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 March 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-7265
AMBASE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State of incorporation)
95-2962743
(I.R.S. Employer Identification No.)
GREENWICH OFFICE PARK, BUILDING 2, 51 WEAVER STREET
GREENWICH, CONNECTICUT 06831-5155
(Address of principal executive offices) (Zip Code)
(203) 532-2000
(Registrant's telephone number, including area code)
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 March 31, 1997 there were 44,533,519 shares of registrant's common stock,
$0.01 par value per share, outstanding, excluding 126,488 treasury shares.
<PAGE>
AMBASE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1997
CROSS REFERENCE SHEET FOR
PARTS I AND II PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements................................................1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................10
Item 2. Changes in Securities..............................................11
Item 3. Defaults Upon Senior Securities....................................11
Item 4. Submission of Matters to a Vote of Security Holders................11
Item 5. Other Information..................................................11
Item 6. Exhibits and Reports on Form 8-K...................................11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMBASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
QUARTER ENDED MARCH 31
(UNAUDITED)
==============================================================================
(in thousands, except per share data) 1997 1996
==============================================================================
OPERATING EXPENSES:
Compensation and benefits $ 516 $ 416
Professional and outside services 61 116
Insurance 35 53
Occupancy 22 19
Other operating 38 35
- ------------------------------------------------------------------------------
672 639
- ------------------------------------------------------------------------------
Operating loss (672) (639)
- ------------------------------------------------------------------------------
Interest income 689 603
- ------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes 17 (36)
Income tax benefit 405 7,560
- ------------------------------------------------------------------------------
Income from continuing operations 422 7,524
Income from discontinued investment management operations,
net of income taxes - 18
- ------------------------------------------------------------------------------
NET INCOME $ 422 $7,542
==============================================================================
PER SHARE DATA:
Income from continuing operations $ 0.01 $ 0.17
Income from discontinued investment management operations,
net of income taxes - -
- ------------------------------------------------------------------------------
NET INCOME $ 0.01 $ 0.17
==============================================================================
AVERAGE SHARES OUTSTANDING 44,534 44,534
==============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
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AMBASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
==============================================================================
March 31, December 31,
1997 1996
(in thousands) (unaudited)
==============================================================================
ASSETS
Cash and cash equivalents (includes $57 and $65 of
restricted cash) $ 5,975 $ 5,591
Investment securities - held to maturity
(market value $45,880 and $47,261) 45,935 47,259
Receivable from Home Holdings, Inc. 13,096 13,186
Other assets 161 193
- ------------------------------------------------------------------------------
TOTAL ASSETS $ 65,167 $ 66,229
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities $ 242 $ 1,428
Supplemental retirement plan 4,730 4,724
Postretirement welfare benefits 1,496 1,527
Other liabilities 435 605
Litigation and contingency reserves 2,851 2,954
Income tax reserves 79,088 79,088
- ------------------------------------------------------------------------------
Total liabilities 88,842 90,326
- ------------------------------------------------------------------------------
Commitments and contingencies - -
- ------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock 447 447
Paid-in capital 547,712 547,712
Accumulated deficit (571,187) (571,609)
Treasury stock (647) (647)
- ------------------------------------------------------------------------------
Total stockholders' equity (23,675) (24,097)
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 65,167 $ 66,229
==============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
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AMBASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTER ENDED MARCH 31
==============================================================================
(in thousands) 1997 1996
==============================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 422 $ 7,524
Adjustments to reconcile income from continuing
operations to net cash provided (used) by
continuing operations:
Other assets 32 59
Accounts payable and accrued liabilities (1,186) (469)
Litigation and contingency reserves uses (103) (493)
Income tax reserves, net - (8,159)
Income tax refund - 1977 - 7,613
Other, net (813) (455)
- ------------------------------------------------------------------------------
Net cash provided (used) by operating activities
of continuing operations (1,648) 5,620
- ------------------------------------------------------------------------------
Net cash provided by discontinued investment
management operations - 2
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of investment securities - held to maturity 5,450 16,000
Purchases of investment securities - held to maturity (3,508) (23,996)
Proceeds from Home Holdings, Inc. receivable 90 2,657
Other, net - 1
- ------------------------------------------------------------------------------
Net cash provided (used) by investing activities 2,032 (5,338)
- ------------------------------------------------------------------------------
Net increase in cash and cash equivalents 384 284
Cash and cash equivalents at beginning of period 5,591 7,752
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,975 $ 8,036
==============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
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AMBASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The accompanying consolidated financial statements of AmBase Corporation and
subsidiaries (the "Company") are unaudited and subject to year-end adjustments.
