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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q Check one [x]
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934for the quarterly period ended March 31, 2004 or[  ]
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission file number 000-50160 HECHINGER LIQUIDATION TRUST  Delaware
(State or other jurisdiction of incorporation)
    
    52-7230151
(I.R.S. Employer Identification No.)1801 McCormick Drive, Largo, Maryland
(Address of principal executive offices)
    
    20774
(Zip Code)
 Registrants telephone number, including area code: (301) 883-4501 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 mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes
[  ]           No [x] 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. Yes [x]           No [  ]




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HECHINGER LIQUIDATION TRUST
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004 Description
    
    PagePART I. FINANCIAL INFORMATION:Item 1. Financial StatementsUnaudited Statements of Net Assets in Liquidation
    
    
    3Unaudited Statements of Changes in Net Assets in Liquidation
    
    
    4Unaudited Statements of Cash Receipts and Disbursements
    
    
    5Notes to Unaudited Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II. OTHER INFORMATION:Item 1. Legal Proceedings
    
    
    20Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits and Reports on Form 8-K
    
    
    21SIGNATURES
    
    
    22INDEX TO EXHIBITS
    
    
    23
 2




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PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements Hechinger Liquidation Trust 
 Unaudited Statements of Net Assets in Liquidation
 ($ in thousands) As of
    
    As ofMarch 31,
    
    September 30,2004
    
    2003AssetsCash and cash equivalentsDesignated as available for distribution
to holders of impaired claims
    
    $
    3,505
    
    
    $
    7,136Reserved
    
    
    23,155
    
    
    
    24,288Restricted
    
    
    9,559
    
    
    
    9,730Other
    
    
    9,198
    
    
    
    5,683Total cash and cash equivalents
    
    
    45,417
    
    
    
    46,837Preference receivables (net of costs of
recovery of $1,141 and $1,491,
respectively)
    
    
    3,832
    
    
    
    5,955Other assets
    
    
    2,213
    
    
    
    1,503Total assets
    
    
    51,462
    
    
    
    54,295LiabilitiesUnimpaired claims payable
    
    
    10,777
    
    
    
    11,044Convenience claims payable
    
    
    19
    
    
    
    22Uncashed claims checks
    
    
    164
    
    
    
    377Distributions payable to holders of
allowed impaired claims
    
    
    308
    
    
    
    665Estimated costs of liquidation
    
    
    6,925
    
    
    
    7,611Total liabilities
    
    
    18,193
    
    
    
    19,719Net Assets in Liquidation
    
    $
    33,269
    
    
    $
    34,576
 See accompanying notes to unaudited financial statements. 3




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Hechinger Liquidation Trust 
 Unaudited Statements of Changes in Net Assets in Liquidation
 ($ in thousands) For the three months endedMarch 31, 2004
    
    March 31, 2003Increase/(decrease) in Net Assets in LiquidationIncrease/(decrease) in estimated fair value of
preference receivables, net
    
    $
    (660
    )
    
    $
    1,187(Increase) in estimated fair value of
unimpaired claims payable
    
    
    
    
    
    
    (248
    )Interest income
    
    
    62
    
    
    
    123Other increases
    
    
    732
    
    
    
    199(Increase) in estimated costs of liquidation
    
    
    (3,540
    )
    
    
    Increase/(decrease) in Net Assets in Liquidation
before distributions authorized
    
    
    (3,406
    )
    
    
    1,261Distributions authorized
    
    
    329
    
    
    
    1,519Net decrease in Net Assets in Liquidation
after distributions authorized
    
    
    (3,735
    )
    
    
    (258
    )Net Assets in Liquidation at beginning of period
    
    
    37,004
    
    
    
    44,019Net Assets in Liquidation at end of period
    
    $
    33,269
    
    
    $
    43,761For the six months endedMarch 31, 2004
    
    March 31, 2003Increase/(decrease) in Net Assets in LiquidationIncrease in estimated fair value of
preference receivables, net
    
    $
    3,090
    
    
    $
    1,187Decrease in estimated fair value of
unimpaired claims payable
    
    
    
    
    
    
    336Interest income
    
    
    126
    
    
    
    299Other increases
    
    
    772
    
    
    
    245(Increase) in estimated costs of liquidation
    
    
    (3,540
    )
    
    
    Increase in Net Assets in Liquidation
before distributions authorized
    
    
    448
    
    
    
    2,067Distributions authorized
    
    
    1,755
    
    
    
    2,488Net decrease in Net Assets in Liquidation
after distributions authorized
    
    
    (1,307
    )
    
    
    (421
    )Net Assets in Liquidation at beginning of period
    
    
    34,576
    
    
    
    44,182Net Assets in Liquidation at end of period
    
    $
    33,269
    
    
    $
    43,761
 See accompanying notes to unaudited financial statements. 4




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Hechinger Liquidation Trust 
 Unaudited Statements of Cash Receipts and Disbursements
 ($ in thousands) For the six months endedMarch 31, 2004
    
    March 31, 2003Cash receiptsPreference collections, before costs of recovery
    
    $
    6,222
    
    
    $
    8,112Interest income
    
    
    126
    
    
    
    299Other receipts
    
    
    62
    
    
    
    1,233Total cash receipts
    
    
    6,410
    
    
    
    9,644Cash disbursementsCosts of liquidationLegal and professional feesLitigation
    
    
    2,162
    
    
    
    2,194Liquidation Trust operations
    
    
    1,087
    
    
    
    785Preference recoveries
    
    
    1,010
    
    
    
    1,038Operating expenses
    
    
    977
    
    
    
    1,345Unimpaired and convenience claims
    
    
    270
    
    
    
    1,527Reissued/(voided) claims checks, net
    
    
    212
    
    
    
    (160
    )Total cash disbursements
    
    
    5,718
    
    
    
    6,729Increase in cash and cash equivalents
before distributions paid
    
    
    692
    
    
    
    2,915Distributions paid
    
    
    2,112
    
    
    
    4,246Decrease in cash and cash equivalents
    
    
    (1,420
    )
    
    
    (1,331
    )Cash and cash equivalents at beginning of period
    
    
    46,837
    
    
    
