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, 1999
[ ] 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 95-2962743
(State of incorporation) (I.R.S. Employer Identification No.)
51 WEAVER STREET, BUILDING 2
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, 1999, 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, 1999
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
Item 3. Quantitative and Qualitative Disclosures
About Market Risk............................................10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................11
Item 2. Changes in Securities...........................................12
Item 3. Defaults Upon Senior Securities.................................12
Item 4. Submission of Matters to a Vote of Security Holders.............12
Item 5. Other Information...............................................12
Item 6. Exhibits and Reports on Form 8-K................................12
<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)
<TABLE>
<CAPTION>
1999 1998
==== ====
<S> <C> <C>
Operating expenses:
Compensation and benefits....................... $ 884 $ 514
Professional and outside services............... 65 270
Insurance....................................... 18 23
Occupancy....................................... 23 21
Other operating................................. 48 43
-------- --------
1,038 871
-------- --------
Operating loss.................................. (1,038) (871)
-------- --------
Interest income................................. 531 632
Other income.................................... 43 -
-------- --------
Loss before income taxes........................ (464) (239)
Income tax expense.............................. (55) (64)
-------- --------
Net loss........................................ $ (519) $ (303)
-------- --------
Earnings per common share:
Net loss - basic................................ $ (0.01) $ (0.01)
Net loss - assuming dilution.................... (0.01) (0.01)
===== =====
Average shares outstanding...................... 44,534 44,534
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-1-
<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(unaudited)
========= =========
<S> <C> <C>
Assets
Cash and cash equivalents....................... $ 1,894 $ 2,886
Investment securities - held to maturity
(market value $46,437 and $47,160,
respectively)................................ 46,437 47,156
Investment in SDG, Inc. at cost................. 1,250 1,250
Other assets.................................... 557 346
-------- --------
Total assets.................................... $ 50,138 $ 51,638
===== =====
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities........ $ 625 $ 1,642
Supplemental retirement plan.................... 5,196 5,079
Postretirement welfare benefits................. 1,261 1,301
Other liabilities............................... 117 152
Litigation and contingency reserves............. 2,070 2,076
Income tax reserves............................. 66,388 66,388
-------- --------
Total liabilities............................... 75,657 76,638
-------- --------
Commitments and contingencies................... - -
-------- --------
Stockholders' equity:
Common stock.................................... 447 447
Paid-in capital................................. 547,712 547,712
Accumulated deficit............................ (573,031) (572,512)
Treasury stock................................. (647) (647)
-------- --------
Total stockholders' equity..................... (25,519) (25,000)
-------- --------
Total liabilities and stockholders' equity..... $ 50,138 $ 51,638
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Quarter Ended March 31
(in thousands)
<TABLE>
<CAPTION>
1999 1998
==== ====
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (519) $ (303)
Adjustments to reconcile net loss to net
cash used by operations:
Other assets................................... 35 39
Accounts payable and accrued liabilities....... (1,017) (1,035)
Litigation and contingency reserves uses....... (6) (68)
Other liabilities.............................. 43 -
Amortization of discount - investment
securities.................................. (525) (611)
Other, net..................................... 3 2
-------- --------
Net cash used by operating activities.......... (1,986) (1,976)
-------- --------
Cash flows from investing activities:
Maturities of investment securities
- held to maturity.......................... 23,446 4,650
Purchases of investment securities
- held to maturity.......................... (22,202) (7,099)
Purchases of other investment securities....... (250) -
Proceeds from Home Holdings, Inc. receivable... - 7
Other, net..................................... - 25
-------- --------
Net cash provided (used) by investing
activities.................................. 994 (2,417)
-------- --------
Net decrease in cash and cash equivalents...... (992) (4,393)
Cash and cash equivalents at beginning
of period................................... 2,886 5,548
-------- --------
Cash and cash equivalents at end of period..... $ 1,894 $ 1,155
===== =====
Supplemental cash flow disclosures:
Income taxes paid.............................. $ 53 $ 74
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
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 1998 consolidated financial statements
to conform with the 1999 presentation. The consolidated 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 1. 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
governmental 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, 1998.
The Company's main source of non-operating revenue is interest earned on
investment securities and cash equivalents. The Company's management expects
that operating cash needs for the remainder of 1999 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, 1999, the
litigation and contingency reserves, other than for income tax issues, were
$2,070,000. 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 $66,388,000 at March 31, 1999. For a further
discussion, see Part II - Item 1 - Legal Proceedings, Disputes with Internal
Revenue Service, Withholding Taxes (Netherlands Antilles).