All material intercompany transactions and balances have been eliminated. In the
opinion of management, the interim financial statements reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the Company's financial position and results of operations. Results for interim
periods are not necessarily indicative of results for the full year. Certain
reclassifications have been made to the 1996 consolidated financial statements
to conform with the 1997 presentation. The financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP").
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions, that it deems reasonable, that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from such estimates and assumptions.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. Substantial contingent and
alleged liabilities exist against the Company through certain lawsuits and
governmental proceedings, see Part II - Item I. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include adjustments to the carrying value of assets and
liabilities which might be necessary should the Company not continue in
operation. In order to continue on a long-term basis, the Company must both
resolve its contingent and alleged liabilities by prevailing upon or settling
these claims for less than the amounts claimed and generate profits by acquiring
existing operations and/or by developing new operations. The Company continues
to evaluate a number of possible acquisitions, and is engaged in the management
of its remaining assets and liabilities, including the contingent and alleged
tax and litigation liabilities, as described in Part II - Item 1. The Company
intends to aggressively contest all pending and threatened litigation and
proceedings, as well as pursue all sources for contributions to settlements. The
unaudited interim financial statements presented herein should be read in
conjunction with the Company's consolidated financial statements filed in its
Annual Report on Form 10-K for the year ended December 31, 1996.
The Company's main source of non-operating revenue is interest income earned on
investment securities and cash equivalents. The Company's management expects
that operating cash needs for the remainder of 1997 will be met principally by
the Company's current financial resources, and the receipt of non-operating
revenue consisting of interest income received on investment securities and cash
equivalents.
NOTE 2 - LEGAL PROCEEDINGS
The Company has significant alleged tax liabilities and is a defendant in
certain lawsuits and governmental proceedings, the ultimate outcome of which
could have a material adverse effect on its financial condition and results of
operations. Because of the nature of the contingent and alleged tax and
litigation liabilities described in Part II - Item 1, and the inherent
difficulty in predicting the outcome of the litigation and governmental
proceedings, management is unable to predict whether the Company's recorded
reserves will be adequate or its resources sufficient to satisfy its ultimate
obligations. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
Although the basis for the calculation of the litigation and contingency
reserves and income tax reserves are regularly reviewed by the Company's
management and outside legal counsel, the assessment of these reserves includes
an exercise of judgment and is a matter of opinion. At March 31, 1997, the
litigation and contingency reserves were $2,851,000. For a discussion of alleged
tax liabilities, lawsuits and governmental proceedings, see Part II - Item 1.
In addition to the litigation and contingency reserves, the Company has a
reserve for income taxes of $79,088,000 at March 31, 1997. For a further
discussion, see Part II - Item 1 - Legal Proceedings, Disputes with Internal
Revenue Service, Withholding Taxes (Netherlands Antilles) and Fresh Start.
See Part II - Item 1 - Legal Proceedings, for a discussion of Supervisory
Goodwill Litigation.
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<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - DISCONTINUED INVESTMENT MANAGEMENT OPERATIONS
On October 4, 1996, the Company sold its entire interest in Augustine Asset
Management, Inc. ("Augustine") to Augustine, for $500,000 in cash. The Company
had acquired a 51% ownership interest in Augustine for $200,000 on November 10,
1993. The Company's ownership percentage later increased to 66% due to
Augustine's repurchase of outstanding shares from other shareholders. Prior to
the Company's acquisition, Augustine was controlled by Mr. Ronald J. Burns. Mr.
Burns previously served as a director of the Company from January 1991 until his
resignation from the Company's Board on December 28, 1995.
Accordingly, as of September 30, 1996, the operations of Augustine were
designated as discontinued operations, and the consolidated statements of
operations for the periods presented herein were retroactively reclassified to
report the income from discontinued operations separately from the results of
continuing operations by excluding the operating revenues and expenses of
discontinued operations from the respective statement captions. The amount of
income taxes allocated to discontinued operations reflects the incremental
effect on income taxes that resulted from such operations.