    62,641Cash and cash equivalents at end of period
    
    $
    45,417
    
    
    $
    61,310
 See accompanying notes to unaudited financial statements. 5




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Hechinger Liquidation Trust 
 Notes to Unaudited Financial Statements
 1. Background and Basis of Presentation Background Hechinger Liquidation Trust (the Liquidation Trust) was established
effective October 26, 2001 (the Effective Date) in accordance with the
Revised First Amended Consolidated Plan of Liquidation (the Plan) for
Hechinger Investment Company of Delaware, Inc. and affiliates, (the Debtors)
confirmed by the United States Bankruptcy Court for the District of Delaware
(the Bankruptcy Court) by an order dated October 5, 2001. The Liquidation Trust has no authority to engage in any trade or business.
The purpose of the Liquidation Trust is to (i) liquidate any and all remaining
assets of the Debtors; (ii) pursue causes of action assigned to the Liquidation
Trust, including preference, fraudulent conveyance and other avoidance actions;
(iii) resolve, either consensually or through litigation, all disputed claims
asserted against the Debtors (Disputed Claims), pursuant to the Plan; and
(iv) make all distributions required under the Plan (Distributions), and
payments to holders of claims allowed pursuant to the Plan (Allowed Claims
and, together with the Disputed Claims, the Claims). The Liquidation Trust
will terminate upon the earlier of (a) the fulfillment of its purpose by the
liquidation of all of its assets and the distribution of the proceeds of the
liquidation thereof in accordance with the Plan, or (b) by October 26, 2005,
unless the Bankruptcy Court approves an extension of the term. Pursuant to the Bankruptcy Code, certain types of Allowed Claims will be
paid in full under the Plan. Such Claims are therefore referred to as
Unimpaired Claims. The Plan defines which types of Claims are paid in full. The Liquidation Trust exists primarily for the benefit of the majority of
claimants who will not be repaid in full for the amounts the Debtors owed them
as of the bankruptcy filing. These Claims are referred to as Impaired Claims
because the rights of the claimants have been impaired by the Debtors
bankruptcy. Each holder of an Allowed Claim in the Plans Class 4A (Senior
Unsecured Claims), Class 4B (General Unsecured Claims), and Class 5
(Subordinated Debentures Claims) is deemed to hold a pro rata beneficial
interest (the Beneficial Interests) in the Liquidation Trust based upon the
amount of their Allowed Impaired Claim as compared to the total amount of all
Impaired Claims ultimately Allowed. When and to the extent Disputed Impaired
Claims become Allowed Impaired Claims, holders of such Claims become holders of
Beneficial Interests in accordance with the Plan. The holders of Beneficial Interests receive all remaining net proceeds of
the Liquidation Trust, if any, after the expenses and all creditors of the
Liquidation Trust, including Allowed Unimpaired and Convenience Claims (certain
small Claims to be paid at 7.5% of their Allowed amounts in accordance with the
Plan) are paid, and all contingencies are resolved. Holders of each Class of
Beneficial Interests (i.e., each Class of Impaired Claims) have the same
rights, except with respect to payment of Distributions. During August 2002, the Bankruptcy Court authorized the Liquidation Trust
to make an initial Distribution to holders of Beneficial Interests (i.e., to
holders of Allowed Impaired Claims), at the rate of 4.515% of the Allowed
amount of the Impaired Claims. The Liquidation Trust also established a
reserve of 4.515% of the estimated amount of Disputed Impaired Claims, using
the estimated value of such Claims approved by the Bankruptcy Court for reserve
purposes. During June 2003, the Liquidation Trust made a second interim
Distribution at the rate of 2.058%, and increased the reserve for each
remaining Disputed Impaired Claim based on the cumulative 6.573% Distribution
rate. 6




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Basis of Presentation The Liquidation Trusts financial statements have been prepared using the
liquidation basis of accounting. Under this method of accounting, the
Statements of Net Assets in Liquidation reflect all assets and liabilities,
including the projected total cost of liquidating the assets and winding down
the affairs of the Liquidation Trust, at estimated fair value. Unimpaired
Claims, to be paid in full, are reflected in the Statements of Net Assets in
Liquidation as liabilities at estimated aggregate settlement amounts.
Convenience Claims are also recorded as liabilities, at their estimated payment
amount. The Statements of Changes in Net Assets in Liquidation primarily
reflect any authorized Distributions to holders of Beneficial Interests and
changes in the estimated fair value of the Liquidation Trusts assets and
liabilities. The Liquidation Trusts fiscal year ends on September 30. The accompanying unaudited financial statements reflect all adjustments,
consisting only of normal recurring adjustments that are, in the opinion of the
Liquidation Trustee, necessary for a fair statement of the results for the
interim periods presented. Such financial statements and these notes thereto
should be read in conjunction with the audited Liquidation Trust financial
statements as of September 30, 2003 and September 30, 2002, and for the periods
from October 1, 2002 through September 30, 2003 and from October 26, 2001
(Effective Date) through September 30, 2002, and the notes thereto. The amounts shown in this document are rounded and are therefore
approximate. Certain amounts in the unaudited financial statements for the six months
ended March 31, 2003 have been reclassified to conform to the presentation for
the current period. 2. Significant Accounting Policies Use of Estimates The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Liquidation Trustee to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities. Actual
results are likely to differ from those estimates and those differences may be
significant. Cash and Cash Equivalents The Liquidation Trust considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents. The
Liquidation Trust holds substantially all cash balances in operating and
investment accounts in excess of federally insured limits. Cash is classified
as: Designated as Available for Distribution to Holders of Impaired Claims,
Reserved, Restricted, and Other (see Note 3). Taxes The Liquidation Trust is intended to qualify as a liquidating trust for
federal income tax purposes, and therefore should be taxable as a grantor
trust. The holders of Beneficial Interests are treated as grantors;
accordingly, their pro rata share of all items of income, gain, loss, deduction
and credit are included in the income tax returns of the holders of Beneficial
Interests. The Liquidation Trust pays applicable taxes on the taxable income and gain
allocable to holders of Disputed General Unsecured Claims on behalf of such
holders and, when such Disputed Claims are ultimately resolved, holders whose
Disputed Claims were determined to be Allowed Claims receive Distributions from
the Liquidation Trust net of taxes, if any, which the Liquidation Trust
previously paid on their behalf. 7




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The Liquidation Trust incurs no taxable income or gain on its own behalf;
therefore, no tax provision is recorded in the financial statements of the
Liquidation Trust. 3. Cash Cash is invested in highly liquid investments with a maturity of three
months or less, and in accordance with Section 345 of the Bankruptcy Code or as
otherwise permitted by order of the Bankruptcy Court. Under the terms of the
Plan, the Liquidation Trust is not required to segregate funds for reserves. Cash Designated as Available for Distribution to Holders of Impaired
Claims (Available Cash) is designated to assure the availability of funds
for payment to holders of Impaired Claims who have not received their
Distributions. The amount pertaining to the reserve for Disputed Impaired
Claims is based on the estimated amount of Disputed Impaired Claims approved by
the Bankruptcy Court pursuant to the Reserve Order. Available Cash does not
include Reserved Cash, Restricted Cash, or Other Cash, each further described
below. Available Cash consists of: As of
        
        As of($ in thousands)
        
