FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
[ ] 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 September 30, 2000, there were 46,208,519 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
September 30, 2000
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET FOR
PARTS I and II Page
------
<S> <C> <C>
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...................................................................................12
Item 2. Changes in Securities and Use of Proceeds...........................................................13
Item 3. Defaults Upon Senior Securities.....................................................................13
Item 4. Submission of Matters to a Vote of Security Holders.................................................13
Item 5. Other Information...................................................................................13
Item 6. Exhibits and Reports on Form 8-K....................................................................13
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Third Quarter and Nine Months Ended September 30
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Third Quarter Nine Months
2000 1999 2000 1999
==== ==== ==== ====
Operating expenses:
Compensation and benefits................... $ 876 $ 823 $ 2,699 $ 2,524
Professional and outside services........... 223 578 1,582 1,990
Insurance................................... 12 22 49 57
Occupancy................................... 23 27 69 78
Other operating............................. 37 32 115 116
-------- -------- -------- --------
1,171 1,482 4,514 4,765
-------- -------- -------- --------
Operating loss.............................. (1,171) (1,482) (4,514) (4,765)
-------- -------- -------- --------
Interest income............................. 766 544 2,024 1,598
Other income................................ 50 50 8,408 154
-------- -------- -------- --------
Income (loss) before income taxes........... (355) (888) 5,918 (3,013)
Income tax expense.......................... (44) (46) (154) (169)
-------- -------- -------- --------
Net income (loss)........................... $ (399) $ (934) $ 5,764 $ (3,182)
===== ===== ===== =====
Earnings per common share:
Net income (loss) - basic................... $ (0.01) $ (0.02) $ 0.12 $ (0.07)
Net income (loss) - assuming dilution....... (0.01) (0.02) 0.12 (0.07)
===== ===== ===== =====
Average shares outstanding.................. 46,209 44,534 46,202 44,534
====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
2000 1999
(unaudited)
======== =========
Assets
Cash and cash equivalents......................................................... $ 586 $ 2,646
Investment securities - held to maturity (market
value $50,920 and $43,259, respectively)...................................... 50,919 43,260
Investment in SDG, Inc. at cost................................................... 1,250 1,250
Other assets...................................................................... 472 522
-------- --------
Total assets...................................................................... $ 53,227 $ 47,678
====== ======
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities.......................................... $ 1,629 $ 1,902
Supplemental retirement plan...................................................... 5,911 5,545
Postretirement welfare benefits................................................... 1,079 1,178
Other liabilities................................................................. 97 106
Litigation and contingency reserves............................................... 1,630 1,983
Withholding issue reserve......................................................... 66,388 66,388
--------- --------
Total liabilities................................................................. 76,734 77,102
--------- --------
Commitments and contingencies..................................................... - -
--------- --------
Stockholders' equity:
Common stock...................................................................... 463 455
Paid-in capital................................................................... 547,940 547,795
Accumulated deficit............................................................... (571,263) (577,027)
Treasury stock.................................................................... (647) (647)
--------- ---------
Total stockholders' equity........................................................ (23,507) (29,424)
--------- ---------
Total liabilities and stockholders' equity........................................ $ 53,227 $ 47,678
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
==== ====
Cash flows from operating activities:
Net income (loss)................................................................. $ 5,764 $ (3,182)
Adjustments to reconcile net income (loss) to net cash provided (used) by operations:
Other assets...................................................................... 38 12
Accounts payable and accrued liabilities.......................................... (273) 56
Litigation and contingency reserves uses.......................................... (353) (44)
Other liabilities................................................................. 256 200
Amortization of discount - investment securities.................................. (1,981) (1,583)
Other, net........................................................................ 14 13
-------- --------
Net cash provided (used) by operating activities.................................. 3,465 (4,528)
-------- --------
Cash flows from investing activities:
Maturities of investment securities - held to maturity............................ 74,965 96,521
Purchases of investment securities - held to maturity............................. (80,643) (92,952)
Purchases of other investment securities.......................................... - (250)
Other, net........................................................................ - 10
-------- --------
Net cash provided (used) by investing activities.................................. (5,678) 3,329
-------- --------
Cash flows from financing activities:
Stock options exercised........................................................... 153 -
-------- --------
Net cash provided by financing activities......................................... 153 -
-------- --------
Net decrease in cash and cash equivalents......................................... (2,060) (1,199)
Cash and cash equivalents at beginning of period.................................. 2,646 2,886
-------- --------
Cash and cash equivalents at end of period........................................ $ 586 $ 1,687
===== =====
Supplemental cash flow disclosures:
Income taxes paid................................................................. $ 75 $ 164
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<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 1999 consolidated financial statements
to conform with the 2000 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 certain 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
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, 1999.
