10-Q 1 a40248.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 June 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 June 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 Second Quarter and Six Months ended June 30 (Unaudited)

Balance Sheets (Unaudited)

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

Statements of Changes in Trust Equity Six Months ended June 30 (Unaudited)

See accompanying notes to financial statements. - 3 - 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 9. 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 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, - 4 - CITY INVESTING COMPANY LIQUIDATING TRUST Notes to Financial Statements (continued) (Unaudited) 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 FITR 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:

The gross unrealized gains/(losses) on investment securities amounted to the following:

Note 4 - Restricted Funds Restricted funds at June 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 - 5 - CITY INVESTING COMPANY LIQUIDATING TRUST Notes to Financial Statements (continued) (Unaudited) 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 June 30, 2005 and $469,000 at December 31, 2004, is netted against the gross mortgage receivable of $737,000 at June 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 Trust as successor in interest to SoCal. The litigation was recently stayed to permit the State of California and LOAPUD an opportunity to mediate. The Trust will defend this lawsuit vigorously. Other Matters: The Trust has recently 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. As a result of recent negotiations, the Trust has reason to believe the Travelers' claim will not result in any material liability. Note 7 - Future Distributions of Trust Assets 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. See Note 8 to Financial Statements - Subsequent Events. - 6 - CITY INVESTING COMPANY LIQUIDATING TRUST Notes to Financial Statements (continued) (Unaudited) Note 8 - Subsequent Events On July 29, 2005, the Trustees of the City Investing Company Liquidating Trust declared a cash distribution of $2.00 per Trust Unit of Beneficial Interest to be paid on August 15, 2005, to Unit Holders of record on August 8, 2005. The aggregate cash distribution of $77,958,744 represents approximately 94% of the total assets of the Trust as reflected in its June 30, 2005 financial statements. Note 9 - 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 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 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. 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 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. - 7 - CITY INVESTING COMPANY LIQUIDATING TRUST Notes to Financial Statements (continued) (Unaudited) 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 Second Quarter and Six Months ended June 30 (Unaudited)

- 8 - 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)

- 9 - 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 Six Months ended June 30 (Unaudited)

STATEMENTS OF CHANGES IN TRUST EQUITY Accounting Principles Generally Accepted in the United States of America, Reflecting an Entity in Liquidation Six Months ended June 30 (Unaudited)

- 10 - 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 $719,000 ($0.02 per unit) in the second quarter of 2005 and $444,000 ($0.01 per unit) in the six-month period ended June 30, 2005, compared to $0 ($0.00 per unit) and $80,000 ($0.00 per unit) in the corresponding 2004 periods. The reported gains (losses) on the dispositions of assets, net, reflect gains of $124,000 in the second quarter and $98,000 in the six-month period of 2005 as compared to losses of $239,000 and $273,000 in the respective 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 $59,000 in the second quarter of 2005 and $85,000 in the six-month period ended June 30, 2005, compared to $238,000 and $273,000 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 $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 June 30, 2005 and $469,000 at December 31, 2004, is netted against the gross mortgage receivable of $737,000 at June 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 $681,000 and $1,483,000 in the second quarter and six months ended June 30, 2005, and $347,000 and $551,000 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 $86,000 and $1,137,000 for the second quarter and six months of 2005 compared with $108,000 and $198,000 for the comparable 2004 periods. In 2005, the increase in the six-month period was due primarily to insurance premium expenses for environmental liability coverage for a ten-year period as well as increases in legal and accounting fees. At June 30, 2005, the Trust had cash and cash equivalents and U. S. Treasuries of $82,651,000. 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 - 11 - 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 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. 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 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 29, 2005. 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 June 30, 2005. 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: July 29, 2005 By: /s/ LESTER J. MANTELL, Trustee - 12 -

CITY INVESTING CO LIQUIDATING TRUST 10-Q