        March 31, 2004
        
        September 30, 2003Distributions payable
        
        $
        308
        
        
        $
        665Reserve for remaining
            Disputed Impaired Claims at 6.573%
        
        
        3,197
        
        
        
        6,471Total Available Cash
        
        $
        3,505
        
        
        $
        7,136
 Reserved Cash is held by the Liquidation Trust to assure payment of
the Liquidation Trusts obligations in accordance with the Plan. Under the
terms of the Plan, Reserved Cash is intended to provide for (a) operating
expenses of the Liquidation Trust, (b) estimated payments to holders of Allowed
Unimpaired and Convenience Claims in accordance with the Plan, and (c) payments
which may become necessary if and as Disputed Unimpaired Claims become Allowed,
or if certain specific contingencies should occur. See Note 10 for details of
specific reserves and their related amounts. Restricted Cash consists of cash held as collateral for a letter of
credit (see Note 6) and cash held in an escrow account. Other Cash is cash and cash equivalents not designated to a
specific reserve or fund. 4. Preference Receivables The Liquidation Trusts preference receivables are reflected in the
accompanying Statements of Net Assets in Liquidation at their estimated fair
value of $3.8 million, net of estimated costs of recovery of $1.1 million, for
56 preference cases being actively pursued and for settlement collections in
progress at March 31, 2004; and $6.0 million, net of estimated costs of
recovery of $1.5 million, for 90 preference cases being actively pursued and
for settlement collections in progress at September 30, 2003. The Liquidation Trust originally assigned no value to certain of the
largest potential preference cases until fact-finding and initial negotiation
indicated that some collection was likely. During the three months ended
December 31, 2003, the last remaining such preference case was settled for $3.8
million, resulting in an increase in the estimated fair value of preference
receivables of that amount. During the three months ended March 31, 2004, this
settlement was collected in full. The fair
    value of Liquidation Trust assets is reassessed at least quarterly and adjustments
    to estimated fair values are reflected in the period in which they become
    known. The eventual net realizable value of preference receivables is likely
    to differ from their estimated net fair value and these differences may be
    significant. 8




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5. Other Assets

Other assets consists mainly of a receivable from Kemper Insurance Company
(Kemper), the insurer for the Debtors workers compensation claims for a
number of years, which is potentially subject to offset as collateral for the
Kemper Claim (see Note 6). Additionally, the Liquidation Trust holds
miscellaneous receivables from various former vendors, service providers, and
others, including a settlement of $0.7 million, negotiated and recorded in the
three months ended March 31, 2004, which was reached in litigation against a
former insurance broker of the Debtors. Other assets is reported at estimated
net fair value, based on either the amount paid (generally in the form of cash
deposits) or the estimated recoverable amount, whichever is more determinable.
The eventual net realizable value of these assets is likely to differ from
their estimated net fair value and these differences may be significant.

6. Unimpaired Claims Payable

Unimpaired Claims payable represents the estimated aggregate settlement
amount of Unimpaired Claims against the Debtors prior to the Effective Date of
the Plan, which will be paid out at 100% of their Allowed amount. Such Claims
are valued at the Liquidation Trusts best estimate of the amount that will
ultimately be allowed.

Unimpaired Claims payable consists of:

As of
      
      As of($ in thousands)
      
      March 31, 2004
      
      September 30, 2003Allowed Claims
      
      $
      1,340
      
      
      $
      1,392Estimated fair value
          of Disputed Claims
      
      
      9,437
      
      
      
      9,652Total Unimpaired Claims
          payable
      
      $
      10,777
      
      
      $
      11,044Asserted value of Disputed
          Claims
      
      $
      9,553
      
      
      $
      10,008Number of Disputed
          Claims
      
      
      12
      
      
      
      22


The largest remaining Disputed Unimpaired Claim is a secured Claim
asserted by Kemper (the Kemper Claim) for payment of certain liability claims
against the Debtors (the Insurance Claims). In addition to certain amounts
payable to the Liquidation Trust (see Note 5), Kemper holds an irrevocable
cash-collateralized letter of credit with a balance of $8.8 million and $9.0
million as of March 31, 2004 and September 30, 2003, respectively. The
Liquidation Trust believes that the value of these Insurance Claims is
substantially lower than the collateral held by Kemper. Kemper and the
Liquidation Trust have not established a mutually agreeable basis for
determining the fair value of the Insurance Claims; as a result, the
Liquidation Trust has continued to value the Kemper Claim in Unimpaired Claims
payable at the full amount of the letter of credit held by Kemper. In December
2003, the Liquidation Trust filed a complaint in the Bankruptcy Court
requesting, among other things, that the Bankruptcy Court fix the amount of the
Kemper Claim and compel the return of excess collateral, deposits and other
amounts held by Kemper to the Liquidation Trust (see Note 12). The ultimate
fair value of this Claim is likely to differ from its estimated fair value and
the difference may be significant.

Unimpaired Claims are valued by reviewing the facts available to the
Liquidation Trust, including the Debtors records and information submitted by
the claimants, and estimating the ultimate settlement value of the Claims. The
fair value of Unimpaired Claims payable is reassessed at least quarterly and
adjustments to estimated fair values are reflected in the period in which they
become known. However, no assurance can be given as to the ultimate allowance,
disallowance or settlement of the remaining Disputed Unimpaired Claims,
individually or in the aggregate.

