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, 2005
[ ] 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
---
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, 2005 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)
- ------------------------------------------------------------------------------------------------------------------
Third Quarter Nine Months
(Amounts in thousands, except per unit data) 2005 2004 2005 2004
- ------------------------------------------------------------------------------------------------------------------
(Losses) gains on dispositions of assets, net $(15) $(38) $83 $(311)
Interest, dividend and other income 277 239 1,760 790
- ------------------------------------------------------------------------------------------------------------------
Total income 262 201 1,843 479
Administrative expenses 74 1,559 1,211 1,757
- ------------------------------------------------------------------------------------------------------------------
Net income /(loss) $188 $(1,358) $632 $(1,278)
- ------------------------------------------------------------------------------------------------------------------
Net income/(loss) per unit $0.01 $(0.03) $0.02 $(0.03)
- ------------------------------------------------------------------------------------------------------------------
Outstanding units 38,979 38,979 38,979 38,979
- ------------------------------------------------------------------------------------------------------------------
Balance Sheets
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
September 30, December 31,
($ in thousands) 2005 2004
- ------------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $443 $56
U.S. Treasuries 4,437 81,649
Restricted funds 4 4
Mortgage receivable, net of deferred gain 502 1,004
- -------------------------------------------------------------------------------------------------------------------
Total assets $5,386 $82,713
- ------------------------------------------------------------------------------------------------------------------
Liabilities and trust equity
Trust equity $5,386 $82,713
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and trust equity $5,386 $82,713
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
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CITY INVESTING COMPANY LIQUIDATING TRUST
Statements of Cash Flows
Nine Months ended September 30
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------
($ in thousands) 2005 2004
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income/(loss) $632 $(1,278)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Gain on sale of real estate (184) -
Net amortization of premium/(discount) of investment securities 100 615
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by/(used for) operating activities 548 (663)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of real estate 686 -
Maturities/sales of investment securities 402,225 392,660
Purchases of investment securities (325,113) (391,934)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 77,798 726
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash distribution to Unit Holders (77,959) -
- ------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (77,959) -
- ------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 387 63
Cash and cash equivalents at beginning of period 56 78
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $443 $141
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Statement of Changes in Trust Equity
Nine Months ended September 30
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
($ in thousands) 2005 2004
- ------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $82,713 $84,104
Net income/(loss) 632 (1,278)
Cash distribution to Unit Holders (77,959) -
- ------------------------------------------------------------------------------------------------------------------
Balance at September 30 $5,386 $82,826
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
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CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements
(Unaudited)
Note 1 - Organization
The City Investing Company Liquidating Trust (the "Trust") was created on
September 25, 1985, pursuant to an Agreement and Declaration of Trust ("Trust
Agreement") by and between City Investing Company ("City") and the three
individuals then serving as trustees of the Trust ("Trustees"). The Trust
Agreement is governed by the laws of the State of Delaware.
On September 25, 1985, pursuant to a Plan of Complete Liquidation and
Dissolution approved by stockholders of City on December 12, 1984, City
transferred all its remaining assets and liabilities ("Trust Estate") to the
Trust to assure compliance with Section 337 of the Internal Revenue Code. The
sole purpose of the Trust is to liquidate the Trust Estate in a manner
calculated to conserve and protect the Trust Estate, and to collect and
distribute to the beneficiaries the income and proceeds therefrom in as prompt
and orderly a fashion as possible after the payment of, or provision for,
expenses and liabilities.
The common stock transfer books of City were permanently closed on September 25,
1985, and the holders of record of common stock of City as of the close of
business on that date became holders of units of beneficial interest in the
Trust on the basis of one unit of beneficial interest for each share of common
stock of City held on September 25, 1985. After September 25, 1985, the
outstanding certificates that formerly represented shares of common stock of
City are deemed to evidence the same number of units of beneficial interest in
the Trust.
The Trust Agreement, signed on September 25, 1985, set forth a time limit of
three years for the disposition of the Trust's assets and distribution to the
unit holders unless a later termination was required by the Trustees. As a
result of the protracted nature of certain litigation and other claims asserted
against the Trust, the Trustees extended the time limit of the Trust's existence
a number of times, most recently to September 25, 2006.
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, 2004. The December 31, 2004 financial information included herein
has been extracted from the Trust's audited financial statements on Form 10-K.
Note 2 - Basis of Accounting
Basis of presentation: The accompanying financial statements have been prepared
in accordance with Federal Income Tax Reporting Principles ("FITR").
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.
