<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------
FOR THE FISCAL YEAR ENDED JANUARY 29, 1994 COMMISSION FILE NUMBER 1-6166
PETRIE STORES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 36-2137966
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
70 ENTERPRISE AVENUE,
SECAUCUS, NEW JERSEY 07094
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
Registrant's telephone number, including area code: (201) 866-3600
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $1.00 Par Value New York Stock Exchange
8% Convertible Subordinated Debentures Due 2010 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
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 [_]
As of April 25, 1994, the number of shares outstanding of the registrant's
Common Stock, $1.00 par value, was 46,768,994; and the aggregate market value
of the Registrant's Common Stock held by nonaffiliates was $464,316,000.
Index to exhibits is on page 17.
DOCUMENTS INCORPORATED BY REFERENCE: None
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<PAGE>
PART I
ITEM 1. BUSINESS.
Petrie Stores Corporation was incorporated under the laws of New York in
1932. Petrie Stores Corporation and its subsidiaries operate a chain of
approximately 1700 women's specialty stores, principally under the trade names
of "Petrie's," "Marianne," "M.J. Carroll," "Stuarts," "Hartfield's,"
"Winkelman's," "Jean Nicole," "G&G," "Rave" and "Plus".
The Company's stores operate in all 50 states, Puerto Rico, the U.S. Virgin
Islands and the District of Columbia. The executive offices and a distribution
center are located at 70 Enterprise Avenue, Secaucus, New Jersey 07094
(telephone (201) 866-3600).
Unless the context otherwise indicates, the term "Company" herein means
Petrie Stores Corporation and its subsidiaries.
RECENT DEVELOPMENT
On April 20, 1994, the Company entered into an acquisition agreement with
Toys "R" Us, Inc. ("Toys") to exchange all of the approximately 40 million
shares of Toys common stock owned by the Company and, at the Company's option,
cash (up to $250 million) for newly issued shares of Toys common stock, less
$115 million. The closing of the transaction is conditioned upon, among other
things, the Company disposing of its retail operations in a manner to be
determined by the Company's Board of Directors. The agreement provides that
nothing in the agreement shall require the Company to effect such disposition
other than on terms the Company's Board of Directors finds acceptable. Milton
Petrie, Chairman of the Board of Directors of the Company, has entered into the
voting agreement (as hereinafter discussed). As a condition to Mr. Petrie's
willingness to execute the voting agreement, Mr. Petrie required, and the Board
of Directors agreed, that such disposition will not be effected other than in a
form (e.g., a rights offering in which the Company's shareholders would be
given the opportunity to purchase shares in a new holding company for the
Company's retail operations, a sale to a third party buyer or a public offering
of the shares of a new holding company for the Company's retail operations) Mr.
Petrie finds acceptable. Promptly after the closing of the transaction, which
is anticipated to occur in the Fall of 1994, the Company will liquidate and
distribute to its shareholders all the newly issued Toys common stock, except
an amount to be held in a liquidating trust covering the Company's contingent
liabilities at the time of the closing.
The closing of the transaction is also conditioned on the Company (i)
receiving from the Internal Revenue Service ("IRS") a ruling that the
transaction will be tax free to the Company, its shareholders and Toys; and
(ii) reducing its contingent liabilities, including lease guarantees, to less
than $200 million. The transaction, which may be terminated if it is not
consummated by January 28, 1995 (or by November 15, 1994 if either a favorable
ruling has not been received by then from the IRS or the Company has not
adequately reduced its contingent liabilities), is also subject to the approval
by holders of two-thirds of the Company's outstanding shares of Common Stock.
Milton Petrie, Chairman of the Board of Directors, who owns approximately 60.2%
of the outstanding shares of Common Stock of the Company, has agreed to vote
his shares in favor of the transaction pursuant to a voting agreement between
Mr. Petrie and Toys.
In connection with the transaction, the Company is obligated to call its 8%
Convertible Subordinated Debentures due 2010.
GENERAL
The Company specializes in the retail sale of a full selection of women's
apparel at moderate prices to teen, junior and contemporary miss customers. The
Company's Winkelman Stores, Inc. ("Winkelman") subsidiary features apparel and
accessories in the moderate to better priced lines and most stores contain
leased shoe departments. All stores are operated under the Company's
management. A majority of the stores sell dresses, coats and lingerie, and all
stores sell sportswear, blouses and accessories with the exception of millinery
and shoes. The general price range of sportswear sold by the Company is between
$15 and $40. The majority of blouses are sold by the Company at prices between
$10 and $35. Dresses are sold by the Company at prices between $20 and $80, and
the general price range of coats is from $40 to $100 although some stores carry
leather coats priced as high as $350.
<PAGE>
The following table shows the percentage of the Company's sales accounted for
by its major merchandise categories for each of the last three fiscal years:
<TABLE>
<CAPTION>
FISCAL
YEAR SPORTS-
ENDED IN WEAR DRESSES COATS LINGERIES BLOUSES ACCESSORIES
- -------- ------- ------- ----- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
1992........................ 40.8 18.0 7.6 5.9 18.8 8.9
1993........................ 41.0 18.0 7.8 5.7 19.8 7.7
1994........................ 37.4 18.5 7.6 5.5 23.7 7.3
</TABLE>
During the past fiscal year, the Company continued its policy of offering
only high quality merchandise at moderate prices. The stores, all of which are
air-conditioned and well maintained under a continuous modernization policy,
are open six to seven days and generally at least five evenings a week. The
Company does not make alterations or offer delivery service. The Company does
not generally advertise except in Puerto Rico and the U.S. Virgin Islands and
for the marketing effort of the Company's private label card. The Company
relies on its moderate prices, appealing displays, and convenient locations to
attract customers.
The Company's stores conduct primarily a cash business, including sales on
lay-away. All stores accept Visa, Mastercard, American Express, and Discover
credit cards in addition to some local mall cards in Puerto Rico. The Company
also has a private label credit card which is accepted in the stores throughout
the continental United States except for stores of its G&G and Winkelman's
subsidiaries. This card was launched in 1989 and was operated by General
Electric Capital Corporation ("GECC") under a nonrecourse agreement, whereby
the Company paid GECC a percentage of sales and GECC assumed the full credit
risk. The Company purchased these private label credit card customer
receivables from GECC on May 13, 1993 and assumed the operation of this private
label credit card program. The Company also operates a private label credit
card program for all stores of its Winkelman's subsidiary. During the past
fiscal year, credit sales for the Company were approximately 25% of total
sales. In the case of both cash and credit sales, the Company maintains a
policy of exchange or full refund if the merchandise is returned with receipt.
The Company's business generally follows the usual seasonal pattern of the
retail apparel industry, with sales being highest during the Christmas, Easter
and back-to-school periods. The Company significantly increases the inventory
at its stores in order to meet the increased demand during these periods.
PURCHASING
Purchasing is conducted by a staff of approximately 108 buyers and assistants
under the supervision of 21 merchandise managers. The Company's computerized
inventory control system provides up-to-date information regarding the sales of
various lines and styles of merchandise. This information is furnished daily to
the Company's buying staff with respect to sales transacted the previous day
and this information is supplemented by a steady flow of reports and constant
communications with the area store supervisors and managers. Each store's
inventory and general merchandising techniques are checked at least weekly by
one of the Company's approximately 250 store supervisors. As of April 1994, the
Company installed new point-of-sale ("POS") registers and related software in
all stores except those of the Winkelman's and G&G subsidiaries. This upgrade,
which is state of the art technology, enables Petrie Stores to improve customer
service, particularly in expediting sales transactions. This new system is
improving store information electronically transmitted to the home office and
establishes the platform needed to implement "Price Look Up" and "Scanning"
(methodology by which the Company's home office controls the register file to
ensure the customer is charged the most current price) in the latter part of
fiscal 1995.
COMPETITION
All aspects of the retail women's apparel business are highly competitive.
Competition is principally based upon price, demographics and the appeal of the
styles offered for sale. Because the Company operates stores in all 50 states,
Puerto Rico, the U.S. Virgin Islands and Washington, D.C., the number of its
competitors, which varies from location to location, cannot be realistically
estimated although they are
2
<PAGE>
numerous. The Company's competitors consist of other specialty retailers of
popular priced women's apparel, department stores and discount stores. Some of
these competitors are considerably larger than the Company and engage in
extensive advertising. Although the Company is a minor factor in the women's
apparel industry as a whole, it believes it is one of the largest popular
priced women's specialty chains in the United States, featuring women's
fashionable apparel at moderate prices to teen, junior and contemporary miss
customers.
