<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-20677
FIRSTCITY LIQUIDATING TRUST
(Exact name of registrant as specified in its charter)
Texas 06-6414468
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1021 Main, Suite 2600, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 651-7841
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 (1) No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of July 31, 1996,
2,460,911 units of Class B Beneficial Interests and 738,273 units of Class C
Beneficial Interests were outstanding.
- --------------------
(1) FirstCity Liquidating Trust registered the Class B and Class C
Beneficial Interests on a Registration Statement on Form 10 which was
filed with the Securities and Exchange Commission on May 1, 1996,
amended on July 10, 1996 and declared effective by operation of law on
July 1,1996.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------------- ---------------
<S> <C> <C>
Assets, at estimated fair value
-------------------------------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 24,043 $ 11,260
Note receivable from FirstCity Financial Corporation . . . . . . . - 2,000
Investment in FirstCity senior subordinated
notes payable . . . . . . . . . . . . . . . . . . . . . . . 1,023 -
Trust assets, net . . . . . . . . . . . . . . . . . . . . . . . . . 139,064 193,204
-------------- -------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . 164,130 206,464
-------------- -------------
Less liabilities at face or estimated amount
--------------------------------------------
Estimated administrative claims . . . . . . . . . . . . . . . . . . - 3,486
Payables and accrued liabilities . . . . . . . . . . . . . . . . . 902 1,197
-------------- -------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 902 4,683
-------------- -------------
Commitments and contingencies . . . . . . . . . . . . . . . . . . . - -
Trust net asset value attributable to:
--------------------------------------
Class "A" Certificate, held by FirstCity Financial Corporation . . 111,776 162,245
Class "B" Certificate, 2,460,911 units outstanding . . . . . . . . 51,452 39,536
Class "C" Certificate, 738,273 units outstanding . . . . . . . . . - -
-------------- -------------
Total net asset value . . . . . . . . . . . . . . . . . . . $ 163,228 $ 201,781
============== =============
</TABLE>
CONSOLIDATED STATEMENTS OF INCOME AND
CHANGES IN NET ASSET VALUE IN LIQUIDATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS INCEPTION TO
ENDED JUNE 30, ENDED JUNE 30, DECEMBER 31,
1996 1996 1995
-------------- --------------- -------------
<S> <C> <C> <C>
Changes in fair value of trust assets . . . . . . . $ 10,576 $ 25,899 $ 33,548
Interest income on short-term investments . . . . . 147 470 375
Interest expense . . . . . . . . . . . . . . . . . (96) (111) (1,741)
Administrative expense . . . . . . . . . . . . . . (3,589) (6,914) (8,552)
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . 7,038 19,344 23,630
---------- ---------- ----------
Net asset value, beginning of period . . . . . . . 158,368 201,781 -
Contribution of net assets by First City
Bancorporation of Texas, Inc. . . . . . . . - - 182,872
Principal distribution on Class "A" Certificate . . (1,000) (54,345) -
Interest distribution on Class "A" Certificate . . (1,178) (3,552) (4,721)
---------- ---------- ----------
Net asset value, end of period . . . . . . . . . . $ 163,228 $ 163,228 $ 201,781
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS INCEPTION TO
ENDED JUNE 30, DECEMBER 31,
1996 1995
---------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,344 $ 23,630
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Changes in fair value of trust assets . . . . . . . . . . . . (25,899) (33,548)
Collections on trust assets, net of advances . . . . . . . . . 80,016 107,371
Purchase of Loss-Sharing assets . . . . . . . . . . . . . . . - (205,513)
Decrease in other liabilities . . . . . . . . . . . . . . . . (3,781) (9,319)
-------------- -------------
Net cash provided by (used in) operating activities . . . . 69,680 (117,379)
-------------- -------------
Cash flows from financing activities:
Borrowings under notes payable to banks . . . . . . . . . . . . . 19,800 73,000
Payments of notes payable to banks . . . . . . . . . . . . . . . (19,800) (73,000)
Advance from FirstCity Financial Corporation . . . . . . . . . . - 4,728
Repayment of advance from FirstCity Financial Corporation . . . . - (4,728)
