Fruit Of The Loom Unsecured Creditors Trust Inactive
Filed: 7 Oct 05, 12:00am
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 2005 |
Commission File Number 001-08941*
FRUIT OF THE LOOM UNSECURED CREDITORS TRUST
(Exact name of registrant as specified in its charter)
| Delaware | 04-6979618 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
c/o Clingman & Hanger Management Associates, LLC 11038 Lakeridge Parkway, Suite 4 Ashland, VA | 23005 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: 804-550-7911
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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.Not applicable. Reference is made to the Form 15 filed on May 2, 2002.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No 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
State the aggregate market value of the voting and non-voting common equity held by non-affiliates.Not applicable.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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.Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE: NONE
| * | Fruit Of The Loom Unsecured Creditors Trust is a transferee of certain of the assets and liabilities of Fruit of the Loom, Inc., and files reports under Fruit of the Loom, Inc.’s former Commission file number. Fruit of the Loom, Inc. filed a Form 15 on May 2, 2002, indicating its notice of termination of registration and filing requirements. |
TABLE OF CONTENTS
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 6 | ||
ITEM 3. | 9 | |||
ITEM 4. | 9 | |||
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ITEM 1. | 9 | |||
ITEM 2. | 9 | |||
ITEM 3. | 9 | |||
ITEM 4. | 10 | |||
ITEM 5. | 10 | |||
ITEM 6. | 10 | |||
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EXPLANATORY STATEMENT
This Amendment No. 1 on Form 10-Q/A which amends and restates the UCT’s Form 10-Q for the quarter ended July 31, 2005 (the “Original Filing) is being filed to reflect that the UCT has not, in reliance upon a series of no action letters issued by the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the “Staff”), included audited financial statements in its reports filed pursuant to the Securities Exchange Act of 1934, as amended, including the UCT’s Annual Report on Form 10-K for the fiscal year ended April 30, 2005. In making the determination that it was not necessary for the UCT to include audited financial statement in its periodic reports, the UCT, in consultation with its counsel, reviewed and relied upon a series of no action letters previously issued by the Staff to other liquidating trusts whose purpose, terms and processes were substantially consistent with the purpose, terms and processes of the UCT. These no action letters provide, among other things, that audited financial statements would not be required to be included in annual reports on Form 10-K.
In each of the no-action letters reviewed and relied upon by the UCT, the Staff, in advising that it would not take action against the subject liquidating trust if it did not register and report with respect to the beneficial interests arising under the respective liquidating trusts, relied upon the existence of five specific circumstances in making its determination of no action:
| • | The beneficial interests to be issued by the trusts were not assignable or transferable except by operation of law or will; |
| • | The beneficial interests were not to be represented by certificates; |
| • | The sole purpose of the trusts was to liquidate and distribute the assets transferred to the respective trusts; |
| • | Each of the trusts would terminate upon the earlier of the distribution of the assets to its beneficiaries or three years; and |
| • | The trustees of each of the trusts undertook to provide each holder of a beneficial interest periodic reports containing unaudited financial statements and certain other information and file these reports with the SEC under cover of Forms 10-K and 8-K. |
The UCT reviewed each of these five factors in the context of its own facts and circumstances and determined, in consultation with its counsel, that the UCT’s facts and circumstances relating to each of the five factors were substantially similar to those set forth in the earlier no action letters. Specifically:
| • | the Beneficial Interests of the UCT are not transferable except by operation of law or upon the death of the holder; |
| • | the Beneficial Interests of the UCT are not certificated; |
| • | the sole purpose of the UCT is to resolve claims and distribute the assets transferred to the UCT; |
| • | the Trust Administrator expected that the UCT would terminate in a period not to exceed three years from the date the assets were first transferred to it; and |
| • | the Trust Administrator undertook to file, and has filed, both quarterly and annual reports containing financial statements and certain other information with the Bankruptcy Court and the SEC and mailed its annual report to each Beneficial Interest holder. |
In April 2003, the UCT submitted its own no action request which sought confirmation from the Staff that it would not, based upon the facts and analysis set forth in the request, recommend any enforcement action if the UCT did not register its beneficial interests under the Act and complied with the reporting requirements in the manner described above. After further consideration by the UCT and consultation with its counsel, the UCT’s no action request was subsequently withdrawn by the UCT, without action by the Staff, and the Staff has not taken a position as to whether the UCT meets the criteria summarized above.
For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing in its entirety. Other than the inclusion of this Explanatory Statement, no other information in the Original Filing has been amended hereby.