EMPLOYEES
The Company regularly employs approximately 19,500 persons (including
employees in Puerto Rico) of whom almost 9,500 are employed on a part-time
basis of fewer than 30 hours per week. In addition, temporary employees are
added during certain seasons with the peak being reached during the Christmas
season. Employee benefits include major medical, hospital and dental plans,
disability benefits, a 401(k) plan (which includes a Company matching program),
an employee discount plan and group life insurance. The Company has a pension
plan which covers substantially all full-time employees except those of the
Winkelman's subsidiary, which has a separate pension plan for its employees,
and the G&G Shops subsidiary, which has a profit-sharing plan. Collective
bargaining contracts with four unions are in effect, covering the Company's
distribution centers and one of its New Jersey stores. Approximately 750
employees are covered under these agreements. There has been no interruption or
curtailment of operations due to labor controversy for more than 40 years.
ITEM 2. PROPERTIES.
The Company has no manufacturing facilities. The majority of the Company's
purchasing and merchandising is handled by the Company's main office located in
Secaucus, New Jersey and by the main offices of its subsidiaries headquartered
in Plymouth, Michigan and New York City. Shipping to the stores is handled by
the Company's automated distribution centers in Secaucus and North Bergen, New
Jersey; Chicago, Illinois; Dallas, Texas; and Plymouth, Michigan.
Of the 1,676 stores operated by the Company on January 29, 1994, 1,226 were
located in shopping centers and 450 in neighborhood strip centers and downtown
shopping areas. It has been the Company's policy whenever practicable to lease
its stores and all but eight stores are leased.
The following table shows the number of stores opened and closed by the
Company during the last 10 fiscal years and the number of stores operated at
the beginning and end of each period:
<TABLE>
<CAPTION>
FISCAL STORES AT NUMBER OF NUMBER OF NUMBER OF NUMBER OF
YEAR BEGINNING STORES STORES STORES STORES AT
ENDED IN OF PERIOD OPENED ACQUIRED CLOSED END OF PERIOD
-------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
1985...................... 953 81 405 74 1360
1986...................... 1360 65* -- 80* 1345
1987...................... 1345 178* 32 81* 1474
1988...................... 1474 179* -- 61* 1592
1989...................... 1592 76 -- 84 1584
1990...................... 1584 67 -- 82 1569
1991...................... 1569 113 -- 51 1631
1992...................... 1631 103 -- 87 1647
1993...................... 1647 112 -- 73 1686
1994...................... 1686 126 -- 136 1676
</TABLE>
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* Includes stores transferred to "Plus" size stores.
The Company has opened 29 new stores and closed 15 stores since January 29,
1994. It is anticipated that an additional 50 or more will be opened before the
end of the fiscal year ending in 1995. The Company has negotiated commitments
to lease 100 new stores which have or will be opened after January 29, 1994.
3
<PAGE>
During the past five years, the Company has maintained its renovation program
and has opened new stores, at a total cost of approximately $260,000,000. The
Company's costs of leasehold improvements, furniture and fixtures in a new
store range from $50,000 up to $450,000 depending on the store design and
landlord contribution. The Company anticipates that a new store will generally
take 3 to 12 months in order to achieve profitability.
The Company leases executive and administrative offices including
distribution facilities under various long-term leases in Secaucus and North
Bergen, New Jersey which amount to approximately 813,000 square feet. The
Company also leases 30,000 square feet in New York City for its G&G Shops
executive offices. It owns administrative and distribution facilities in
Plymouth, Michigan totalling 198,000 square feet utilized by Winkelman and owns
the distribution centers in Chicago and Dallas, which each have approximately
175,000 square feet.
See Notes to Consolidated Financial Statements included in Item 8 for
information concerning the Company's obligations under leases.
The following table shows the number of store leases existing at January 29,
1994 which will expire (unless extended) during each of the next five fiscal
years and thereafter:
<TABLE>
<CAPTION>
NUMBER OF
FISCAL YEAR ENDING LEASES EXPIRING
------------------ ---------------
<S> <C>
1995.................................................... 343
1996.................................................... 201
1997.................................................... 190
1998.................................................... 133
1999.................................................... 140
2000 & Thereafter....................................... 661
-----
Total................................................. 1,668
</TABLE>
The Company has options to renew the leases on approximately 320 stores.
Recently negotiated leases for new locations generally run for a period of 5 to
15 years and often contain provisions permitting the Company to terminate the
lease early without obligation.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
4
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Common Stock of the Company is listed on the New York Stock Exchange and
is also traded on the Philadelphia Stock Exchange. As of April 5, 1994 there
were 3,492 holders of record of the Common Stock. The sales price ranges and
per share dividends for each quarterly period in fiscal 1993 (ending January
30, 1993) and fiscal 1994 (ending January 29, 1994) are shown below:
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
HIGH LOW DIVIDEND
------ ------ --------
FISCAL QUARTER
- --------------
<S> <C> <C> <C>
1993:
First.................................................. 25 1/4 19 7/8 .05
Second................................................. 23 3/8 20 .05
Third.................................................. 25 1/2 21 5/8 .05
Fourth................................................. 26 5/8 23 1/4 .05
1994:
First.................................................. 27 3/8 23 5/8 .05
Second................................................. 27 7/8 22 3/4 .05
Third.................................................. 29 3/4 24 .05
Fourth................................................. 30 7/8 26 1/8 .05
</TABLE>
The Board of Directors declared a dividend of $.05 per share for the first
quarter of fiscal 1995.
5
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------------------------------
JANUARY 29, JANUARY 30, FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
1994(1) 1993(3) 1992 1991 1990(4)
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net Sales............... $1,480,071 $1,438,160 $1,354,525 $1,281,845 $1,257,522
Other Income............ 6,563 8,104 10,343 11,543 12,780
Earnings (Loss) Before
Earnings (Loss) From
Investments in Common
Stock, Income Taxes and
Cumulative Effect of
Changes in Accounting
Principles............. (63,791) 23,042 25,603 20,608 53,128
Earnings (Loss) From
Investments in Common
Stock.................. (13,661) -- -- (16,676) 282
---------- ---------- ---------- ---------- ----------
Earnings (Loss) Before
Cumulative Effect of
Changes in Accounting
Principles............. (48,683) 14,842 16,005 2,996 32,265
---------- ---------- ---------- ---------- ----------
Net Earnings (Loss)..... $ (37,998) $ 14,842 $ 16,005 $ 2,996 $ 32,265
---------- ---------- ---------- ---------- ----------
Per Share Data:
Earnings (Loss) Before
Cumulative Effect of
Changes in Accounting
Principles............ $(1.04) $.32 $.34 $.06 $.69
------ ---- ---- ---- ----
Net Earnings (Loss).... $ (.81) $.32 $.34 $.06 $.69
------ ---- ---- ---- ----
Cash Dividends.......... $ .20 $.20 $.20 $.20 $.20
------ ---- ---- ---- ----
Weighted Average Number
of Shares.............. 46,768 46,758 46,756 46,768 46,765
------ ------ ------ ------ ------
Total Assets............ $2,187,807(2) $ 906,062 $ 894,204 $ 890,717 $ 897,437
---------- ---------- ---------- ---------- ----------
Long-Term Obligations... $ 124,952 $ 124,974 $ 124,974 $ 124,995 $ 125,234
---------- ---------- ---------- ---------- ----------
</TABLE>
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(1) Year ended January 29, 1994 includes a restructuring charge of $35,000,000
($22,225,000 net of taxes or $.48 per share) and cumulative effect of
changes in accounting for investments and income taxes, which decreased the
net (loss) by $10,685,000 ($.23 per share).
(2) Total assets at January 29, 1994 includes an increase of $1,340,462,000 as
a result of carrying investments in common stock at a fair market value of
$1,517,677,000 due to the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities".
(3) Year ended January 30, 1993 includes a charge against earnings in
connection with the granting of stock options to two executive officers
amounting to approximated $3,400,000 ($2,100,000 net of taxes or $.04 per
share).
(4) Year ended February 3, 1990 was 53 weeks; all other years were 52 weeks.
6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
REVENUES
The Company's sales increased $41,911,000 (2.9%) in fiscal 1994 as compared
to fiscal 1993. The increase was due to an increase in noncomparable store
sales of approximately $54,200,000 offset by a decrease in comparable store
sales of approximately $12,300,000 (.9%).
Sales increased $83,635,000 (6.2%) in fiscal 1993 and $72,680,000 (5.7%) in
fiscal 1992. The increase in sales for fiscal 1993 was due to an increase in
noncomparable store sales of approximately $44,500,000, in addition to an
increase in comparable store sales of approximately $39,100,000 (3.1%).
The Company's business is seasonal with a significant portion of its sales
occurring in the fourth quarter which includes the Christmas season.