Summarized information relating to income from Augustine's discontinued
operations for the first quarter ended March 31, 1996 is as follows:
==============================================================================
(in thousands)
==============================================================================
Investment management fee revenue $ 146
Operating expenses (108)
Interest income 1
Minority interest (9)
- ------------------------------------------------------------------------------
Income from discontinued operations before taxes 30
Income tax expense (12)
- ------------------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS THROUGH MARCH 31, 1996 $ 18
==============================================================================
Investment management fee revenue includes $47,000 for the first quarter ended
March 31, 1996 from related parties.
NOTE 4 - CASH AND CASH EQUIVALENTS
Highly liquid investments, consisting principally of funds held in short-term
money market accounts, are classified as cash equivalents. Included in cash and
cash equivalents at March 31, 1997 and December 31, 1996 is $57,000 and $65,000,
respectively, of funds held in escrow, to be applied to the satisfaction of
certain liabilities which have been classified as restricted.
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<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INVESTMENT SECURITIES
Investment securities - held to maturity consist of U.S. Treasury Bills with
original maturities of one year or less and which are carried at amortized cost
based upon the Company's intent and ability to hold these investments to
maturity.
Investment securities - held to maturity, at March 31 and December 31, consist
of the following:
===============================================================================
1997 1996
------------------------------ -------------------------------
Cost or Cost or
Carrying Amortized Fair Carrying Amortized Fair
(in thousands) Value Cost Value Value Cost Value
===============================================================================
U.S. Treasury
Bills $45,935 $45,935 $45,880 $47,259 $47,259 $47,261
===============================================================================
The gross unrealized gains and losses on investment securities, at March 31 and
December 31, consist of the following:
==============================================================================
(in thousands) 1997 1996
==============================================================================
Held to Maturity:
Gross unrealized gains (losses) $ 55 $ (2)
==============================================================================
NOTE 6 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Additional information regarding cash flow for the first quarter ended March 31
is as follows:
==============================================================================
(in thousands) 1997 1996
==============================================================================
Cash received (paid) during the period:
Income taxes refunded (paid), net $ 402 $7,016
==============================================================================
Income taxes refunded, net in 1997, include $475,000 of taxes refunded as a
result of an overpayment to the IRS for 1988 through 1991 tax years. Income
taxes refunded, net in 1996, include a 1977 tax refund of $7,613,000.
NOTE 7 - INCOME TAXES
The Company and its 100% owned domestic subsidiaries file a consolidated federal
income tax return. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("Statement 109"). Statement 109 recognizes both the current and deferred
tax consequences of all transactions that have been recognized in the financial
statements, calculated based on the provisions of enacted tax laws, including
the tax rates in effect for current and future years. Statement 109 requires
that net deferred tax assets be recognized immediately when a more likely than
not criterion is met; that is, unless a greater than 50% probability exists that
the tax benefits will actually be realized sometime in the future. Under
Statement 109, the Company has calculated a net deferred tax asset of $33
million, as of March 31, 1997 and December 31, 1996, arising primarily from net
operating loss ("NOL") carryforwards, the excess of book over tax reserves and
alternative minimum tax credits (not including the tax effects of $170 million
of NOL's resulting from the Carteret Savings Bank, F.A. ("Carteret") election
decision, as more fully described below). A valuation allowance has been
established for the entire net deferred tax asset, as management, at the current
time, has no basis to conclude that realization is more likely than not.
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<PAGE>
As a result of the OTS's December 4, 1992 placement of Carteret in receivership,
under the management of the Resolution Trust Corporation ("RTC")/Federal Deposit
Insurance Corporation ("FDIC"), and proposed Treasury Reg. ss.1.597-4(g), the
Company had previously filed its 1992 through 1995 federal income tax returns
with Carteret disaffiliated from the Company's consolidated federal income tax
return. Based upon the impact of Treasury Reg. ss.1.597-4(g), which was issued
in final form during 1996, a continuing review of the Company's tax basis in
Carteret, and the impact of prior year tax return adjustments on the Company's
1992 federal income tax return as filed, the Company has decided not to make an
election pursuant to final Treasury Reg. ss.1.597-4(g) to disaffiliate Carteret
from the Company's consolidated federal income tax return effective as of
December 4, 1992 (the "election decision").