Accordingly, this Form 10-Q/A continues to describe conditions as of the date of the Original Filing, and the disclosures contained herein have not been updated to reflect events, results or developments that occurred after the Original Filing, or to modify or update those disclosures affected by subsequent events. Among other things, forward looking statements made in the Original Filing have not been revised to reflect events, results or developments that occurred or facts that became known to the UCT after the date of the Original Filing (other than the Explanatory Statement) and such forward looking statements should be read in their historical context. In addition, pursuant to the rules of the SEC, Item 6 of Part II of the Original Filing has been amended to include certifications re-executed as of the date of this Form 10-Q/A from the UCT’s Trust Administrator in accordance with Section 302 and 906 of the Sarbanes-Oxley Act of 2002.
This report includes “forward-looking statements”. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions and are not historical facts, and typically may be identified by use of terms such as “anticipate,” “believe,” “estimate,” “plan,” “may,” “expect,” “intend,” “could,” “potential,” and similar expressions, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included in this report represent the Trust Administrator’s current judgment and expectations, but our actual results, events and performance could differ materially from those in the forward-looking statements. The forward looking statements are subject to a number of risks and uncertainties. We do not intend to update any of these factors or to publicly announce the results of any revisions to these forward-looking statements.
PART I – FINANCIAL INFORMATION
Fruit Of The Loom
Unsecured Creditors Trust
Cash Balance Sheet
(unaudited)
| As of July 31, 2005 | As of April 30, 2005 | |||||
Assets: | ||||||
Cash | $ | 3,058,669 | $ | 3,218,992 | ||
Total Assets | $ | 3,058,669 | $ | 3,218,992 | ||
Liabilities (Reserves) : | ||||||
Distribution Reserve for Allowed and Disputed Claims | $ | 2,513,149 | $ | 2,569,991 | ||
Case Administration Expense Reserve | $ | 545,520 | $ | 649,001 | ||
Total Liabilities (Reserves) | $ | 3,058,669 | $ | 3,218,992 | ||
Fruit Of The Loom
Unsecured Creditors Trust
Statement of Operations
(unaudited)
Quarter Ended July 31 | Thirty Nine Months From Trust Inception Through July 31, 2005 | |||||||||||
| 2005 | 2004 | |||||||||||
Receipts : | ||||||||||||
Distributions from FOL Liquidation Trust | $ | — | $ | — | $ | — | ||||||
Initial Funding of UCT Case Administration Expenses | $ | — | $ | — | $ | — | ||||||
Interest and Other Income | $ | 9,004 | $ | 23,927 | $ | 9,004 | ||||||
Total Receipts | $ | 9,004 | $ | 23,927 | $ | 9,004 | ||||||
Disbursements & Expenses : | ||||||||||||
Distributions from UCT | $ | (56,842 | ) | $ | (430,559 | ) | $ | (56,842 | ) | |||
Trust Expense | $ | (112,485 | ) | $ | (183,825 | ) | $ | (112,485 | ) | |||
Total Disbursements & Expenses | $ | (169,327 | ) | $ | (614,384 | ) | $ | (169,327 | ) | |||
Net Receipts (Disbursements & Expenses) | $ | (160,323 | ) | $ | (590,457 | ) | $ | (160,323 | ) | |||
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Fruit Of The Loom
Unsecured Creditors Trust
Statement of Cash Flows
(unaudited)
| Three Months Ended July 31, 2005 | Three Months Ended July 31, 2004 | Thirty Nine Months From Trust Inception Through July 31, 2005 | ||||||||||
Cash at Beginning of Period | $ | 3,218,992 | $ | 8,910,414 | $ | — | ||||||
Cash Flow from Unsecured Creditor Trust Funding : | ||||||||||||
Distributions from FOL Liquidation Trust | $ | — | $ | — | $ | 20,542,831 | ||||||
Initial Funding of UCT Case Administration Expenses | $ | — | $ | — | $ | 2,705,000 | ||||||
Total | $ | — | $ | — | $ | 23,247,831 | ||||||
Cash Flow from Investing Activities : | ||||||||||||
Interest and Other Income | $ | 9,004 | $ | 23,927 | $ | 583,341 | ||||||
Total | $ | 9,004 | $ | 23,927 | $ | 583,341 | ||||||
Cash Flow from Trust Operations : | ||||||||||||
Distributions from UCT | $ | (56,842 | ) | $ | (430,559 | ) | $ | (18,029,682 | ) | |||
Trust Expense | $ | (112,485 | ) | $ | (183,825 | ) | $ | (2,742,821 | ) | |||
Total | $ | (169,327 | ) | $ | (614,384 | ) | $ | (20,772,503 | ) | |||
Net Cash Flow | $ | (160,323 | ) | $ | (590,457 | ) | $ | 3,058,669 | ||||
Cash at the end of period | $ | 3,058,669 | $ | 8,319,957 | $ | 3,058,669 | ||||||
FRUIT OF THE LOOM
UNSECURED CREDITORS TRUST
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
1. General
On December 29, 1999, Fruit of the Loom, Ltd. and NWI-I, Inc., formerly known as Fruit of the Loom, Inc. (collectively, “Fruit of the Loom”) filed with the United States Bankruptcy Court for the District of Delaware (the “Court”) a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. The Third Amended Joint Plan of Reorganization of Fruit of the Loom, et. al. (the “Plan”) was confirmed by the Court on April 19, 2002. The Plan became effective on April 30, 2002 (the “Effective Date”). In accordance with the Plan, the apparel business of Fruit of the Loom was sold to Berkshire Hathaway, Inc. pursuant to the Asset Purchase Agreement (the “APA”) by and between Fruit of the Loom, Ltd., Fruit of the Loom, Inc., Union Underwear, Inc., FTL Caribe, Ltd. (the “Sellers”) and New FOL, Inc. (the “Purchaser”) and Berkshire Hathaway, Inc.