Other income was $6,563,000, $8,104,000 and $10,343,000 for fiscal 1994, 1993
and 1992, respectively. Lower interest rates and a decrease in temporary
investments are the main factors for the decrease in other income during fiscal
1994 and fiscal 1993.
COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS ("CGS")
The ratio of CGS to sales was 77.5% in fiscal 1994 and 74.4% in both fiscal
1993 and fiscal 1992. The increase in the CGS ratio during fiscal 1994 was
primarily due to a 2.7% decrease in gross margin as a result of an increase in
markdowns which were partially offset by an improved initial markup, in
addition to a .4% increase in occupancy costs.
The Company's gross margin decreased .3% in fiscal 1993 as a result of an
increase in markdowns which were partially offset by an improved initial
markup. CGS ratio, however, remained the same in fiscal 1993 as compared to
fiscal 1992 due to a decrease of .3% in occupancy costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S,G&A")
As a percentage of sales, S,G&A was 24.1% in fiscal 1994, 23.8% in fiscal
1993 and 23.7% in fiscal 1992. The increase during fiscal 1994 of .3% was due
to increases in payroll and employee related costs (.6%) and in various general
and administrative expenses (.2%) offset by decreases in costs associated with
store closings (.3%) and a charge against earnings resulting from the granting
of stock options to two executive officers under the Company's 1992 Stock
Option Plan during fiscal 1993 (.2%).
The slight increase during fiscal 1993 of .1% was primarily due to a charge
against earnings resulting from the granting of stock options to two executive
officers of the Company (.2%) primarily offset by a decrease in costs
associated with store closings.
RESTRUCTURING CHARGE
The Consolidated Statements of Operations include a restructuring charge of
$35,000,000 for fiscal 1994. In May 1993 the Company implemented a
restructuring of its senior management and as a result new management made a
decision to adopt a restructuring plan. As part of their review of the
Company's operations, management identified approximately 290 stores
(originally estimated at 250 stores) it expects to close over the next few
years of which 121 stores have been closed as of January 29, 1994. The Company
expects to close the remaining stores over the next two years. This
restructuring charge relates primarily to the write-down of property and
equipment, lease settlements associated with these expected store closings and
employee severance payments. The Company expended approximately $1,200,000
during fiscal 1994 for lease settlements and severance payments.
7
<PAGE>
Sales associated with these stores included in the restructuring plan
amounted to approximately $175,000,000 in fiscal 1993 and approximately
$160,000,000 in fiscal 1994. Fiscal 1994 sales included approximately
$50,000,000 of sales in those stores that have closed during the year. In
fiscal 1994 the Company's depreciation expense was reduced by approximately
$3,400,000 as a result of the restructuring charge. All other significant cost
savings were offset by a reduction in gross margin as a result of the decrease
in sales from these stores. The Company anticipates its only significant cost
savings during fiscal 1995, due to the restructuring, will be a reduction in
depreciation expense of approximately $4,500,000 as a result of the
elimination of depreciation expense associated with the stores that have not
been closed as of January 29, 1994.
A restructuring reserve amounting to approximately $4,100,000 is included in
"Accrued Expenses and Other Liabilities" in the Consolidated Balance Sheet as
at January 29, 1994. This reserve relates primarily to anticipated lease
settlements in fiscal 1995 (approximately $3,200,000) associated with these
expected store closings with the balance representing scheduled severance
payments. An additional $2,100,000 relating to severance payments which are
being paid in monthly installments is included in "Other Long-term
Liabilities".
INTEREST EXPENSE
Interest expense in all years relates primarily to the 8% Convertible
Subordinated Debentures. The increase in interest expense during fiscal 1994
is due to interest expense associated with the Company's short-term
borrowings.
(LOSS) FROM INVESTMENT IN COMMON STOCK
The loss from investment in common stock represents the write-down of the
Company's investment in Deb Shops, Inc. ("Debs") to market value as of May 1,
1993. See Note B of Notes to Consolidated Financial Statements included in
Item 8 to this Annual Report on Form 10-K.
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
The Company's loss from continuing operations before income taxes and
cumulative effect of changes in accounting principles was significantly
increased in fiscal 1994 by the restructuring charge, loss from investment in
common stock, and a decrease in gross margin as a result of increased
markdowns.
The Company believes that changes implemented in regards to its
merchandising, store operations and expense control should return the Company
to profitability during fiscal 1995.
INCOME TAXES
The Company's effective tax rate was 37.1%, 35.6% and 37.5% in fiscal 1994,
1993 and 1992, respectively. The increase in the effective tax rate for fiscal
1994 as compared to fiscal 1993 was due primarily to an increase in the state
effective tax rate, in addition to the relationship of dividends and tax-free
interest income and deferred taxes on undistributed earnings to the pre-tax
loss.
The decrease in the Company's effective tax rate for fiscal 1993 as compared
to fiscal 1992 was primarily due to a reduction in the state effective tax
rate as a result of an increase in the proportion of income earned from Puerto
Rican operations to earnings before income taxes, as well as other factors
which reduce state income taxes. An increase in tax credits also reduced the
Company's effective tax rate in fiscal 1993. These factors were partially
offset by the decrease in dividends and tax-free interest income.
A reconciliation of income tax expense is provided in Note F of Notes to
Consolidated Financial Statements included in Item 8 to this Annual Report on
Form 10-K.
8
<PAGE>
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING FOR INVESTMENTS AND INCOME TAXES,
NET
The cumulative effect of changes in accounting for investments and income
taxes, net amounted to $10,685,000 or $.23 a share in fiscal 1994 as a result
of the Company's adoption of the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" and SFAS No. 109,
"Accounting for Income Taxes." See Notes B and F of Notes to the Consolidated
Financial Statements included in Item 8 to this Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to be in a strong financial position. Among the
Company's sources of liquidity are its cash and temporary investments, its
Toys common stock, its ability to obtain financing and preferred
stock issuances. Pursuant to the acquisition agreement with Toys (see "Item 1.
Business--Recent Development"), the Company has restricted its ability to sell
shares of Toys common stock to 4,000,000 shares and has restricted its ability
to pledge such shares in connection with borrowings to $175,000,000 in secured
borrowings. See Note N of Notes to Consolidated Financial Statements included
in Item 8 to this Annual Report on Form 10-K. As of January 29, 1994, the
Company had $20,000,000 outstanding under a short-term borrowing agreement
with a broker. The Company had borrowings under this agreement from July 1993
to January 1994 and borrowed a maximum of $109,000,000 during such period.
These borrowings were used for capital expenditures, inventory and general
working capital requirements. The Company has $132,500,000 in lines of credit
available, principally for establishing letters of credit with its suppliers.
Investments in common stock classified as a current asset and carried at
market value is due both to the change in classification of the Company's
holdings in Debs and a small portion of its holdings in Toys as well as the
Company's adoption of SFAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities." The Company's holdings in Debs were sold in early
April 1994 for approximately $16,700,000 with the proceeds used to reduce
short-term borrowings. The Company expects to sell the aforementioned small
portion of its holdings in Toys during the first part of fiscal 1995 with the
proceeds from this sale also used to reduce short-term borrowings.
The increase in the Company's accounts receivable is due to the purchase by
the Company in May 1993 of the outstanding Petrie private label customer
receivables owned and operated by General Electric Capital Corporation and the
Company's private label credit card marketing program. By operating its own
credit card portfolio the Company has increased its private label credit card
sales volume and has operated the private label credit business at a reduced
cost as a percentage of its private label credit card sales.
The increase in accrued expenses and other liabilities relates primarily to
anticipated lease payments and employee severance payments as a result of the
restructuring charge.
The Company expects current financial resources and funds from operations
will be sufficient to meet the Company's foreseeable current and future cash
requirements such as for opening new stores, remodeling existing stores, debt
service and payment of cash dividends.
The Company has budgeted approximately $45,000,000 for capital expenditures
during fiscal 1995, which includes approximately $13,000,000 for new Point of
Sale Registers and associated technology. The Company spent approximately
$2,000,000 of the planned $15,000,000 budgeted for registers in fiscal 1994.
The remaining $13,000,000 will be disbursed during the first part of fiscal
1995. The funds are being provided by working capital and short-term borrowing
arrangements.
In connection with its 8% Convertible Subordinated Debentures, the Company
must begin making mandatory sinking fund payments in December 1996. The
Company expects to be able to make such payments out of available working
capital.
The following items measure the Company's ability to meet its short-term
obligations:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30, FEBRUARY 1,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Working capital*......................... $248,834,000 $247,479,000 $254,599,000
Current ratio............................ 3.7 4.3 4.8
</TABLE>
- --------
* Working capital consists of current assets less current liabilities. The
Company's current ratio has decreased in the last few years but management
believes this will not affect the Company's borrowing capacity.
