<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1996 Commission File Number 0-21984
AEROSPACE CREDITORS LIQUIDATING TRUST
(Exact name of registrant)
New York 13-7020026
(State of organization) (I.R.S. Employer
Identification Number)
444 Madison Avenue, 7th Floor, New York, New York 10622
(Address of principal executive offices and zip code)
(212) 317-8292
(Registrant's telephone Number)
245 Park Avenue, 44th Floor, New York, New York 10167
(Former address, if changed since last report)
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 has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
-------- ---------
Number of Units of Beneficial Interest outstanding as of November 12, 1996 was
3,302,250.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AEROSPACE CREDITORS LIQUIDATING TRUST
STATEMENT of NET ASSETS in LIQUIDATION
as of September 30, 1996 and 1995
(In thousands)
---------
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Assets:
Cash and temporary cash investments (Note 9) $ 948 $ 5,582
Restricted cash (Note 8) 83 67
Interest receivable 13
Assets, at estimated fair value (Notes 4 and 5) 10,559 26,359
-------- --------
Total assets $ 11,603 $ 32,008
======== ========
Liabilities:
Estimated costs of liquidation (Notes 1 and 3) $ 747 $ 4,673
-------- --------
Total liabilities $ 747 $ 4,673
======== ========
Net assets in liquidation $ 10,856 $ 27,335
======== ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
- 2 -
<PAGE> 3
AEROSPACE CREDITORS LIQUIDATING TRUST
STATEMENT of CHANGES in NET ASSETS in LIQUIDATION
(In thousands)
----------
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Changes in net assets in liquidation before distributions:
Increase in interest and dividend income $ 3 $ 4
Accrued interest and dividend income 8 13
Loss on sale of marketable securities (1)
Increase in estimated fair value of
assets in liquidation 260 755
Decrease in estimated costs
of liquidation, net (11) (39)
--------- ---------
Net increase in net assets in
liquidation before distributions 261 733
Distributions 0 6
Net assets in liquidation, beginning
of period 10,596 10,118
--------- ---------
Net assets in liquidation, end of period $ 10,856 $ 10,856
========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
- 3 -
<PAGE> 4
AEROSPACE CREDITORS LIQUIDATING TRUST
STATEMENT of RECEIPTS and DISBURSEMENTS
(In thousands)
----------
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Receipts:
Interest income 4 $ 7
Proceeds from sale of The LTV Corporation
common stock $ $ 6
------------ -------------
Total Receipts $ 4 $ 13
============ =============
Disbursements:
Payments of estimated costs of
liquidation:
Trustee fees $ 105 $ 315
Professional fees 26 128
Other 28 125
------------ -------------
Total Disbursements $ 159 $ 568
============ ===========
Decrease in cash and temporary
cash investments before distributions $ 155 $ 555
Distributions 0 6
------------- ------------
Decrease in cash $ 155 $ 549
Cash, beginning of period 1,186 1,580
------------ -----------
Cash, end of period $ 1,031 $ 1,031
============ ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
- 4 -
<PAGE> 5
AEROSPACE CREDITORS LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS
----------
1. Basis of Presentation:
The Aerospace Creditors Liquidating Trust (the "Trust") was established
on June 28, 1993 in accordance with the LTV Second Modified Joint Plan
of Reorganization (the "Plan") confirmed by the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court") by order dated May 26, 1993. The purpose of the Trust is to
marshal, liquidate and distribute the Trust assets in an expeditious
and orderly manner.
The Trust issued certificates of beneficial interest ("CBIs") to
holders of allowed claims against the LTV Aerospace and Defense Company
("Aerospace") in exchange for receiving certain assets deemed
distributed to the creditors and contributed to the Trust. The
Aerospace Creditors Liquidating Trust Agreement (the "Trust Agreement")
provides that the Trust will terminate ten years from the date of the
transfer of the Initial Trust Assets to the Trust, unless earlier
termination is required by action of New York State law or CBI holders
or by distribution of all Trust assets, unless extended for one-year
renewal terms pursuant to the terms of the Trust Agreement.