9



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7. Uncashed Claims Checks Pursuant to the Plan, any Claims payments and Distributions which remain
uncashed for 90 days following their issuance date are forfeited to the
Liquidation Trust for Distribution to other holders of Allowed Claims. Pending
a final order from the Bankruptcy Court, the Liquidation Trust has treated such
items as a liability. Such checks may be reissued upon request of the payee,
subject to applicable fees. 8. Distributions Payable Distributions payable primarily represents 6.573% of the Allowed amount of
Impaired Claims for which the Liquidation Trust had not yet paid Distributions.
A number of holders of such Allowed Claims, while otherwise eligible for
Distributions, had either not yet provided all the information necessary for
payment, or were subject to an offsetting claim by the Liquidation Trust which
had not yet been resolved. Until all such issues are resolved, the holder of
an Allowed Claim may not receive a Distribution. 9. Estimated Costs of Liquidation The Wind-down Reserve and Litigation Reserve described below together
constitute the estimated costs of liquidation in the accompanying Statements of
Net Assets in Liquidation. Under the Plan, the Liquidation Trust was required to establish and fund a
reserve to pay administration costs and costs of holding and liquidating the
Liquidation Trusts assets (the Wind-down Reserve). Substantially all of the
operations of the Liquidation Trust were previously expected to cease in early
2004; however, the resolution of preference receivables and other litigation,
including the Kemper Complaint, and the related Claims, is now expected to
extend into 2005, followed by certain necessary legal and accounting processes
to be completed thereafter. Therefore, the Wind-down Reserve was increased by
$1.5 million as of March 31, 2004. The Liquidation Trust believes the
Wind-down Reserve of $4.6 million as of March 31, 2004 is sufficient to cover
the projected total costs of operating the Liquidation Trust, consisting mainly
of personnel, professional fees and related expenses, through its anticipated termination. Pursuant to the Plan, the Liquidation Trust also established and funded a
reserve to pay the costs of pursuing certain actions, primarily those referred
to as the Bondholder Action and the Committee Action (the Litigation
Reserve). The trial of the Committee Action, previously scheduled for January
2004, was adjourned in September 2003 without a new date, pending the outcome
of the Bondholder Action trial held in October 2003. In March 2004, the court
ruled in favor of the defendants and against the Liquidation Trust in the
Bondholder Action (see Note 12). Subsequent to March 31, 2004, the Liquidation
Trust filed an appeal from this ruling. As of December 31, 2003, an assessment of future funding of the Litigation
Reserve, if any, was deferred pending a decision in the Bondholder Action.
Based on a review of the Bondholder Action ruling and any potential
implications for the Committee Action, and of the Liquidation Trusts
alternatives in these matters, the Litigation Reserve was increased by $2.0
million during the three months ended March 31, 2004, in accordance with the
procedures set forth in the Plan. The Liquidation Trust believes the
Litigation Reserve balance of $2.3 million as of March 31, 2004 is sufficient
to cover the estimated total costs of pursuing an appeal of the Bondholder
Action and the trial in the Committee Action scheduled for August 2005. The fair value of the estimated costs of liquidation is reassessed at
least quarterly and adjustments to estimated fair values are reflected in the
period in which they become known. 10




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10. Bankruptcy Reserves Required Reserves, other than those funded by Restricted Cash, or included in
Available Cash, consist of: As of
    
    As of($ in thousands)
    
    March 31, 2004
    
    September 30, 2003Liability ReservesWind-down (net of related escrow of $278)
    
    $
    4,348
    
    
    $
    4,873Litigation
    
    
    2,298
    
    
    
    2,460Unimpaired Claims (net of collateralized letter
of credit of $8,839 and $9,002, respectively)
    
    
    1,939
    
    
    
    2,042Uncashed Claims checks
    
    
    164
    
    
    
    377Convenience Claims
    
    
    19
    
    
    
    22Total Liability Reserves
    
    
    8,768
    
    
    
    9,774Contingency ReservesFleet
    
    
    11,000
    
    
    
    11,000Excess Disputed Unimpaired Claims
    
    
    373
    
    
    
    425Preference settlement Claims
    
    
    14
    
    
    
    89Minimum reserve
    
    
    3,000
    
    
    
    3,000Total Contingency Reserves
    
    
    14,387
    
    
    
    14,514Total Reserves
    
    $
    23,155
    
    
    $
    24,288
 The Fleet reserve, established pursuant to a stipulated order between
Fleet Retail Finance Inc. (Fleet) and the Liquidation Trust, is likely to be
drawn upon if Fleet, as a defendant in the Committee Action and the Bondholder
Action, should ultimately prevail in one or both of such actions. No liability
has been accrued in connection with the Fleet reserve because the Liquidation
Trust has appealed the adverse order and judgment in the Bondholder Action (see
Note 12) and does not believe Fleet will ultimately prevail in either of these
actions. 11. Impaired Claims The Liquidation Trusts estimate of Impaired Claims consists of: As of
    
    As of($ in thousands)
    
    March 31, 2004
    
    September 30, 2003Allowed Claims
    
    $
    700,527
    
    
    $
    674,508Estimated fair value of Disputed
Claims
    
    
    49,452
    
    
    
    84,219Total estimated Impaired Claims
    
    $
    749,979
    
    
    $
    758,727Asserted value of Disputed Claims
    
    $
    76,687
    
    
    $
    128,213Number of Disputed Claims
    
    
    112
    
    
    
    172
 No assurance can be given as to the ultimate allowance, disallowance or
settlement of the remaining Disputed Impaired Claims, individually or in the
aggregate. The decrease in estimated fair value from September 30, 2003 to
March 31, 2004 resulted primarily from (i) the settlement of a number of lease
rejection Claims at less than the previously estimated amounts and (ii) vendor
waivers of Claims, which had previously been included in the fair value
estimate, as a result of preference settlement negotiations. 11




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12. Contingencies The Kemper Complaint On December 3, 2003, the Liquidation Trust filed a complaint against
Kemper and various related entities (the Kemper Complaint). In the Kemper
Complaint, arising under various insurance policies that the Debtors purchased
from Kemper, the Liquidation Trust seeks, among other things, an estimate under
Section 502(c) of the Bankruptcy Code of the aggregate loss amounts owed by the
Liquidation Trust for the Insurance Claims, a reduction in the letter of credit
securing the amount owed by the Liquidation Trust with respect to such
Insurance Claims, and the return of excess collateral, deposits and other
amounts held by Kemper to the Liquidation Trust. Kemper holds an irrevocable
cash-collateralized letter of credit with a balance of $8.8 million and $9.0
million as of March 31, 2004 and September 30, 2003, respectively, to secure
payment of the Insurance Claims. In addition, Kemper holds certain other
collateral, deposits, and amounts due to the Liquidation Trust. In the Kemper Complaint, the Liquidation Trust alleges that its estimated
liability for the Insurance Claims is less than $1.0 million, substantially
lower than the letter of credit balance and other amounts held by Kemper.
Kempers response to the Complaint disputes the Liquidation Trusts estimates.
Discovery in the proceeding commenced during the three months ended March 31,
2004, and is expected to continue through the balance of the year. The
trial is scheduled for March 2005. The Liquidation Trust cannot predict with
any certainty the outcome of the litigation or the amount or range of potential
recoveries. The Bondholder Action On March 28, 2004, following a non-jury trial held in October 2003, the
United States District Court for the District of Delaware issued an opinion and
order (collectively, the Decision) in the Bondholder Action, which the
Liquidation Trust is pursuing against Fleet and General Electric Credit Corp.
(GECC), directing the entry of judgment in favor of Fleet and GECC. In April
2004, the Liquidation Trust filed an appeal from the Decision and related
judgment. There can be no assurance of the outcome of the appeal. Also see the
discussion of the Fleet reserve in Note 10. The Committee Action Subsequent
to March 31, 2004, the Committee Action was assigned to
the judge who presided in the Bondholder Action, who has set a briefing
schedule for summary judgment and other motions and has scheduled the Committee
Action for trial in August 2005. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Reference is made to the unaudited financial statements of the Liquidation
Trust as of March 31, 2004 and September 30, 2003 and for the three months and
six months ended March 31, 2004 and March 31, 2003, and the notes thereto (the
Unaudited Liquidation Trust Financial Statements), included in Part I of this
Form 10-Q. The following information concerning the Liquidation Trusts
financial performance and condition should be read in conjunction with the
audited Liquidation Trust financial statements as of September 30, 2003 and
September 30, 2002 and for the periods from October 1, 2002 through September
30, 2003 and from October 26, 2001 (Effective Date) through September 30, 2002,
and the notes thereto. The Unaudited Liquidation Trust Financial Statements have been prepared on
the same basis as the audited Liquidation Trust financial statements, using the
liquidation basis of accounting, and, in the opinion of the Liquidation
Trustee, contain all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of the Liquidation Trusts results for such
periods. The Liquidation Trusts results for the three months ended March 31,
2004 are not necessarily indicative of the results to be expected for any other
interim period or any future fiscal year. All amounts are rounded and are
therefore approximate. 12




