UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section
13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2007
or
[ ] 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.)
100 PUTNAM GREEN, 3RD FLOOR
GREENWICH, CONNECTICUT 06830
(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 (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ______
-------
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer X
------- ----- ---------
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
------- -------------
At April 30, 2007, there were 44,968,519 shares outstanding of the
registrant's common stock, $0.01 par value per share.
AmBase Corporation
Quarterly Report on Form 10-Q
March 31, 2007
TABLE OF CONTENTS Page
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).....................................................................1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................16
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........................................19
Item 4T. Controls and Procedures.............................................................................20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................................................20
Item 1A. Risk Factors........................................................................................20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.........................................21
Item 3. Defaults Upon Senior Securities.....................................................................21
Item 4. Submission of Matters to a Vote of Security Holders.................................................21
Item 5. Other Information...................................................................................21
Item 6. Exhibits............................................................................................21
Signatures ....................................................................................................22
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(in thousands, except for share and per share amounts)
March 31, December 31,
2007 2006
======== =========
Assets:
Cash and cash equivalents......................................................... $ 2,336 $ 2,601
Investment securities:
Held to maturity (market value $35,438 and $34,625, respectively)............. 35,436 34,623
Available for sale, carried at fair value .................................... 802 1,417
-------- --------
Total investment securities....................................................... 36,238 36,040
-------- --------
Real estate owned:
Land............................................................................ 554 554
Buildings and improvements...................................................... 1,900 1,900
-------- --------
2,454 2,454
Less: accumulated depreciation................................................. (296) (283)
-------- --------
Real estate owned, net............................................................ 2,158 2,171
Other assets...................................................................... 305 1,336
-------- --------
Total assets...................................................................... $ 41,037 $ 42,148
======== ========
Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and accrued liabilities.......................................... $ 635 $ 1,171
Supplemental retirement plan...................................................... 16,517 16,282
Other liabilities................................................................. 27 28
-------- --------
Total liabilities................................................................. 17,179 17,481
-------- --------
Commitments and contingencies (Note 3)............................................ - -
Stockholders' equity:
Common stock ($0.01 par value, 200,000,000 authorized, 46,410,007 issued and
44,968,519 outstanding)........................................................ 464 464
Paid-in capital................................................................... 548,044 548,044
Accumulated other comprehensive loss.............................................. (52) (336)
Accumulated deficit............................................................... (523,214) (522,121)
Treasury stock, at cost - 1,441,488 and 1,441,488 shares, respectively............ (1,384) (1,384)
-------- --------
Total stockholders' equity........................................................ 23,858 24,667
-------- --------
Total liabilities and stockholders' equity........................................ $ 41,037 $ 42,148
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended March 31
(Unaudited)
(in thousands, except per share data)
Three Months
2007 2006
Revenues: ==== ====
Rental income..................................................... $ - $ 41
Operating expenses:
Compensation and benefits......................................... 1,132 1,088
Professional and outside services................................. 464 718
Property operating and maintenance................................ 23 31
Depreciation .................................................... 13 13
Insurance......................................................... 19 17
Other operating................................................... 38 46
-------- --------
1,689 1,913
-------- --------
Operating loss.................................................... (1,689) (1,872)
-------- --------
Interest income................................................... 465 420
Realized gains on sales of investment securities.................. 156 -
-------- --------
Loss before income taxes.......................................... (1,068) (1,452)
Income tax expense................................................ (25) (33)
-------- --------
Net loss.......................................................... $ (1,093) $ (1,485)
======== ========
Net loss per common share:
Net loss - basic.................................................. $ (0.02) $ (0.03)
======== =======
Net loss - assuming dilution...................................... $ (0.02) $ (0.03)
======== =======
Weighted average common shares outstanding:
Basic............................................................. 44,969 45,829
======== =======
Diluted........................................................... 44,969 45,829
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended March 31
(Unaudited)
(in thousands)
Three Months
2007 2006
====== ======
Net loss............................................................ $(1,093) $(1,485)
Amortization of minimum pension liability adjustment................ 284 -
Unrealized holding gains on investment securities
available for sale............................................. - (89)
------- ------
Comprehensive loss.................................................. $ (809) $(1,574)
======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31
(Unaudited)
(in thousands)
2007 2006
Cash flows from operating activities: ==== ====
Net loss.............................................................................. $(1,093) $ (1,485)
Adjustments to reconcile net loss to net cash used by
operations:
Depreciation and amortization..................................................... 13 13
Accretion of discount - investment securities..................................... (22) -
Realized gains on investment securities available for sale....................... (156) -
Stock-based compensation expense.................................................. - 22
Amortization of minimum pension liability adjustment.............................. 284 -
Changes in other assets and liabilities:
Accrued interest receivable....................................................... (133) 5
Other assets...................................................................... 1,211 12
Accounts payable and accrued liabilities.......................................... (536) (775)
Supplemental retirement plan and other liabilities................................ 234 462
Other, net........................................................................ 1 2
-------- ----------
Net cash used by operating activities................................................. (197) (1,744)
-------- ----------
Cash flows from investing activities:
Maturities of investment securities - held to maturity................................ 14,112 28,098
Purchases of investment securities - held to maturity................................. (14,950) (26,978)
Sales of investment securities - available for sale................................... 770 -
-------- ---------
Net cash (used) provided by investing activities...................................... (68) 1,120
-------- ---------
Cash flows from financing activities:
Common stock repurchased.............................................................. - (563)
-------- ---------
Net cash used by financing activities................................................. - (563)
-------- ---------
Net decrease in cash and cash equivalents............................................. (265) (1,187)
Cash and cash equivalents at beginning of period...................................... 2,601 2,852
-------- ---------
Cash and cash equivalents at end of period............................................ $ 2,336 $ 1,665
======== =========
Supplemental cash flow disclosures:
Income taxes paid..................................................................... $ 32 $ 427
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization
The accompanying consolidated financial statements of AmBase Corporation
and its wholly-owned 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 only of normal recurring adjustments unless
otherwise disclosed, necessary for a fair statement 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 prior year consolidated financial statements to conform
with the current year presentation. The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. 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 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, 2006.
The Company's assets currently consist primarily of cash and cash
equivalents, investment securities, and real estate owned. The Company earns
non-operating revenue principally consisting of investment earnings on
investment securities and cash equivalents. The Company continues to evaluate a
number of possible acquisitions, and is engaged in the management of its assets
and liabilities, including the contingent assets, as described in Part II - Item
1. From time to time, the Company and its subsidiaries may be named as a
defendant in various lawsuits or proceedings. The Company intends to
aggressively contest all litigation and contingencies, as well as pursue all
sources for contributions to settlements.