Based on the Company not making the election decision, as described above, the
Company will amend its 1992 through 1995 consolidated federal income tax returns
to include the federal income tax effects of Carteret and the resulting
successor institution, Carteret Federal Savings Bank. The Company does not
believe a material increase in the Company's tax liabilities will result.
As a result of filing consolidated with Carteret, the Company expects to have
available approximately $170 million of tax NOL carryforwards, expiring no
earlier than 2007, available to offset future taxable income, in addition to the
$29,319,000 of NOL carryforwards as noted in the Company's Annual Report on Form
10-K for the year ended December 31, 1996, Item 8 - Note 10.
During the first quarter of 1997, the Company received a $475,000 income tax
refund, as a result of an overpayment to the IRS for 1988 through 1991 tax
years. This amount was recognized as an income tax benefit in the first quarter
ended March 31, 1997. During the first quarter of 1996, the Company received a
1977 income tax refund of $7,613,000, which was recognized as an income tax
benefit in the accompanying consolidated Statement of Operations, based on
management's review of the overall tax liability position of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which follows, should be read in conjunction with the consolidated
financial statements and related notes, which are contained in Item 1, herein.
On October 4, 1996, the Company sold its entire interest in Augustine.
Accordingly, the operations of Augustine have been reclassified as discontinued
investment management operations in the accompanying consolidated financial
statements.
FINANCIAL CONDITION
The Company's assets at March 31, 1997 aggregated $65,167,000, consisting
principally of cash and cash equivalents of $5,975,000, investment securities of
$45,935,000 and a $13,096,000 receivable from Home Holdings, Inc. ("Home
Holdings"). During the first three months of 1997, proceeds of $90,000 from the
Home Holdings receivable were collected. For further information on the
Company's receivable from Home Holdings, see the Company's Annual Report on Form
10-K for the year ended December 31, 1996, Item 8-Note 4. At March 31, 1997, the
Company's liabilities, including reserves for contingent and alleged
liabilities, as further described in Part II - Item 1, exceeded total recorded
assets by $23,675,000.
The Company contractually assumed the tax liabilities of City Investing Company
("City"), which, prior to September 1985, owned all the outstanding shares of
Common Stock of the Company. During the first quarter of 1996, the Company
received a 1977 income tax refund of $7,613,000; as a result, City no longer
remains open for refunds. This amount was recognized as an income tax benefit in
the accompanying consolidated Statement of Operations for the first quarter
ended March 31, 1996, based on management's review of the overall tax liability
position of the Company. The Company also contractually assumed certain tax
liabilities of The Home and its subsidiaries from September 1985 through 1989.
For all periods through 1991, the IRS and the Company do not agree with respect
to only two issues, withholding taxes in connection with a Netherlands Antilles
finance subsidiary of City, and "Fresh Start" (an insurance industry issue).
During 1996, in connection with the completion by the IRS of the Company's 1985
to 1991 federal income tax audits (excluding Fresh Start), the Company made
payments to the IRS totaling $1,995,000. These amounts were previously reserved
for and recorded to the income tax reserves account. During the first quarter of
1997, $475,000 of income taxes were refunded as a result of an overpayment to
the IRS for 1988 through 1991 tax years. This amount was recorded as an income
tax benefit in the first quarter of 1997. The federal income tax adjustments
from the 1985 to 1991 audits (excluding Fresh Start) did not result in
additional payments of state or local income taxes. New York State has completed
their examination of the Company's income tax returns through 1989 and is
currently reviewing the Company's income tax returns for tax years 1990 to 1992.
The Company's federal income tax return for 1992 is currently under examination.
The Company's federal income tax returns for years subsequent to 1992 have not
been reviewed by the IRS.
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<PAGE>
With respect to withholding taxes in connection with a Netherlands Antilles
finance subsidiary of City, on May 11, 1995, the IRS issued a Notice of
Deficiency for withholding taxes on interest payments for the years 1979 through
1985. In the Notice of Deficiency, the IRS contends that City's wholly owned
Netherlands Antilles finance subsidiary should be disregarded for tax purposes.