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##### 



I. Accounting Policies and Estimates The following discussion and analysis of the Liquidation Trusts changes
in net assets in liquidation, cash receipts and disbursements, and net assets
in liquidation is based on the Unaudited Liquidation Trust Financial Statements
which have been prepared in accordance with accounting principles generally
accepted in the United States of America and in accordance with the liquidation
basis of accounting. During preparation of these financial statements, the
Liquidation Trustee is required to make certain estimates and assumptions which
affect the reported amounts of assets and liabilities in liquidation at
estimated fair value, resolution of disputed claims, resolution of current and
potential litigation and the fair value, and related disclosure, of contingent
assets and liabilities. On an ongoing basis, the Liquidation Trustee evaluates
and updates these estimates and assumptions based on historical experience and
on various other assumptions the Liquidation Trustee believes are reasonable
under the circumstances. Actual results may differ from these estimates and
different assumptions would lead to different estimates. The Liquidation Trusts critical accounting policies are described in
Managements Discussion and Analysis of Financial Condition and Results of
Operations in the Liquidation Trusts annual report on Form 10-K for the year
ended September 30, 2003. II. Changes in Net Assets in Liquidation Significant financial activities of the Liquidation Trust during the
periods reflected below include Distributions authorized and payments to
claimants of various Classes, settlement of Claims asserted, pursuit of
preference receivables and other litigation, and carrying out the liquidation
activities of the Liquidation Trust. Net assets in liquidation are subject to material change when either (a)
Distributions to holders of Allowed Impaired Claims are authorized, or (b)
estimates of the fair value of the Liquidation Trusts assets and/or
liabilities change. Both the authorization of Distributions and changes in
estimates are non-cash changes. These changes are shown in the Liquidation
Trusts Statements of Changes in Net Assets in Liquidation and are discussed
below. Most cash transactions, on the other hand, such as collection of
receivables and payments of liabilities and Distributions, cause offsetting
changes in the associated components of assets and liabilities, but do not
change net assets in liquidation. The Liquidation Trusts Statements of Cash
Receipts and Disbursements show the results of these transactions, which are
also discussed later under the heading Cash Receipts and Disbursements. The following table summarizes the significant changes in net assets in
liquidation for the periods as indicated: For the three months ended($ in thousands)
    
    March 31, 2004
    
    March 31, 2003Distributions authorized
    
    $
    (329
    )
    
    $
    (1,519
    )Changes in estimates  increase/(decrease)
in net assets in liquidation:Costs of liquidation
    
    
    (3,540
    )
    
    
    Preference receivables
    
    
    (660
    )
    
    
    1,187Unimpaired claims payable
    
    
    
    
    
    
    (248
    )Net other increases
    
    
    794
    
    
    
    322Net decrease in net assets in liquidation
    
    $
    (3,735
    )
    
    $
    (258
    )
 13




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##### 



For the six months ended($ in thousands)
    
    March 31, 2004
    
    March 31, 2003Distributions authorized
    
    $
    (1,755
    )
    
    $
    (2,488
    )Changes in estimates  increase/(decrease)
in net assets in liquidation:Costs of liquidation
    
    
    (3,540
    )
    
    
    Preference receivables
    
    
    3,090
    
    
    
    1,187Unimpaired claims payable
    
    
    
    
    
    
    336Net other increases
    
    
    898
    
    
    
    544Net decrease in net assets in liquidation
    
    $
    (1,307
    )
    
    $
    (421
    )
 A. Distributions authorized Distributions at the rate of 6.573% were authorized to holders
of $4.3 million and $26.0 million of Impaired Claims newly allowed during the
three months and the six months ended March 31, 2004,
respectively. In addition, included in Distributions authorized
during such periods, the Liquidation Trust paid applicable taxes on
certain taxable income and gain allocable to holders of Disputed
General Unsecured Claims on behalf of such holders.
Distributions at the rate of 4.515% were authorized to holders of $33.6 million
and $55.1 million of Impaired Claims newly allowed during the three months and
the six months ended March 31, 2003, respectively. B. Changes in estimates 1. Costs of liquidation Several events during the three months ended March 31, 2004 caused the
Liquidation Trust to revise its estimates of the costs of winding down its
operations and prosecuting the actions provided for in the Litigation Reserve:  
    
    The filing of the Kemper Complaint has not resulted in a
negotiated settlement; therefore estimated costs for counsel and
experts have been planned through the scheduled March 2005 trial.
    
    A number of the trials in preference actions scheduled during
the current period were postponed indefinitely in the Bankruptcy
Court. Scheduled preference action trials currently extend through
the end of 2004, and not all cases have been scheduled.
    
    As a result, the resolution of the remaining Claims, final
Distributions and other wind-down matters are now expected to extend
well into 2005. Certain limited operations of the Liquidation Trust
must continue until these matters have been addressed. Therefore, the Wind-down Reserve was increased by $1.5 million during the
three months ended March 31, 2004. The Litigation Reserve was established to cover the costs of the
Bondholder Action and of the Committee Action, for which a trial is now
scheduled in August 2005. In March 2004, the court ruled in favor of the
defendants and against the Liquidation Trust in the Bondholder Action.
Subsequent to March 31, 2004, the Liquidation Trust filed an appeal from this
ruling. As of December 31, 2003, an assessment of future funding of the Litigation
Reserve, if any, was deferred pending a decision in the Bondholder Action.
Based on a review of the Bondholder Action ruling and any potential
implications for the Committee Action, and of the Liquidation Trusts
alternatives in these matters, the Litigation Reserve was increased by $2.0
million during the three months ended March 31, 2004, in accordance with the
procedures set forth in the Plan. 14