In accordance with the Trust Agreement, each Trustee shall be
indemnified by and receive reimbursement from the Trust against and
from any and all loss, liability or damage, including payment of
attorney's fees and other costs of defending himself, which such
Trustee may inure or sustain, without gross negligence or willful
misconduct, in the exercise and performance of any of the powers and
duties of such Trustee under the Trust Agreement.
Preparation of the financial statements on the liquidating basis
required that the Trustees make a number of assumptions regarding the
value of the Trust's assets and the projected total cost of liquidating
such assets and winding up the affairs of the Trust. There may be
differences between the assumptions and the actual results because
events and circumstances frequently do not occur as expected. Those
differences, if any, could result in a change in the net assets
reflected in the statements of net assets in liquidation as of
September 30, 1996 and 1995.
2. Significant Accounting Principles:
Under the terms of the Plan, certain cash and temporary cash
investments are restricted for various reserves, as described in Note
9. In addition, temporary cash investment alternatives are limited to
certain securities that comply with guidelines and regulations of the
Internal Revenue Service ("IRS") concerning investments by liquidating
trusts.
Dividend and interest income is recorded as earned.
The present value discount recorded in the estimated costs of
liquidation is amortized using the interest method.
- 5 -
<PAGE> 6
AEROSPACE CREDITORS LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
----------
3. Estimated Costs of Liquidation:
The estimated costs of liquidation represent the projected costs of
operating the Trust through its expected economic life, which the
Trustees estimate will extend to June 30, 1997, discounted using a 5.5%
present value factor. These costs, which include staff, office space,
professional fees, trustee fees and transfer agent fees are based on
various assumptions regarding the administrative obligations, use of
professionals and other matters. Actual costs are likely to differ
from estimated costs and those differences may be significant.
4. Valuation of Assets:
Assets of the Trust are recorded at their estimated fair value.
Generally, fair value is the amount which the Trust reasonably expects
to receive upon a sale to a willing buyer. Estimated fair value is a
good faith estimate determined by the Trustees based on the underlying
characteristics of such assets, including but not limited to the size
of investment, credit worthiness of the issuer, yield to maturity,
status of litigation, and private bids. In addition, discount factors,
including those related to the time value of money and risk associated
with collection, have been applied to these assets to arrive at
estimated fair value. Fair value, determined as described above, may
differ from the eventual realizable value of the assets, which can
fluctuate over time in light of business, legal and economic conditions
and the financial results of the obligor. These differences may be
significant.
5. Trust Assets:
The Trust assets were distributed to the Aerospace Creditors on June
28, 1993, (the "Effective Date") and immediately thereafter were
transferred to the Trust which then issued CBIs to the Aerospace
Creditors.
(A) On November 1, 1995, the Trust settled the McDonnell Douglas
Cause of Action with McDonnell Douglas Corp. and LTV for a
cash payment to the Trust of $16,500,000. The settlement
resulted in a loss of $300,000 from the estimated fair value
of $16,800,000.
(B) INITIAL THOMSON LITIGATION PROCEEDS. The Initial Thomson
Litigation Proceeds are the first $10 million in proceeds,
plus a pro rata portion of any interest actually received by
LTV under any judgment or settlement (to be paid without any
deduction for legal fees or costs incurred by LTV) actually
received pursuant to the contractual claims of Aerospace in
the action entitled LTV Aerospace and Defense Co. v.
Thomson-CSF S.A., Adv. Proc. No. 920-9531A (Bankr. S.D.N.Y.)
(the "Thomson Litigation").
On the Effective Date of the Plan, LTV granted the Trust a
first priority security interest in Aerospace's contractual
claims against Thomson-CSF S.A.
- 6 -
<PAGE> 7
AEROSPACE CREDITORS LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
----------
("Thomson") arising out of an April 1992 agreement which
provided for the transfer to Thomson of substantially all of
Aerospace's missiles division assets. The agreement provided
for Thomson to pay a non-refundable fee of $20 million in the
event that certain United States governmental approvals were
not obtained and Thomson did not proceed with the closing. On
July 28, 1992, Thomson advised LTV that it would not proceed
with the closing. LTV demanded and Thomson refused payment of
the $20 million reverse break-up fee. On August 3, 1992, LTV
filed a complaint on behalf of Aerospace in the Bankruptcy
Court seeking payment of the $20 million reverse break-up fee
plus interest, attorneys' fees and costs and compensatory
damages.
