FORM 10-Q/A
Amendment No. 1
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 June 30, 2002
[ ] 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 _____
At June 30, 2002 there were 38,979,372 Trust Units of Beneficial Interest
outstanding.
EXPLANATORY NOTE
This Amendment No. 1 to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2002 is being filed solely to include as Exhibit
99.1 the certifications required by Section 906 of the Sarbanes-Oxley Act of
2002, which became effective on July 30, 2002. No other revisions have been made
to the Registrant's financial statements or any other disclosure contained in
such Quarterly Report.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CITY INVESTING COMPANY LIQUIDATING TRUST
Statements of Operations
Second Quarter and Six Months ended June 30
(Unaudited)
===================================================================================================================
Second Quarter Six Months
(In thousands, except per unit data) 2002 2001 2002 2001
===================================================================================================================
Losses on dispositions of assets, net ($30) ($1) ($419) ($170)
Interest, dividend and other income 649 1,853 1,440 2,888
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Total income 619 1,852 1,021 2,718
Administrative expenses 74 92 220 148
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Net income $545 $1,760 $801 $2,570
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Net income per unit $0.01 $0.05 $0.02 $ 0.07
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Outstanding units 38,979 38,979 38,979 38,979
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Balance Sheets
==============================================================================
(Unaudited)
June 30, December 31,
($ in thousands) 2002 2001
==============================================================================
Assets
Cash and cash equivalents $65 $187
U.S. Treasuries 80,873 79,449
Restricted funds 6 5
Investments 27 27
Mortgage receivable, net of deferred gain 1,506 2,008
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Total assets $82,477 $81,676
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Liabilities and trust equity
Trust equity $82,477 $81,676
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Total liabilities and trust equity $82,477 $81,676
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See accompanying notes to financial statements.
CITY INVESTING COMPANY LIQUIDATING TRUST Statements of
Cash Flows Six Months ended June 30
(Unaudited)
===========================================================================
($ in thousands) 2002 2001
===========================================================================
Cash flows from operating activities:
Net income $801 $2,570
Adjustments to reconcile net income to
net cash used for operating activities:
Gain on sale of real estate (183) (183)
Gain on sale of stock (29) -
Amortization of premium of investment securities 707 -
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Net cash provided by operating activities 1,296 2,387
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Cash flows from investing activities:
Proceeds from sale of real estate 685 685
Proceeds from sale of stock 29 -
Sales/maturities of investment securities 39,992 37,868
Purchases of investment securities (42,123) (40,909)
Restricted funds (1) -
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Net cash used for investing activities (1,418) (2,356)
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Net (decrease) increase in cash and cash equivalents (122) 31
Cash and cash equivalents at beginning of year 187 14
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Cash and cash equivalents at end of period $65 $45
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Statements of Changes in Trust Equity
Six Months ended June 30
(Unaudited)
===========================================================================
($ in thousands) 2002 2001
===========================================================================
Balance at beginning of period $81,676 $76,339
Net income 801 2,570
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Balance at June 30 $82,477 $78,909
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See accompanying notes to financial statements.
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.
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; and
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 legal fees attributable
to issues that relate to periods before the liquidation of City Investing
Company ("City").
Note 4 - Trust Agreement
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 which existed on September 25, 1985. Note 5 -
Investment Securities
Investment securities consist of U.S. Treasuries and are carried at original
cost, net of premium amortization. The fair value of U.S. Treasuries is based on
quoted market prices. Investment securities consist of the following:
===================================================================================================================
June 30, 2002 December 31, 2001
-------------------------------------- --------------------------------------
Carrying Amortized Fair Carrying Amortized Fair
($ in thousands) Value Cost Value Value Cost Value
===================================================================================================================
U.S. Treasuries $80,873 $80,873 $81,650 $79,449 $79,449 $80,481
===================================================================================================================
The gross unrealized gains on investment securities amounted to the following:
==============================================================================
June 30, December 31,
($ in thousands) 2002 2001
==============================================================================
Gross unrealized gains $777 $1,032
==============================================================================
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CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements (continued)
(Unaudited)
Note 6 - Restricted Funds
Restricted funds at June 30, 2002 and December 31, 2001 represent a rent deposit
of $6,000 and $5,000, respectively.
Note 7 - Investments
Investments are as follows:
============================================================================
June 30, December 31,
($ in thousands) 2002 2001
============================================================================
Oklahoma Energy Corp. $27 $27
============================================================================
The Trust holds 310,810 shares of Oklahoma Energy Corp. common stock, which are
carried at their tax basis. At June 30, 2002 and December 31, 2001, the fair
market value of the Oklahoma Energy stock, based on quoted market prices, was
$310.