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##### 



No such increases were made during the three months ended December 31,
2003, nor during the three months and the six months ended March 31, 2003,
based on the Liquidation Trusts evaluation, as of those dates, of the
sufficiency of its reserves. 2. Estimated fair value of preference receivables The estimated fair value of preference receivables decreased by $0.7
million during the three months ended March 31, 2004 and increased by a net
amount of $3.1 million during the six months then ended. The decrease during
the three months ended March 31, 2004 resulted from an increase in the
estimated costs of prosecuting the remaining preference actions, which are the
most difficult and contentious cases, including the engagement of a consulting
firm. The increase during the six months ended March 31, 2004 was due to the
$3.8 million settlement reached in the last remaining large preference case to
which the Liquidation Trust had not previously assigned a value, as the case
was not previously sufficiently developed to value. This settlement was
recorded as an increase in the estimated fair value of preference receivables
in the three months ended December 31, 2003 and collected in the three months
ended March 31, 2004. The increase in the estimated fair value of preference receivables of $1.2
million for the three months and the six months ended March 31, 2003 resulted
from costs of collections which were lower than previously estimated, as well
as from favorable settlements in several preference actions. 3. Estimated fair value of unimpaired claims payable The fair value of Unimpaired Claims payable is reassessed at least
quarterly and adjustments to estimated fair values are reflected in the period
in which they become known. As a result of the ongoing Claims resolution
process, fewer Disputed Unimpaired Claims remain as of each successive
valuation date, and the Liquidation Trust becomes more familiar with the
validity of each remaining Disputed Unimpaired Claim. Based on its quarterly assessments, the estimated fair value of the
remaining Disputed Unimpaired Claims as of March 31, 2004 remained unchanged
from September 30, 2003, while minor adjustments in the estimated fair value of
Unimpaired Claims payable for the three months and the six months ended March
31, 2003 resulted from the Liquidation Trusts evaluation of various claims. C. Other Increases During the three months ended March 31, 2004, the Trust reached and
recorded a $0.7 million settlement in litigation against a former insurance
broker of the Debtors. No such item occurred during the three months ended
December 31, 2003 or during the comparable periods of the prior year. The
remainder of other increases related to interest income and miscellaneous
receipts. 15




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##### 



III. Cash Receipts and Disbursements The following table summarizes the cash receipts and disbursements for the
periods as indicated: For the six months ended($ in thousands)
    
    March 31, 2004
    
    March 31, 2003Cash receipts
    
    $
    6,410
    
    
    $
    9,644Cash disbursements:Legal and professional fees:Litigation
    
    
    2,162
    
    
    
    2,194Liquidation Trust operations
    
    
    1,087
    
    
    
    785Preference recoveries
    
    
    1,010
    
    
    
    1,038Operating expenses
    
    
    977
    
    
    
    1,345Claims paid
    
    
    482
    
    
    
    1,367Total cash disbursements
    
    
    5,718
    
    
    
    6,729Distributions paid
    
    
    2,112
    
    
    
    4,246Net cash outflow
    
    $
    (1,420
    )
    
    $
    (1,331
    )
 A. Cash receipts Most of the cash receipts are from collections of preference receivables,
which have been ongoing since the preference actions were filed in mid-2001.
Cash receipts during the six months ended March 31, 2004 were significantly
lower than during the six months ended March 31, 2003, both because the
remaining preference cases are the most difficult and contentious cases, and
because the number of remaining preference cases available to settle has
decreased significantly as a result of ongoing preference settlement efforts. B. Legal and professional fees Legal and professional fees reflect the activity level in various areas of
the Liquidation Trusts responsibilities. The litigation fees, for the Bondholder Action and the Committee Action,
during the six months ended March 31, 2004 were comparable to the six months
ended March 31, 2003. There was a decrease in fees related to the Committee
Action trial, which was adjourned during September 2003 without a new date,
pending the outcome of the Bondholder Action trial. This decrease was offset
by an increase in fees related to the Bondholder Action trial held in October
2003 and largely paid during the current period. The Committee Action case was
in the discovery phase, incurring significant fees, during the six months
ended March 31, 2003. Legal and professional fees for Liquidation Trust operations include all
legal, accounting, and other support services except for the services of
counsel prosecuting the Bondholder Action and the Committee Action, and the
firm pursuing preference collections on a contingency-fee basis. Certain of
the largest preference claims suits are handled by Liquidation Trust counsel on
an hourly basis and the related fees are included in Legal and professional
fees  Liquidation Trust operations. The increase in fees for Liquidation
Trust operations during the six months ended March 31, 2004 as compared to the
six months ended March 31, 2003 results primarily from legal fees associated
with a preference case settled for $3.8 million during the period (see II., B.
Changes in estimates, above), and fees associated with the Kemper Complaint. 16




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##### 



Preference recovery fees during the six months ended March 31, 2004 were
comparable to those during the six months ended March 31, 2003, although
preference receipts decreased significantly during the current period when
compared to the prior period, primarily because preference recovery fees were
unusually low, relative to collections, for the six months ended March 31,
2003. The fees for most preference settlements are contingent, and are set at
a declining rate (generally ranging from 35% to 7% of collections) for larger
cases, a number of which were settled during the prior period. Additionally,
during the six months ended March 31, 2004, the Liquidation Trust incurred fees
and expenses for an expert report in the $3.8 million case mentioned above.
Finally, cases resulting in the $3.8 million collection during the six months
ended March 31, 2004 and a $1.7 million collection during the six months ended
March 31, 2003 were handled by counsel for Liquidation Trust operations, and
the related expenses were included in the Statements of Cash Receipts and
Disbursements under Legal and professional fees  Liquidation Trust
operations as incurred. C. Operating expenses Operating expenses during the six months ended March 31, 2004 were
substantially lower than those during the six months ended March 31, 2003,
primarily because the number of Liquidation Trust employees decreased
significantly between the two periods, resulting in lower payroll. D. Claims payments Payments of Unimpaired Claims were significantly lower during the six
months ended March 31, 2004 than during the six months ended March 31, 2003
because, as a result of the ongoing Claims resolution process, fewer Unimpaired
Claims remain to be resolved and paid as of each successive period. E. Distributions paid Distributions paid depend primarily on the amount of Allowed Impaired
Claims, including Claims newly allowed, and on the Distributions authorized
from time to time. An initial Distribution was authorized during August 2002
at a rate of 4.515%, and a second interim Distribution during June 2003 at the
rate of 2.058%. As a result, during the six months ended March 31, 2004, the
holders of Allowed Impaired Claims received the cumulative Distribution rate of
6.573% compared to the initial Distribution rate of 4.515% during the six
months ended March 31, 2003. Offsetting the Distribution rate increase,
however, as a result of the ongoing Claims resolution process, fewer Impaired
Claims remain to be resolved and paid as of each successive period. IV. Net Assets in Liquidation A. Cash and cash equivalents and preference receivables The Liquidation Trusts cash and cash equivalents balance of $45.4 million
and $46.8 million as of March 31, 2004 and September 30, 2003, respectively, is
classified as either (a) Available Cash, (b) Reserved, (c) Restricted or (d)
Other. Available Cash is designated to assure the availability of funds for
payment to holders of Impaired Claims who have not received authorized
Distributions. The required amount of Available Cash of $3.5 million as of
March 31, 2004 was based primarily on the cumulative Distribution rate of
6.573%, for $4.3 million of Allowed but unpaid Impaired Claims plus $49.3
million of Disputed Impaired Claims (at their estimated value for reserve
purposes). The required amount of Available Cash of $7.1 million as of
September 30, 2003 was also based primarily on the cumulative Distribution rate
of 6.573%, for $9.3 million of Allowed but unpaid Impaired Claims plus $98.4
million of Disputed Impaired Claims (at their estimated value for reserve
purposes). The value of Disputed Impaired Claims, for the purpose of
establishing adequate reserves, was estimated by the Liquidation Trust and
approved by the Bankruptcy Court in an order establishing the amounts of
Disputed Claims Reserves (the Reserve Order). 17