The Company vigorously contested the IRS's position in accordance with the IRS's
internal appeals procedures. In January 1992, the National Office of the IRS
issued technical advice supporting the auditing agent's position. In October
1992, the Company appealed this technical advice to the National Office. The
National Office advised the Company that it expected to issue technical advice
supporting the auditing agent's position, whereupon the Company advised the IRS
that it was withdrawing its technical advice request.
On June 30, 1995, the Company filed a petition in the United States Tax Court
("Tax Court") contesting the Notice of Deficiency. The IRS filed its answer on
August 23, 1995. The Company filed a motion for summary judgment in its favor on
February 13, 1996. On April 17, 1996, the IRS filed a Notice of Objection to the
Company's motion for summary judgment. The Tax Court requested, and the Company
filed, on July 3, 1996, a reply to the IRS's Notice of Objection. On September
19, 1996, the Court denied the Company's motion for summary judgment without
prejudice. Based on the Tax Court's examination of the record and the status of
the discovery process, the Tax Court concluded that summary adjudication at this
time was inappropriate. The Tax Court directed the parties to engage in full and
complete discovery as expeditiously as possible. A trial was held in this case
on March 24, 1997. After the trial ended, the Judge asked the IRS and the
Company to submit post-trial briefs. The Company's lawyers are presently
preparing the briefs. If the IRS were to prevail on this issue, the Company
would be liable for taxes and interest in excess of the Company's financial
resources.
In a case dealing with a similar withholding tax issue, the Tax Court ruled in
favor of the taxpayer, Northern Indiana Public Service Co. ("Northern Indiana")
in November 1995. The Tax Court rejected the IRS's contention that interest paid
to Northern Indiana's foreign subsidiary were subject to United States tax
withholding. The IRS appealed this decision (Northern Indiana Public Service Co.
v. Commissioner, 105 T.C. No. 22) to the United States Court of Appeals for the
7th Circuit. Although the Northern Indiana case could be beneficial to the
Company's case, it is not necessarily indicative of the ultimate result of the
final settlement of the Netherlands Antilles issue between the Company and the
IRS. The Company will continue to monitor the appeal.
Based on an evaluation of the IRS's contention, counsel has advised the Company
that, although the outcome in litigation can by no means be assured, the Company
has a very strong case and should prevail. Notwithstanding counsel's opinion and
the Tax Court's ruling in the Northern Indiana case, it is not possible at this
time to determine the final disposition of this issue, when the issues will be
resolved, or their final financial effect. A final disposition of this issue in
the Company's favor would have a material, positive effect on the Company's
Consolidated Statement of Operations and Financial Condition.
With respect to the "Fresh Start" issue, on March 13, 1996, the IRS issued a
Notice of Deficiency to the Company, with respect to taxes owed for the year
1987. The Company has disputed the Notice of Deficiency and has claimed that it
is entitled to "Fresh Start" transition relief under certain insurance company
tax provisions of the Tax Reform Act of 1986. If the IRS is successful, the
amount of the deficiency would be material. The Company believes that it has
meaningful defenses. On June 7, 1996, the Company filed a petition with the
United States Tax Court for redetermination of the tax, and on July 23, 1996,
the IRS filed its answer. The IRS and the Company are presently engaged in an
informal discovery process, customary in Tax Court. See Part II - Item 1, Legal
Proceedings, Withholding Taxes (Netherlands Antilles) and Fresh Start for
additional details. See Results of Operations below, for a further discussion of
taxes.
At March 31, 1997, the litigation and contingency reserves were $2,851,000. For
a discussion of alleged tax liabilities, lawsuits and governmental proceedings,
see Part II - Item 1.
In addition to the litigation and contingency reserves, the Company has a
reserve for income taxes of $79,088,000 at March 31, 1997. For a further
discussion, see Part II - Item 1 - Legal Proceedings, Disputes with Internal
Revenue Service, Withholding Taxes (Netherlands Antilles) and Fresh Start.
The Company has significant alleged tax liabilities and is a defendant in a
number of lawsuits and proceedings, the ultimate outcome of which could have a
material adverse effect on its financial condition and results of operations.