The Fruit of the Loom Unsecured Creditors Trust (the “UCT”) was established pursuant to the Plan. The operation of the UCT is governed by the Plan and the UCT Agreement executed pursuant thereto. Terms which are not defined herein are defined in the Plan and the UCT Agreement. Clingman & Hanger Management Associates, LLC serves as the Trust Administrator (the “Trust Administrator”) of the UCT. The UCT was established to perform certain obligations of Fruit of the Loom under the Plan, including: (a) receiving distributions from the FOL Liquidation Trust intended for holders of Allowed Class 4A Claims (the “Claims”) and distributing those funds to those holders; (b) holding and distributing any proceeds received from the Creditors’ Committee Action; (c) having the exclusive authority to prosecute, settle or otherwise resolve objections to Disputed Claims and to prosecute, settle or otherwise resolve the Creditors’ Committee Action and (d) such other purposes as set forth in the Plan and the UCT Agreement.
To the extent of any inconsistency between these Notes to the Unaudited Financial Statements and the Plan or the UCT Agreement, the terms of the Plan or the UCT Agreement (as the case may be) control.
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2. Beneficiaries and Beneficial Interests
The holders of beneficial interests (each a “Beneficial Interest”) of the UCT are the holders of Allowed Class 4A Claims. Each holder of an Allowed Class 4A Claim receives an uncertificated Beneficial Interest in the UCT in proportion to its pro rata share of Claims.
3. Summary of Significant Accounting Policies and Method of Accounting
The UCT financial statements are prepared on a cash basis of accounting. Transactions (including the recording of interest earned) are recorded when cash is received or disbursed. The Cash Basis Balance Sheet includes cash arising from cash transactions, while the Statement of Operations includes cash receipts as additions and cash disbursements as expenses/deductions. The UCT Agreement, approved by the Court as part of the confirmation of the Plan, provides for the fiscal year of the UCT to end on April 30.
The UCT’s financial statements present, to the best of the Trust Administrator’s knowledge, the cash receipts and disbursements from the UCT for the period reported. The financial reports and accompanying information were prepared for the use of the Trust Administrator and the UCT Advisory Committee (“UCTAC”) and for filing with the Court in accordance with Section 7.1 of the UCT Agreement.
4. Commitments, Contingencies and Recoveries
As discussed in Note 3, the financial statements are prepared on a cash basis. Accordingly, no accrual has been made for potential liabilities or recoveries (including interest earned but not yet received or estimates of future distributions from the FOL Liquidation Trust). However, the UCT has established Disputed Claim Reserves and Other Reserves as required or allowed by the Plan and the UCT Agreement, which reserves have been established in the reasonable business judgment of the Trust Administrator and pursuant to order of the Court as described in Note 5.
5. Claims, Distributions and Reserves
The UCT has filed various Omnibus Objections to Claims and, after notice and hearing, orders allowing and expunging claims of non-responding claimants were entered by the Court. The UCT has resolved certain other claims on a consensual basis.
On the Effective Date, there were approximately 3,450 Class 4A Claims. As of July 31, 2005, there were approximately 1,861 Class 4A Claims remaining, of which 1853 have been Allowed, leaving approximately eight Disputed Claims, of which four (4) are subject to pending objections before the Court.
With the approval of the Court, the UCT made its first distribution to holders of the Initial Allowed Claims on October 30, 2002 as required by Section 4.5(b) of the UCT Agreement. Section 8.6 of the Plan provides that on the Initial Distribution Date, the UCT shall establish a separate Disputed Reserve for Disputed Claims, consisting of the ratable proportion of all cash allocated for distribution on account of each Disputed Claim based upon the asserted amount of each Disputed Claim or such amount as may be agreed to by the holder of the Claim and the UCT or as may otherwise be determined by the Court. On September 18, 2002, the UCT filed a motion (the “First Reserve Motion”) with the Court to establish the amount of the Disputed Reserve. On October 10, 2002, the Court granted the UCT’s First Reserve Motion and entered an order approving the Initial Distribution and the Disputed Reserves Proposed in the First Reserve Motion (the “Initial Distribution Reserve Order”). Based upon the amount of the claims for which reserves were established, an Initial Distribution of 3.9297% of Allowed Claims was authorized by the Court and made by the UCT to holders of Allowed Claims for which required taxpayer identification information was provided as described below.
