10-Q 1 a36400.txt CITY INVESTING COMPANY LIQUIDATING TRUST 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, 2003 [ ] 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 September 30, 2003 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)

--------------------------------------------------------------------------------------------------------------------- ~~Second~~Third Quarter ~~Six~~Nine Months ($In in thousands, except per unit data) 2003 2002 2003 2002 --------------------------------------------------------------------------------------------------------------------- ~~Gains~~ (~~losses~~Losses) gains on dispositions of assets, net $~~101~~ (39) $30(308) $9960 ($~~419~~(727) Interest, dividend and other income ~~522~~264 ~~649~~826 ~~928~~ 1,~~440~~192 2,266 --------------------------------------------------------------------------------------------------------------------- Total income ~~623~~225 ~~619~~518 1,~~027~~252 1,~~021~~539 Administrative expenses 7347 7454 ~~198~~245 ~~220~~274 --------------------------------------------------------------------------------------------------------------------- Net income $~~550~~178 $~~545~~464 $~~829~~1,007 $~~801~~1,265 --------------------------------------------------------------------------------------------------------------------- Net income per unit $0.01 $0.01 $0.0203 $0.0203 --------------------------------------------------------------------------------------------------------------------- Outstanding units 38,979 38,979 38,979 38,979 ---------------------------------------------------------------------------------------------------------------------

Balance Sheets

------------------------------------------------------------------------------------------------------------------ (Unaudited) ~~June~~September 30, December 31, ($ in thousands) 2003 2002 ------------------------------------------------------------------------------------------------------------------ Assets Cash and cash equivalents $75517 $158 U.S. Treasuries 82,~~899~~635 81,485 Restricted funds 4 4 Investments 27 27 Mortgage receivable, net of deferred gain 1,004 1,506 ------------------------------------------------------------------------------------------------------------------ Total assets $84,~~009~~187 $83,180 ------------------------------------------------------------------------------------------------------------------ Liabilities and trust equity Trust equity $84,~~009~~187 $83,180 ------------------------------------------------------------------------------------------------------------------ Total liabilities and trust equity $84,~~009~~187 $83,180 ------------------------------------------------------------------------------------------------------------------

See accompanying notes to financial statements. -2- CITY INVESTING COMPANY LIQUIDATING TRUST Statements of Cash Flows Nine Months ended September 30 (Unaudited)

------------------------------------------------------------------------------------------------------------------- ($ in thousands) 2003 2002 ------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $~~829~~1,007 $~~801~~1,265 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of real estate (183) (183) Gain on sale of stock - (29) Amortization of premium of investment securities ~~674~~1,042 ~~707~~1,523 ------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,~~320~~866 12,~~296~~576 ------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sale of real estate 685 685 Proceeds from sale of stock - 29 Maturities/sales of investment securities 4060,~~580~~305 3959,~~992~~321 Purchases of investment securities (4262,~~668~~497) (4262,~~123~~627) Restricted funds, net - (1) ------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (1,~~403~~507) (12,~~418~~591) ------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents ~~(83)~~359 (~~122~~15) Cash and cash equivalents at beginning of ~~year~~period 158 187 ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $75517 $65172 -------------------------------------------------------------------------------------------------------------------

Statement of Changes in Trust Equity Nine Months ended September 30 (Unaudited)

See accompanying notes to financial statements. -3- 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 - 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:

------------------------------------------------------------------------------------------------------------------- ~~June~~Audited September 30, 2003 December 31, 2002 -------------------------------------- -------------------------------------- Carrying Amortized Fair Carrying Amortized Fair ($ in thousands) Value Cost Value Value Cost Value ------------------------------------------------------------------------------------------------------------------- U.S. Treasuries $82,~~899~~635 $82,~~899~~635 $8382,~~708~~764 $81,485 $81,485 $81,886 ------------------------------------------------------------------------------------------------------ ~~The gross unrealized gains on investment securities amounted to the following:~~ ------------------------------------------------------------------------------------------------------ June 30, December 31, ($ in thousands) 2003 2002 ------------------------------------------------------------------------------------------------------ Gross unrealized gains $809 $401 ------------------------------------------------------------------------------------------------------