See the Statements of Consolidated Cash Flows included in Item 8 to this
Annual Report on Form 10-K for an analysis of the sources and uses of funds.
9
<PAGE>
IMPACT OF INFLATION
Inflation has had little effect on expenses and cost of goods in the past
three years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages F-1 through F-17 annexed hereto. Other financial statements and
schedules required under Regulation S-X promulgated under the Securities Act of
1933 and Securities Exchange Act of 1934 are filed as Schedules hereto on pages
F-18 through F-22.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table shows the executive officers and directors of the
Company, their respective ages, the date each director was first elected and
all positions currently held with the Company by each such person:
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A
NAME AGE DIRECTOR POSITION WITH THE COMPANY
---- --- ---------- -------------------------
<S> <C> <C> <C>
Milton Petrie....................... 91 1932 Chairman of the Board;
Director
Hilda Kirschbaum Gerstein........... 83 1956 Vice Chairman; Director
Jay Galin........................... 58 1981 Executive Vice President;
President of G&G Shops,
Inc.; Director
Allan Laufgraben.................... 55 1990 Vice Chairman, President and
Chief Executive Officer;
Director
Peter A. Left....................... 44 1990 Vice Chairman, Chief
Operating Officer, Chief
Financial Officer and
Secretary; Director
Daniel G. Maresca................... 41 1992 Executive Vice President;
President of Winkelman
Stores, Inc.; Director
Stephen A. Birk..................... 46 Senior Vice President
Scott Galin......................... 36 Senior Vice President
Umberto Gallo....................... 50 Senior Vice President
Barton Heminover.................... 40 Vice President/Treasurer
45 Senior Vice
Michael J. Jackson.................. President/Controller
Louis Mascolo....................... 47 Senior Vice President
Richard J. Pesce.................... 44 Senior Vice President
Samuel David Polese................. 37 Senior Vice President
Jeffrey M. Zelenko.................. 38 Senior Vice President
Joseph H. Flom...................... 70 1982 Director
Alan C. Greenberg................... 66 1993 Director
Carroll Petrie...................... 66 1991 Director
Jean Roberts........................ 77 1963 Director
Dorothy Fink Stern.................. 75 1956 Director
Laurence A. Tisch................... 71 1983 Director
Raymond S. Troubh................... 67 1994 Director
</TABLE>
10
<PAGE>
The term of office of each executive officer expires upon the election of his
respective successor at the Meeting of the Board of Directors directly
following the Annual Meeting of Shareholders. The term of office of each
director expires at the election of his respective successor at each Annual
Meeting of Shareholders.
Milton Petrie has been Chairman of the Board since its organization in 1932
and was President and Chief Executive Officer up to July 16, 1993 except that
Michael J. Boyle was President and Chief Executive Officer of the Company from
November 1, 1982 to January 13, 1983 and Hilda Kirschbaum Gerstein was
President of the Company from September 1972 to November 1982.
Hilda Kirschbaum Gerstein became Vice Chairman in November 1982. Prior to
that she was President from September 1972 to November 1982 and Treasurer from
January 1982 to September 1982. She was Senior Vice President from 1971-1972
and Vice President from 1956-1971. She has been employed with the Company since
1932.
Jay Galin became Executive Vice President in March 1990, prior to which he
was Senior Vice President since July 1980. He has been President of G&G Shops,
Inc, a subsidiary of the Company, since 1972.
Allan Laufgraben became Vice Chairman in May 1993 and President and Chief
Executive Officer in July 1993, prior to which he was Executive Vice President
since March 1990, Senior Vice President since May 1986 and Vice President of
the Company since April 1985. Until July 1993, Mr. Laufgraben had been
President of "Plus" Size Stores, a division of the Company, since 1984. He has
been employed with the Company since 1984.
Peter A. Left became Vice Chairman in May 1993 and Chief Operating Officer in
July 1993, prior to which he was Executive Vice President since March 1990 and
Senior Vice President since 1983. He is Secretary of the Company and has been
Chief Financial Officer since February 1985. Previously, he had been Controller
of the Company since June 1982 and Vice President since May 1982. He has been
employed with the Company since 1974.
Daniel G. Maresca became Executive Vice President of the Company in March
1992, prior to which he was Senior Vice President since March 1984 and Vice
President since May 1981. He has been President of Winkelman Stores, Inc., a
subsidiary of the Company, since 1989. He has been employed with the Company
since 1972.
Stephen A. Birk became Senior Vice President of the Company in May 1989,
prior to which he was Vice President since May 1988. He has been General
Merchandise Manager of "Plus" Size Stores, a division of the Company, since his
employment in March 1988.
Scott Galin became Senior Vice President of the Company in April 1987. He has
also been Executive Vice President of G&G Shops, Inc. since 1991 and prior
thereto, was Senior Vice President of G&G Shops, Inc. since August 1985. He has
been employed with the Company since 1974. He is the son of Jay Galin, who is
Executive Vice President of the Company and President of G&G Shops, Inc.
Umberto Gallo became Senior Vice President in March 1983, prior to which he
was elected Vice President in May 1982. He has been employed with the Company
since 1970.
Barton Heminover has been Vice President/Treasurer since May 1989, prior to
which he was an Assistant Controller. He has been employed with the Company
since 1983.
Michael J. Jackson became Senior Vice President in December 1988, prior to
which he was Vice President and Controller since January 1985. He has been
employed with the Company since 1983.
Louis Mascolo became Senior Vice President of the company in April 1988,
prior to which he was Vice President since April 1987. He has also been
Executive Vice President of Winkelman Stores, Inc. since 1984. He has been
employed with the Company since 1971.
11
<PAGE>
Richard J. Pesce became Senior Vice President, Director of Store Operations
in November 1993 and has been employed since October 1993. Prior to joining the
Company, Mr. Pesce spent 20 years at the retail chain of Herman's Sporting
Goods, Inc. and served as its Senior Vice President--Store Operations from 1990
to 1993.
Samuel David Polese has been Senior Vice President since April 1984. He was
elected Vice President in August 1983 and has been employed with the Company
since 1978.
Jeffrey M. Zelenko became Senior Vice President, General Merchandise Manager-
Juniors in July 1993 upon employment. Prior to joining the Company, Mr. Zelenko
spent 20 years at the retail specialty chain of Charming Shoppes, Inc. where
his last position was Vice President, General Merchandise Manager-Juniors 1990-
1992. From 1992-1993 he was President and owner of MJZ Inc., a knit
manufacturing company.
Joseph H. Flom has been a partner at the law firm of Skadden, Arps, Slate,
Meagher & Flom, attorneys to the Company, for more than the past five years.
Mr. Flom is a director of Revlon Group Incorporated.
Alan C. Greenberg has been Chairman of the Board and Chief Executive Officer
of The Bear Stearns Companies, Inc., investment bankers, for more than the past
five years.
Carroll Petrie is a private investor and a director of the Metropolitan
Museum of Art, Metropolitan Opera Association and New York Hospital and
Memorial Sloan Kettering. Mrs. Petrie is the wife of Milton Petrie.
Jean Roberts was employed by the Company from 1937 until December 1993 when
she resigned as Executive Vice President and is available on a consulting
basis.
Dorothy Fink Stern was employed by the Company from 1935 until July 1993 when
she resigned as Executive Vice President and is available on a consulting
basis.
Laurence A. Tisch has been Chairman of the Board, Co-Chief Executive Officer
and a Director of Loews Corp., a diversified holding company, President, Chief
Executive Officer and a Director of CBS, Inc. and Chairman of the Board and a
Director of C&A Financial Corp. for more than the past five years. He is also a
Director of Automatic Data Processing, Inc., Bulova Watch Co. and R.H. Macy &
Co., Inc.
Raymond S. Troubh was elected a Director in April 1994. He is a financial
consultant in New York City and a former governor of the American Stock
Exchange and former general partner of Lazard Freres & Co., an investment
banking firm. Mr. Troubh is a director of ADT Limited, a security systems
company; American Maize-Products Company, a corn products manufacturer; Applied
Power Inc., a hydraulic and mechanical equipment manufacturer; ARIAD
Pharmaceuticals, Inc., a pharmaceutical company; Becton, Dickinson and Company,
a healthcare products manufacturer; Benson Eyecare Corporation, an eyecare and
eyewear company; Foundation Health Corporation, a healthcare company holding
corporation; General American Investors Company, an investment and advisory
company; Manville Corporation, a mining and forest company holding corporation;
Olsten Corporation, a temporary personnel and healthcare service company;
Riverwood International Corporation, a wood derivative products company; Time
Warner Inc., a publication, telecommunications and entertainment company, and
Wheeling-Pittsburgh Corporation, a holding corporation.