On July 30, 2003, the UCT made its Second Distribution in the amount of 4.5446% of Allowed Claims to holders of Allowed Claims for which required taxpayer identification information was provided pursuant to the reserving methodology approved by the Court for the First Reserve Motion. On March 30, 2005, the UCT made its Third Distribution in the amount of 2.1% of Allowed Claims to holders of Allowed Claims for which required taxpayer identification information was provided pursuant to the reserving methodology approved by the Court for the First Reserve Motion. This brings the total distribution to holders of Allowed Claims for which required taxpayer
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identification information was provided to 10.5743% of Allowed Claims as of July 31, 2005, which is the distribution rate received by holders of Allowed Claims which have been allowed subsequent to March 30, 2005.
As of July 31, 2005, 1853 Claims have been Allowed in the total amount of $180,603,121. The Initial Distribution of 3.9297%, the Second Distribution of 4.5446% and the Third Distribution of 2.1%, totaling 10.5743%, has been disbursed to holders of 1,594 Allowed Claims who have provided the UCT with taxpayer identification numbers as required by the UCT Agreement. As of July 31, 2005, $18,029,682 has been disbursed and the UCT continues to hold $1,487,226 for 259 holders of Allowed Claims who have not provided the taxpayer identification information required by the UCT Agreement. Such funds will be disbursed upon receipt of the necessary taxpayer identification numbers.
Except as set forth in the First Reserve Motion, the UCT did not seek estimation of individual claims, but rather an estimation of certain categories of claims as described therein. This approach has less adverse impact upon the claimants than would the estimation of each claim, because the aggregate estimation does not limit any individual claimant’s claim. Notwithstanding anything contained herein or in the First Reserve Motion, the amounts reflected herein for the Disputed Claims are for reserve purposes only, and the UCT reserves the right to object to any claim, and to continue to pursue any pending objection to any claim.
During the quarter ended July 31, 2005, the UCT receivednodistributions from the FOL Liquidation Trust. During the quarter ended July 31, 2004, the UCT received no distributions from the FOL Liquidation Trust. Since the Effective Date, the UCT has received distributions from the FOL Liquidation Trust in the aggregate amount of $20,542,381. All of the amounts received from the FOL Liquidation Trust, net of distributions to holders of Allowed Claims, are in the cash balances as part of the Reserve for Allowed and Disputed Claims. As of July 31, 2005, the UCT held total reserves of $2,513,149 for Allowed and Disputed Claims. As of April 30, 2005, the UCT held total reserves of $2,569,991 for Allowed and Disputed Claims.
Pursuant to Section 7.23.5 of the Plan, the UCT received an Initial Distribution of $2,705,000, which was allocated solely for trust expenses and which was to be returned to the FOL Liquidation Trust to the extent not used for such expenses. During the quarter ended July 31, 2005, total trust expenses incurred since the inception of the UCT exceeded the Initial Distribution of $2,705,000, and accordingly no amounts will be returned to the FOL Liquidation Trust. Until October 31, 2004, the Trust Administrator allocated interest income to the Distribution Reserve for Allowed and Disputed Claims and reported that with the possible exception that such interest might be needed for case administration expenses, the UCT did not anticipate that any of the other funds received from the FOL Liquidation Trust and allocated to the Distribution Reserve for Allowed and Disputed Claims would be needed for case administration expenses. The UCT determined during the quarter ended October 31, 2004, as allowed by the UCT Agreement, to reallocate $512,133 (which amount is equivalent to the interest earned since the inception of the UCT through October 31, 2004) from the Distribution Reserve for Allowed and Disputed Claims to the Case Administration Expense Reserve effective October 31, 2004, and to allocate interest earned in the future to the Case Administration Expense Reserve in order to provide adequate resources for the payment of case administration expenses. To the extent interest earned is not needed for case administration expenses, it will be distributed to the holders of Beneficial Interests as part of the final distribution. At July 31, 2005, the UCT held $545,520 in the Case Administration Expense Reserve, which is the net amount remaining in the reserve from the Initial Distribution from the FOL Liquidation Trust of $2,705,000 distributed to the UCT for the initial funding of the Case Administration Expense reserve, plus $583,341 of interest earned by the UCT since its inception and allocated to the Case Administration Expense Reserve, and less the $2,742,821 of trust expenses incurred since the inception of the UCT.