Advance to FirstCity Financial Corporation . . . . . . . . . . . - (2,000)
Repayment of advance to FirstCity Financial Corporation . . . . . 2,000 -
Purchase of FirstCity senior subordinated notes . . . . . . . . . (4,000) -
Redemption of FirstCity senior subordinated notes . . . . . . . . 2,000 -
Capital contribution of First City Bancorporation
of Texas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . - 135,360
Interest and principal distribution on Class "A" Certificate . . (56,897) (4,721)
-------------- -------------
Net cash provided by (used in) financing activities . . . . . (56,897) 128,639
--------------- -------------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . $ 12,783 $ 11,260
Cash, beginning of period . . . . . . . . . . . . . . . . . . . . 11,260 -
-------------- -------------
Cash, end of period . . . . . . . . . . . . . . . . . . . . . . . $ 24,043 $ 11,260
============== =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 111 $ 1,741
============== =============
Non-cash financing activities:
Non-cash net assets contributed by First City
Bancorporation of Texas, Inc. . . . . . . . . . . . . . $ - $ 47,512
Cancellation of FirstCity senior subordinated notes . . . . (1,000) -
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996
(A) Basis of Presentation
The unaudited consolidated financial statements of FirstCity
Liquidating Trust reflect, in the opinion of management, all
adjustments, consisting only of normal and recurring adjustments,
necessary to present fairly FirstCity Liquidating Trust's net assets
in liquidation at June 30, 1996, and its changes in net asset value in
liquidation and cash flows for the three month and six month periods
ended June 30, 1996.
For further information, see the Form 10/A of FirstCity Liquidating
Trust.
(B) Trust Assets
Trust assets are comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
-------------------------- ----------------------------
Legal Claim Estimated Legal Claim or Estimated
or Assigned Gross Cash Assigned Gross Cash
Type of Asset Value Flow Value Flow
- ---------------------------------- ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Borrowers' obligation on
outstanding balance of:
Performing loans $ 120,754 $ 113,677 $ 139,705 $ 134,381
Nonperforming loans 13,679 8,679 225,921 60,454
Receivable from the FDIC 19,000 19,000 33,000 33,000
Real estate and other assets 43,678 42,728 60,734 33,305
------------ ----------- -------------- -----------
Total 197,111 184,084 459,360 261,140
------------ ----------- -------------- -----------
Discount required to reflect trust
assets at estimated fair value (58,047) (45,020) (266,156) (67,936)
------------ ----------- -------------- -----------
Trust assets, net $ 139,064 $ 139,064 $ 193,204 $ 193,204
============ =========== ============== ===========
</TABLE>
For each asset, estimates of income, expense and net cash flow on a
monthly basis through the expected final disposition date are
prepared. The individual asset budget is developed based upon factors
which include physical inspection of the asset or the collateral
underlying the related loan, local market conditions, contractual
payments or rents, and discussions with the relevant borrower. The
Trust's management periodically reevaluates and revises its projected
monthly cash flows on an asset by asset basis. At December 31, 1995
and June 30, 1996, the projected monthly cash flows were discounted at
11% to reflect the Trust assets at estimated fair value.
(C) Senior Notes Payable to Banks
The Trust had a revolving line of credit with two banks for borrowings
of up to $100 million. In connection with the Loss-Sharing
Settlement, $73 million was borrowed by the Trust and $27 million in
letters of credit were issued in favor of the Loss-Sharing Banks.
Payments reduced the outstanding balance to zero in November 1995. In
the
3
<PAGE> 5
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
first quarter of 1996, an amendment to the line of credit reduced the
letters of credit to zero and established a term loan for borrowings
up to $61 million. The term loan expires December 31, 1996, and can
only be used for distributions on the Class A Certificate. In
connection with the early redemptions of senior subordinated notes
(see Note D), $19.8 million was borrowed in March 1996 (and repaid in
early May) and $32.5 million was borrowed in July 1996. Substantially
all trust assets were pledged to secure the loan.