Because of the nature of the contingent and alleged liabilities and the inherent
difficulty in predicting the outcome of the litigation and governmental
proceedings, management is unable to predict whether the Company's recorded
reserves will be adequate or its resources sufficient to satisfy its ultimate
obligations. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of these uncertainties. For a
discussion of alleged tax liabilities, lawsuits and governmental proceedings,
see Part II - Item 1. Although the basis for the calculation of the litigation
and contingency reserves and the income tax reserves are regularly reviewed by
the Company's management and outside legal counsel, the assessment of these
reserves includes an exercise of judgment, and is a matter of opinion.
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<PAGE>
The cash needs of the Company for the first three months of 1997 were
principally satisfied by interest income received on investment securities and
cash equivalents, a $475,000 income tax refund, and the Company's current
financial resources. Management believes that the Company's cash resources are
sufficient to continue operations for 1997.
For the three months ended March 31, 1997, cash of $1,648,000 was used by
continuing operations, including the payment of prior year accruals, and the
payment of operating expenses partially offset by interest income and a $475,000
tax refund. For the three months ended March 31, 1996, cash of $5,620,000 was
provided by operating activities, including the receipt of a 1977 tax refund,
the receipt of interest income partially offset by payments charged against the
litigation and contingency reserves and the payment of operating expenses.
The Company continues to evaluate a number of possible acquisitions and is
engaged in the management of its remaining assets and liabilities, including the
contingent and alleged tax and litigation liabilities, as described in Part II -
Item 1. Extensive discussions and negotiations are ongoing with respect to
certain of these matters. The Company intends to aggressively contest all
pending and threatened litigation and governmental proceedings, as well as
pursuing all sources of contributions to settlements. In order to continue on a
long-term basis, the Company must both resolve its contingent and alleged
liabilities by prevailing upon or settling these claims for less than the
amounts claimed and generate profits by acquiring existing operations and/or by
developing new operations.
There were no material commitments for capital expenditures as of March 31,
1997.
RESULTS OF OPERATIONS - CONTINUING OPERATIONS
Summarized financial information for the continuing operations of the Company
for the first quarter ended March 31 is as follows:
==============================================================================
(in thousands) 1997 1996
==============================================================================
Operating expenses:
Compensation and benefits $ 516 $ 416
Professional and outside services 61 116
Insurance 35 53
Occupancy 22 19
Other operating 38 35
- ------------------------------------------------------------------------------
672 639
- ------------------------------------------------------------------------------
Operating loss (672) (639)
- ------------------------------------------------------------------------------
Interest income 689 603
- ------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes 17 (36)
Income tax benefit 405 7,560
- ------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS $ 422 $7,524
==============================================================================
The Company's main source of non-operating revenue is interest income earned on
investment securities and cash equivalents. The Company's management expects
that operating cash needs for the remainder of 1997 will be met principally by
the Company's current financial resources and the receipt of non-operating
revenue consisting of interest income earned on investment securities and cash
equivalents.
The Company recorded income from continuing operations of $422,000 in the first
quarter ended March 31, 1997, which includes a $475,000 income tax benefit, as
further described in Financial Condition, above. Excluding the $475,000 income
tax benefit, the Company would have reported a loss from continuing operations
of $53,000 for the first quarter ended March 31, 1997. In the same 1996 period,
the Company recorded income from continuing operations of $7,524,000. As further
described in Financial Condition, above, the 1996 first quarter period includes
an additional income tax benefit of $7,613,000. Excluding this income tax
benefit, the Company would have reported a loss from continuing operations of
$89,000 for the first quarter ended March 31, 1996.
The Company recorded income from continuing operations before income taxes of
$17,000 in the first quarter ended March 31, 1997, compared to a loss from
continuing operations before income taxes of $36,000 in the first quarter ended
March 31, 1996.
Compensation and benefits increased to $516,000 in the 1997 first quarter,
compared with $416,000 for the comparable 1996 period. The increase in the 1997
period is due to the hiring by the Company of an employee who previously
provided services as an independent consultant.
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<PAGE>
Professional and outside services decreased to $61,000 in the first quarter
ended March 31, 1997, compared to $116,000 in the respective 1996 period. This
decrease was the result of the hiring by the Company of an employee who
previously provided services as an independent consultant, as noted above.