ITEM 11. EXECUTIVE COMPENSATION.
GENERAL
The following table sets forth the total annual compensation paid or accrued
by the Company to or for the account of the chief executive officer, each of
the four most highly compensated executive officers of the Company whose total
cash compensation for the fiscal year ended January 29, 1994 exceeded $100,000
and one former executive officer for whom disclosure would have been required
if that individual had been serving as an executive officer at January 29,
1994.
12
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
------------------------------------- --------------------------
RESTRICTED
OTHER STOCK
NAME AND FISCAL ANNUAL AWARDS OPTIONS/SARS
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMP.($)(2) ($) (# OF SHARES)
------------------ ------ --------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allan Laufgraben........ 1994 400,000 135,000 69,063(3)
Vice Chairman, 1993 375,000 373,000 61,563(3)
President and 1992 350,000 233,000 53,467(3)
Chief Executive Officer
Peter A. Left........... 1994 350,000
Vice Chairman,Chief 1993 325,000 110,940(3)
Operating Officer, 1992 275,000
Chief Financial Officer
and Secretary of the
Company
Hilda Kirschbaum
Gerstein............... 1994 575,000
Vice Chairman 1993 550,000 150,494(4)
1992 500,000
Jay Galin............... 1994 925,000 4,719
Executive Vice 1993 700,000 5,249 200,000(3)
President of the 1992 875,000 13,789
Company and President
of G&G Shops, Inc., a
wholly owned subsidiary
of the Company
Daniel G. Maresca....... 1994 400,000
Executive Vice 1993 375,000
President of the 1992 325,000 123,125(3)
Company and President
of Winkelman Stores,
Inc., a wholly owned
subsidiary of the
Company
Dorothy Fink Stern(5)... 1994 525,000 150,494(4)
Executive Vice 1993 500,000
President 1992 440,000
</TABLE>
- --------
(1) While each of the named individuals received perquisites or other personal
benefits in the years shown, in accordance with SEC regulations, the value
of these benefits are not indicated since they did not exceed in the
aggregate the lesser of $50,000 or 10% of the individual's salary and bonus
in any year.
(2) Amount shown sets forth the Company's contribution to a named individual's
Profit Sharing Plan account.
(3) Represents the fair market value on the day prior to the grant of
restricted shares of Common Stock pursuant to employment agreements. The
aggregate number and fair market value as of January 29, 1994 of restricted
shares awarded since the beginning of fiscal year 1992 are as follows: Mr.
Galin: 9,014 shares ($249,012), Mr. Laufgraben: 7,500 shares ($207,188),
Mr. Maresca: 5,000 shares ($138,125) and Mr. Left: 5,000 shares ($138,125).
The restricted shares vest upon award and are entitled to dividends at the
same rate as dividends paid on unrestricted shares of the Company's Common
Stock. See "Employment Agreements" below.
(4) An option to acquire 150,494 shares of Common Stock with stock appreciation
rights was granted pursuant to the Company's 1992 Stock Option Plan. This
option was granted to replace options to acquire 150,494 shares which were
granted in November 1992 and expired unexercised on August 31, 1992. The
new option was exercised in April 1993. See "Options" below.
(5) Mrs. Stern resigned as Executive Vice President in July 1993.
13
<PAGE>
EMPLOYMENT AGREEMENTS
As of July 1, 1992, the Company entered into employment agreements with
certain of its executive officers, including Mr. Laufgraben, Mrs. Gerstein, Mr.
Maresca, Mr. Left and Mrs. Stern. Each employment agreement has a term expiring
on June 30, 1997. The employment agreements for each of Mr. Laufgraben, Mrs.
Gerstein, Mr. Maresca, Mr. Left and Mrs. Stern provide for the annual salaries
at the rates set forth in the executive compensation chart above, with annual
increases of $25,000. In addition, pursuant to his agreement, Mr. Laufgraben
receives (i) an annual payment equal to a fixed percentage of the annual pre-
tax net operating profits of the "Plus" Size Stores, subject to certain
adjustments, and (ii) 2,500 shares of Common Stock annually. The agreements for
Messrs. Laufgraben, Maresca and Left also provide for the maintenance of a
$500,000 insurance policy on their respective lives, for death benefits equal
to one year's salary plus, in Mr. Laufgraben's case, the remaining Common Stock
payments and disability benefits equal to salary at the then current annual
rate for up to one year and salary at one-half the then current annual rate for
a further period of six months plus, in Mr. Laufgraben's case, the remaining
Common Stock payments. The agreements for Mrs. Gerstein and Mrs. Stern also
provide for death benefits equal to one year's salary and disability benefits
equal to salary at the then current annual rate for up to one year and salary
at one-half the then current annual rate for a further period of six months. In
connection with the Company's restructuring, in July 1993, Mrs. Stern resigned
as an Executive Vice President and is available on a consulting basis. Mrs.
Stern's employment agreement remains in effect. In addition, the Board of
Directors of the Company has authorized the Company to pay to each of Mrs.
Stern and Mrs. Gerstein $50,000 per year commencing upon expiration of their
respective employment agreements in 1997 until their deaths.
In August 1985, the Company entered into an employment agreement with Mr.
Galin through January 31, 1991 at a salary commencing at $350,000 and
increasing $25,000 per year. The agreement was amended in December 1988, April
1992 and August 1992. Mr. Galin's agreement, as amended, provides for a term
through June 30, 1997 and for Mr. Galin to receive (i) annual salary at the
rate set forth in the executive compensation chart above, with annual increases
of $25,000; (ii) $50,000 per quarter in cash through 1996 and quarterly
payments of $20,833 in January and April 1997; (iii) $200,000 on each of July
31, 1993 and 1995 and $83,333 on June 30, 1997 and (iv) $200,000 in Common
Stock on each of July 31, 1992, 1994 and 1996. The agreement, as amended, also
provides for the maintenance of a $500,000 insurance policy on Mr. Galin's life
and for disability and death benefits equal to one year's salary and the
remaining Common Stock payments and, in the case of disability, an additional
six months salary.
OPTIONS
No options were granted in fiscal year 1994 nor were any options outstanding
at January 29, 1994. The following table sets forth the details of options
exercised by the individuals listed in the Summary Compensation Table during
fiscal year 1994.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS IN-THE-MONEY
AT FISCAL YEAR- OPTIONS/SARS
END AT FISCAL YEAR-
SHARES VALUE (#) END($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Hilda Kirschbaum
Gerstein............... 150,494(1) $1,862,363.25 0 0
Dorothy Fink Stern...... 150,494(1) $1,862,363.25 0 0
</TABLE>
- --------
(1) In lieu of receiving the shares, in accordance with the determination of
the Stock Option Committee, Mrs. Gerstein and Mrs. Stern each received
$1,862,363.25.
DIRECTORS' COMPENSATION
Directors receive no compensation for serving on the Board of Directors of
the Company or any committee of the Board.
14
<PAGE>
COMPENSATION PURSUANT TO PLANS
The Company makes annual contributions to the Petrie Stores Pension Plan (the
"Plan"), which is a defined benefit pension plan for the benefit of full-time
employees of Petrie Stores Corporation and its subsidiaries (other than G&G
Shops, Inc. and Winkelman Stores, Incorporated). The actuarial cost method used
to determine annual Company contributions under the Plan is known as the
projected unit credit cost method. Under this method, Company contributions are
determined for all participants as a group and individual participant
contributions are not readily available. Aggregate Company contributions to the
Plan are approximately 2% of total covered compensation of Plan participants.
Benefits earned under the Plan depend on W-2 compensation received for services
rendered to the Company and are not subject to deduction for Social Security
benefits or offset amounts.
The following table sets forth the estimated annual retirement benefits for
various combination of pre- retirement remuneration and years of credited
service:
<TABLE>
<CAPTION>
FINAL AVERAGE YEARS OF CREDITED SERVICE AT RETIREMENT
ANNUAL ----------------------------------------------
COMPENSATION* 10 15 20 25 OR MORE
------------- --------- --------- ---------- ---------------
<S> <C> <C> <C> <C>
$ 25,000............................. $ 3,280 $ 4,920 $ 6,560 $ 8,200
50,000............................. 7,280 10,920 14,560 18,200
75,000............................. 11,280 16,920 22,560 28,200
100,000............................. 15,280 22,920 30,560 38,200
150,000............................. 23,280 34,920 46,560 58,200
200,000............................. 31,280 46,920 62,560 78,200
250,000............................. 39,280 58,920 78,560 98,200
300,000............................. 47,280 70,920 94,560 118,200
350,000............................. 53,280 82,920 110,560 138,200
400,000............................. 61,280 94,920 126,560 158,200
</TABLE>
- --------
* Highest five consecutive out of final ten years of employment before
retirement date.