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 2000 will be met principally by
the Company's current financial resources, and the receipt of non-operating
revenue consisting of interest income on investment securities and cash
equivalents.
Note 2 - Legal Proceedings
The Company has significant alleged 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 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 the withholding issue reserve 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 September 30, 2000, the litigation and contingency reserves, other than for
the withholding issue, were $1,630,000. For a discussion of alleged liabilities,
lawsuits and governmental proceedings, see Part II - Item 1.
In addition to the litigation and contingency reserves, the Company has a
withholding issue reserve of $66,388,000 at September 30, 2000. For a further
discussion, see Item 2. Financial Condition and Part II - Item 1 - Legal
Proceedings, Dispute with Internal Revenue Service over Withholding Obligations
(Netherlands Antilles).
See Part II - Item 1 - Legal Proceedings, for a discussion of Supervisory
Goodwill Litigation and information regarding the Company's litigation
settlement with Zurich SF Holdings, Inc.
<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 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 September 30, 2000 and December 31,
1999 consist of the following:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
======================================= ======================================
<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 $ 50,919 $ 50,919 $ 50,920 $ 43,260 $ 43,260 $ 43,259
====== ====== ====== ====== ====== ======
</TABLE>
The gross unrealized gains or (losses) on investment securities was $1,000 gain
at September 30, 2000 and $1,000 loss at December 31, 1999.
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 September 30, 2000 and December 31, 1999.
<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
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 $29 million as of September 30, 2000 and $28 million as of
December 31, 1999, arising primarily from net operating loss ("NOL")
carryforwards, alternative minimum tax credits and the excess of book over tax
reserves (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 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"); however all of the information still has not been
received. Based on the Company not making the election decision, as described
above, and the receipt of some of the requested information from the RTC/FDIC,
the Company has amended its 1992 consolidated federal income tax return to
include the federal income tax effects of Carteret and Carteret FSB. The Company
is still in the process of amending its consolidated federal income tax returns
for 1993 and subsequent years.
The Company anticipates that, as a result of filing a consolidated federal
income tax return with Carteret FSB, a total of 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 $158
million are still available for future use. Based on the Company's recent filing
of its amended 1992 consolidated federal income tax return to include the
federal income tax effects of Carteret FSB, approximately $56 million of NOL
carryforwards are generated for tax year 1992 which expire in 2007, with the
remaining approximate $102 million of NOL carryforwards to be generated,
expiring no earlier than 2008. These NOL carryforwards would be available to
offset future taxable income, in addition to the NOL carryforwards as further
detailed below.
In June 1998, the Company paid $12,700,000 to the IRS for tax and estimated
interest to be applied to the Company's Fresh Start tax liability, which related
to a 1987 tax dispute with the IRS. Based on a Final Stipulation between the
Company and the IRS on the Fresh Start issue, the Company received a $36,000
refund of tax and interest on the Fresh Start issue. In connection with the
Final Stipulation, the Company utilized approximately $29 million of NOL's.
Based upon the Company's federal income tax returns as filed from 1993 to 1999
(subject to IRS audit adjustments), after utilizing $29 million of NOL
carryfowards in connection with Fresh Start; and excluding the NOL carryfowards
generated from the Company's tax basis in Carteret/Carteret FSB, as noted above,
at September 30, 2000 the Company has NOL carryforwards aggregating
approximately $24 million, available to reduce future federal taxable income
which expire if unused beginning in 2008. The Company's federal income tax
returns for years subsequent to 1992 have not been reviewed by the IRS.
<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The utilization of certain carryforwards is subject to limitations under U.S.
federal income tax laws. In addition, the Company has approximately $21 million
of alternative minimum tax credit carryforwards, which are not subject to
expiration.
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 September 30, 2000 aggregated $53,227,000 consisting
principally of cash and cash equivalents of $586,000 and investment securities
of $50,919,000. At September 30, 2000, the Company's liabilities, including
reserves for contingent and alleged liabilities, as further described in Part II
- Item 1, exceeded total recorded assets by $23,507,000.