On August 23, 1995, the Bankruptcy Court ruled in favor of LTV
and ordered Thomson to pay LTV, Vought Industries, Inc. and
Vought International, Inc. the sum of $20 million, with
interest thereon at the rate of nine percent (9%) from August
1, 1992 to August 23, 1995. Thomson appealed the ruling to
the United States District Court for the Southern District of
New York (the "District Court").
The District Court heard oral argument on this matter on July
2, 1996 and on July 30, 1996, the District Court affirmed the
Bankruptcy Court's ruling in favor of LTV. Thomson has
appealed the decision of the District Court to the United
States Court of Appeals for the Second Circuit, but a date for
oral argument has not yet been set.
If LTV prevails at the end of the appeal process, the Initial
Thomson Litigation Proceeds may include interest after August
23, 1995. However, for as long as the Thomson Litigation is
subject to appeal and possible reversal, there is no assurance
that LTV and the Trust will actually receive any interest.
Pursuant to the Plan, if the Initial Thomson Litigation
Proceeds actually received by the Trust, following final
termination of the Thomson Litigation, are less than $10
million, LTV will promptly pay to the Trust the difference
between $10 million and the Initial Thomson Litigation
Proceeds actually received by the Trust (the "Thomson
Shortfall").
The payment due to the Trust from LTV with respect to any
Thomson Shortfall will be paid within 10 days after any
settlement of the Thomson Litigation or after entry of a
judgment in the Thomson Litigation which is no longer subject
to appeal, and will be paid, at LTV's option, in cash or in
LTV Common Stock or other LTV publicly-traded security, priced
at the then-market price of the stock or security.
6. Taxes:
The Trust was formed as a grantor trust, and thus, in its filings with
the IRS, the Trust itself is not a taxable entity. Accordingly, each
initial holder of a CBI is required to report on his federal tax return
his allocable share of any income, gain,
- 7 -
<PAGE> 8
AEROSPACE CREDITORS LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
----------
loss, deduction or credit recognized or incurred by the Trust. The
Trust's tax basis in assets transferred from holders of claims against
Aerospace in connection with the Plan generally equals the fair market
value of such assets as of June 28, 1993.
7. Certificates of Beneficial Interest:
The Trust issued 3,302,250 units of beneficial interest (the "Units")
on September 30, 1993 to holders of allowed claims in Classes 4.30,
5.30 and 7.30, the date registration of the Trust's CBIs became
effective on Form 10. As of September 30, 1996, 3,298,782 Units had
been distributed to holders of allowed claims. The remaining 3,468
Units are held in an escrow account, as described in Note 8, for the
benefit of, and pending distribution to, the proper holders of allowed
claims.
The CBIs were approved by the Pacific Stock Exchange on August 3, 1993,
with trading activity authorized as of September 22, 1993. The last
trade on the Pacific Stock Exchange for the third quarter of 1996,
which occurred on September 5, 1996, was for $3.50.
8. Distributions from the Trust:
The Trust Agreement provides for distributions to be made as often as,
and in the discretion and judgment of the Trustees, there are monies in
an amount sufficient to render feasible a distribution of cash or other
property to CBI holders, but no less often than annually (subject to
there being at least $3 million in cash or other non-cash property
designated by the Trustees available for distribution). Such
distributions are made to CBI holders based upon the number of Units
owned as of the record date determined by the Trustees.
Since inception, the Trust has made the following cash distributions,
in the aggregate amount of $72,550,432.50 ($21.97 per Unit):
(i) $4,590,127.50 ($1.39 per Unit) on March 15, 1994 to holders of
record as of March 7, 1994;
(ii) $2,245,530 ($0.68 per Unit) on June 3, 1994 to holders of
record as of May 23, 1994;
(iii) $2,972,025 ($0.90 per Unit) on February 24, 1995 to holders of
record as of February 10, 1995;
(iv) $42,268,800 ($12.80 per Unit) on June 14, 1995 to holders of
record as of May 31, 1995; and
(v) $20,473,950 ($6.20 per Unit) on December 8, 1995 to holders of
record as of November 24, 1995.