Insurance expenses in the first quarter ended March 31, 1997, as compared with
the same 1996 period, decreased due to management's renegotiation of insurance
programs.
Interest income in the first quarter of 1997 increased to $689,000, from
$603,000 in the respective 1996 period.
The income tax benefit of $405,000 recorded in the first quarter of 1997 is
attributable to a $475,000 income tax refund, as further described in Financial
Condition, above, and a provision for state taxes of $70,000. During the first
quarter of 1996, the Company received a 1977 income tax refund of $7,613,000,
which was recognized as an income tax benefit in the accompanying Statement of
Operations for the first quarter ended March 31, 1996, based on management's
review of the overall tax liability position of the Company, as further
described in Financial Condition, above. In addition, included in the income tax
benefit for the first quarter ended March 31, 1996, is a state tax provision of
$53,000. Income taxes applicable to operating income (loss) are generally
determined by applying the estimated effective annual income tax rates to pretax
income (loss) for the year-to-date interim period. Income taxes applicable to
unusual or infrequently occurring items are provided in the period in which such
items occur.
STOCKHOLDER INQUIRIES
Stockholder inquiries, including requests for the following: (i) change of
address; (ii) replacement of lost stock certificates; (iii) Common Stock name
registration changes; (iv) Quarterly Reports on Form 10-Q; (v) Annual Reports on
Form 10-K; (vi) proxy material; and (vii) information regarding stockholdings,
should be directed to:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
40 Wall Street, 46th Floor
New York, NY 10005
Attention: Shareholder Services
(800) 937-5449 OR (718) 921-8200
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in Item 8 - Note 12 in AmBase's Annual Report on Form
10-K for the year ended December 31, 1996 is incorporated by reference herein,
and the defined terms set forth below have the same meaning ascribed to them in
such Annual Report. There have been no material developments in such legal
proceedings, except as set forth below.
(a) The Company is a defendant in a number of lawsuits or proceedings,
including, but not limited to, the following:
Angel, et al. v. AmBase Corp. The Company has settled with all but eleven
claimants in the Angel litigation and expects to reach a settlement with the
remaining claimants in the near future.
Sovereign Metal. In April 1997, this case was settled and the parties entered a
stipulation and dismissal of plaintiff's State Court claims against all of the
defendants, as well as a stipulation withdrawing the appeal of the State Court's
decision granting summary judgment in favor of the Company and dismissing the
Company from the suit. Therefore, this action is concluded.
- 10 -
<PAGE>
Disputes with Internal Revenue Service.
Withholding Taxes (Netherlands Antilles). A trial was held in this case on
March 24, 1997. After the trial ended, the Judge asked the IRS and the
Company to submit post trial briefs. The Company's lawyers are presently
preparing the briefs.
The actions against the Company, including those identified in (a) above, are in
various stages. Nevertheless, the allegations and claims are material and, if
successful, could result in substantial judgments against the Company. To the
extent the aggregate of any such judgments were to exceed the resources
available, these matters could have a material adverse effect on the Company's
financial condition and results of operations. Due to the nature of these
proceedings, the Company and its counsel are unable to express any opinion as to
their probable outcome.
(b) Supervisory Goodwill Litigation:
On March 14, 1997, the Court of Federal Claims issued a formal order on the
FDIC's motion to intervene and substitute, making final its prior tentative
ruling permitting the FDIC to intervene as an additional plaintiff in
forty-three cases, including the Company's case, but not allowing the FDIC to be
substituted as the sole plaintiff.
ITEM 2. CHANGES IN SECURITIES
Does not apply.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Does not apply.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Does not apply.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Form 8-K
None
- 11 -
<PAGE>
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 thereunto duly authorized:
AMBASE CORPORATION
BY JOHN P. FERRARA
Vice President, Chief Financial Officer,
Treasurer and Controller
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Date: May 1, 1997
- 12 -
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,975
<SECURITIES> 45,935
<RECEIVABLES> 13,096
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 65,167
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 447
<OTHER-SE> (24,122)
<TOTAL-LIABILITY-AND-EQUITY> 65,167
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17
<INCOME-TAX> 405
<INCOME-CONTINUING> 422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