The Company's management expects that operating cash needs for the
remainder of 2007 will be met principally by the receipt of non-operating
revenue consisting of investment earnings on investment securities and cash
equivalents, and the Company's current financial resources. See Note 10 herein
for information regarding the anticipated Supplemental Plan lump-sum benefit
payment of $16,676,115 (to Mr. Bianco, the Company's Chairman, President and
Chief Executive Officer), expected to be paid on or about May 31, 2007. The
anticipated lump-sum Supplemental Plan benefit payment to Mr. Bianco is expected
to be paid to him from the Company's available financial resources.
Note 2 - Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 175, "Fair Value Measurements" ("SFAS157"). SFAS No. 175 defines fair
values, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. SFAS No. 157 is effective for the Company in
2008. The Company is currently evaluating the potential impact of adopting SFAS
No. 157.
In February 2007, the FASB issues SFAS No. 159,"The Fair Value Option for
Financial Assets and Financial Liabilities - including an Amendment of FASB
Statement No. 115" ("SFAS159"). SFAS No. 159 permits entities to measure
eligible financial assets, financial liabilities and certain other assets and
liabilities at fair value on an instrument-by-instrument basis. The fair value
measurement election is irrevocable once made and subsequent changes in fair
value must be recorded in earnings. The effect of adoption will be reported as a
cumulative-effect adjustment to beginning retained earnings. The Company will
adopt SFAS No. 159 in 2008 and is currently evaluating if it will elect the fair
value option for any of its eligible financial instruments and other items.
Effective January 1, 2007, the Company adopted the Financial Accounting
Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes," an interpretation of FASB Statement 109, "Accounting for Income
Taxes" ("FIN 48"). FIN 48 applies to all "tax positions" accounted for under
FASB Statement 109. FIN 48 refers to "tax positions" as positions taken in a
previously filed tax return or positions expected to be taken in a future tax
return that are reflected in measuring current of deferred income tax assets and
liabilities reported in the financial statement. FIN 48 clarifies the accounting
for income taxes by prescribing a minimum recognition threshold a tax position
is required to meet before being recognized in the financial statements. FIN 48
also provides guidance on derecognition, measurement, classification, interest
and penalties, accounting in interim periods, disclosure and transition. The
adoption of FIN 48 had no effect on the Company's results of operations or
financial position.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 158, "Employer's Accounting for Defined Benefit Pension and Other
Postretirement Plans, an Amendment of SFAS No. 87, 88, 106 and 132R" ("SFAS
158"). SFAS 158 requires an employer to (i) recognize in its statement of
financial position an asset for a plan's over funded status or a liability for a
plan's under funded status; (ii) measure a plan's assets and its obligations
that determine its funded status as of the end of the employer's fiscal year
(with limited exceptions); and (iii) recognize changes in the funded status of a
defined benefit postretirement plan in the year in which the changes occur.
Those changes will be reported in comprehensive income of a business entity. The
requirement to recognize the funded status of a benefit plan and the disclosure
requirements are effective as of the end of the fiscal year ending after
December 15, 2006, for entities with publicly traded equity securities, and at
the end of the fiscal year ending after June 15, 2007, for all other entities.
The requirement to measure plan assets and benefit obligations as of the date of
the employer's fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. We do not believe that the adoption
of SFAS 158 will have a material effect on the Company's consolidated financial
statements as the Company intends to terminate its Supplemental Retirement Plan
(the "Supplemental Plan") on or about May 31, 2007, as further discussed in Note
11 herein. The Company will continue to recognize an expense through to the date
on which the Supplemental Plan will terminate. The ultimate liability related to
the final termination of the Supplemental Plan is not reflected as all
conditions for the final termination of the Supplemental Plan have not yet been
met.
Note 3 - Legal Proceedings
The information contained in Item 8 - Note 10 in AmBase's Annual Report on
Form 10-K for the year ended December 31, 2006, is incorporated by reference
herein and the defined terms set forth below have the same meaning ascribed to
them in that report. There have been no material developments in such legal
proceedings, except as set forth below.
The Company is or has been a party in a number of lawsuits or proceedings,
including the following:
Supervisory Goodwill Litigation. On April 13, 2007, Senior Judge Smith
("Judge Smith") of the United States Court of Federal Claims (the "Court of
Claims" or the "Court") issued an order scheduling pre-trial, and trial
deadlines and dates, including scheduling a trial to commence on February 11,
2008.
The Court order stated that pursuant to the status conference held on April
12, 2007, the Court scheduled oral argument for November 2007 at the U.S. Court
of Federal Claims, to decide whether the trial schedule below can be avoided by
summary judgment. The parties were ordered to submit their respective positions
with regard to summary judgment, in writing, on or before October 31, 2007.
The Court scheduled pre-trial and trial deadlines and dates according to
the following schedule: December 7, 2007 - Parties exchange exhibit and witness
lists; December 21, 2007 - Plaintiffs and FDIC-R file Appendix A submissions;
January 21, 2008 - Defendant files Appendix A submissions; February 11, 2008 -
Trial to commence.
The Court further scheduled a pretrial conference to be held on January 30,
2008, in U.S. Court of Federal Claims.
Both the Court of Federal Claims and the Court of appeals for the Federal
Circuit have issued numerous decisions in cases that involve claims against the
United States based upon its breach of its contracts with savings and loan
institutions through its 1989 enactment of FIRREA. In particular, the Federal
Circuit has issued decisions rejecting Takings Clause claims advanced by
shareholders of failed thrifts. Castle v. United States, 301F.3d 1328 (Fed. Cir.
2002; Bailey v. United States, 341F.3d 1342 (Fed. Cir. 2003) petition for
certiorari which was filed January 26, 2004. In April 2004, the Company filed an
amicus brief in support of the petition for certiorari filed by Bailey. In June
2004, the United States Supreme Court denied the petition for certiorari filed
by Bailey. The Court of Claims opinions in the Company's case, as well as other
decisions in Winstar-related cases are publicly available on the Court of Claims
web site at www.cofc.uscourts.gov. Decisions in other Winstar-related cases may
be relevant to the Company's Supervisory Goodwill claims, but are not
necessarily indicative of the ultimate outcome of the Company's actions. The
Company can give no assurances regarding, the commencement date of a trial or
the ultimate outcome of the litigation.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Cash and Cash Equivalents
Highly liquid investments, consisting principally of funds held in
short-term money market accounts with original maturities of less than three
months, are classified as cash equivalents.