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##### 



Reserved Cash is held by the Liquidation Trust to assure payment of the
Liquidation Trusts obligations. Under the terms of the Plan, Reserved Cash is
intended to provide for (a) operating expenses of the Liquidation Trust, (b)
estimated payments to holders of Allowed Unimpaired and Convenience Claims in
accordance with the Plan, and (c) payments which may become necessary if and as
Disputed Unimpaired Claims become allowed, or if certain specific contingencies
should occur. Reserved Cash decreased by $1.1 million from September 30, 2003
to March 31, 2004, to a balance of $23.2 million, as a result of decreases in
various liability and contingency reserves, as discussed below and itemized in
Note 10 to the Unaudited Liquidation Trust Financial Statements filed herein. As of March 31, 2004, Restricted Cash of $9.6 million related primarily to
the Kemper Claim discussed in Liabilities, below. Preference receivables, net of costs of recovery, decreased by $2.1
million from September 30, 2003 to March 31, 2004, to a balance of $3.8 million
primarily due to ongoing preference collections. Collections of preference
receivables accrued as of September 30, 2003 totaled $2.5 million, and the
related costs to collect totaled $1.0 million. The balance of the decrease was
caused by an increase in estimated costs to collect of $0.7 million.
Collections during the period also included the $3.8 million settlement agreed
to and recorded as of December 31, 2003, and collected during the most recent quarter, as
discussed in Changes in estimates, above, which therefore had no net effect
on the balance of preference receivables as of September 30, 2003 and as of
March 31, 2004. B. Liabilities Unimpaired Claims payable as of March 31, 2004 consisted of Disputed
Unimpaired Claims with an estimated fair value of $9.4 million and Allowed but
unpaid Unimpaired Claims totaling $1.3 million. The remaining Disputed
Unimpaired Claims consists of 12 Claims asserted (or estimated for reserve
purposes if no Claim amount was specified) at $9.8 million. Most of this
amount consists of a Claim filed by Kemper relating to certain insurance
claims. The Kemper Claim is secured by a letter of credit, and its fair value
is estimated at the outstanding letter of credit balance of $8.8 million as of
March 31, 2004 (see Contingencies, below). If all remaining Disputed
Unimpaired Claims were to be allowed at their asserted or reserved amounts, net
assets in liquidation would not be materially reduced. Estimated costs of liquidation decreased by $0.7 million from September
30, 2003 to March 31, 2004, to a balance of $6.9 million. The decrease is due
to disbursements totaling $2.1 million from the Wind-down Reserve and $2.2
million from the Litigation Reserve, partially offset by increases of $1.5
million to the Wind-down Reserve and $2.0 million to the Litigation Reserve, as
discussed in Changes in estimates, above. C. Contingency reserves The most significant component in contingency reserves is the Fleet
reserve, established at a total of $11.0 million pursuant to a stipulated order
between Fleet Retail Finance Inc. (Fleet) and the Liquidation Trust. The
Fleet reserve is likely to be drawn upon if Fleet, as a defendant in the
Committee Action and the Bondholder Action, should ultimately prevail in one or
both actions. No liability has been accrued in connection with the Fleet
reserve because the Liquidation Trust has appealed the adverse order and
judgment in the Bondholder Action and does not believe Fleet will ultimately
prevail in either of the Actions. 18




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##### 



V. Contingencies Cases before the United States District Court The Bondholder Action The Bondholder Action trial was held in October 2003. On March 28, 2004
Court issued an opinion and order (collectively, the Decision) in the
Bondholder Action, directing the entry of judgment in favor of Fleet and GECC.
In April 2004, the Liquidation Trust filed an appeal from the Decision and
related judgment. There can be no assurance of the outcome of the appeal.
Also see IV.C., Contingency reserves, above. The Committee Action The trial of the Committee Action, previously scheduled for January 2004,
was adjourned in September 2003 without a new date, pending the outcome of the
Bondholder Action trial. Subsequent to the end of the quarter, the Committee
Action was assigned to the judge who presided in the Bondholder Action, who has
set a briefing schedule for summary judgment and other motions and has
scheduled the Committee Action for trial in August 2005. The various defendants are vigorously opposing these actions. There is no
assurance that the Liquidation Trust will prevail on the claims asserted in the
Committee Action and the Bondholder Action. The Liquidation Trust cannot
predict with any certainty the outcome of the litigation or the amount or range
of potential recoveries. Cases before the Bankruptcy Court In December 2003, the Liquidation Trust filed a complaint against Kemper
and various related entities (the Kemper Complaint). In the Kemper
Complaint, arising under various insurance policies that the Debtors purchased
from Kemper, the Liquidation Trust seeks, among other things, an estimate under
Section 502(c) of the Bankruptcy Code of the aggregate loss amounts owed by the
Liquidation Trust for unliquidated workers compensation claims against the
Debtors (the Insurance Claims), a reduction in the letter of credit securing
the amount owed by the Liquidation Trust with respect to such Insurance Claims,
and the return of excess collateral, deposits and other amounts held by Kemper
to the Liquidation Trust. Kemper holds an irrevocable cash-collateralized
letter of credit with a balance of $8.8 million as of March 31, 2004 to secure
payment of the Insurance Claims. In addition, Kemper holds certain other
collateral, deposits, and amounts due to the Liquidation Trust. In the Kemper Complaint, the Liquidation Trust alleges that its estimated
liability for the Insurance Claims is less than $1.0 million, substantially
lower than the letter of credit balance and other amounts held by Kemper.
Kempers response to the Complaint disputes the Liquidation Trusts estimates.
Discovery in the proceeding commenced during the three months ended March 31,
2004, and is expected to continue through the balance of the year. (See
also Item 2. - Managements Discussion and Analysis of Financial Condition and
Results of Operations, specifically II.B.1, Costs of
liquidation and III.B., Legal and
professional fees, above.) The trial is scheduled for March 2005. The
Liquidation Trust cannot predict with any certainty the outcome of the
litigation or the amount or range of potential recoveries. VI. Forward-Looking Statements This quarterly report on Form 10-Q contains forward-looking statements
about the business, financial condition and prospects of the Liquidation Trust.
The actual results of the Liquidation Trust could differ materially from those
indicated by the forward-looking statements because of various risks and
uncertainties, including, without limitation, the Liquidation Trusts success
in securing claims settlements on the terms currently contemplated in ongoing
negotiations and in other estimates of settlement value, the 19