For information concerning the financial statements prepared on accounting
principles generally accepted in the United States of America, reflecting an
entity in liquidation, and a reconciliation of the Trust's FITR to accounting
principles generally accepted in the United States of America, reflecting an
entity in liquidation, see Note 8.
Valuation of assets and liabilities: The Trust Equity balance on September 25,
1985 was established at an amount equivalent to the number of units of
beneficial interest outstanding (38,979,372) multiplied by the average of the
high and low trading prices of such units on the first day of trading ($3.1875),
or an aggregate of $124.2 million. For FITR purposes, the fair market value of
each asset other than cash and cash equivalents was determined by that asset's
proportionate share of the Trust Equity increased by
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CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements (continued)
(Unaudited)
accounts payable and decreased by cash and cash equivalents at September 25,
1985. The proportionate share of each of these assets was determined by the
estimated value of such Trust asset in relation to the estimated value of all of
the Trust assets other than cash and cash equivalents. In determining the
estimated value of Trust assets, the Trustees evaluated, where appropriate, such
factors as City's historical carrying values, expected amounts and dates of
realization, prevailing interest rates, available market prices and restrictions
with respect to disposition. Assets acquired after September 25, 1985, are
generally carried at cost.
Income taxes: For Federal income tax purposes, the September 25, 1985 transfer
of assets and liabilities to the Trust and distribution to stockholders of units
in the Trust was treated as a distribution of assets and liabilities by City
to its stockholders and a contribution by the stockholders of such net assets
to the Trust in return for units.
The Trust is treated as a grantor trust and not as a corporation. Accordingly,
any income or loss of the Trust will not be taxable to the Trust but will be
taxable to the unit holders as if the unit holders had themselves realized the
income or loss from their undivided interests in Trust assets.
Losses on dispositions of assets: Losses on dispositions of assets, net of
gains, includes expenses attributable to litigation exposures that relate to
periods before the liquidation of City.
Net income per unit: Net income per unit is calculated by dividing net income of
the Trust by the number of outstanding Units of Beneficial Interest.
Cash and cash equivalents: The Trust considers all investments in money market
funds as cash equivalents.
Note 3 - Investment Securities
Investment securities, all of which mature within one year, consist of United
States Treasuries and are carried at original cost, net of premium amortization
recorded at interest collection dates. The fair value of United States
Treasuries is based on quoted market prices. Investment securities consist of
the following:
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September 30, 2005 December 31, 2004
----------------------------------------- ----------------------------------------
Carrying Amortized Fair Carrying Amortized Fair
($ in thousands) Value Cost Value Value Cost Value
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasuries $4,437 $4,437 $4,428 $81,649 $81,649 $82,046
- -------------------------------------------------------------------------------------------------------------------
The gross unrealized gains/(losses) on investment securities amounted to the
following:
- -------------------------------------------------------------------------------------------------------------------
September 30, December 31,
($ in thousands) 2005 2004
- -------------------------------------------------------------------------------------------------------------------
Gross unrealized gains $- $397
- -------------------------------------------------------------------------------------------------------------------
Gross unrealized (losses) (9) -
- -------------------------------------------------------------------------------------------------------------------
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CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements (continued)
(Unaudited)
Note 4 - Restricted Funds
Restricted funds at September 30, 2005 and December 31, 2004 represent a rent
deposit of $4,000.
Note 5 - Mortgage Receivable
In February 2000, the Trust sold 39 percent of certain real estate acreage
located in Texas City, Texas 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 Texas City 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 2001, 2002, 2003 and 2005, cash
payment installments of $960,000, $907,000, $850,000 and $800,000, respectively,
were received which resulted in a recognized long-term gain, net of expenses, of
$183,000 in each of the first three years and $184,000 in 2005 and net interest
income of $274,000, $222,000, $165,000 and $114,000, respectively. The deferred
gain of $235,000 at September 30, 2005 and $469,000 at December 31, 2004, is
netted against the gross mortgage receivable of $737,000 at September 30, 2005
and $1,473,000 at December 31, 2004. 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 $235,000, due in June 2006, will
be subject to expenses estimated to be $51,000.