Note 5 - Investment Securities
Investment securities - held to maturity consist of U.S. Treasury Bills and
a U.S. Treasury Note 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 - available for sale, consist of investments in
equity securities held for an indefinite period and are carried at fair value
with net unrealized gains and losses recorded directly in a separate component
of stockholders' equity.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Investment securities consist of the following:
March 31, 2007 December 31, 2006
======================================= ======================================
Cost or Cost or
Carrying Amortized Fair Carrying Amortized Fair
(in thousands) Value Cost Value Value Cost Value
======== ========== ======= ======== ========= ========
Held to Maturity:
U.S. Treasury Bills........ $ 18,978 $ 18,978 $ 18,983 $ 18,187 $ 18,187 $ 18,196
U.S. Treasury Note......... 16,458 16,458 16,455 16,436 16,436 16,429
----------- ----------- --------- --------- --------- ----------
35,436 35,436 35,438 34,623 34,623 34,625
----------- ----------- --------- --------- --------- ----------
Available for Sale:
Equity Securities.......... 802 664 802 1,417 1,279 1,417
----------- ----------- --------- --------- --------- ----------
$ 36,238 $ 36,100 $36,240 $ 36,040 $ 35,902 $ 36,042
========= =========== ========= ========= ========= ==========
The gross unrealized gains (losses) on investment securities, at March 31,
2007 and December 31, 2006 consist of the following:
(in thousands) 2007 2006
======= ======
Held to Maturity:.
Gross unrealized gains.................................................................. $ 5 $ 9
======== =======
Gross unrealized losses................................................................. $ (3) $ (7)
======== =======
Available for Sale:
Gross unrealized gains.................................................................. $ 138 $ 138
======== =======
Gross unrealized losses................................................................. $ - $ -
======== =======
The realized gain on the sales of investment securities available for sale
for the three months ended March 31, 2007 was as follows:
Three Months
(in thousands) 2007
============
Net sale proceeds....................................................................... $ 770
Cost basis.............................................................................. (614)
------------
Realized gains.......................................................................... $ 156
============
No investment securities were sold during the three month period ended
March 31, 2006.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 6 - Property Owned
As of March 31, 2007, the Company owns one commercial office building in
Greenwich, Connecticut that contains approximately 14,500 square feet. The
Company utilizes a small portion of the office space for its executive offices,
with the remaining square footage available for lease to unaffiliated third
parties.
Although the portion of the building not being utilized by the Company is
currently unoccupied and available for lease, based on the Company's analysis
including but not limited to current market rents in the area, leasing values,
and comparable property sales, the Company believes the property's fair market
value exceeds the property's current carrying value; and, therefore the carrying
value of the property as of March 31, 2007, has not been impaired.
Depreciation expense is recorded on a straight-line basis over 39 years.
The building and improvements are carried at cost, net of accumulated
depreciation of $296,000 and $283,000, at March 31, 2007 and December 31, 2006,
respectively.
Rental income for the three months ended March 31, 2006, is attributable to
operating leases with tenants. Minimum lease rentals are recognized on a
straight-line basis over the terms of the leases. The cumulative difference
between lease revenue recognized under this method and the contractual lease
payment terms, if any, is recorded as deferred rent receivable or payable and
would be included in other assets or other liabilities on the Consolidated
Balance Sheets. Revenue from tenant reimbursement of common area maintenance,
utilities and other operating expenses are recognized pursuant to the tenant
lease agreements when earned and due from tenants.
Property operating and maintenance expenses for common area maintenance,
utilities, real estate taxes and other reimbursable operating expenses are not
reduced by amounts reimbursable by tenants pursuant to applicable lease
agreements.
Note 7 - 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, greater than 50% probability exists that the tax benefits will actually be
realized sometime in the future. The Company has calculated a net deferred tax
asset of $31 million as of March 31, 2007 and December 31, 2006, arising
primarily from net operating loss ("NOL") carryforwards, alternative minimum tax
("AMT") 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 December 4, 1992
placement of Carteret in receivership, under the management of the Resolution
Trust Corporation ("RTC")/Federal Deposit Insurance Corporation ("FDIC"), and
then 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's 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 "1992 Amended
Return"). The Company is still in the process of amending its consolidated
federal income tax returns for 1993 and subsequent years.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 filing of the
1992 Amended Return, approximately $56 million of NOL carryforwards are
generated for tax year 1992 which expire in 2007, with the remaining
approximately $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.
The Company can give no assurances with regard to the 1992 Amended Return, or
amended returns for subsequent years, or the final amount or expiration of NOL
carryforwards ultimately generated from the Company's tax basis in Carteret.
In March 2000, the Company filed several carryback claims and amendments to
previously filed carryback claims with the IRS (the "Carryback Claims") seeking
refunds from the IRS of alternative minimum tax and other federal income taxes
paid by the Company in prior years plus applicable IRS interest, based on the
filing of the 1992 Amended Return. In April 2003, IRS examiners issued a letter
to the Company proposing to disallow the Carryback Claims. The Company sought
administrative review of the letter by protesting to the Appeals Division of the
IRS. In February 2005, IRS Appeals officials completed their review of the
Carryback Claims, and disallowed them. The Company is currently considering
whether to file suit for the tax refunds it seeks, plus interest, with respect
to the Carryback Claims. Even if the Company files suit, the Company can give no
assurances as to the final amounts of refunds, if any, or when they might be
received.
Based upon the Company's federal income tax returns as filed from 1993 to
2005 (subject to IRS audit adjustments), excluding the NOL carryforwards
utilized in 2005, and excluding the NOL carryforwards generated from the
Company's tax basis in Carteret/Carteret FSB, as noted above at March 31, 2007,
the Company has NOL carryforwards aggregating approximately $30 million,
available to reduce future federal taxable income which expire if unused
beginning in 2009. The Company's federal income tax returns for years subsequent
to 1992 have not been reviewed by the IRS.