A factor in the Trust Administrator’s decision to reallocate an amount equal to interest earned to the Case Administration Expense Reserve was the FOL Liquidation Trust informing the UCT during the quarter ended October 31, 2004 that it did not anticipate a final distribution to the UCT until the second calendar quarter of 2005 or later. As discussed in Note 6 below, the UCT was previously scheduled to terminate on April 30, 2005 and the UCT applied to the Court for an extension of the termination date to enable the holders of Beneficial Interests to receive all amounts to which they are entitled under the Plan, which extension to April 30, 2006 has been granted by the Court. The FOL Liquidation Trust has more recently indicated to the UCT that it anticipates a final distribution to the UCT during the second half of 2005. If the FOL Liquidation Trust makes a final distribution to the UCT within the second calendar half of 2005, the UCT currently anticipates that the original $2,705,000 funding of the Case Administration Expense Reserve, together with interest earned by the UCT since its inception, will be adequate to fund trust expenses through the UCT’s termination. While reserving all of its rights with respect thereto, the UCT
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thus still anticipates that all or substantially all of the distributions received from the FOL Liquidation Trust will be used for distributions to holders of Beneficial Interests and not for the funding of trust expenses. Accordingly, the amounts expended for trust expenses are not anticipated to significantly impact the distributions to the holders of Allowed Claims in Class 4A due to the separate funding of the UCT’s trust expenses and interest earned by the UCT on its investments.
6. Trust Termination
The UCT Agreement provides that the UCT shall terminate upon the distribution of all assets held in the UCT but not later than three years after the Effective Date; provided, however, if the Trust Administrator determines it to be in the best interest of the holders of Beneficial Interests, and subject to the approval of the Court, the term of the UCT may be extended for one or more finite terms. The UCT Agreement originally provided that the UCT would terminate not later than five years after the Effective Date (subject to extension with approval of the Court). In conjunction with commencement of periodic reporting to the Securities and Exchange Commission (“SEC”), the UCT and the UCTAC amended the UCT Agreement to provide for the UCT’s termination not later than three years after the Effective Date (subject to extension with approval of the Court). During the quarter ended October 31, 2004, the FOL Liquidation Trust advised the UCT that it did not anticipate a final distribution to the UCT until the second calendar quarter of 2005 or later. While the UCT anticipated that substantially all of its claim resolution work would be completed prior to the three-year anniversary date on April 30, 2005, the UCT needed to continue its existence until it received all of its distributions from the FOL Liquidation Trust. Thus, it was necessary to apply to the Court for an extension of the UCT’s termination date to enable the holders of Beneficial Interests to receive all amounts to which they are entitled under the Plan. In March, 2005 the UCT applied to the Court for an extension of the UCT’s term until April 30, 2006, which the Court approved. The FOL Liquidation Trust has advised the UCT that it anticipates a final distribution to the UCT before the end of 2005. If the UCT receives its final distribution from the FOL Liquidation Trust within the time frames anticipated by the FOL Liquidation Trust, the UCT does not anticipate requesting from the Court a further extension of the UCT’s term.
7. Income Tax Status
The receipt of the uncertificated interest in the UCT constitutes full satisfaction of a holder of Beneficial Interest’s claim against Fruit of the Loom. Pursuant to the Plan, as of the Effective Date, a holder of Beneficial Interests was deemed to have received its allocable share of the assets that were then deemed contributed to the UCT.
Upon the advice of tax counsel, the UCT determined that Grantor Trust Statements were required to be issued after the end of the UCT’s first fiscal year, which was April 30, 2003. Accordingly, 2003 Grantor Trust Statements were issued to holders of Beneficial Interests reporting required tax information, including each grantor’s share of the income, gain, deductions, loss or credits of the UCT attributable to the period from the date of the UCT’s formation through the end of the UCT’s first fiscal year on April 30, 2003, with the amounts so reported to be reflected on the holder of Beneficial Interest’s appropriate 2003 tax return.
Similarly, Grantor Trust Statements reporting required tax information have been issued to holders of Beneficial Interests, including each grantor’s share of the income, gain, deductions, loss or credits of the UCT attributable to the UCT’s second fiscal year (which ended April 30, 2004), with the amounts so reported to be reflected on the holder of Beneficial Interest’s appropriate tax return for 2004. Grantor Trust Statements will be issued to holders of Beneficial Interests for each subsequent fiscal year of the UCT ending on April 30th of such year until the termination of the UCT.
All entities that receive distributions under the Plan are responsible for reporting and paying, as applicable, taxes on account of their distributions.Each holder of Beneficial Interests is strongly advised to consult its own tax advisor regarding the federal, state, local and foreign tax consequences of holding or disposing of an interest in the UCT and of receiving distributions from the UCT.
