act of
2002.
32. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
The Registrant was not required to file a Current Report on Form 8-K during
the quarter ended September 30, 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
CITY INVESTING COMPANY LIQUIDATING TRUST
By: /s/ Lester J. Mantell
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Date: November 5, 2004 Lester J. Mantell, Trustee
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