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 AMT credit carryforwards ("AMT Credits"), which are not subject to
expiration. Based on the filing of the Carryback Claims, as further discussed
above, the Company is seeking to realize approximately $8 million of the $21
million of AMT Credits.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 8 - Comprehensive Income (Loss)
Comprehensive income (loss) is composed of net income (loss) and other
comprehensive income (loss) which includes the change in unrealized gains
(losses) on investment securities available for sale and recognition of
additional minimum pension liability, as follows:
Three Months Ended
(in thousands) March 31, 2007
================================================
Minimum Unrealized Accumulated
Pension Gains (Losses) Other
Liability on Investment Comprehensive
Adjustment Securities Income (Loss)
========= =========== ============
Balance beginning of period.. $ (474) $ 138 $ (336)
Reclassification adjustment for
gains realized in net loss. - (67) (67)
Change during the period..... 284 67 351
--------- ----------- --------------
Balance end of period........ $ (190) $ 138 $ (52)
========= =========== ==============
Three Months Ended
(in thousands) March 31, 2006
================================================
Minimum Unrealized Accumulated
Pension Gains (Losses) Other
Liability on Investment Comprehensive
Adjustment Securities Income (Loss)
========== ============= =============
Balance beginning of period.. $ (1,326) $ (69) $ (1,395)
Change during the period..... - (89) (89)
................................--------- ------------- ---------------
Balance end of period........ $ (1,326) $ (158) $ (1,484)
========= ============= ============
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9 - Stock-Based Compensation
Under the Company's 1993 Stock Incentive Plan (the "1993 Plan"), the
Company may grant to officers and employees of the Company and its subsidiaries,
stock options ("Options"), stock appreciation rights ("SARs"), restricted stock
awards ("Restricted Stock"), merit awards ("Merit Awards") and performance share
awards ("Performance Shares"), through May 28, 2008. An aggregate of 5,000,000
shares of the Company's Common Stock are reserved for issuance under the 1993
Plan (upon the exercise of Options and Stock Appreciation Rights, upon awards of
Restricted Stock and Performance Shares); however, of such shares, only
2,500,000 shares in the aggregate shall be available for issuance for Restricted
Stock Awards and Merit Awards. Such shares shall be authorized but unissued
shares of Common Stock. As of March 31, 2007, there were 4,124,000 shares
available for future stock option grants. Options may be granted as incentive
stock options ("ISOs") intended to qualify for favorable tax treatment under
Federal tax law or as nonqualified stock options ("NQSOs"). SARs may be granted
with respect to any Options granted under the 1993 Plan and may be exercised
only when the underlying Option is exercisable. The 1993 Plan requires that the
exercise price of all Options and SARs be equal to or greater than the fair
market value of the Company's Common Stock on the date of grant of that Option.
The term of any ISO or related SAR cannot exceed ten years from the date of
grant, and the term of any NQSO cannot exceed ten years and one month from the
date of grant. Subject to the terms of the 1993 Plan and any additional
restrictions imposed at the time of grant, Options and any related SARs
ordinarily will become exercisable commencing one year after the date of grant.
Options granted generally have a ten year contractual life and generally have
vesting terms of two years from the date of grant. In the case of a "Change of
Control" of the Company (as defined in the 1993 Plan), Options granted pursuant
to the 1993 Plan may become fully exercisable as to all optioned shares from and
after the date of such Change in Control in the discretion of the Committee or
as may otherwise be provided in the grantee's Option agreement. Death,
retirement, or absence for disability will not result in the cancellation of any
Options.
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of SFAS 123R, using the modified prospective application method.
Under this method, stock-based compensation expense for the three months ended
March 31, 2007 and March 31, 2006, includes compensation expense for all
stock-based compensation awards granted prior to, but not yet vested as of
January 1, 2006, based on the grant date fair value estimated in accordance with
the original provisions of SFAS 123. Stock-based compensation expense for all
stock-based compensation awards granted after January 1, 2006, for which vesting
is based solely on employment service, will be based on the grant date fair
value estimated in accordance with the provisions of SFAS 123R. The Company
recognizes these compensation costs for only those shares expected to vest, on a
straight-line basis over the requisite service period of the award, which is
generally the option vesting term of two years.
During the three months ended March 31, 2007 and March 31, 2006, the
Company recorded compensation expense of $0 and $22,000, respectively, relating
to unvested stock options. Compensation expense relating to stock options is
recorded as a reduction to additional paid in capital in the statement of
stockholders' equity.
The fair value of each option award was estimated on the date of grant
using the Black-Scholes-Merton option valuation model ("Black-Scholes") that
uses the assumptions noted in the following table. Expected volatilities are
based on historical volatility of the Company's stock. The Company uses
historical data to estimate option exercises and employee terminations within
the valuation model. The expected term of options granted is estimated based on
the contractual lives of option grants, option vesting period and historical
data and represents the period of time that options granted are expected to be
outstanding. The risk-free interest rate for periods within the contractual life
of the option is based on the U.S. Treasury bond yield in effect at the time of
grant. No adjustments were made in 2007 or 2006 to the input assumptions for the
calculation of the fair value of stock options granted prior years.
The Black-Scholes option valuation model requires the input of highly
subjective assumptions, including the expected life of the stock-based award and
stock price volatility. The assumptions noted herein represent management's best
estimates, but these estimates involve inherent uncertainties and the
application of management judgment. As a result, if other assumptions had been
used, our recorded stock-based compensation expense could have been materially
different from that depicted herein. In addition, we are required to estimate
the expected forfeiture rate and only recognize expense for those shares
expected to vest. If our actual forfeiture rate is materially different from our
estimate, the share-based compensation expense could be materially different.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company believes that the use of the Black-Scholes model meets the fair
value measurement objectives of SFAS 123R and reflects all substantive
characteristics of the instruments being valued. No stock options were granted
during the year to date period ending March 31, 2007 or March 31, 2006. The per
share grant date weighted average estimated values of employee stock option
grants under the 1993 Plan, as well as the assumptions used to calculate such
values granted in January 2005, were are as follows:
2005
-----------------
Weighted average fair value at grant date.............................. $0.39
Expected dividend yield................................................ 0%
Risk-free interest rate................................................ 4.24%
Expected volatility.................................................... 0.44
Expected life in years................................................. 6
The following table reports stock option activity during the three month
period ended March 31, 2007:
Weighted
Weighted Average
Average Remaining
Number of Exercise Contractual
Shares Price Life (in years)
--------- -------- ---------------
Outstanding at January 1, 2007...... 1,240,000 $ 1.01
Expired............................. (364,000) 1.19
--------- ======
Outstanding at March 31, 2007....... 876,000 $ 0.94 5.98
========= ====== ====
Exercisable at March 31, 2007....... 876,000 $ 0.94 5.98
========= ====== ====
At March 31, 2007, the exercise price of stock options outstanding and
exercisable was greater than the market price of the Company's stock; therefore,
no intrinsic value for stock options is reflected above.