- 8 -
<PAGE> 9
AEROSPACE CREDITORS LIQUIDATING TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
----------
The Trust has established an Escrow Account for the purpose of holding
undistributed Units and distributions allocated to such Units. The
total unclaimed funds as of September 30, 1996 was $82,592.56.
9. Cash and Temporary Cash Investment:
In addition to the Trust Assets, the Trust received $1 million in cash
(the "Expense Fund") from LTV on the Effective Date, to be used solely
to cover the expenses of the Trust incurred after the Effective Date,
including any legal expenses, trustee fees and expenses, costs of
registration under the federal and state securities laws, costs of
audit and similar expenses. Also on the Effective Date, the Trustees
established an additional cash reserve in an amount of $3.5 million
("Cash Reserve") for payment of expenses beyond the amount of the
Expense Fund. Any amount of such Cash Reserve, which is not required
to pay such expenses, will be held for distribution as part of the
Trust Assets.
The Trustees are responsible for establishing any additional cash
reserves for the payment of expenses from any proceeds received from
the liquidation of the Trust Assets after the Effective Date.
- 9 -
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Trust was established for the purpose of liquidating certain
assets. The Trust Agreement prohibits the Trustees from engaging in any
business. No part of the assets of the Trust or the proceeds, revenue or
income therefrom can be used or disposed of by the Trustees in furtherance of
any business.
The assets of the Trust currently consist of (i) the Cash Reserve of
approximately $948,000, and (ii) the proceeds from the Thomson Litigation, as
described more fully below in Item 1 of Part II. The Trustees do not expect to
make another cash distribution until the Trust receives proceeds, if any, from
the Thomson Litigation.
The Trust's source of funds as of September 30, 1996 is the Cash
Reserve and the income received from and the liquidation of the assets of the
Trust. The Trust had only interest income of $4,000 during the three month
period ended September 30, 1996 and interest income of $7,000 during the nine
month period ended September 30, 1996 (and accrued interest of $8,000 and
$13,000 during the three and nine month periods ended September 30, 1996) from
the Trust's temporary cash investments, as compared to interest income of
$74,000 and $518,000 during the three and nine month periods ended September
30, 1995. The decline in interest income is a result of lower cash investments
during the current period as compared to larger cash investments in 1995 before
distributions of cash to CBI holders in February and June 1995. The Trust
incurred liquidation costs of $159,000 and $566,000 during the three and nine
month periods ended September 30, 1996 as compared to $1,113,000 and $2,167,000
during the three and nine month periods ended September 30, 1995 (including the
$400,000 LTV Payment), consisting primarily of professional fees (including
fees related to disclosure reporting under the securities laws and accounting
fees), fees to the Trustees of the Trust, annual insurance premium for
Trustees' insurance and fees for office space. The decrease in liquidation
costs for the periods ended September 30, 1996 as compared to the same periods
in 1995 is primarily due to the elimination of litigation fees as a result of
the settlement of the McDonnell Douglas Cause of Action in November 1995.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 30, 1996, the United States District Court for the Southern
District of New York (the "District Court") affirmed the Bankruptcy Court's
ruling in favor of LTV in the action entitled LTV Aerospace and Defense Co. v.