Note 6 - Litigation and Other Contingent Liabilities
In accordance with the Trust Agreement, the Trust has assumed the obligation,
where required, to discharge certain litigation and other contingent liabilities
of City Investing Company. As a result, the Trust is subject to possible claims
by certain third parties, including:
State of California, v. Lake Oroville Area Public Utility District Claim (Case
No. 124772). On or about May 26, 2000, the State of California Department of
Parks and Recreation filed a complaint in the Superior Court for the County of
Butte against the Lake Oroville Area Public Utility District ("LOAPUD"), Kelly
Ridge Property Sales ("KRPS") and the owners of certain real estate in the Kelly
Ridge residential subdivision ("Property Owners") asserting, among others,
quantum meruit claims against KRPS and the Property Owners seeking reimbursement
for expenses incurred in providing sewer service to KRPS and the Property Owners
from and after 1996. The State of California alleged that Southern California
Financial Corporation ("SoCal") had been the developer of the land in the Kelly
Ridge subdivision. SoCal was at one time a subsidiary of City Investing Company
("City"). The State alleged that KRPS is engaged in real estate development
activities, that KRPS owns many of the properties which the State alleged SoCal
had under development, that KRPS is engaged in the development of the Kelly
Ridge residential properties and that KRPS has sold many lots to the Property
Owners. The State of California alleged that it has incurred and will continue
to incur unreimbursed expenses for the operation, maintenance and repair of
sewer facilities providing sewer service to the Kelly Ridge properties.
KRPS filed a cross claim seeking indemnity from the Trust for any liability or
expenses KRPS may incur as a result of the claims filed by the State of
California or cross claims filed by LOAPUD and/or the Property Owners. Recently,
the State of California and LOAPUD have amended their complaints to assert
claims against the Trustees as successors in interest to SoCal. The litigation
was recently stayed to permit the State of California and LOAPUD an opportunity
to mediate.
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CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements (continued)
(Unaudited)
Other Matters: The Trust has been advised by The Travelers Indemnity Company
that it may have a claim against the Trust under an insurance policy issued to
City Investing Company covering general liability, workers' compensation and
certain other risks insured for the years 1974, 1975 and 1976. The amount of
premiums and claims paid, estimates of future losses and the terms of the policy
are currently under investigation. Although a settlement agreement has not
been executed, an agreement in principle has been reached whereby the Trust
will pay $303,000 to resolve this matter.
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
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 7 - Future Distributions of Trust Assets
On August 15, 2005, the Trust paid a cash distribution of $2.00 per unit to Unit
Holders of record on August 8, 2005.
Pending resolution of the litigation and claims by certain third parties, see
Note 6 to Financial Statements - Litigation and Other Contingent Liabilities,
the Trust is unable to make a further liquidating distribution.
Note 8 - Differences between Federal Income Tax Reporting Principles and
Accounting Principles Generally Accepted in the United States of America,
Reflecting an Entity in Liquidation
These financial statements have been prepared in accordance with Federal Income
Tax Reporting Principles ("FITR") which differ in certain respects with those
principles and practices that the Trust would have followed had its financial
statements been prepared in accordance with accounting principles generally
accepted in the United States of America, reflecting an entity in liquidation
("GAAPLIQ").
The material differences between FITR and GAAPLIQ, which are relevant to the
Trust's Statements of Operations, Balance Sheets, Statements of Cash Flows and
Statements of Changes in Trust Equity are summarized as follows:
a. Accounting for Investment Securities
For FITR, Investment Securities are carried at original cost, net of
premium/(discount) amortization. This amortization is included in income
when interest is collected. For GAAPLIQ, all of the Trust's securities
would be reflected at net realizable value; thus, any changes in net
realizable value are recognized through income. For FITR, interest income
is recorded when collected; for GAAPLIQ, a ratable portion of interest
income is recognized at each period end.
b. Accounting for Prepaid Expenses
For FITR, expenses, other than premium/(discount) amortization discussed in
a. above, are recorded when paid. For GAAPLIQ, the recoverable portion of
an expense paid is recognized as an asset. For FITR, no expenses are
recorded as prepaid. For GAAPLIQ, a prepaid asset is recognized at each
period end for a ratable portion of expenses that relate to subsequent
periods.
-7-
CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements (continued)
(Unaudited)
c. Accounting for Mortgage Receivable and Mortgage Interest
Receivable
Upon the sale of the Texas City Property in the year 2000, a Mortgage
Receivable was recorded. For FITR, the income, net of collection expenses,
attributable to the five annual installment amounts is recorded when the
principal and interest are collected. For GAAPLIQ, the full gain on the
sale attributable to the Texas City Property would have been recognized in
the year 2000. For GAAPLIQ, a ratable portion of Mortgage Interest
Receivable, net of collection expenses, attributable to each period would
have been amortized into income at each period end. For GAAPLIQ, the Texas
City Mortgage is reflected at net realizable value.
d. Accounting for Accrued Liabilities
For FITR, accrued liabilities, other than premium/(discount) amortization,
discussed in a. above, are recorded when paid. For GAAPLIQ, accrued
liabilities are recognized as a liability in the period the assets are
purchased or the services are incurred.