The following table presents information regarding non-vested share activity
during the three month period ended March 31, 2007:
Weighted
Average
Number of Grant-Date
Shares Fair Value
--------- ----------
Non-vested at January 1, 2007....... 204,000 $ 0.47
Vested during period................ (204,000) 0.47
--------- ======
Non-vested at March 31, 2007........ - -
========= ======
The total fair value of shares vested during the three month period ended
March 31, 2007 and March 31, 2006, was $96,000 and $134,000, respectively. As of
March 31, 2007, there was no unrecognized compensation costs relating to
non-vested share-based compensation arrangements for stock options granted under
the 1993 Plan.
Options to purchase 876,000 shares of common stock for the three months
ended March 31, 2007, and 1,440,000 shares of common stock for the three months
ended March 31, 2006, were excluded from the computation of diluted earnings per
share because these options were antidilutive.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 - Pension and Savings Plans
The Company sponsors a non tax-qualified supplemental retirement plan,
initially adopted by the Company in 1985, and as amended and restated (the
"Supplemental Plan"), under which only one current executive officer of the
Company is currently the sole participant. The cost of the Supplemental Plan is
accrued but not funded.
The liability for the Supplemental Plan, which is accrued but not funded,
increased to $16,517,000 at March 31, 2007 from $16,282,000 at December 31,
2006. The Supplemental Plan liability reflects the March 31, 2007 present value
of the anticipated May 31, 2007 lump-sum payment amount of $16,676,115,
utilizing a 5.75% discount rate factor. The Supplemental Plan liability can be
further affected by changes in discount rates, mortality, and experience which
could be different from those assumed.
The Personnel Committee of the Board of Directors of the Company (the
"Personnel Committee") reviewed the Supplemental Plan and the Company's related
liability, including the desirability of continuing to maintain and administer
the Supplemental Plan, the untying of Mr. Bianco's future employment with the
Company from the timing of his Supplemental Plan benefit payment(s), the
Company's overall financial position, and the desirability of continued accruals
under the Supplemental Plan after Mr. Bianco's current employment contract
expires on May 31, 2007. In connection with this review, the Personnel Committee
considered various options, including whether or not to terminate and/or curtail
the Supplemental Plan. Mr. Bianco (the Company's Chairman, President and Chief
Executive Officer, and the former President and Chief Executive Officer of
Carteret Savings Bank, FA), is the only current employee of the Company who
participates in the Supplemental Plan and his Supplemental Plan benefit is fully
vested. For purposes of computing his accrued benefit under the Supplemental
Plan, Mr. Bianco had 14.67 years of credited service as of December 31, 2005,
and assuming continued employment with the Company, will have 16.08 years of
credited service upon the expiration of his current employment contract with the
Company on May 31, 2007. His accrual percentage under the Supplemental Plan is
4%, in effect from the time of his initial employment with the Company, and in
accordance with the Supplemental Plan (prior to the amendment described below),
he had the entitlement to receive his Supplemental Plan benefit in either a
lump-sum or an annuity upon termination of his employment with the Company.
During March 2006, the Company entered into a new employment agreement with
Mr. Bianco to extend his employment with the Company for an additional five (5)
years beyond May 31, 2007, until May 31, 2012 (the "2007 Employment Agreement").
As part of the 2007 Employment Agreement terms (i) Mr. Bianco's annual rate of
base salary will not increase from his current rate of base salary during the
first three years of the 2007 Employment Agreement (the amount of Mr. Bianco's
base salary for the fourth and fifth years of the 2007 Employment Agreement term
to be determined by the Personnel Committee, in its sole discretion, although in
no event less than $625,000 per annum); (ii) Mr. Bianco's service accruals under
the Supplemental Plan will cease as of May 31, 2007; (iii) Mr. Bianco's Final
Average Earnings (as defined in the Supplemental Plan) for Supplemental Plan
benefit calculation purposes, are capped as of December 31, 2004; and (iv) Mr.
Bianco's annual bonus opportunity will no longer be linked to recovery efforts
in connection with the Company's Supervisory Goodwill litigation. Instead, on or
about May 31, 2007, Mr. Bianco will receive a lump-sum payment of his
Supplemental Plan benefit of $16,676,115, which amount was calculated on the
basis of a 5.75% discount rate, a "RP-2000" projected to 2004 mortality table,
and 16.08 years of credited service, and the Company and Mr. Bianco have agreed
to a long term incentive bonus formula, at varying percentages ranging from 5%
to 10%, or more, based upon recoveries received by the Company for its
investment in Carteret Savings Bank, through litigation or otherwise (including
the Company's Supervisory Goodwill litigation). The anticipated lump-sum
Supplemental Plan benefit payment to Mr. Bianco is expected to be paid to him
from the Company's available financial resources.
The Supplemental Plan has been amended to provide for its automatic
termination immediately following the payment to Mr. Bianco of his Supplemental
Plan lump-sum benefit on or about May 31, 2007. In accordance with the
accounting for the Supplemental Plan's scheduled termination on or about May 31,
2007, in accordance with GAAP, the ultimate liability relating to the
anticipated termination of the Supplemental Plan is not reflected in the
financial statements presented herein, as all conditions for the final
termination of the Supplemental Plan have not yet been met. The Company will
continue to recognize an expense for the Supplemental Plan and the Supplemental
Plan liability will increase through the date on which the Supplemental Plan is
terminated.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Based on the 2007 Employment Agreement and the amendment of the
Supplemental Plan, each as described above, the Company revised the calculation
of the Supplemental Plan liability to reflect a 5.75% discount rate as of April
1, 2006, as set forth in the agreements. The Supplemental Plan liability was
increased by an expense of $235,000 in the first quarter ended March 31, 2007,
to reflect the March 31, 2007 present value of the anticipated May 31, 2007
lump-sum payment amount of $16,676,115, utilizing the 5.75% discount rate
factor.
