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, 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
(State of organization)

853 Broadway, Suite 1607
New York, New York
(Address of principal executive offices)

13-6859211
(I.R.S. Employer Identification No.)

10003-4703
(Zip Code)

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 September 30, 2002 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

(In thousands, except per unit data)

2002

2001

2002

2001

Losses on dispositions of assets, net

$(308)

$(3)

$(727)

$(173)

Interest, dividend and other income

826

1,137

2,266

4,025

Total income

518

1,134

1,539

3,852

Administrative expenses

54

43

274

191

Net income

$464

$1,091

$1,265

$3,661

Net income per unit

$0.01

$0.02

$0.03

$0.09

Outstanding units

38,979

38,979

38,979

38,979

Balance Sheets

($ in thousands)

(Unaudited)
September 30,
2002

December 31,
2001

Assets

Cash and cash equivalents
U.S. Treasuries
Restricted funds
Investments
Mortgage receivable, net of deferred gain

$172
81,232
4
27
1,506

$187
79,449
5
27
2,008

Total assets

$82,941

$81,676

Liabilities and trust equity
Trust equity

$82,941

$81,676

Total liabilities and trust equity

$82,941

$81,676

See accompanying notes to financial statements.

CITY INVESTING COMPANY LIQUIDATING TRUST
Statements of Cash Flows
Nine Months ended September 30
(Unaudited)

($ in thousands)

2002

2001

Cash flows from operating activities:
Net income

$1,265

$3,661

Adjustments to reconcile net income to net cash
  provided by (used for) operating activities:

Gain on sale of real estate
Gain on sale of stock
Amortization of premium of investment securities

(183)
(29)
1,523

(183)
-
-

Net cash provided by operating activities

2,576

3,478

Cash flows used for investing activities:
Proceeds from sale of real estate
Proceeds from sale of stock
Maturities/sales of investment securities
Purchases of investment securities
Restricted funds, net

 
685
29
59,321
(62,627)
1

 
685
-
56,099
(60,269)
(1)

Net cash used for investing activities

(2,591)

(3,486)

Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period

(15)
187

(8)
14

Cash and cash equivalents at end of period

$172

$6

($ in thousands)

2002

2001

Balance at beginning of period
Net income

$81,676
1,265

$76,339
3,661

Balance at September 30

$82,941

$80,000

See accompanying notes to financial statements.

 

 

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 - 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 which is recorded at interest collection dates. The fair value of U.S. Treasuries is based on quoted market prices. Investment securities consist of the following:

September 30, 2002

December 31, 2001

($ in thousands)

U.S. Treasuries

The gross unrealized gains on investment securities amounted to the following:

 

($ in thousands)

September 30,
2002

December 31,
2001

Gross unrealized gains

$1,158

$1,032

Note 5 - Restricted Funds

Restricted funds at September 30, 2002 and December 31, 2001 represent a rent deposit of $4,000 and $5,000, respectively.

Note 6 - Investments

Investments are as follows:

($ in thousands)

 
September 30,
2002

 
December 31,
2001

The Trust holds 310,810 shares of Oklahoma Energy Corp. common stock, which are carried at their tax basis. At September 30, 2002 and December 31, 2001, the fair market value of the Oklahoma Energy stock, based on quoted market prices, was $31 and $310, 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. 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 September 30, 2002 and $938,000 at December 31, 2001, is reflected as a reduction to the mortgage receivable of $2,210,000 at September 30, 2002 and $2,946,000 at December 31, 2001. It is projected that the deferred gain of $704,000 will be subject to expenses estimated to be $154,000.

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 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 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 and argument is scheduled for November 7, 2002.

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. AmBase filed a motion for reconsideration of its dismissal which Judge Ward denied on August 16, 2002. AmBases's failure to appeal Judge Ward's decision by the time required effected an abandonment of this lawsuit.

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 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.

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 $464,000 ($0.01 per unit) in the third quarter of 2002 and net income of $1,265,000 ($0.03 per unit) in the nine-month period ended September 30, 2002, compared with $1,091,000 ($0.02 per unit) and a net income of $3,661,000 ($0.09 per unit) in the corresponding 2001 periods. The reported gains (losses) on the dispositions of assets, net, reflect losses of $308,000 and $727,000 in the third quarter and nine-month periods of 2002 as compared to losses of $3,000 and $173,000 in the respective 2001 periods. The increase in such losses consists principally of defending legal proceedings relating 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 September 30, 2002 and $938,000 at December 31, 2001, is reflected as a reduction to the mortgage receivable of $2,210,000 at September 30, 2002 and $2,946,000 at December 31, 2001. It is projected that the deferred gain of $704,000 will be subject to expenses estimated to be $154,000.

In 1985, City Investing Company purchased a group annuity contract from The Prudential Insurance Company of America (Prudential). Upon the 2002 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 $826,000 and $2,266,000 in the third quarter and nine months ended September 30, 2002, and $1,137,000 and $4,025,000 in the corresponding 2001 periods. The decrease in the 2002 periods compared to 2001 is attributable to 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 $54,000 and $274,000 for the third quarter and nine months of 2002, compared with $43,000 and $191,000 for the comparable 2001 periods. In 2002, the increase was essentially due to an increase in legal expenses.

At September 30, 2002, the Trust had cash and cash equivalents and U. S. Treasuries of $81,404,000. The Trustees believe that such cash resources and investment securities are sufficient to meet all anticipated liquidity requirements.

ITEM 4.

CONTROLS AND PROCEDURES

 

Within the 90 days prior to the date of 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-14. Based upon that evaluation, the Trustees concluded that the Trust's internal disclosure controls and procedures are effective in timely alerting them to material information relating to the Trust required to be included in the Trust's periodic SEC filings. Nor have there 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, 2001 is incorporated by reference herein. Except as set forth in Note 8 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 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 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:

    99.1. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

    99.2. Certification Pursuant to Section 302(a) 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, 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.

CITY INVESTING COMPANY LIQUIDATING TRUST

Date:   October 16, 2002

By:  

 

LESTER J. MANTELL
Trustee

 

Exhibit 99.1

Certification Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of the CITY INVESTING COMPANY LIQUIDATING TRUST, a Delaware Trust (the "Trust") for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lester J. Mantell, the functional equivalent of the Chief Executive Officer and Chief Financial Officer, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) the information contained in the Report fairly presents, in all material respects the financial condition and results of operations of the Trust.

The foregoing certification is incorporated solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act of 2002 and is not intended to be used for any other purposes.

Dated:   October 16, 2002

By:  

Lester J. Mantell, Trustee

 

Exhibit 99.2

Certification Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

I, Lester J. Mantell, the functional equivalent of the Chief Executive Officer and Chief Financial Officer, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of the City Investing Company Liquidating Trust;

2.   Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.   I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:

a)   designed such disclosure controls and procedures to ensure that material information relating to the registrant, is made known to me by others, particularly during the period in which this quarterly report is being prepared;

b)   evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)   presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date;

5.   I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of registrant's trustees:

a)   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)   any fraud, whether or not material, that involves individuals who have a significant role in the registrant's internal controls; and

6.   I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

Dated:   October 16, 2002

By:  

Lester J. Mantell, Trustee