e. Accounting for Loss Contingencies
For FITR, loss contingencies are recorded when paid. For GAAPLIQ, loss
contingencies are recorded when contingencies are reasonably estimable and
probable of resulting in a liability. The Trustees currently believe that
there are no contingencies that are probable of resulting in a material
liability to the Trust.
f. The effect of the different treatments described above on the
Trust's financial statements would be as follows:
STATEMENTS OF OPERATIONS
Accounting Principles Generally Accepted in the United States of America,
Reflecting an Entity in Liquidation
Third Quarter and Nine Months ended September 30
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
Third Quarter Nine Months
(Amounts in thousands, except per unit data) 2005 2004 2005 2004
- --------------------------------------------------------------------------------------------------------------------
Net income/(loss) per Federal Income Tax
Reporting Principles (FITR): $188 ($1,358) $632 ($1,278)
To adjust from FITR to accounting principles
generally accepted in the United States of
America, reflecting an entity in liquidation
(GAAPLIQ):
(Losses)/gains on dispositions of assets, net (307) 48 (881) 31
Interest, dividend and other income 14 29 (50) (86)
Administrative expenses (14) 117 177 57
- --------------------------------------------------------------------------------------------------------------------
Net loss for the period per GAAPLIQ $(119) ($1,164) $(122) ($1,276)
- --------------------------------------------------------------------------------------------------------------------
Net loss per unit per GAAPLIQ $0.00 ($0.03) $0.00 ($0.03)
====================================================================================================================
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CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements (continued)
(Unaudited)
BALANCE SHEETS
Accounting Principles Generally Accepted in the United States of America,
Reflecting an Entity in Liquidation
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
September 30, December 31,
($ in thousands) 2005 2004
- ------------------------------------------------------------------------------------------------------------------
Total assets per Federal Income Tax Reporting Principles (FITR) $5,386 $82,713
To adjust from FITR to accounting principles generally accepted in the
United States of America, reflecting an entity in liquidation (GAAPLIQ):
U.S. Treasuries (9) 397
Prepaid expenses 90 130
Mortgage receivable, net of deferred gain 254 538
- ------------------------------------------------------------------------------------------------------------------
Total assets per GAAPLIQ $5,721 $83,778
- ------------------------------------------------------------------------------------------------------------------
Total liabilities per Federal Income Tax Reporting Principles (FITR)
To adjust from FITR to GAAPLIQ: $0 $0
Accrued liabilities 356 332
- ------------------------------------------------------------------------------------------------------------------
Total liabilities per GAAPLIQ 356 $332
- ------------------------------------------------------------------------------------------------------------------
Trust equity per Federal Income Tax Reporting Principles (FITR) $5,386 $82,713
- ------------------------------------------------------------------------------------------------------------------
To adjust from FITR to GAAPLIQ:
Net (loss)/income adjustments from Statements of Operations for GAAPLIQ (754) 234
- ------------------------------------------------------------------------------------------------------------------
Adjustments for prior periods for GAAPLIQ 733 499
- ------------------------------------------------------------------------------------------------------------------
Trust equity per GAAPLIQ $5,365 $83,446
==================================================================================================================
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CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements (continued)
(Unaudited)
STATEMENTS OF CASH FLOWS
Accounting Principles Generally Accepted in the United States of America,
Reflecting an Entity in Liquidation
Nine Months ended September 30
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
($ in thousands) 2005 2004
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income/(loss) per Federal Income Tax Reporting Principles (FITR): $632 ($1,278)
Cash flows from operating activities per accounting principles
generally accepted in the United States of America, reflecting
an entity in liquidation (GAAPLIQ): (754) 2
Adjustments to reconcile net (loss)/income to net cash provided by operating
activities to GAAPLIQ:
Uncollected interest income on investment securities - 182
Amortization of premium of investment securities 100 490
Net fair market value adjustment of amortized cost of investment securities 407 (4)
Changes in other assets and liabilities:
Prepaid expenses 40 (90)
Mortgage receivable 49 29
Accrued liabilities 74 6
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by/(used for) operating activities in GAAPLIQ 548 (663)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of real estate 686 -
Maturities/sales of investment securities 402,225 392,660
Purchases of investment securities (325,113) (391,934)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 77,798 726
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash distribution to Unit Holders (77,959) -
- ------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (77,959) -
- ------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 387 63
Cash and cash equivalents at beginning of period 56 78
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $443 $141
- ------------------------------------------------------------------------------------------------------------------
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CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements (continued)
(Unaudited)
STATEMENTS OF CHANGES IN TRUST EQUITY
Accounting Principles Generally Accepted in the United States of America,
Reflecting an Entity in Liquidation
Nine Months ended September 30
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------
($ in thousands) 2005 2004
- ------------------------------------------------------------------------------------------------------------------
Balance at beginning of year per Federal Income Tax
Reporting Principles (FITR): $82,713 $84,104
Net loss per GAAPLIQ (122) (1,276)
Cash distribution to Unit Holders (77,959) -
Adjustments for prior periods for GAAPLIQ 733 499
- ------------------------------------------------------------------------------------------------------------------
Balance at September 30 $5,365 $83,327
==================================================================================================================
Note 9 - Notification of Proposed Nasdaq Delisting
Nasdaq has notified the Trust that since the Trust is not in compliance with
Nasdaq's minimum listing requirements, the Trust may be delisted from the
SmallCap Market. Because of the reduced assets of the Trust following the cash
distribution paid on August 15, 2005, the Trustees do not expect compliance with
the listing requirements to be reestablished; however, the Trustees intend to
use reasonable efforts to take advantage of any available rights to extend
compliance periods or to appeal any notification of delisting.