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

~~Investments are as follows:~~ ------------------------------------------------------------------------------------------------------------------ ~~June~~Audited September 30, December 31, ($ in thousands) 2003 2002 ------------------------------------------------------------------------------------------------------------------ ~~Oklahoma~~Gross ~~Energy~~unrealized ~~Corp.~~gains $27129 $27401 ------------------------------------------------------------------------------------------------------------------

Note 5 - Restricted Funds Restricted funds at September 30, 2003 and December 31, 2002 represent a rent deposit of $4,000. -4- CITY INVESTING COMPANY LIQUIDATING TRUST Notes to Financial Statements (continued) (Unaudited) Note 6 - Investments

The Trust holds 310,810 shares of Oklahoma Energy Corp. common stock, which are carried at their tax basis. At September 30, 2003 and December 31, 2002, the fair market value of the Oklahoma Energy stock, based on quoted market prices, was $311 and $9,324, 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 gains of $469,000 at September 30, 2003 and $704,000 at December 31, 2002, are netted against the gross mortgage receivable of $1,473,000 at September 30, 2003 and $2,210,000 at December 31, 2002. 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 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 April 3, 2003, the United States Court of Appeals for the Second Circuit (Docket No. 02-7230) affirmed the District Court's dismissal of this action commenced by AmBase Corporation against the Trust. AmBase filed a petition for rehearing with the Court of Appeals for the Second Circuit which was denied on June 12, 2003. AmBase has filed a petition for certiorari with the United States Supreme Court seeking review of the Court of Appeals decision which the Trust is opposing. Lease Commitment. The Trust has leased office space at 853 Broadway, Suite 1607, New York, NY 10003-4703 beginning 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. -5- 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 $178,000 ($0.01 per unit) in the third quarter of 2003 and net income of $1,007,000 ($0.03 per unit) in the nine-month period ended September 30, 2003, compared with net income of $464,000 ($0.01 per unit) and a net income of $1,265,000 ($0.03 per unit) in the corresponding 2002 periods. The reported gains (losses) on the dispositions of assets, net, reflect losses of $39,000 and gains of $60,000 in the third quarter and nine-month periods of 2003 as compared to losses of $308,000 and $727,000 in the respective 2002 periods. A principal component of these gains (losses) are legal fees relating to issues attributable to periods before the liquidation of City which amounted to $39,000 in the third quarter of 2003 and $123,000 in the nine month period ended September 30, 2003 compared to $308,000 and $939,000 in the corresponding 2002 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 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 gains of $469,000 at September 30, 2003 and $704,000 at December 31, 2002, are netted against the gross mortgage receivable of $1,473,000 at September 30, 2003 and $2,210,000 at December 31, 2002. It is projected that the remaining deferred gain of $469,000 will be subject to expenses estimated to be $102,000. In June 2002, the Trust received $29,000 proceeds on the sale of Prudential Financial Inc. shares that was 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 $264,000 and $1,192,000 in the third quarter and nine months ended September 30, 2003, and $826,000 and $2,266,000 in the corresponding 2002 periods. The decrease in the 2003 periods compared to 2002 is attributable to lower interest rates in 2003 versus 2002. Administrative expenses were $47,000 and $245,000 for the third quarter and nine months of 2003, compared with $54,000 and $274,000 for the comparable 2002 periods. In 2003, the decrease was essentially due to a decrease in legal expenses. At September 30, 2003, the Trust had cash and cash equivalents and U. S. Treasuries of $83,152,000. 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 -6- 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, 2002 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. ITEM 2. CHANGES IN SECURITIES Trust Units of Beneficial Interest. On June 18, 2003, 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, 2004, 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, 2003. 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 ------------------------------------- Date: October 31, 2003 Lester J. Mantell, Trustee -7-

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