In June 2000 the Company entered into a settlement agreement with Zurich SF
Holdings LLC (f/k/a Reorganized Home Holdings, Inc.)("SF Holdings") settling the
disputed claims relating to the April 1999 complaint the Company filed in the
Supreme Court of New York. Pursuant to the settlement agreement, the Company
received, among other things, net proceeds of $8,250,000 from SF Holdings. In
addition, an affiliate of SF Holdings deposited $9,500,000 in an interest
bearing escrow account (the "Escrow Account") to be used to pay 50% of certain
expenses and/or withholding obligations, if any, up to the amount in the Escrow
Account in connection with the dispute with the Internal Revenue Service ("IRS")
over the Netherlands Antilles Withholding Obligation Issue. Upon final
resolution of the Netherlands Antilles Withholding Obligation Issue with the IRS
and payment of outstanding expenses, the residual of the Escrow Account, if any,
will be delivered to an affiliate of SF Holdings.
In connection with the liquidation of City Investing Company ("City") the
Company, among others, contractually assumed certain tax liabilities of City,
which, prior to September 1985, owned all the outstanding shares of Common Stock
of the Company. Other liabilities were assumed by, among others, City Investing
Company Liquidating Trust (the "Trust"). For all periods through 1992, the only
issue that remains in dispute between City and the IRS is with respect to the
withholding obligations in connection with a Netherlands Antilles finance
subsidiary of City (the "Withholding Issue").
With respect to the Withholding Issue, in connection with a Netherlands Antilles
finance subsidiary of City, on May 11, 1995, the IRS issued a Notice of
Deficiency for the withholding of tax 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, on behalf of City, 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.
<PAGE>
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
On June 30, 1995, the Company, on behalf of City, 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 that 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 were submitted to the Tax
Court in August 1997. If the IRS were to prevail on this issue, the Company
could be liable for City's withholding obligation plus interest in excess of the
Company's financial resources. A significant factor in determining the amount of
the Company's ultimate liability for this issue is whether pursuant to the
contractual arrangement between the Company and City, the Company is primarily
liable for the withholding obligation and interest. See Part II - Item 1 - Legal
Proceedings, AmBase Corporation v. City Investing Company Liquidating Trust et
al. for further information.
In a case dealing with a similar withholding 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 was subject to United States withholding
of tax. 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"). In June 1997 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 case involving City , it is not
necessarily indicative of the ultimate result of the final settlement of the
Netherlands Antilles issue involving City.
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.
The Company has a Withholding Issue reserve of $66,388,000 at September 30,
2000. For a further discussion, see Part II - Item 1 - Legal Proceedings,
Dispute with Internal Revenue Service over Withholding Obligations (Netherlands
Antilles).
At September 30, 2000, the litigation and contingency reserves, other than for
the Withholding Issue, were $1,630,000. For a discussion of alleged liabilities,
lawsuits and governmental proceedings, see Part II - Item 1.
The Company has significant alleged 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 Withholding Issue reserve 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 liabilities, lawsuits and governmental proceedings, see Part II -
Item 1.
The cash needs of the Company for the first nine months of 2000 were principally
satisfied by proceeds received in connection with the SF Holdings litigation
settlement further described above, 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 2000.
For the nine months ended September 30, 2000, cash of $3,465,000 was provided by
operations, as a result of amounts received in connection with the SF Holdings
litigation settlement further discussed above, and the receipt of interest
income, partially offset by the payment of prior year accruals and operating
expenses.
For the nine months ended September 30, 1999, cash of $4,528,000 was used by
operations, including the payment of prior year accruals and operating expenses,
partially offset by the receipt of interest income.
<PAGE>
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 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 September 30,
2000.
Results of Operations
Summarized financial information of the Company for the third quarter and nine
months ended September 30 is as follows:
<TABLE>
<CAPTION>
Third Quarter Nine Months
2000 1999 2000 1999
==== ==== ==== ====
<S> <C> <C> <C> <C>
Operating expenses:
Compensation and benefits................... $ 876 $ 823 $ 2,699 $ 2,524
Professional and outside services........... 223 578 1,582 1,990
Insurance................................... 12 22 49 57
Occupancy................................... 23 27 69 78
Other operating............................. 37 32 115 116
-------- -------- -------- --------
1,171 1,482 4,514 4,765
-------- -------- -------- --------
Operating loss.............................. (1,171) (1,482) (4,514) (4,765)
-------- -------- -------- --------
Interest income............................. 766 544 2,024 1,598
Other income................................ 50 50 8,408 154
-------- -------- -------- --------
Income (loss) before income taxes........... (355) (888) 5,918 (3,013)
Income tax expense.......................... (44) (46) (154) (169)
-------- -------- -------- --------
Net income (loss)........................... $ (399) $ (934) $ 5,764 $ (3,182)
===== ===== ===== =====
</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 2000 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 $399,000 or $0.01 per share, and net income
of $5,764,000 or $0.12 per share for the third quarter and nine months ended
September 30, 2000, respectively. The nine month period ended September 30, 2000
includes $8,250,000 of other income principally representing net proceeds
received in connection with the Company's litigation settlement with Zurich SF
Holdings LLC, ("SF Holdings") further described below. Excluding this other
income the Company would have reported a net loss of $2,486,000 for the nine
months ended September 30, 2000. For the third quarter and nine months ended
September 30, 1999 the Company recorded a net loss of $934,000 or $0.02 per
share, and $3,182,000 or $0.07 per share, respectively.