An additional Supplemental Plan expense of $284,000 was recorded in the
three month period ended March 31, 2007, to amortize the Supplemental Plan
minimum pension liability adjustment. The minimum pension liability adjustment,
which is included as a component of stockholders' equity within accumulated
other comprehensive loss in the Company's consolidated financial statements, was
$1,326,000 as of March 31, 2006, and is being amortized on a straight line basis
over the 14-month period ending May 31, 2007 as an additional Supplemental Plan
expense of $284,000 per quarter. This resulted in an aggregate Supplemental Plan
expense of $519,000 for the first quarter period ended March 31, 2007, as
compared to $464,000 for the first quarter period ended March 31, 2006. The
amortization of the additional minimum pension liability of $284,000 in the
three month period ended March 31, 2007, although recorded as a component of
compensation expense in the Company's consolidated statement of operations, does
not result in a decrease in total stockholders' equity, as its recognition
results in an increase in one component and a corresponding decrease in another
component of stockholders' equity. See Part I - Item 1 - Note 8, herein for
further information.
The Company sponsors the AmBase 401(k) Savings Plan (the "Savings Plan"),
which is a "Section 401(k) Plan" within the meaning of the Internal Revenue Code
of 1986, as amended (the "Code"). The Savings Plan permits eligible employees to
make contributions of up to 15% of compensation, which are matched by the
Company at a percentage determined annually. The employer match is currently
100% of the amount the employee elects to defer. Employee contributions to the
Savings Plan are invested at the employee's discretion, in various investment
funds. The Company's matching contributions are invested in the same manner as
the compensation reduction contributions. The Company's matching contributions
to the Savings Plan, charged to expense, were $50,000 for the three months ended
March 31, 2007 and $52,000 for the three months ended March 31, 2006. All
contributions are subject to maximum limitations contained in the Code.
Note 11 - Common Stock Repurchase Plan
In January 2002, the Company announced a common stock repurchase plan (the
"Repurchase Plan") which allows for the repurchase by the Company for up to 10
million shares of its common stock in the open market.
The Repurchase Plan is conditioned upon favorable business conditions and
acceptable prices for the common stock. Purchases under the Repurchase Plan may
be made, from time to time, in the open market, through block trades or
otherwise. Depending on market conditions and other factors, purchases may be
commenced or suspended any time or from time to time without prior notice.
(a) Total (b) (c) Total Number
Number of Average Shares Purchased (d) Maximum Number
Shares Price Paid as Part of Publicly Shares that may yet be
Purchased per Share Announced Plans Purchased under the Plan
--------- --------------- ------------------- ---------------------------------
Beginning balance January 1, 2007......... - - 1,315,000 8,685,000
January 1, 2007 - January 31, 2007........ - - 1,315,000 8,685,000
February 1, 2007 - February 28, 2007...... - - 1,315,000 8,685,000
March 1, 2007 - March 31, 2007............ - - 1,315,000 8,685,000
--------
Total.................................... -
========
During April 2007, the Company repurchased an aggregate of 110,000 shares
of common stock from unaffiliated parties at a purchase price, including broker
commissions, of $0.48 per share pursuant to the Company's Repurchase Plan.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This quarterly report may contain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the "Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or make oral statements that constitute forward-looking
statements. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
or quantified. The forward-looking statements may relate to such matters as
anticipated financial performance, future revenues or earnings, business
prospects, projected ventures, anticipated market performance, anticipated
litigation results or the timing of pending litigation, and similar matters.
When used in this Annual Report, the words "estimates," "expects,"
"anticipates," "believes," "plans," "intends" and variations of such words and
similar expressions are intended to identify forward-looking statements that
involve risks and uncertainties. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company cautions readers that a variety
of factors could cause the Company's actual results to differ materially from
the anticipated results or other expectations expressed in the Company's
forward-looking statements. These risks and uncertainties, many of which are
beyond the Company's control, include, but are not limited to: (i) transaction
volume in the securities markets; (ii) the volatility of the securities markets;
(iii) fluctuations in interest rates; (iv) risks inherent in the real estate
business, including, but not limited to tenant defaults, changes in occupancy
rates or real estate values; (v) changes in regulatory requirements which could
affect the cost of doing business; (vi) general economic conditions; (vii)
changes in the rate of inflation and the related impact on the securities
markets; (viii) changes in federal and state tax laws; and (ix) risks arising
from unfavorable decisions in our current material litigation matters, or
unfavorable decisions in other supervisory goodwill cases. These are not the
only risks that we face. There may be additional risks that we do not presently
know of or that we currently believe are immaterial which could also impair our
business and financial position.
Undue reliance should not be placed on these forward-looking statements,
which are applicable only as of the date hereof. The Company undertakes no
obligation to revise or update these forward-looking statements to reflect
events or circumstances that arise after the date of this quarterly report or to
reflect the occurrence of unanticipated events. Accordingly, there is no
assurance that the Company's expectations will be realized.
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 Part I - Item 1,
herein and the Company's Annual Report on Form 10-K for the year ended December
31, 2006.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets at March 31, 2007, aggregated $41,037,000 consisting
principally of cash and cash equivalents of $2,336,000, investment securities of
$36,238,000 and real estate owned of $2,158,000. At March 31, 2007, the
Company's liabilities aggregated $17,179,000. Total stockholders equity was
$23,858,000.
The liability for the Company's non tax-qualified supplemental retirement
plan, initially adopted by the Company in 1985, and as amended and restated (the
"Supplemental Plan"), which is accrued but not funded, increased to $16,517,000
at March 31, 2007 from $16,282,000 at December 31, 2006. The Supplemental Plan
liability reflects the March 31, 2007 present value of the anticipated May 31,
2007 lump-sum payment amount of $16,676,115, utilizing a 5.75% discount rate
factor. The Supplemental Plan liability can be further affected by changes in
discount rates, mortality, and experience which could be different from those
assumed.
The anticipated May 31, 2007 lump-sum Supplemental Plan benefit payment to
Mr. Bianco is expected to be paid to him from the Company's available financial
resources. The Supplemental Plan has been amended to provide for its automatic
termination immediately following the payment to Mr. Bianco of his Supplemental
Plan lump-sum benefit on or about May 31, 2007. In accordance with the
accounting for the Supplemental Plan's scheduled termination on or about May 31,
2007, in accordance with GAAP, the ultimate liability relating to the
anticipated termination of the Supplemental Plan is not reflected in the
financial statements presented herein, as all conditions for the final
termination of the Supplemental Plan have not yet been met. The Company will
continue to recognize an expense for the Supplemental Plan and the Supplemental
Plan liability will increase through the date on which the Supplemental Plan is
terminated.
For a further discussion of the Supplemental Plan and Mr. Bianco's 2007
Employment Agreement, see Part I - Item 1 - Note 10 to the Company's
consolidated financial statements.