Note 8 - 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. In June 2001, the first of the five annual installments, $960,000 in
cash, was received, which resulted in a recognized long-term gain, net of
expenses, of $183,000 and net interest income of $274,000. In June 2002, the
second of the five annual installments, $907,000 in cash, was received, which
resulted in a recognized long-term gain, net of expenses, of $183,000 and net
interest income of $222,000. The deferred gain of $704,000 at June 30, 2002 and
$938,000 at December 31, 2001, is reflected as a reduction to the mortgage
receivable of $2,210,000 at June 30, 2002 and $2,946,000 at December 31, 2001.
Note 9 - 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 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, including:
AmBase Corporation v. City Investing Company Liquidating Trust, et al. (01 Civ.
0771): On January 30, 2001, AmBase Corporation ("AmBase") filed a Complaint in
the United States District Court for the Southern District of New York claiming
that the Trust was primarily liable for certain potential tax liabilities of
City and seeking to recover expenses incurred by AmBase in defending against
those liabilities in the Tax Court of the United States. Although a subsequent
decision by the Tax Court concluding that City was not liable for the taxes in
question has mooted any claim for reimbursement of the tax liability, AmBase's
claim seeking recovery of its expenses remains at issue. A virtually identical
suit by AmBase against the Trust in the Delaware Chancery Court was dismissed on
statute-of-limitations grounds on January 3, 2001. On January 11, 2002, Judge
Louis Stanton granted the Trust's motion for dismissal of this action based on
the statute of
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CITY INVESTING COMPANY LIQUIDATING TRUST
Notes to Financial Statements (continued)
(Unaudited)
limitations. AmBase has appealed the dismissal of its action to the United
States Court of Appeals for the Second Circuit (02-7230) where briefs have been
filed on behalf of both parties.
AmBase Corporation v. City Investing Company Liquidating Trust, et al. (01 Civ.
10761): An action was brought against AmBase Corporation by Mr. Marshall Manley,
who had served as AmBase's Chief Executive Officer, seeking indemnification for
certain liabilities alleged to arise from Mr. Manley's settlement agreement with
AmBase. Mr. Manley secured a jury verdict and judgment of $1.8 million in the
first trial of his claim. Judge Robert Ward vacated that judgment and ordered a
new trial which resulted in a jury verdict for AmBase. Mr. Manley has appealed
that decision. On November 29, 2001, AmBase commenced an action against the
Trust in the United States District Court for the Southern District of New York
to recover its expenses in defending against Mr. Manley's claims. Should Mr.
Manley prevail in his appeal and Mr. Manley's prior judgment for $1.8 million be
reinstated, the Trust anticipates that AmBase would also seek to recover from
the Trust any amounts paid by it to Mr. Manley. The Trust moved for summary
judgment on the grounds that neither City nor the Trust are liable for Mr.
Manley's breach of contract claim against AmBase. On July 9, 2002, Judge Ward
granted the Trust's motion for summary judgment and dismissed AmBase's claims
against the Trust.
Maytag Corporation v. Rheem Manufacturing Company v. City Investing Company, et
al. (Civ. Action 1-01- 0137-22): Maytag Corporation ("Maytag") has sued Rheem
Manufacturing Company ("Rheem") in the United States District Court for the
District of South Carolina, Aiken Division, seeking to recover environmental
remediation expenses for which Maytag is liable under the Comprehensive
Environmental Response, Compensation and Liability Act because of ownership by a
subsidiary of Maytag of the Admiral Home Appliances Super Fund Site in
Williston, South Carolina ( the "Admiral Site"). In its Complaint against Rheem,
Maytag claimed that Rheem was liable for a share of the remediation expenses
because of Rheem's prior ownership of the Admiral Site. On October 23, 2001,
Rheem filed a Third Party Complaint against City Investing Company ("City"),
alleging that City, as owner of the stock of first and second-tier subsidiaries
which conducted manufacturing operations at the Admiral Site, was liable to
reimburse Rheem for some or all of Rheem's liability. The Trust was added as a
Third Party Defendant in an amended pleading. The Trust has moved to dismiss the
Third Party Complaint against City and the Trust for lack of in personam
jurisdiction and for failure to state a cause of action. Recently Maytag filed a
Motion for Partial Summary Judgment against Rheem in this proceeding seeking a
determination that Rheem is responsible for approximately 90% of the ultimate
cost of remediation. The amount of these remediation costs is unknown at this
time but could be substantial. It is likely that Rheem's claims against City and
the Trust will not be resolved for some period of time. While the Trust has been
advised by its counsel that the Trust is not liable for environmental
remediation expenses related to the Admiral Site, no assurance can be given as
to the outcome of this litigation at this time.