(D) Distribution Priorities
Pursuant to the Senior Note Loan Agreement and the Liquidating Trust
Agreement, the Trust is required to apply all proceeds from
liquidation and disposition of trust assets first to payment of normal
operating expenses, including a servicing fee to FirstCity, and unpaid
administrative claims of the Debtor. Second, Trust proceeds are
remitted to the senior lenders for payment of principal and interest
(see Note C). Third, Trust proceeds are distributed to FirstCity, the
sole Class A Certificate holder, for payment of principal and
interest, at an annual rate of 9%, on senior subordinated notes
payable, an obligation of FirstCity; and cumulative quarterly cash
dividends ($7.8 million accrued and undeclared at June 30, 1996) at
the annual rate of $3.15 per share (on 2,460,911 shares) and
redemption of nominal stated value of $51.7 million of FirstCity
special preferred stock on September 30, 1998. In the first quarter
of 1996, the Trust distributed $53.3 million to FirstCity for the
early redemption of senior subordinated notes. In the second quarter
of 1996, $1 million senior subordinated notes held by the Trust were
cancelled. On July 26, 1996, the Trust distributed $52.3 million to
FirstCity for early redemption of remaining senior subordinated notes.
The fourth order of distribution is payments pursuant to employment
agreements with certain former employees of the Debtor. Fifth, Class
B Certificate holders (and, pursuant to bonus agreements, certain
former employees of the Debtor) are entitled to distributions up to
the Pour-Over Level. The bonus pool and executive long-term incentive
plan provides for the payment of $750,000 in bonuses to certain former
employees of the Debtor after the Trust achieves approximately $275
million of collections, another bonus payment of $750,000 after
approximately $30 million of additional collections, and the payment
of bonuses in the amount of 5% of all collections in excess of $305
million. The Pour-Over Level (approximately $126 million at June 30,
1996) is the liquidation preference on July 3, 1995, of the Debtor's
Series B and Series E preferred stock, less the nominal stated value
of FirstCity special preferred stock and the book value of FirstCity
common stock issued to the Series B and Series E holders, plus
interest at an annual rate of 6.5% from July 3, 1995. Lastly, Class C
Certificate holders receive distributions, if any, after all required
payments to Class B Certificate holders. No distributions to Class C
Certificate holders are anticipated.
4
<PAGE> 6
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
The ultimate amounts to be distributed to the holders of the A, B and
C Certificates will result from the cash flow actually realized from
the liquidation of the non-cash trust assets and contingent asset
claims. The determination of the net asset value of the Trust in the
accompanying consolidated statement of net assets is based upon
estimates of future cash flows. The actual cash flows and the timing
of such cash flows may vary significantly from those estimates, thus
affecting the final distributions to the Certificate holders.
(E) Investment Management Agreement
Pursuant to an investment management agreement, FirstCity manages the
liquidation of trust assets and the Trust will pay FirstCity a 3%
servicing fee on collections (as defined) up to a specified level of
collections. Thereafter, the servicing fee percentage increases with
additional levels of collections. Administrative expenses include
$2.3 million in the six months ended June 30, 1996 and $3.1 million
for the period from inception through December 31, 1995, for servicing
fees.
(F) Contingencies
The Trust is involved in various legal proceedings in the ordinary
course of business. In the opinion of management of the Trust, the
resolution of such matters should not have a material adverse impact
on the financial condition, results of operations or liquidity of the
Trust.
5
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
During the first six months of 1996, the estimated fair value
of the Trust's assets increased by approximately $25.9 million ($10.6 million
in the second quarter). Such increase in the net asset value of the Trust's
assets is attributable to several factors, including loan recoveries that
exceeded anticipated recoveries by approximately $1.4 million (none in the
second quarter) and an increase in the estimated residual value of the dividend
from the FDIC to the Trust, in the approximate amount of $3.5 million (none in
the second quarter). Other factors which contributed to the enhancement of the
net asset value of the Trust's assets, which are difficult to quantify, include
(i) the appreciation in value of certain assets attributable to a favorable
interest rate environment and the effect of such favorable interest rates on
the marketability of real estate and (ii) the increase in the estimated market
value of the Trust's assets that naturally occurs as the remaining life of the
Trust (and concomitantly the discount factor applied in calculating net asset
value) decreases.
In the first six months of 1996, administrative expenses
totaled $6.9 million ($3.6 million in the second quarter), of which $2.3
million ($1.1 million in the second quarter) was servicing fees paid to
FirstCity.