For the three months ended March 31, 2007, cash of $197,000 was used by
operations, including the payment of prior year accruals and operating expenses,
partially offset by the receipt of interest income and investment earnings. The
cash needs of the Company for the first three months of 2007 were satisfied by
the receipt of investment earnings received on investment securities and cash
equivalents and the Company's current financial resources. Management believes
that the Company's capital resources are sufficient to continue operations for
2007.
See Part I - Item 1, Note 10 to the Company's consolidated financial
statements for information regarding the anticipated Supplemental Plan lump-sum
benefit payment of $16,676,115 (to Mr. Bianco, the Company's Chairman, President
and Chief Executive Officer), expected to be paid on or about May 31, 2007. The
anticipated May 31, 2007 lump-sum Supplemental Plan benefit payment to Mr.
Bianco is expected to be paid to him from the Company's available financial
resources. The Supplemental Plan has been amended to provide for its automatic
termination immediately following the payment to Mr. Bianco of his Supplemental
Plan lump-sum benefit on or about May 31, 2007.
Upon termination of the Supplemental Plan, the Company will no longer incur
an expense for the Supplemental Plan, which is included as a component of
compensation and benefits in the Company's Consolidated Statement of
Operations, included in Part I - Item I herein. The Supplemental Plan expense
was $519,000 for the three months ended May 31, 2007, compared to $464,000 for
the three months ended March 31, 2006. See Results of Operations below for
further information.
Likewise, the Supplemental Plan lump-sum benefit payment to Mr. Bianco
will decrease in the Company's cash equivalents and investment securities by
approximately $16.7 million, which will result in a decrease in the interest
income earned by the Company beginning in June 2007. See Item 3 - Quantitative
and Qualitative Disclosure about Market Risk for information concerning the
Company's weighted average interest rate yield on investment securities as of
March 31, 2007.
For the three months ended March 31, 2006, cash of $1,744,000 was used by
continuing operations, including the payment of prior year accruals and
operating expenses partially offset by the receipt of rental income, interest
income, and investment earnings.
The Company continues to evaluate a number of possible acquisitions and is
engaged in the management of its assets and liabilities, including the
contingent assets. Discussions and negotiations are ongoing with respect to
certain of these matters. The Company intends to aggressively contest all
litigation and contingencies, as well as pursue all sources for contributions to
settlements. For a discussion of lawsuits and proceedings, including the
Supervisory Goodwill litigation see Part I - Item 1 - Note 3.
As of March 31, 2007, the Company owns one commercial office building in
Greenwich, Connecticut. The building is approximately 14,500 square feet;
approximately 3,500 square feet is utilized by the Company for its executive
offices; the remaining space is currently unoccupied and available for lease.
There are no material commitments for capital expenditures as of March 31,
2007. See Part I - Item 1 - Note 10 to the Company's consolidated financial
statements for information regarding the anticipated Supplemental Plan lump-sum
benefit payment of $16,676,115 (to Mr. Bianco, the Company's Chairman, President
and Chief Executive Officer), expected to be paid on or about May 31, 2007.
Inflation has had no material impact on the business and operations of the
Company.
No shares of common stock were purchased by the Company pursuant to the
Company's Repurchase Plan during the three month period ended March 31, 2007.
See Part I - Item 1 - Note 11 for further details with regard to the Company's
common stock repurchase plan.
Results of Operations for the Three Months ended March 31, 2007 vs. the
Three Months Ended March 31, 2006
The Company's main source of operating revenue has recently been rental
income earned on real estate owned. The Company also earns non-operating revenue
consisting principally of investment earnings on investment securities and cash
equivalents. The Company's management expects that operating cash needs for the
remainder of 2007 will be met principally by the receipt of non-operating
revenue consisting of investment earnings on investment securities and cash
equivalents, and the Company's current financial resources.
As indicated herein, rental income from real estate owned represents the
Company's remaining property and was $ - for the three months ended March 31,
2007, as compared to $41,000 for the three months ended March 31, 2006. The
decreased amount in the 2007 period, compared to $41,000 in the 2006 period, is
due to unoccupied office space currently available for lease, versus occupancy
in the same 2006 period.
Although the portion of the building not being utilized by the Company is
currently unoccupied and available for lease, based on the Company's analysis,
including but not limited to current market rents in the area, leasing values,
and comparable property sales, the Company believes the property's fair market
value exceeds the property's current carrying value; and, therefore the carrying
value of the property as of March 31, 2007 has not been impaired.
Compensation and benefits increased to $1,132,000 in the three months ended
March 31, 2007, compared with $1,088,000 in same 2006 period. The increase is
primarily due to an increased Supplemental Retirement Plan ("Supplemental Plan")
expense in the three month period ended March 31, 2007 versus the same 2006
period as further described below, offset slightly by a lower level of incentive
compensation accruals in 2007 versus 2006.
The Supplemental Plan expense was $519,000 for the three months ended March
31, 2007, compared to $464,000 for the three months ended March 31, 2006. Upon
termination of the Supplemental Plan, as further described in Part I - Item 1,
Note 10 to the Company's consolidated financial statement, the Company will no
longer incur an expense for the Supplemental Plan.
The increased Supplemental Plan expense is due to recognition of an expense
for the three month period ended March 31, 2007 of $235,000, recorded to
increase the Supplemental Plan liability to reflect the March 31, 2007 present
value of the anticipated May 31, 2007 lump-sum payment amount of $16,676,115,
utilizing a 5.75% discount rate factor based on the 2007 Employment Agreement
between the Company and Mr. Bianco and the amendment of the Supplemental Plan as
further described in Part I - Item 1 - Note 10 to the Company's consolidated
financial statements.
An additional Supplemental Plan expense of $284,000 was recorded in the
three months ended March 31, 2007, to amortize the Supplemental Plan minimum
pension liability adjustment. The minimum pension liability adjustment, which is
included as a component of stockholders' equity within accumulated other
comprehensive loss in the Company's consolidated financial statements, was
$1,326,000 as of March 31, 2006, and is being amortized on a straight line basis
over the 14-month from April 1, 2006, through May 31, 2007, as an additional
Supplemental Plan expense of $284,000 per quarter. This resulted in an aggregate
Supplemental Plan expense of $519,000 for the three month period ended March 31,
2007, as compared to $464,000 for the three month period ended March 31, 2006.
The amortization of the additional minimum pension liability of $284,000 in the
three month period ended March 31, 2007, although recorded as a component of
compensation expense in the Company's consolidated statement of operations, does
not result in a decrease in total stockholders' equity, as its recognition
results in an increase in one component and a corresponding decrease in another
component of stockholders' equity. See Part I - Item 1 - Notes 8 and 10 to the
Company's consolidated financial statements for further information.