Compensation and benefits increased to $876,000 and $2,699,000 in the third
quarter and nine months ended September 30, 2000, respectively, compared with
$823,000 and $2,524,000 in the respective 1999 periods. The increases are
primarily due to an increase in the accrual for 2000 incentive compensation,
which is not guaranteed, as compared to prior year accruals.
Professional and outside services were $223,000 in the third quarter ended
September 30, 2000, and $1,582,000 in the nine months ended September 30, 2000,
compared to $578,000 and $1,990,000 in the respective 1999 periods. The amounts
in the 2000 periods are comprised of expenses relating to the Supervisory
Goodwill litigation and expenses relating to the litigation settlement with SF
Holdings. The amounts in the 1999 periods are principally comprised of expenses
relating to the Supervisory Goodwill litigation.
<PAGE>
Interest income in the third quarter and nine months ended September 30, 2000
increased to $766,000 and $2,024,000, respectively, from $544,000 and $1,598,000
in the respective 1999 periods. The increases were primarily attributable to an
increased yield on investments and a higher average level of investments held in
2000 compared with 1999.
The additional other income in the 2000 periods and the other income for the
third quarter and nine months ended September 30, 1999 respectively, is
principally due to the continued collection by an inactive subsidiary of a
receivable previously considered uncollectible.
The income tax provisions of $44,000 and $154,000 in the third quarter and nine
months ended September 30, 2000 respectively, and $46,000 and $169,000 in the
third quarter and nine months ended September 30, 1999, respectively, are
primarily attributable to provisions 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.
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 September 30, 2000 and December 31, 1999
with maturity dates of less than one year consist of the following:
<TABLE>
<CAPTION>
2000 1999
======================== ======================
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands) -------- ----- -------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Bills......................... $ 50,919 $ 50,920 $ 43,260 $ 43,259
======= ====== ====== ======
Weighted average interest rate.............. 5.71 % 4.81%
======= ======
</TABLE>
The Company's current policy is to minimize the interest rate risk of its
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 year.
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.
<PAGE>
RECENT DEVELOPMENTS
In November 2000, the Board of Directors approved an amendment to the Company's
existing Shareholder Rights Plan (the "Plan") to extend the expiration date of
the Plan to February 10, 2006 from February 10, 2001.
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The information contained in Item 8 - Note 11 in AmBase's Annual Report on Form
10-K for the year ended December 31, 1999 and in AmBase's Quarterly Report on
Form 10-Q for the quarterly periods ended March 31, 2000 and June 30, 2000 are
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.
(a) The Company is or has been a defendant in a number of lawsuits or proceed-
ings.
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.
(b) Supervisory Goodwill Litigation
On October 2, 2000, Senior Judge Loren Smith of the Court of Federal Claims
heard oral arguments in the Company's supervisory goodwill case against the
United States government. The court heard arguments both as to the contractual
liability of the United States to Carteret Savings Bank, and as to the Company's
claim against the United States under the Takings Clause of the Fifth Amendment.
(c) Other
AmBase Corporation v. City Investing Company Liquidating Trust, et al. On
September 29, 2000, the Trust moved to dismiss the Company's complaint on the
grounds that it fails to state a claim for which relief can be granted and the
Company's claims are barred by the statute of limitations. The Company intends
to file a brief in response to the Trust's motion. No assurance can be given
regarding the ultimate outcome of this litigation.
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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
Does not apply.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4. Rights Agreement dated as of February 10, 1986 between the Company and
American Stock Transfer & Trust Company (as amended March 24, 1989,
November 20, 1990, February 12, 1991, October 15, 1993, February 1,
1996 and November 1, 2000).
27. Financial Data Schedule (submitted to SEC only in electronic format)
(b) Form 8-K
None
<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
------------------------
/s/John P. Ferrara
Vice President, Chief Financial Officer and Controller
(Principal Financial and
Accounting Officer)
Date: November 3, 2000