Lease Commitment. Rather than renewing its prior lease at 99 University Place,
the Trust has leased office space at 853 Broadway, Suite 1607, New York, NY
10003-4703 with a savings of one third of annual rental expense. The new
five-year lease can be cancelled after two years without penalty in the event of
the liquidation of the Trust. Minimum annual lease expense will be approximately
$24,000 during the first year of the lease, escalating to approximately $27,000
during the last year of the lease.
Note 10 - Future Distributions of Trust Assets
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Pending resolution of possible claims by the Environmental Protection Agency and
other third parties, see Note 9 to Financial Statements - Litigation and Other
Contingent Liabilities, the Trust is unable to make any dividend payments or
liquidation distributions.
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, amounts are reflected in the financial statements
when amounts are received or paid.
The Trust recorded net income of $545,000 ($0.01 per unit) in the second quarter
of 2002 and net income of $801,000 ($0.02 per unit) in the six-month period
ended June 30, 2002, compared to net income of $1,760,000 ($0.05 per unit) and
net income of $2,570,000 ($0.07 per unit) in the corresponding 2001 periods. The
reported losses on the dispositions of assets, net, reflect losses of $30,000 in
the second quarter and $419,000 in the six-month period of 2002 as compared to
$1,000 and $170,000 in the respective 2001 periods, attributable to an increase
in legal fees relating to issues attributable to periods before the liquidation
of City. 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. In June 2001, the first of the five annual installments,
$960,000 in cash, was received, which resulted in a recognized long-term gain,
net of expenses, of $183,000 and net interest income of $274,000. In June 2002,
the second of the five annual installments, $907,000 in cash, was received,
which resulted in a recognized long-term gain, net of expenses, of $183,000 and
net interest income of $222,000. The deferred gain of $704,000 at June 30, 2002
and $938,000 at December 31, 2001, is reflected as a reduction to the mortgage
receivable of $2,210,000 at June 30, 2002 and $2,946,000 at December 31, 2001.
In 1985, City Investing Company purchased a group annuity contract from The
Prudential Insurance Company of America (Prudential). Upon the demutualization
of Prudential, the Trust received 885 shares of Prudential Financial Inc. As the
Trust had a $0 basis in this asset, all of the $29,000 proceeds received upon
the sale of these shares is reported as long term capital gain.
Interest, dividend and other income, principally consisting of interest earned
on the investment of cash equivalents and investment securities, was $649,000
and $1,440,000 in the second quarter and six months ended June 30, 2002, and
$1,853,000 and $2,888,000 in the corresponding 2001 periods. The decrease in the
2002 periods compared to 2001 is attributable to overall lower interest rates in
2002 versus 2001 and the timing of the receipt of interest payments due to a
shift in 2001 from U.S. Treasury Bills, which paid interest upon maturity, to
U.S. Treasury Notes, which pay interest semi-annually. Administrative expenses
were $74,000 and $220,000 for the second quarter and six months of 2002,
compared with $92,000 and $148,000 for the comparable 2001 periods. In 2002, the
increase was essentially due to an increase in legal expenses. Rather than
renewing its prior lease at 99 University Place, the Trust has leased office
space at 853 Broadway, Suite 1607, New York, NY 10003-4703 with a savings of one
third of annual rental expense. The new five-year lease can be cancelled after
two years without penalty in the event of the liquidation of the Trust. Minimum
annual lease expense will be approximately $24,000 during the first year of the
lease, escalating to approximately $27,000 during the last year of the lease.
At June 30, 2002, the Trust had cash and cash equivalents and U. S. Treasuries
of $80,938,000. The Trustees believe that such cash resources and investment
-6-
securities are sufficient to meet all anticipated liquidity requirements.
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, 2001 is incorporated by reference
herein. Except as set forth in Note 9 to 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 possible claims by the Environmental Protection Agency and
other third parties, see Note 9 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 July 30, 2002, 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, 2003, 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:
1. Action taken by Trustees under City Investing Company Liquidating
Trust Agreement dated July 30, 2002.
99.1. Certification of 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 June 30, 2002.
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.
Date: August 14, 2002
CITY INVESTING COMPANY LIQUIDATING TRUST
By: LESTER J. MANTELL
---------------------------
Trustee