---



##### 



effect of substantial delays in settling contingent assets and
liabilities, resulting in a prolonged period of liquidation, economic
conditions, changes in tax and other government rules and regulations
applicable to the Liquidation Trust and other risks. These risks are beyond
the ability of the Liquidation Trust to control, and in many cases, the
Liquidation Trust cannot predict the risks and uncertainties that could cause
its actual results to differ materially from those indicated by any
forward-looking statements included in this Form 10-Q. When used in this
quarterly report, the words believes, estimates, plans, expects,
anticipates and other similar expressions as they relate to the Liquidation
Trust or the Liquidation Trustee are intended to identify forward-looking
statements. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Liquidation Trust does not hold any market risk sensitive instruments. 
 Item 4. Controls and Procedures The Liquidation Trust has designed and maintains disclosure controls and
procedures to ensure that information required to be disclosed in its reports
filed or submitted under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Commissions rules and
regulations. These controls and procedures are also designed to ensure that
such information is communicated to the Liquidation Trustee, to allow him to
make timely decisions about required disclosures. The Liquidation Trust, including the Liquidation Trustee, has conducted an
evaluation of the effectiveness of disclosure controls and procedures pursuant
to Exchange Act Rule 13a-15. Based on that evaluation, the Liquidation Trustee
concluded that the Liquidation Trusts disclosure controls and procedures are
effective as of March 31, 2004. There has been no change in the Liquidation Trusts internal control over
financial reporting that occurred during the Liquidation Trusts most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Liquidation Trusts internal control over financial
reporting. 
 PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings Further background information about the following cases is disclosed in
Part I, Item 3  Legal Proceedings, of the Liquidation
Trusts Form 10-K for the year ended September 30, 2003, and in Part II, Item 1  Legal Proceedings, of the
Liquidation Trusts Form 10-Q for the quarter ended
December 31, 2003. Cases before the United States District Court The Bondholder Action The Bondholder Action trial was held in October 2003. On March 28, 2004
Court issued an opinion and order (collectively, the Decision) in the
Bondholder Action, directing the entry of judgment in favor of Fleet and GECC.
In April 2004, the Liquidation Trust filed an appeal to the Decision and
related judgment. There can be no assurance of the outcome of the appeal. The Committee Action The trial of the Committee Action, previously scheduled for January 2004,
was adjourned in September 2003 without a new date, pending the outcome of the
Bondholder Action trial. Subsequent to March 31, 2004, the Committee Action
was assigned to the judge who presided in the Bondholder Action, who has set a
briefing schedule for summary judgment and other motions and has scheduled the
Committee Action for trial in August 2005. 20




---



##### 



The various defendants are vigorously opposing these actions. There is no
assurance that the Liquidation Trust will prevail on the claims asserted in the
Committee Action and the Bondholder Action. The Liquidation Trust cannot
predict with any certainty the outcome of the litigation or the amount or range
of potential recoveries. Cases before the Bankruptcy Court In December 2003, the Liquidation Trust filed a complaint against Kemper
and various related entities (the Kemper Complaint). In the Kemper
Complaint, arising under various insurance policies that the Debtors purchased
from Kemper, the Liquidation Trust seeks, among other things, an estimate under
Section 502(c) of the Bankruptcy Code of the aggregate loss amounts owed by the
Liquidation Trust for unliquidated workers compensation claims against the
Debtors (the Insurance Claims), a reduction in the letter of credit securing
the amount owed by the Liquidation Trust with respect to such Insurance Claims,
and the return of excess collateral, deposits and other amounts held by Kemper
to the Liquidation Trust. Kemper holds an irrevocable cash-collateralized
letter of credit with a balance of $8.8 million as of March 31, 2004 to secure
payment of the Insurance Claims. In addition, Kemper holds certain other
collateral, deposits, and amounts due to the Liquidation Trust. In the Kemper Complaint, the Liquidation Trust alleges that its estimated
liability for the Insurance Claims is less than $1.0 million, substantially
lower than the letter of credit balance and other amounts held by Kemper.
Kempers response to the Complaint disputes the Liquidation Trusts estimates.
Discovery in the proceeding commenced during the three months ended March 31,
2004, and is expected to continue through the balance of the year. The
trial is scheduled for March 2005. The Liquidation Trust cannot predict with
any certainty the outcome of the litigation or the amount or range of potential
recoveries. 
 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities None. 
 Item 3. Defaults Upon Senior Securities None. 
 Item 4. Submission of Matters to a Vote of Security Holders None. 
 Item 5. Other Information None. 
 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number
    
    Document31.1
    
    Certification by Trustee pursuant to Rule 13a-14(a) and
15d-14(a) Under the Exchange Act32.1
    
    Liquidation Trustees Certification Pursuant to 18 U.S.C.
Section 1350
 (b) Reports on Form 8-K A Current Report on Form 8-K under Item 5  Other Events and Regulation FD
Disclosures, dated March 28, 2004, was filed to disclose that the United States
District Court for the District of Delaware issued an opinion and order in the
adversary proceeding known as the Bondholder Action, which the Liquidation
Trust is pursuing against Fleet Retail Finance Inc. and General Electric Credit
Corp., directing the entry of judgment in favor of Fleet and GECC. 21




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##### 



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. HECHINGER LIQUIDATION TRUSTDate: May 14, 2004
    
    By:
    
    /s/ Conrad F. HockingName:
    
    Conrad F. HockingTitle:
    
    Liquidation Trustee
 22




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##### 



INDEX TO EXHIBITS
FORM 10-Q Exhibit No.  31.1
    
    Certification by Trustee pursuant to Rule 13a-14(a) and 15d-14(a) under
the Exchange Act32.1
    
    Liquidation Trustees Certification Pursuant to 18 U.S.C. Section 1350 23