8. Disbursements and Expenses
The Statement of Operations includes a section titled “Disbursements & Expenses” and the Statement of Cash Flows includes a section titled “Cash Flow from Trust Operations”. Both of these sections have line items titled “Distributions by UCT” and “Trust Expenses”. Set forth below are the descriptions of the types of disbursements and expenses included in each line item:
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Distributions
These amounts represent payments made to the holders of Allowed Claims in Class 4A, as described in Note 5. Distributions have been made to holders of Allowed Claims during the quarter ended July 31, 2005 in the aggregate amount of $56,842. Distributions of $430,559 were made to holders of Allowed Claims during the quarter ended July 31, 2004. Aggregate distributions since the inception of the UCT total $18,029,682, including $513,031 for court authorized lump sum settlements of three claims, and representing 10.5743% of Allowed Claims to holders who have provided taxpayer identification numbers as required by the Plan.
Trust Expenses
These amounts represent payment of expenses of the UCT, including trust administration, professional fees, claims resolution, and other costs. Trust expenses include the fees of the Trust Administrator which are paid pursuant to the fee arrangement agreed to and approved by the UCTAC upon the appointment of the Trust Administrator in conjunction with confirmation of the Plan and the formation of the UCT.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following discussion should be read in conjunction with our financial statements and related notes included in this Form 10-Q/A.
Application of Critical Accounting Policies
The Trust Administrator believes the following critical accounting policies, among others, are subject to significant judgments and estimates used in the preparation of these financial statements.
Cash Basis of Accounting
The UCT financial statements are prepared on a cash basis of accounting. Transactions (including the recording of interest earned) are recorded when cash is received or disbursed. The Cash Basis Balance Sheet includes cash arising from cash transactions, while the Statement of Operations includes cash receipts as additions and cash disbursements as expenses/deductions. The UCT Agreement, approved by the Court as part of the confirmation of the Plan, provides for the fiscal year of the UCT to end on April 30.
The UCT’s financial statements present, to the best of the Trust Administrator’s knowledge, the cash receipts and disbursements from the UCT for the period reported. The financial reports and accompanying information were prepared for the use of the Trust Administrator and the UCTAC and for filing with the Court in accordance with Section 7.1 of the UCT Agreement. While not required under Generally Accepted Accounting Principles, the Trust Administrator believes that reporting financial information from the date of the inception of the UCT is meaningful for holders of Beneficial Interests, in addition to reporting fiscal year information, and accordingly has included such information in these financial reports.
Reserves
No accrual has been made for potential liabilities or recoveries (including interest earned but not yet received or estimates of future distributions from the FOL Liquidation Trust). However, the UCT has established Disputed Claim Reserves and Other Reserves as required or allowed by the Plan and the UCT Agreement, which reserves have been established in the reasonable business judgment of the Trust Administrator and pursuant to order of the Court.
Tax Status
The UCT is intended to qualify as a liquidating trust for federal income tax purposes, and therefore should be taxable as a grantor trust. If the UCT is taxable as a grantor trust, the holders of Beneficial Interests will be treated as grantors; accordingly their pro rata share of all items of income, gain, loss, deduction and credit will be included in the income tax returns of the holders of Beneficial Interests.
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Changes in net assets
Funding from FOL Liquidation Trust and Investment Income
During the quarter ended July 31, 2005, the UCT receivednodistributions from the FOL Liquidation Trust and received interest on invested funds in the amount of $9,004. During the quarter ended July 31, 2004, the UCT received no distributions from the FOL Liquidation Trust and received interest on invested funds in the amount of $23,927. Since its inception, the UCT has received distributions from the FOL Liquidation Trust in the aggregate amount of $20,542,831. The UCT’s investments have yielded interest income in the amount of $583,341 since its inception.
Reserves
In accordance with the terms of the Plan and the Court’s reserve order for the Initial Distribution, the UCT has established reserves for Allowed and Disputed Claims. The Disputed Claims Reserve consists of the ratable proportion of all cash allocated for distribution on account of each disputed claim based upon the asserted amount of each Disputed Claim or such amount as may be agreed to by the holder of the Claim and the UCT or as may otherwise be determined by the Court. As of July 31, 2005, the UCT holds total reserves of $2,513,149 for Allowed and Disputed Claims, including $1,487,226 for 259 holders of Allowed Claims who have not provided the taxpayer identification information required by the UCT Agreement. As of April 30, 2005, the UCT held total reserves of $2,569,991 for Allowed and Disputed Claims. The $56,842 decrease in the reserve for Allowed and Disputed Claims from April 30, 2005 to July 31, 2005 is the decrease in the reserve on account of distributions made to holders of Allowed Claims and resolution of Disputed Claims.