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 net income of $188,000 ($0.01 per unit) in the third quarter
of 2005 and $632,000 ($0.02 per unit) in the nine-month period ended September
30, 2005, compared with net losses of $1,358,000 ($0.03 per unit) and $1,278,000
($0.03 per unit) in the corresponding 2004 periods. The reported (losses) gains
on the dispositions of assets, net, reflect losses of $15,000 in the third
quarter and gains of $83,000 in the nine-month period ended September 30, 2005,
compared to losses of $38,000 and $311,000 in the corresponding 2004 periods.
Legal fees and a payment in settlement of litigation exposure relating to issues
attributable to periods before the liquidation of City are reflected as losses
on disposition of assets, net, and amounted to $15,000 in the third quarter of
2005 and $101,000 in the nine-month period ended September 30, 2005, compared to
$38,000 and $311,000 in the corresponding 2004 periods. 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 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, 2003 and 2005,
cash payment installments of $907,000, $850,000 and
-11-
$800,000, were received which resulted in a recognized long-term gain, net of
expenses, of $183,000, $l83,000 and $184,000, respectively and net interest
income of $222,000, $165,000 and $114,000, respectively. The deferred gain of
$235,000 at September 30, 2005 and $469,000 at December 31, 2004, is netted
against the gross mortgage receivable of $737,000 at September 30, 2005 and
$1,473,000 at December 31, 2004. 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 $235,000 will be subject to
expenses estimated to be $51,000.
Interest, dividend and other income, principally consisting of interest earned
on the investment of cash equivalents and investment securities, was $277,000
and $1,760,000 in the third quarter and nine months ended September 30, 2005,
and $239,000 and $790,000 in the corresponding 2004 periods. The increase in the
2005 periods was primarily due to higher interest rates in the 2005 versus 2004
periods. Administrative expenses were $74,000 and $1,211,000 for the third
quarter and nine months of 2005, compared with $1,559,000 and $1,757,000 for the
comparable 2004 periods. In 2004, the increase in administrative expenses was
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.
On August 15, 2005, the Trust paid a cash distribution of $2.00 per unit to Unit
Holders of record on August 8, 2005. At September 30, 2005, the Trust had cash
and cash equivalents and U. S. Treasuries of $4,880,000. The Trust is involved
in a claim by The Travelers Indemnity Company which is expected to be settled
by the Trust's payment of $303,000 to resolve the matter. The Trustees believe
that its remaining 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.
PART II. OTHER INFORMATION
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, 2004 is incorporated by reference
herein. Except as set forth in Note 6 to the Financial Statements - Litigation
and Other Contingent Liabilities herein, there have been no material
developments in such legal proceedings subsequent to the date of that
information.
Pending resolution of the litigation and claims by certain third parties, see
Note 6 to Financial Statements - Litigation and Other Contingent Liabilities,
the Trust is unable to make a further liquidating distribution.
-12-
ITEM 2. CHANGES IN SECURITIES
Trust Units of Beneficial Interest. On July 29, 2005, 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, 2006, 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 filed a Current Report on Form 8-K during the quarter ended
September 30, 2005.
Date Event Reported
---- --------------
July 29, 2005 On July 29, 2005, the Registrant issued a press release
announcing a cash distribution of $2.00 per unit to
Unit Holders of record on August 8, 2005.
The foregoing summary of the July 29, 2005 press release
is qualified in its entirety by the complete text of
such document, a copy of which was filed as an Exhibit
to the Form 8-K.
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
Date: October 28, 2005 By: /s/ LESTER J. MANTELL, Trustee
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