As of January 29, 1994, Hilda Kirschbaum Gerstein and Dorothy Fink Stern each
had more than 25 years of credited service under the plan.
The Company's Winkelman subsidiary has in effect a defined pension benefit
plan for its employees similar to that described above in which an executive
officer participates.
G&G Shops, Inc. makes contributions from time to time to a deferred profit-
sharing plan for the benefit of all full-time employees of G&G Shops, Inc.,
including Jay Galin and one other executive officer of the Company. Employees
become vested in their share of the assets of the plan at the rate of 10% per
year of credited service commencing with the second year of such service and
accordingly become fully vested after 11 years of credited service. Because G&G
Shops, Inc. has no obligation to make any contributions to the plan, the
interest of any employee prior to retirement or other termination of employment
cannot be predicted. At the close of the plan's most recent year, Jay Galin was
fully vested, his share of the plan's assets amounted to $1,291,000 and $4,719
was contributed to the plan on his behalf during such plan year.
BOARD OF DIRECTORS MEETINGS AND STANDING COMMITTEES
The Board of Directors met ten times during the fiscal year ended January 29,
1994. The Board of Directors has executive and audit committees and a
compensation committee established in April 1994 but has no nominating
committee. The current members of the audit committee are Messrs. Flom and
Greenberg and the members of the compensation committee are Messrs. Flom and
Troubh. During the fiscal year ended January 29, 1994, the audit committee met
once.
15
<PAGE>
The audit committee is responsible for (a) recommending the selection,
retention or termination of the Company's auditors, (b) reviewing with the
Company's auditors the overall scope of the audit, (c) reviewing the Company's
financial statements and audit results, including communications from the
auditors relating to the Company's accounting practices, procedures and
internal accounting controls, (d) reviewing the adequacy of internal control
systems, including internal audit activities and the security of electronic
data processing, (e) reviewing such other matters regarding the Company's
financial and accounting practices as it or the Board of Directors may deem
advisable, and (f) monitoring the Company's code of corporate conduct.
OTHER MATTERS
Based solely upon a review of Forms 3, 4 and 5 and related letters of
representation received by the Company with respect to its fiscal year ended
January 29, 1994, Mr. Jay Galin filed late one Form 4 relating to a gift of 100
shares of Common Stock.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of April 25, 1994, certain information
with respect to (i) the only person who, to the best of the knowledge of the
Company, was a beneficial owner of more than five percent of the outstanding
shares of the Company's Common Stock, its only class of voting security, and
(ii) the number of shares of common stock owned by each director of the Company
and all directors and officers as a group.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT OF
NAME OWNED(1) CLASS
---- ------------ ----------
<S> <C> <C>
Milton Petrie......................................... 28,165,246(2) 60.2%
Joseph H. Flom........................................ 0(3) --
Jay Galin............................................. 52,948 0.1
Hilda Kirshbaum Gerstein.............................. 293,878 0.6
Alan C. Greenberg..................................... 1,000 *
Allan Laufgraben...................................... 5,075 *
Peter A. Left......................................... 20,222 *
Daniel G. Maresca..................................... 10,540 *
Carroll Petrie........................................ 28,165,246(4) 60.2
Jean Roberts.......................................... 63,370 0.1
Dorothy Fink Stern.................................... 187,091(5) 0.4
Laurence A. Tisch..................................... 1,000 *
Raymond S. Troubh..................................... 0 --
All directors and officers as a group (88 persons).... 28,823,955 61.6
</TABLE>
- --------
* Less than 1/10 of 1% of Common Stock outstanding
(1) Except as described in other footnotes, each person has sole power to vote
and dispose of all such shares.
(2) Includes 47,592 shares owned by a trust of which Mr. Petrie is the trustee
and 6,380 shares owned by Mr. Petrie's wife. Mr. Petrie has sole voting and
dispositive power over 28,111,274 shares and no voting or dispositive power
over shares owned by the trust and his wife and disclaims beneficial
ownership of the shares owned by the trust and his wife. Mr. Petrie's
business address is c/o the Company, 70 Enterprise Avenue, Secaucus, New
Jersey 07094.
(3) Mr. Flom, Bernard Petrie (the son of Milton Petrie), Jerome A. Manning and
Albert Ratner have a general power of attorney from Milton Petrie to act on
his behalf (pursuant to majority vote), including the ability to direct the
voting or the disposition of the shares of Common Stock of the Company
owned by Milton Petrie. In connection with the agreement with Toys
described above under "Item 1. Business--Recent Development," Milton
Petrie, by act of his attorneys-in-fact, entered into a voting agreement
with Toys pursuant to which Milton Petrie agreed to vote the shares held by
him in favor of the transactions contemplated by the agreement between the
Company and Toys. See "Item 1. Business--Recent Development." Mr. Flom
disclaims beneficial ownership of the shares of Common Stock of the Company
owned by Milton Petrie.
16
<PAGE>
(4) Carroll Petrie is the spouse of Milton Petrie. Includes 47,592 shares owned
by a trust of which Mr. Petrie is the trustee, and 28,111,274 shares owned
by Mrs. Petrie's husband. Mrs. Petrie has sole voting and dispositive power
over 6,380 shares and no voting or dispositive power over the shares owned
by the trust and her husband.
(5) Includes 5,000 shares owned by Mrs. Stern's husband. Mrs. Stern has no
voting or dispositive power over the shares owned by her husband and
disclaims beneficial ownership of the shares owned by her husband.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Milton Petrie, Chairman of the Board of Directors, maintains an account with
the Company from which from time to time he regularly makes gifts, including to
former employees of the Company, and other payments. Although Mr. Petrie has
ordinarily prefunded such account, during a recent illness he became indebted
to the Company in such account for as much as $1,091,000, substantially all of
which was repaid by Mr. Petrie in January 1994 with interest at 5% per annum.
The Bear Stearns Companies, Inc., an investment banking firm, has provided
services to the Company in the ordinary course of business. Mr. Alan C.
Greenberg, a director of the Company, is Chairman of the Board and Chief
Executive Officer of the Bear Stearns Companies, Inc.
Skadden, Arps, Slate, Meagher & Flom, a law firm, is counsel to the Company
and has provided services to the Company in the ordinary course of business.
Mr. Joseph H. Flom, a director of the Company, is a partner of Skadden, Arps,
Slate, Meagher & Flom.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) and (2) List of Financial Statements and Financial Statement
Schedules.
See Index to Financial Statements and Financial Statement Schedules
herein at page F-1.
(b) (3) List of Exhibits.
<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation of the Company, as amended to
date (incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended January 31,
1986).
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the year ended January
30, 1993).
3.3 Amendments to the By-laws of the Company.
4.1 Form of Indenture dated as of August 15, 1985 between the Company
and the Trustee with respect to the 8% Convertible Subordinated
Debentures due 2010 (incorporated herein by reference to Exhibit
4(a) to the Company's Registration Statement No. 2-99517 on Form S-
3 dated August 7, 1985).
4.2 Form of 8% Convertible Subordinated Debenture due 2010 of the
Company (incorporated herein by reference to Exhibit 4(b) to
Amendment No. 1 to the Company's Registration Statement No. 2-99517
on Form S-3 dated August 15, 1985).
10.1 Employment Agreement dated August 6, 1985 between the Company and
Jay Galin (the "Galin Agreement") (incorporated herein by reference
to Exhibit 28(b) to Amendment No. 1 to the Company's Registration
Statement No. 2-99517 on Form S-3 dated August 15, 1985).
10.2 Amendment dated December 14, 1988 to the Galin Agreement
(incorporated herein by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year ended January 28, 1989).
</TABLE>
17
<PAGE>
<TABLE>
<C> <S>
10.3 Amendment dated April 10, 1992 to the Galin Agreement (incorporated
herein by reference to Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the year ended February 1, 1992).
10.4 Amendment dated August 19, 1992 to the Galin Agreement
(incorporated herein by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended January 30, 1993).
10.5 Employment Agreement dated as of July 1, 1992 between the Company
and Peter A. Left (incorporated herein by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for the year
ended January 30, 1993).
10.6 Employment Agreement dated as of July 1, 1992 between the Company
and Daniel Maresca (incorporated herein by reference to Exhibit
10.6 to the Company's Annual Report on Form 10-K for the year
ended January 30, 1993).