The UCT also holds a Case Administration Expense Reserve in the amount of $545,520 as of July 31, 2005, which is to be used to fund expenses of administering the UCT, as more particularly described the Trust Expenses section below. As of April 30, 2005, the Case Administration Expense Reserve was $649,001. The $103,481 decrease in the Case Administration Expense Reserve from April 30, 2005 to July 31, 2005 is the net change resulting from the $112,485 of trust expenses disbursed during the fiscal quarter ended July 31, 2005 plus the $9,004 of interest earned on invested funds from April 30, 2005 through July 31, 2005.
Distributions
An Initial Distribution of 3.9297% of Allowed Claims was authorized by the Court and made by the UCT to holders of Allowed Claims for which required taxpayer identification information was provided on October 30, 2002 in accordance with the Initial Distribution Reserve Order, and periodically thereafter to holders of subsequently Allowed Claims. On July 30, 2003, the UCT made its Second Distribution in the amount of 4.5446% of Allowed Claims to holders of Allowed Claims for which required taxpayer identification information was provided pursuant to the reserving methodology approved by the Court for the First Reserve Motion. On March 30, 2005, the UCT made its Third Distribution in the amount of 2.1% of Allowed Claims to holders of Allowed Claims for which required taxpayer identification information was provided pursuant to the reserving methodology approved by the Court for the First Reserve Motion. This brings the total distribution to holders of Allowed Claims for which required taxpayer identification information was provided to 10.5743% of Allowed Claims as of July 31, 2005, which is the distribution rate received by holders of Allowed Claims which have been allowed subsequent to March 30, 2005.
Distributions have been made to holders of Allowed Claims during the quarter ended July 31, 2005 in the aggregate amount of $56,842. Distributions of $430,559 were made to holders of Allowed Claims during the quarter ended July 31, 2004. Aggregate distributions since the inception of the UCT total $18,029,682, including $513,031 in court authorized lump sum settlements of three Allowed Claims and representing 10.5743% of all other Allowed Claims for which required taxpayer identification information has been provided.
Outstanding Claims
On the date of inception of the UCT, there were approximately 3,450 Class 4A Claims. The UCT has filed various objections to Claims and, after notice and hearing, orders allowing and expunging claims of non-responding claimants were entered by the Court. The UCT has resolved certain other claims on a consensual basis. As a result, as of July 31, 2005, there were approximately 1,861 Class 4A Claims remaining. Of this amount, 1853
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claims totaling $180,603,121 have been allowed (including three Allowed Claims receiving court authorized lump sum settlements aggregating $513,031). There remain approximately eight Disputed Claims as of July 31, 2005, of which four are subject to pending objections before the Court.
Trust Expenses
During the quarter ended July 31, 2005, the UCT paid expenses totaling $112,485, which include trust administration, professional fees, claims resolution, and other costs. During the quarter ended July 31, 2004, the UCT paid expenses totaling $183,825. Since its inception, the UCT has paid trust expenses totaling $2,742,821. Trust expenses include the fees of the Trust Administrator, which are paid pursuant to the fee arrangement agreed to and approved by the UCTAC upon the appointment of the Trust Administrator in conjunction with confirmation of the Plan and the formation of the UCT.
Pursuant to the Plan, the UCT received an Initial Distribution of $2,705,000, which was allocated solely for trust expenses and which was to be returned to the FOL Liquidation Trust to the extent not used for such expenses. During the quarter ended July 31, 2005, total trust expenses incurred since the inception of the UCT exceeded the Initial Distribution of $2,705,000, and accordingly no amounts will be returned to the FOL Liquidation Trust. Until October 31, 2004, the Trust Administrator had allocated interest income to the Distribution Reserve for Allowed and Disputed Claims and reported that with the possible exception that such interest might be needed for case administration expenses, the UCT did not anticipate that any of the other funds received from the FOL Liquidation Trust and allocated to the Distribution Reserve for Allowed and Disputed claims would be needed for case administration expenses. The UCT determined during the quarter ended October 31, 2004, as allowed by the UCT Agreement, to reallocate $512,133 (which amount is equivalent to the interest earned since the inception of the UCT through October 31, 2004) from the Distribution Reserve for Allowed and Disputed Claims to the Case Administration Expense Reserve effective October 31, 2004, and to allocate interest earned in the future to the Case Administration Expense Reserve in order to provide adequate resources for the payment of case administration expenses. To the extent interest earned is not needed for case administration expenses, it will be distributed to the holders of Beneficial Interests as part of the final distribution. At July 31, 2005, the UCT held $545,520 in the Case Administration Expense Reserve, which is the net amount remaining in the reserve from the Initial Distribution from the FOL Liquidation Trust of $2,705,000 distributed to the UCT for the initial funding of the Case Administration Expense Reserve, plus $583,341 of interest earned by the UCT since its inception and allocated to the Case Administration Expense Reserve and less the $2,742,821 of trust expenses incurred since the inception of the UCT through July 31, 2005. The $103,481 decrease in the Case Administration Expense Reserve from April 30, 2005 to July 31, 2005 is the net change resulting from the $112,485 of trust expenses disbursed during the three month period ended July 31, 2005 plus the $9,004 of interest earned on invested funds from April 30, 2005 through July 31, 2005.