See Part II - Item 1 - Legal Proceedings, for a discussion of Supervisory
Goodwill Litigation and information regarding the Company's claims against Home
Holdings, Inc.
-4-
<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 3 - Cash and Cash Equivalents
Highly liquid investments, consisting principally of funds held in short-term
money market accounts, are classified as cash equivalents.
Note 4 - 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.
<TABLE>
<CAPTION>
Investment securities - held to maturity at March 31, 1999 and December 31, 1998
consist of the following:
March 31, 1999 December 31, 1998
============================= =============================
<S> <C> <C> <C> <C> <C> <C>
Cost or Cost or
Carrying Amortized Fair Carrying Amortized Fair
(in thousands) Value Cost Value Value Cost Value
======== ========= ======= ======== ========= =======
U.S. Treasury
Bills $ 46,437 $ 46,437 $ 46,437 $ 47,156 $ 47,156 $47,160
======== ========= ======= ======== ========= =======
</TABLE>
<TABLE>
<CAPTION>
The gross unrealized gains (losses) on investment securities at March 31 and
December 31 consist of the following:
1999 1998
====== ======
(in thousands)
<S> <C> <C>
Held to Maturity - Gross unrealized
gains (losses) $ - $ 4
====== ======
</TABLE>
Other investment securities consist of convertible preferred and/or common stock
in AMDG, Inc., which were purchased through private placements, are classified
as other assets, and are carried at cost which approximates market value;
$350,000 at March 31, 1999 and $100,000 at December 31, 1998.
-5-
<PAGE>
Note 5 - Income Taxes
The Company and its 100% owned domestic subsidiaries file a consolidated federal
income tax return. The Company 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. Net deferred tax assets
are 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 not
actually be realized sometime in the future. The Company has calculated a net
deferred tax asset of $25 million, as of March 31, 1999 and December 31, 1998,
arising primarily from net operating loss ("NOL") carryforwards, the excess of
book over tax reserves and alternative minimum tax credits (not including the
anticipated tax effects of NOL's expected to be generated from the Company's tax
basis in Carteret Savings Bank, F.A. and subsidiaries ("Carteret"), resulting
from the 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.
As a result of the Office of Thrift Supervision's ("OTS") 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
and subsequent 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 on December 20,
1995, 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 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").
The Company has made numerous requests to the RTC/FDIC for tax information
pertaining to Carteret and the resulting successor institution, Carteret Federal
Savings Bank ("Carteret FSB"), but this information has not yet been received.
Since the Company did not make the election decision, as described above, once
it receives the requested information from the RTC/FDIC, the Company will amend
its consolidated federal income tax returns to include the federal income tax
effects of Carteret and Carteret FSB. Based on the information currently
available, the Company does not believe a material increase in the Company's tax
liabilities will result.
The Company anticipates that, as a result of filing consolidated federal income
tax returns with Carteret FSB, approximately $170 million of tax NOL
carryforwards will be generated from the Company's tax basis in
Carteret/Carteret FSB as tax losses are incurred by Carteret FSB, of which $145
million are still available. The NOL carryforwards generated from the Company's
tax basis in Carteret/Carteret FSB would expire no earlier than 2007, and would
be available to offset future taxable income, in addition to the NOL
carryforwards as noted below.
In June 1998, the Company paid $12,700,000 to the IRS for tax and estimated
interest in full satisfaction of the Company's Fresh Start tax liability, which
related to a 1987 tax dispute with the IRS. In connection with the Company's
payment to the IRS, the Company also utilized approximately $40 million of
NOL's. As a result, the Company has remaining NOL carryforwards of approximately
$14 million expiring beginning in 2008, and $145 million of additional NOL
carryforwards generated from the Company's tax basis in Carteret/Carteret FSB
expiring no earlier than 2007.
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. For all periods through 1992, the IRS and the
Company disagree only with respect to withholding taxes in connection with a
Netherlands Antilles finance subsidiary of City. The Company's federal income
tax returns for years subsequent to 1992 have not been reviewed by the IRS.
The Company has a reserve for income taxes of $66,388,000 at March 31, 1999. For
a further discussion, see Part II - Item 1 - Legal Proceedings, Disputes with
Internal Revenue Service, Withholding Taxes (Netherlands Antilles).
-6-
<PAGE>
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.