No stock option was recorded in the three months ended March 31, 2007, as
all previously granted outstanding options vested as of January 2, 2007. No
stock option awards have been granted since January 2005. During the three
months ended March 31, 2006, the Company recorded $22,000 of compensation
expense relating to stock options in accordance with SFAS 123R. For further
information regarding the Company's adoption of SFAS 123R and its impact on the
Company's financial statements, see Part I - Item 1 - Note 9 to the Company's
consolidated financial statements.
Professional and outside services were $464,000 in the three months ended
March 31, 2007, and $718,000 in the respective 2006 period. The decrease in the
2007 three month period as compared to the respective 2006 period is principally
the result of a lower level of legal and professional fees relating to the
Supervisory Goodwill litigation in 2007 versus 2006. The 2006 period included
the Supervisory Goodwill litigation expenses incurred in connection with
discovery in 2006, relating to the Show Cause hearing and, to a lesser extent,
other corporate professional fees.
Property operating and maintenance expenses were $23,000 for the three
months ended March 31, 2007, compared to $31,000 in the respective 2006 period.
The decreased expenses in 2007 compared to the 2006 period are due to a decrease
in the level of repairs and maintenance expenses. Property operating and
maintenance expenses have not been reduced by tenant reimbursements.
Interest income in the three months ended March 31, 2007, increased to
$465,000 from $420,000 in the respective 2006 period. The increase is
principally due to an increased yield on investments due to rising interest
rates. The Supplemental Plan lump-sum benefit payment to Mr. Bianco, as further
described in Part I - Item 1, Note 10 to the Company's consolidated financial
statements, will decrease in the Company's cash equivalents and investment
securities by approximately $16.7 million, which will result in a decrease in
the interest income earned by the Company beginning in June 2007. See Item 3 -
Quantitative and Qualitative Disclosure about Market Risk for information
concerning the Company's weighted average interest rate yield on investment
securities as of March 31, 2007.
For the three months ended March 31, 2007, realized gains on sales of
investment securities available for sale were $156,000. No investment securities
available for sale were sold in the three months ended March 31, 2006.
The income tax provisions of $25,000 and $33,000 for the three months ended
March 31, 2007 and March 31, 2006, respectively are primarily attributable to a
provision for a minimum tax on capital to the state of Connecticut. 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 with maturity dates of less than
one year consist of the following:
March 31, 2007 December 31, 2006
========================== ===========================
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands) ---------- ----- -------- ------
U.S. Treasury Bills and Notes............... $ 35,436 $ 35,438 $ 34,623 $ 34,625
========== ======== ========= ========
Weighted average interest rate.............. 4.67% 4.65%
========== =========
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 period.
The Company's portfolio of equity securities has exposure to equity price
risk. Equity price risk is defined as the potential loss in fair value resulting
from an adverse change in prices. The equity securities are primarily in the
form of preferred stock in utility companies. The equity securities are held for
an indefinite period and are carried at fair value with net unrealized gains and
losses recorded directly in a separate component of stockholder's equity.
The table below summarizes the Company's equity price risk and shows the
effect of a hypothetical 20% increase and 20% decrease in market price as of the
dates indicated below. The selected hypothetical changes are for illustrative
purposes only and are not necessarily indicative of the best or worse case
scenarios.
(In thousands) March 31, December 31,
2007 2006
Equity Securities Available for Sale: ========== ==========
Fair value........................................................ $802 $1,417
===== =====
Hypothetical fair value at a 20% increase in market price......... $962 $1,700
===== =====
Hypothetical fair value at a 20% decrease in market price......... $642 $1,134
===== =====
Item 4. CONTROLS AND PROCEDURES
Our disclosure controls and procedures include our controls and other
procedures to ensure that information required to be disclosed in this and other
reports under the Securities Exchange Act of 1934, as amended the ("Exchange
Act"), is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer to allow timely decisions
regarding required disclosure and to ensure that such information is recorded,
processed, summarized and reported within the time periods.
Our Chief Executive Officer and Chief Financial Officer have conducted an
evaluation of our disclosure controls and procedures as of March 31, 2007. Based
upon this evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures (as defined in Rule
13a-15(e) promulgated under the Exchange Act) are sufficiently effective to
ensure that the information required to be disclosed by us in the reports we
file (under the Exchange Act) are sufficiently effective to ensure that the
information required to be disclosed by us in the reports we file under the
Exchange Act is recorded, processed, summarized and reported with adequate
timeliness.
There have been no changes during the most recent fiscal quarter in our
internal control over financial reporting as defined in Rule 13a-15(f) of the
Exchange Act that have materially affected, or are reasonably likely to
materially affect our internal control over financial reporting.
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
59 Maiden Lane
New York, NY 10038
Attention: Shareholder Services
(800) 937-5449 or (718) 921-8200 Ext. 6820
Copies of Quarterly reports on Form 10-Q, Annual Reports on Form 10-K and
Proxy Statements can also be obtained directly from the Company free of charge
by sending a request to the Company by mail as follows:
AmBase Corporation
100 Putnam Green, 3rd Floor
Greenwich, CT 06830
Attn: Shareholder Services
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. Materials filed with the SEC may also be read or copied by
visiting the SEC's Public Reference Room, 450 Fifth Street, NW, Washington, DC
20549. Information on the operation of the Public Reference Room may be obtained
by calling 1-800-SEC-0330.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
For a discussion of the Company's legal proceedings, including a discussion
of the Company's Supervisory Goodwill litigation, see Part I - Item 1 - Note 3 -
Legal Proceedings.
Item 1A. RISK FACTORS
There have been no material changes from risk factors previously disclosed
in the Company's Annual Report on Form 10-K for the year ended December 31, 2006
in response to Item 1A to Part I of Form 10-K.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
Exhibit 31.1 Rule 13a-14(a) Certification of Chief Executive Officer
Exhibit 31.2 Rule 13a-14(a) Certification of Chief Financial Officer
Exhibit 32.1 Section 1350 Certification of Chief Executive Officer
Exhibit 32.2 Section 1350 Certification of Chief Financial Officer
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
--------------------
By JOHN P. FERRARA
Vice President, Chief Financial Officer and Controller
(Duly Authorized Officer and Principal Financial and
Accounting Officer)
Date: May 15, 2007