10.7 Employment Agreement dated as of July 1, 1992 between the Company
and Jean Roberts (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended January
30, 1993).
10.8 Employment Agreement dated as of July 1, 1992 between the Company
and Hilda Kirschbaum Gerstein (incorporated herein by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
year ended January 30, 1993).
10.9 Employment Agreement dated as of July 1, 1992 between the Company
and Dorothy Fink Stern (incorporated herein by reference to
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
year ended January 30, 1993).
10.10 Employment Agreement dated as of July 1, 1992 between the Company
and Allan Laufgraben (incorporated herein by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for the year
ended January 30, 1993).
10.10 1992 Stock Option Plan (incorporated by reference to Exhibit A to
the Company's Proxy Statement dated May 5, 1992, for its annual
meeting held on May 28, 1992) (incorporated herein by reference to
Exhibit A to the Company's Proxy Statement dated May 5, 1992, for
its annual meeting held on May 28, 1992).
10.11 Acquisition Agreement dated April 20, 1994 between the Company and
Toys "R" Us, Inc. (incorporated herein by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K, dated April 20,
1994).
10.12 Employment Agreement dated as of November 4, 1993 between the
Company and Richard Pesce.
10.13 Employment Agreement dated as of July 31, 1993 between the Company
and Jeffrey Zelenko.
21.1 List of subsidiaries.
</TABLE>
(b) None.
(c) See Item 14(a)(3) above. The Company will furnish to any stockholder,
upon written request, any exhibit listed in response to Item 14(a)(3) upon
payment by such stockholder of the Company's reasonable expenses in furnishing
any such exhibit.
(d) See Item 14(a)(2) above.
18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 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.
Petrie Stores Corporation
By /s/ Allan Laufgraben
-----------------------------------
ALLAN LAUFGRABEN
VICE CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Dated: April 28, 1994
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Allan Laufgraben Vice Chairman, April 28, 1994
- ------------------------------------- President, Chief
ALLAN LAUFGRABEN Executive Officer
and Director
(principal
executive officer)
/s/ Peter A. Left Vice Chairman, Chief April 28, 1994
- ------------------------------------- Operating Officer,
PETER A. LEFT Chief Financial
Officer, Secretary
and Director
/s/ Joseph H. Flom Director April 28, 1994
- -------------------------------------
JOSEPH H. FLOM
/s/ Jay Galin Director April 26, 1994
- -------------------------------------
JAY GALIN
/s/ Hilda Kirschbaum Gerstein Vice Chairman and April 28, 1994
- ------------------------------------- Director
HILDA KIRSCHBAUM GERSTEIN
/s/ Alan C. Greenberg Director April 28, 1994
- -------------------------------------
ALAN C. GREENBERG
19
<PAGE>
/s/ Michael J. Jackson Senior Vice April 28, 1994
- ------------------------------------- President/
MICHAEL J. JACKSON Controller
/s/ Daniel G. Maresca Director April 28, 1994
- -------------------------------------
DANIEL G. MARESCA
Director April 28, 1994
- -------------------------------------
MILTON PETRIE
/s/ Carroll Petrie Director April 28, 1994
- -------------------------------------
CARROLL PETRIE
/s/ Jean Roberts Director April 28, 1994
- -------------------------------------
JEAN ROBERTS
/s/ Dorothy Fink Stern Director April 28, 1994
- -------------------------------------
DOROTHY FINK STERN
/s/ Laurence A. Tisch Director April 28, 1994
- -------------------------------------
LAURENCE A. TISCH
/s/ Raymond S. Troubh Director April 28, 1994
- -------------------------------------
RAYMOND S. TROUBH
20
<PAGE>
PETRIE STORES CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
Independent Auditors' Report.............................................. F-3
Consolidated Balance Sheets--January 29, 1994 and January 30, 1993........ F-4
Consolidated Operations for each of the three fiscal years in the period
ended January 29, 1994................................................... F-6
Consolidated Shareholders' Equity for each of the three fiscal years in
the period ended January 29, 1994........................................ F-7
Consolidated Cash Flows for each of the three fiscal years in the period
ended January 29, 1994................................................... F-8
Notes to Consolidated Financial Statements................................ F-9
FINANCIAL STATEMENT SCHEDULES REQUIRED BY ITEM 14(A)(2)
I Marketable Securities--Other Investments............................. F-18
II Amounts Receivable From Related Parties and Underwriters, Promoters
and Employees Other Than Related Parties............................ F-19
V Property and Equipment............................................... F-20
VI Accumulated Depreciation and Amortization of Property and
Equipment........................................................... F-21
VIII Valuation and Qualifying Accounts.................................... F-22
</TABLE>
F-1
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-2
<PAGE>
PETRIE STORES CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Petrie Stores Corporation
We have audited the accompanying consolidated balance sheets of Petrie Stores
Corporation and subsidiaries as of January 29, 1994 and January 30, 1993, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended January 29, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Petrie
Stores Corporation and subsidiaries as of January 29, 1994 and January 30,
1993, and the results of their operations and their cash flows for each of the
three years in the period ended January 29, 1994, in conformity with generally
accepted accounting principles.
As discussed in Notes B, F and I to the consolidated financial statements,
the Company changed its method of accounting for investments in common stock,
income taxes and postretirement benefits other than pensions in fiscal 1994.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index at
Item 14(a)(2) are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
David Berdon & Co.
Certified Public Accountants
New York, New York
March 24, 1994 (except for Note N,
as to which the date is April 20, 1994)
F-3
<PAGE>
PETRIE STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 29, January 30,
1994 1993
------------- ------------
(In thousands of dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments (Note K).......... $ 39,290 $ 82,270
Investments in common stock (Notes B and K)....... 35,740 --
Accounts receivable:
Trade, less allowance for doubtful accounts of
$2,450 at 1/29/94 and $1,365 at 1/30/93......... 49,999 25,807
Other............................................ 13,745 12,664
Merchandise inventories........................... 187,627 187,692
Prepaid expenses (Note H)......................... 6,887 8,045
Deferred income taxes (Note F).................... 7,456 6,778
------------- -----------
TOTAL CURRENT ASSETS............................ 340,744 323,256
------------- -----------
INVESTMENTS:
Investments in common stock (market value of
$1,578,623 at 1/30/93) (Notes B, C, K and N)..... 1,481,937 191,032
Other (Note K).................................... -- 5,030
------------- -----------
1,481,937 196,062
------------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Land.............................................. 2,777 2,777
Buildings and improvements........................ 16,157 15,069
Leasehold costs, improvements, store fixtures and
equipment........................................ 588,450 648,738
------------- -----------
607,384 666,584
Less, accumulated depreciation and amortization... 339,409 376,486
------------- -----------
267,975 290,098
------------- -----------
EXCESS OF COST OVER THE FAIR VALUE OF NET ASSETS
ACQUIRED,
Less accumulated amortization of $28,176 at
1/29/94 and $25,236 at 1/30/93................... 89,602 92,542
------------- -----------
OTHER ASSETS:
Debt issuance costs, less accumulated amortization
of $574 at 1/29/94 and $506 at 1/30/93........... 1,155 1,223
Other (Note I).................................... 6,394 2,881
------------- -----------
7,549 4,104
------------- -----------
$2,187,807 $906,062
============= ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 29, January 30,
1994 1993
------------- ------------
(In thousands of dollars)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Notes C and K)............. $ 20,000 $ --
Accounts payable.................................. 26,993 29,571
Accrued expenses and other liabilities (Notes E
and J)........................................... 44,917 36,975
Income taxes (Note F)............................. -- 9,231
------------- -----------
TOTAL CURRENT LIABILITIES....................... 91,910 75,777
------------- -----------
LONG-TERM LIABILITIES:
Convertible subordinated debentures (Notes D, K
and N)........................................... 124,952 124,974
Deferred income taxes (Note F).................... 600,678 55,196
Other (Notes I and J)............................. 5,704 --
------------- -----------
731,334 180,170
------------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES F, G, H AND N)
SHAREHOLDERS' EQUITY (NOTES B, D, E, H AND N):
Common stock, par value $1 per share; authorized
80,000,000 shares; issued 46,770,202 shares at
1/29/94 and 46,769,219 shares at 1/30/93......... 46,770 46,769
Additional paid-in capital........................ 93,973 93,952
Retained earnings................................. 462,079 509,430
Unrealized gain on investment in common stock,
net.............................................. 761,777 --
------------- -----------
1,364,599 650,151
Less, treasury stock - at cost (1,669 shares at
1/29/94 and 1/30/93)............................. 36 36