FINANCIAL CONDITION
The Company's assets at March 31, 1999 aggregated $50,138,000, consisting
principally of cash and cash equivalents of $1,894,000 and investment securities
of $46,437,000. At March 31, 1999, the Company's liabilities, including reserves
for contingent and alleged liabilities, as further described in Part II - Item
1, exceeded total recorded assets by $25,519,000.
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. For all periods through 1992, the IRS and the
Company disagree only with respect to withholding taxes in connection with a
Netherlands Antilles finance subsidiary of City. The Company's federal income
tax returns for years subsequent to 1992 have not been reviewed by the IRS.
With respect to the Withholding Taxes issue, 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 which the Judge asked the IRS and the Company to submit
post-trial briefs, which have subsequently been submitted to the Tax Court. 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) to the United States Court of Appeals for the 7th Circuit (the
"Appeals Court"). The Appeals Court affirmed the Tax Court's ruling in favor of
Northern Indiana. Although the Appeals Court decision in 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.
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.
-7-
<PAGE>
The Company has a reserve for income taxes of $66,388,000 at March 31, 1999. For
a further discussion, see Part II - Item 1 - Legal Proceedings, Disputes with
Internal Revenue Service, Withholding Taxes (Netherlands Antilles).
At March 31, 1999, the litigation and contingency reserves, other than for
income tax issues, were $2,070,000. For a discussion of alleged tax liabilities,
lawsuits and governmental proceedings, see Part II - Item 1.
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 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. 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. For a discussion
of alleged tax liabilities, lawsuits and governmental proceedings, see Part II
Item 1.
The cash needs of the Company for the first three months of 1999 were
principally satisfied by interest income received on investment securities and
cash equivalents, and the Company's current financial resources. Management
believes that the Company's cash resources are sufficient to continue operations
for 1999.
For the three months ended March 31, 1999, cash of $1,986,000 was used by
operations, including the payment of prior year accruals and operating expenses,
partially offset by the receipt of interest income.
For the three months ended March 31, 1998, cash of $1,976,000 was used by
operations, including the payment of prior year accruals and operating expenses,
partially offset by the receipt of interest income.
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 above.
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,
1999.
-8-
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
Summarized financial information of the Company for the first quarter ended
March 31 is as follows:
1999 1998
(in thousands)
<S> <C> <C>
Operating expenses:
Compensation and benefits.................... $ 884 $ 514
Professional and outside services............ 65 270
Insurance.................................... 18 23
Occupancy.................................... 23 21
Other operating.............................. 48 43
------ ------
1,038 871
------ ------
Operating loss............................... (1,038) (871)
------ ------
Interest income.............................. 531 632
Other income................................. 43 -
------ ------
Loss before income taxes..................... (464) (239)
Income tax expense........................... (55) (64)
------ ------
Net loss..................................... $ (519) $ (303)
==== ====
</TABLE>
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 1999 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 a net loss of $519,000, or $0.01 per share, for the first
quarter ended March 31, 1999 compared to a net loss of $303,000, or $0.01 per
share, for the first quarter ended March 31, 1998.
Compensation and benefits increased to $884,000 in the first quarter ended March
31, 1999, compared with $514,000 for the 1998 first quarter. The increase is
due to the accrual on a monthly basis of 1999 incentive compensation, which is
not guaranteed, as compared to accruing these amounts at year-end and also a
higher level of benefit accruals.
Professional and outside services decreased to $65,000 in the first quarter
ended March 31, 1999, compared to $270,000 in the respective 1998 period. The
decrease is primarily the result of legal fees attributable to the Home
Holdings, Inc. bankruptcy case incurred in the first quarter of 1998.
Insurance expenses decreased to $18,000 in the first quarter ended March 31,
1999, from $23,000 in the same 1998 period, due to management's continued
renegotiation of insurance premiums.
Interest income in the first quarter ended March 31, 1999 decreased to $531,000,
from $632,000 in the respective 1998 period. The decrease was primarily
attributable to a decreased yield on cash equivalents and investment securities
during the 1999 period.
Other income of $43,000 in the 1999 first quarter is due to the collection by an
inactive subsidiary of a receivable previously considered uncollectible.
The income tax provision of $55,000 and $64,000 in the first quarter ended March
31, 1999 and 1998, respectively, is primarily attributable to a provision for
state taxes. 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.