Thomson-CSF S.A., Adv. Proc. No. 92-9531A (Bankr. S.D.N.Y.) (the "Thomson
Litigation"). The Bankruptcy Court had ordered Thomson to pay LTV, Vought
Industries, Inc. and Vought International, Inc. the sum of $20 million, with
interest thereon at the rate of nine percent (9%) from August 1, 1992 to August
23, 1995. The Trust is entitled to the first $10,000,000 in proceeds, plus a
pro rata portion of any interest actually received by LTV under any judgment or
settlement of the Thomson Litigation, without deduction for legal and
professional fees and expenses incurred (the "Initial Thomson Litigation
Proceeds"). If LTV prevails at the end of the appeal process, the Initial
Thomson Litigation Proceeds may include interest after August 23, 1995. However,
for as long as the Thomson Litigation is subject to appeal and possible
reversal, there is no assurance that LTV and the Trust will actually receive any
interest. As set forth in Note 5(B) to the Trust's financial statements, if the
Initial Thomson Litigation
- 10 -
<PAGE> 11
Proceeds actually received by the Trust (to be paid without any deduction for
legal fees or costs incurred by LTV) following final termination of the Thomson
Litigation, are less than $10 million, LTV is required to promptly pay to the
Trust (the "LTV Guaranty") the difference between $10 million and the Initial
Thomson Litigation Proceeds actually received by the Trustees (the "Thomson
Shortfall").
Thomson has appealed the decision of the District Court to the United
States Court of Appeals for the Second Circuit, but a date for oral argument
has not yet been set. LTV remains responsible for the costs of the Thomson
Litigation. A final resolution of the Thomson Litigation could take a
significant amount of time to achieve, depending on when the Court of Appeals
for the Second Circuit issues its opinion and what the outcome of the opinion
is at that time. Any payments to be made by LTV on the Thomson Shortfall, if
any, pursuant to the LTV Guaranty are not required until after entry of a
judgment in the Thomson Litigation which is no longer subject to appeal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Letter of Understanding, dated October 11, 1996,
between the Trust and GSS Partners, L.P.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Trust during the
third quarter of 1996.
- 11 -
<PAGE> 12
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.
AEROSPACE CREDITORS LIQUIDATING TRUST
(Registrant)
BY: /s/ MARK M. FELDMAN
---------------------------------------
Mark M. Feldman
Trustee
BY: /s/ BRADFORD T. WHITMORE
---------------------------------------
Bradford T. Whitmore
Trustee
BY: /s/ PAUL S. WOLANSKY
---------------------------------------
Paul S. Wolansky
Trustee
Dated: November 13, 1996
- 12 -
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
10.1 Letter of Understanding, dated October 11, 1996, between the Trust and GSS Partners, L.P.
27 Financial Data Schedule
</TABLE>
- 13 -
<PAGE> 1
EXHIBIT 10.1
October 11, 1996
GSS Partners, L.P.
444 Madison Avenue
New York, New York
Gentleman:
This letter sets forth our understanding pursuant to which the
Aerospace Creditors Liquidating Trust (the "Trust") will license from you the
use of certain facilities and services.
Facilities
Facilities licensed will consist of exclusive use of one "two window"
office previously identified, together with the non-exclusive use of the
conference room, file room, secretarial space and other "common" areas.
Facilities will also include non-exclusive use of existing copying, facsimile
and computing equipment.
Services
Services will consist of the availability and use (subject to normal
absences and vacations) of Linda Hitchings (or a mutually agreeable successor),
on a non-exclusive basis estimated to be up to one-half of her time, for
functions similar in nature to those currently provided by her to you and
previously provided by her to the Trust.
Telephone and Mail
The Trust will be entitled to use the existing telephone system,
provided that the cost of installing any trunk lines necessary to provide
separate telephone numbers and any long distance charges will be for the
Trust's account. Similarly, the Trust will pay the cost of any mail, express
delivery and supplies used by it, as well as the cost of installing an
appropriate hallway sign.
License Fee
The license fee for the facilities and service to be provided will be
at the rate of $75,000 per year (pro-rated for periods of less than a year) and
will be payable monthly.
<PAGE> 2
Term
The term of this license agreement commenced effective October 1, 1996
and will continue until October 1, 1997; provided however, that after April 1,
1997, the Trust may cancel the license upon ninety (90) days written notice to
you.
Please sign below to indicate your agreement to and acceptance of the
foregoing.
Sincerely,
AEROSPACE CREDITORS LIQUIDATING TRUST
By: /s/ PAUL S. WOLANSKY
-----------------------------------------
Paul S. Wolansky, Trustee
Agreed and accepted:
GSS PARTNERS, L.P.
By: /s/ ELLIOT STEIN, JR.
-------------------------------------
Title: Managing Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 948
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,603
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