Non-cash trust assets at June 30, 1996 and December 31, 1995
are comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
--------------------------- ----------------------------
Legal Claim Estimated Legal Claim Estimated
or Assigned Gross Cash or Assigned Gross Cash
Type of Asset Value Flow Value Flow
- ------------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
Borrowers' obligation on
outstanding balance of:
Performing loans . . . . . . . . . . . $ 120,754 $ 113,677 $ 139,705 $ 134,381
Nonperforming loans . . . . . . . . . 13,679 8,679 225,921 60,454
Receivable from the FDIC . . . . . . . . . 19,000 19,000 33,000 33,000
Real estate and other assets . . . . . . . 43,678 42,728 60,734 33,305
------------ ---------- ------------ -----------
Total . . . . . . . . . . . . . . . . 197,111 184,084 459,360 261,140
------------ ---------- ------------ -----------
Discount required to reflect
trust assets at estimated fair
value . . . . . . . . . . . . . . . (58,047) (45,020) (266,156) (67,936)
------------ ---------- ------------ -----------
Trust assets, net . . . . . . . . . . . . $ 139,064 $ 139,064 $ 193,204 $ 193,204
============ ========== ============ ===========
</TABLE>
For each asset, estimates of income, expense and net cash flow on a
monthly basis through the expected final disposition date are prepared. The
individual asset budget is developed based upon factors which include physical
inspection of the asset or the collateral underlying the related loan, local
market conditions, contractual payments or rents, and discussions with the
relevant borrower. The Trust's management periodically reevaluates and
6
<PAGE> 8
revises its projected monthly cash flows on an asset by asset basis. At
December 31, 1995 and June 30, 1996, the projected monthly cash flows were
discounted at 11% to reflect the Trust assets at estimated fair value.
The Trust also holds certain contingent asset claims, such as claims
against the former Directors and Officers of First City Bancorporation of
Texas, Inc., claims under fidelity bonds, and judgments and deficiencies
arising from charged off loans to former borrowers of the Debtor's banks. The
estimated future cash flows from which the net asset value of the Trust was
derived include estimated future collections which might be realized from such
claims only when such amounts are reasonably certain and estimable. (No value
was assigned at June 30, 1996.) As a result, there can be no assurance that
there will ever be any material collections realized from such contingent asset
claims.
At June 30, 1996, the net asset value attributable to the Class A
Certificate (of which the sole holder is FirstCity) was $111.8 million, of
which $52.3 million is allocated to redemption of senior subordinated notes (an
obligation of FirstCity), $51.7 million is allocated to the nominal stated
value of FirstCity's special preferred stock and $7.8 million is allocated to
accrued, but undeclared, dividends on special preferred stock. The Trust
distributed $3.6 million to FirstCity for payment of interest on senior
subordinated notes in 1996 and $1 million of senior subordinated notes held by
the Trust were cancelled. The Trust also distributed $53.3 million on March
29, 1996, and $52.3 million on July 26, 1996, for early redemption of senior
subordinated notes, reducing the net asset value attributable to the Class A
Certificate to $59.4 million (special preferred stock and accrued dividends).
These distributions were made possible principally by $80.0 million in
collections on trust assets in 1996. In connection with these early
redemptions, the Trust borrowed $19.8 million (repaid in early May) and $32.5
million, respectively, under a loan agreement.
The Class B Beneficial Interests were valued at $51.5 million at June
30. Distributions to Class C Certificate holders are not ever expected.
7
<PAGE> 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 -- Financial Data Schedule.
(b) Reports on Form 8-K. No report on Form 8-K was filed by the
Registrant with the Commission during the quarterly period ended June
30, 1996.
8
<PAGE> 10
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.
FLEET NATIONAL BANK, as Trustee
Date: August 7, 1996 /s/ Susan T. Keller
--------------------------------------
Name: Susan T. Keller
---------------------------------
Title: Vice President
--------------------------------
<PAGE> 11
Exhibit Index
Exhibit
No. Description
- ------- -----------
27.1 -- Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FIRSTCITY LIQUIDATING TRUST JUNE 30, 1996 FORM 10-Q FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIRSTCITY LIQUIDATING TRUST
JUNE 30, 1996 FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 24,043
<SECURITIES> 1,023
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 139,064
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 164,130
<CURRENT-LIABILITIES> 902
<BONDS> 52,345
<COMMON> 0
59,431
0
<OTHER-SE> 51,452
<TOTAL-LIABILITY-AND-EQUITY> 164,130
<SALES> 25,899
<TOTAL-REVENUES> 26,369
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> 19,344
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,344
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