-9-
<PAGE>
Year 2000 Issue
The Company has completed its review of year 2000 issues and has determined it
will not have a material effect on the Company's business, results of operations
or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company holds short-term investments as a source of liquidity. The
Company's interest rate sensitive investments at March 31, 1999 consist of the
following:
Maturity Date
Less Than Fair
(in thousands) One Year Value
======= =====
U.S. Treasury Bills............................ $ 46,437 $ 46,437
======= =====
Weighted average interest rate................. 4.4%
=======
The Company's current policy is to minimize the interest rate risk of it's
short-term investments by investing in U.S. Treasury Bills with maturities of
less than one year. There were no significant changes in market exposures or
the manner in which interest rate risk is managed during the quarter.
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 stock holdings,
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
In addition, the Company's public reports, including Quarterly Reports on Form
10-Q, Annual Reports on Form 10-K and Proxy Statements, can be obtained through
the Securities and Exchange Commission EDGAR Database over the Internet, at www.
sec.gov.
-10-
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The information contained in Item 8 - Note 13 in AmBase's Annual Report on Form
10-K for the year ended December 31, 1998 incorporated by reference herein and
the defined terms set forth below have the same meaning ascribed to them in
those reports. There have been no material developments in such legal
proceedings, except as set forth below.
The actions against the Company 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 would 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.
Supervisory Goodwill Litigation. Fact discovery is currently ongoing in the
Company's suit against the United States pending in the United States Court of
Federal Claims. On April 5, 1999, the Court extended to July 31, 1999 the
deadline for completing case-specific fact discovery in thirty Winstar-related
lawsuits, including the Company's case. On April 9, 1999 and April 16, 1999,
respectively, the Court issued decisions addressing damage claims in two other
Winstar-related cases, Glendale Federal Bank, FSB v. United States, and
California Federal Bank v. United States. In the Glendale case, the Court
awarded Glendale $908.9 million in restitution and non-overlapping reliance
damages, representing the benefit conferred on the government as a result of the
contract at issue in that case, plus certain non-overlapping damages suffered by
Glendale as a result of the government's breach of contract. The Court declined
to award expectation damages as requested by Glendale. In the California Federal
case, the Court awarded California Federal $23.4 million in damages,
representing expenses incurred by California Federal in raising new capital to
replace the supervisory goodwill lost as a result of the government's breach of
contract. The Court declined to award expectation damages, restitution, or other
reliance damages as requested by California Federal. The Company expects that
both of these decisions will be appealed to the United States Court of Appeals
for the Federal Circuit. The trial court and anticipated appellate decisions in
Glendale and California Federal may be relevant to the Company's claims, but are
not necessarily indicative of the ultimate outcome of the Company's action. No
assurance can be given regarding the ultimate outcome of the litigation.
AmBase Corporation v. Zurich SF Holdings, Inc. (f/k/a Reorganized Home Holdings,
Inc.). In 1991, the Company sold its entire interest in The Home Insurance
Company ("Home Insurance") and its subsidiaries to Home Holdings, Inc. ("Home
Holdings") pursuant to an agreement dated as of September 28, 1990 (as amended
the "Stock Purchase Agreement"). As part of the sale proceeds, Home Holdings
agreed to pay certain amounts to the Company over a period of years to meet
certain specified obligations of the Company, as incurred, relating to tax
issues, litigation and administrative expenses.
On January 15, 1998, Home Holdings filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code ("Chapter 11"), which was
subsequently amended, culminating in the Revised Third Amended and Restated Plan
of Reorganization (the "Revised Plan"). The Revised Plan was confirmed by order
of the Bankruptcy Court dated June 9, 1998, and was declared effective on July
29, 1998.
Pursuant to the Revised Plan, on July 30, 1998, the Company received $15,200,000
in full satisfaction of all of the Company's claims relating to Home Holdings
other than certain disputed claims relating to Section 7.4(c)(iii) of the Stock
Purchase Agreement (the "Disputed Claims"). The Company's rights against Home
Holdings with regard to the Disputed Claims were preserved and survived the
effective date of the Revised Plan. The Revised Plan further provided credit
support for any amounts due the Company on account of the Disputed Claims in the
form of a Keepwell Agreement provided by Zurich Reinsurance Centre Holdings. In
April 1999, the Company filed a complaint in the Supreme Court of New York for
the Disputed Claims.
-11-
<PAGE>
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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (only submitted to SEC in electronic format)
(b) Form 8-K
None
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
and Controller
(Principal Financial and
Accounting Officer)
Date: May 14, 1999
-12-
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule - March 31, 1999
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,894
<SECURITIES> 46,437
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,138
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 447
<OTHER-SE> (25,966)
<TOTAL-LIABILITY-AND-EQUITY> 50,138
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,038
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (464)
<INCOME-TAX> 55
<INCOME-CONTINUING> (519)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (519)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