A factor in the Trust Administrator’s decision to reallocate an amount equal to interest earned to the Case Administration Expense Reserve was the FOL Liquidation Trust informing the UCT during the quarter ended October 31, 2004 that it did not anticipate a final distribution to the UCT until the second calendar quarter of 2005 or later. As discussed in Note 6 to the Financial Statements, the UCT was previously scheduled to terminate on April 30, 2005 and the UCT applied to the Court for an extension of the termination date to enable the holders of Beneficial Interests to receive all amounts to which they are entitled under the Plan, which extension to April 30, 2006 has been granted by the Court. The FOL Liquidation Trust has more recently indicated to the UCT that it anticipates a final distribution to the UCT during the second half of 2005. If the FOL Liquidation Trust makes a final distribution to the UCT within the second calendar half of 2005, the UCT currently anticipates that the original $2,705,000 funding of the Case Administration Expense Reserve, together with interest earned by the UCT since its inception, will be adequate to fund trust expenses through the UCT’s termination. While reserving all of its rights with respect thereto, the UCT thus still anticipates that all or substantially all of the distributions received from the FOL Liquidation Trust will be used for distributions to holders of Beneficial Interests and not for the funding of trust expenses. Accordingly, the amounts expended for trust expenses are not anticipated to significantly impact the distributions to the holders of Allowed Claims in Class 4A due to the separate funding of the UCT’s trust expenses and interest earned by the UCT on its investments.
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| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
The Reserves held by the UCT are invested through, and with the investment advice of, the Trust Department of Wachovia Bank, N.A. The UCT’s holdings of financial instruments are comprised primarily of government agency securities and investment grade corporate securities. All such instruments are classified as securities held to maturity. The UCT seeks reasonable assurance of the safety of principal and market liquidity by investing in rated fixed income securities. Its market risk exposure consists principally of exposure to changes in interest rates. Its holdings are also exposed to the risks of changes in the credit quality of issuers. The UCT typically invests in the shorter end of the maturity spectrum and the Trust Administrator believes that changes in interest rates would not have a material effect on the fair value of UCT holdings. All cash is invested in interest bearing instruments until disbursed.
| ITEM 4. | CONTROLS AND PROCEDURES. |
(a) Evaluation Of Disclosure Controls And Procedures
The UCT’s Trust Administrator, after evaluating the effectiveness of the UCT’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of the end of the period covered by this quarterly report (the “Evaluation Date”), has concluded that as of the Evaluation Date, the UCT’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the UCT would be made known to it by others within the UCT, particularly during the period in which this quarterly report was being prepared.
(b) Changes in Internal Controls
There were no significant changes in the UCT’s internal controls or in other factors that could significantly affect the UCT’s internal controls and procedures subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such internal controls and procedures requiring corrective actions.
| ITEM 1. | LEGAL PROCEEDINGS |
Pursuant to the Plan, the UCT operates under the jurisdiction and supervision of the United States Bankruptcy Court for the District of Delaware and will continue to do so until the UCT has received its final distribution from the FOL Liquidation Trust, all general unsecured claims are resolved and the UCT is terminated pursuant to the terms of the Plan.
Since its inception, the UCT has filed various Omnibus Claims Objections motions with the Court in connection with bankruptcy claims resolution. Most of the general unsecured claims as to which objections were previously filed have been resolved either consensually or by default order entered by the Court. The Court retains jurisdiction to hear disputed claims matters in the event that the parties are unable to consensually resolve any of the remaining Claims as to which objections are pending. The UCT anticipates filing additional Claims objections in the future.
The UCT is not aware of any facts or circumstances giving rise to any claims that would result in litigation against the UCT, nor is the UCT planning to file suit against any third party, except as it may relate to claims resolution.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Not Applicable.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not Applicable.
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| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
Not Applicable.
| ITEM 5. | OTHER INFORMATION |
None.
| ITEM 6. | EXHIBITS |
| 31. | Certification pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32. | Certificate pursuant to Section 906 of the Sarbanes – Oxley Act of 2002. | |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.
FRUIT OF THE LOOM | ||
UNSECURED CREDITORS TRUST | ||
| By: | Clingman & Hanger Management Associates, LLC | |
| By: | /s/ W. EDWARD CLINGMAN, JR. | |
| W. Edward Clingman, Jr. | ||
| Principal | ||
Date: October 5, 2005
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| 31. | Certification pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32. | Certificate pursuant to Section 906 of the Sarbanes – Oxley Act of 2002. | |
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