------------- -----------
TOTAL SHAREHOLDERS' EQUITY...................... 1,364,563 650,115
------------- -----------
$ 2,187,807 $ 906,062
============= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PETRIE STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Years Ended
---------------------------------------------
January 29, January 30, February 1,
1994 1993 1992
------------- ------------- -------------
(In thousands except per share amounts)
<S> <C> <C> <C>
Revenues:
Net Sales........................ $ 1,480,071 $ 1,438,160 $ 1,354,525
Other Income..................... 6,563 8,104 10,343
------------- ------------- -------------
1,486,634 1,446,264 1,364,868
------------- ------------- -------------
Cost of Goods Sold, Buying and Oc-
cupancy Costs.................... 1,146,969 1,070,478 1,007,224
Selling, General and Administra-
tive Expenses (Note E)........... 356,566 342,128 321,575
Restructuring Charge (Note J)..... 35,000 -- --
Interest Expense.................. 11,890 10,616 10,466
------------- ------------- -------------
1,550,425 1,423,222 1,339,265
------------- ------------- -------------
(Loss) from Investment in Common
Stock (Note B)................... (13,661) -- --
------------- ------------- -------------
Earnings (Loss) from Continuing
Operations Before
Income Taxes and Cumulative Ef-
fect of Changes in
Accounting Principles............ (77,452) 23,042 25,603
------------- ------------- -------------
Income Taxes (Note F):
Federal.......................... (5,149) 8,926 8,422
State and Local.................. (424) 1,445 1,338
Deferred......................... (23,196) (2,171) (162)
------------- ------------- -------------
(28,769) 8,200 9,598
------------- ------------- -------------
Earnings (Loss) before Cumulative
Effect of Changes in
Accounting Principles............ (48,683) 14,842 16,005
Cumulative Effect of Changes in
Accounting for
Investments and Income Taxes, Net
(Notes B and F).................. 10,685 -- --
------------- ------------- -------------
Net Earnings (Loss)............... $ (37,998) $ 14,842 $ 16,005
============= ============= =============
Earnings (Loss) per Share (Note
M):
Earnings (Loss) before Cumulative
Effect of Changes in Accounting
Principles...................... $ (1.04) $ .32 $ .34
Cumulative Effect of Changes in
Accounting Principles........... .23 -- --
------------- ------------- -------------
Net Earnings (Loss).............. $ (.81) $ .32 $ .34
============= ============= =============
Weighted Average Number of Shares. 46,768 46,758 46,756
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PETRIE STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
(In thousands of dollars except share amounts)
<TABLE>
<CAPTION>
Unrealized
Common Gain on Total
Stock Additional Investment Treasury Stock Share-
($1 Par Paid-in Retained in Common --------------- holders'
Value) Capital Earnings Stock, Net Shares Amount Equity
------- ---------- -------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED FEBRUARY 1, 1992:
Balance at beginning of
year.................. $46,769 $93,924 $497,284 $ -- 899 $(20) $ 637,957
Net earnings for the
year.................. -- -- 16,005 -- -- -- 16,005
Cash dividends on
common stock - $.20
per share............. -- -- (9,351) -- -- -- (9,351)
Acquisition of treasury
stock................. -- -- -- -- 23,000 (499) (499)
Fair market value of
treasury stock issued
as compensation....... -- 22 -- -- (7,500) 163 185
------- ------- -------- -------- ------- ----- ----------
Balance at February 1,
1992.................. 46,769 93,946 503,938 -- 16,399 (356) 644,297
YEAR ENDED JANUARY 30, 1993:
Net earnings for the
year.................. -- -- 14,842 -- -- -- 14,842
Cash dividends on
common stock - $.20
per share............. -- -- (9,350) -- -- -- (9,350)
Acquisition of treasury
stock................. -- -- -- -- 6,784 (151) (151)
Fair market value of
treasury stock issued
as compensation....... -- 6 -- -- (21,514) 471 477
------- ------- -------- -------- ------- ----- ----------
Balance at January 30,
1993.................. 46,769 93,952 509,430 -- 1,669 (36) 650,115
YEAR ENDED JANUARY 29, 1994:
Net (loss) for the
year.................. -- -- (37,998) -- -- -- (37,998)
Cash dividends on
common stock - $.20
per share............. -- -- (9,353) -- -- -- (9,353)
Shares issued -
conversion of
debentures............ 1 21 -- -- -- -- 22
Unrealized gain on
investment in common
stock, net (Note B)... -- -- -- 761,777 -- -- 761,777
------- ------- -------- -------- ------- ----- ----------
Balance at January 29,
1994.................. $46,770 $93,973 $462,079 $761,777 1,669 $ (36) $1,364,563
======= ======= ======== ======== ======= ===== ==========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
PETRIE STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Years Ended
-----------------------------------
January 29, January 30, February 1,
1994 1993* 1992*
----------- ----------- -----------
(In thousands of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $(37,998) $14,842 $ 16,005
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Cumulative effect of changes in ac-
counting for investments and income
taxes, net............................ (10,685) -- --
Depreciation and amortization of prop-
erty and equipment.................... 56,804 57,803 56,432
Other amortization..................... 3,208 3,120 3,118
Loss on disposal of property and equip-
ment.................................. 28,452 6,433 7,627
Provision for doubtful accounts........ 2,244 1,061 986
Compensation in connection with stock
options............................... 339 3,386 --
Fair market value of treasury stock is-
sued as compensation.................. -- 477 185
Loss from investment in common stock... 13,661 -- --
(Gain) on sale of investment........... -- -- (250)
Deferred income taxes.................. (23,196) (2,171) (162)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable................ (27,517) (811) (13,525)
Merchandise inventories............ 65 (35,396) (22,229)
Prepaid expenses................... 1,158 (821) 37
Other assets....................... (113) (377) (452)
Increase (decrease) in:
Accounts payable................... (2,578) 2,225 (6,863)
Accrued expenses and other liabili-
ties.............................. 7,603 2,526 1,120
Income taxes....................... (9,231) 134 2,414
Other long-term liabilities........ 2,104 -- --
-------- ------- --------
Net cash provided by operating activities.. 4,320 52,431 44,443
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Additions) to property and equipment.... (63,935) (73,244) (47,393)
Proceeds on disposition of property and
equipment............................... 802 588 822
Sale (purchase) of investments........... 5,186 (5,030) 250
-------- ------- --------
Net cash (used in) investing activities.... (57,947) (77,686) (46,321)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings................ 20,000 -- --
Cash dividends........................... (9,353) (9,350) (9,351)
Acquisition of treasury stock............ -- (151) (499)
Repayment of long-term obligations....... -- -- (21)
-------- ------- --------
Net cash provided by (used in) financing
activities................................ 10,647 (9,501) (9,871)
-------- ------- --------
Net (decrease) in cash and short-term in-
vestments................................. (42,980) (34,756) (11,749)
Cash and short-term investments - beginning
of year................................... 82,270 117,026 128,775
-------- ------- --------
Cash and short-term investments - end of
year...................................... $ 39,290 $82,270 $117,026
======== ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW IN-
FORMATION:
Cash paid during the year for:
Interest................................. $ 12,042 $10,701 $ 10,963
Income taxes............................. $ 7,744 $13,792 $ 13,369
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
$22,000 of Convertible Subordinated Debentures were exchanged for 983 shares of
the Company's common stock during the fiscal year ended January 29, 1994.
*Reclassified to conform to 1994 presentation.
See notes to consolidated financial statements.
F-8
<PAGE>
PETRIE STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All significant intercompany
transactions have been eliminated in consolidation.
Short-term investments consist of commercial paper, government securities,
repurchase agreements and other income producing securities of less than ninety
days maturity. Amounts invested in a single institution are limited to minimize
risk. The Company has not incurred losses related to these investments. These
investments are carried at cost plus accrued interest.
Other investments, amounting to $5,030,000 at January 30, 1993, consisted of
a U.S. Treasury Note, due December 31, 1994, with interest at 4.625%, and was
carried at cost, which approximated market value. This investment was sold
during fiscal 1994 for approximately cost.
The Company and its subsidiaries operate a chain of women's specialty stores
in the United States, Puerto Rico and The U.S. Virgin Islands. The Company
(beginning in May 1993) and one of its subsidiaries each grant credit to
customers through their own credit card programs. Concentration of credit risk
with respect to the Company's trade receivables is limited due to the large
number of customers, as well as the Company's stores being located across many
different geographic areas. The Company's subsidiary, whose stores are located
primarily in the Midwestern section of the country, grants credit to customers,
substantially all of whom are local residents. Accounts receivable--trade
relates to amounts due from customers, of which approximately $29,000,000 at
January 29, 1994 relates to the Company's subsidiary.
Merchandise inventories are valued at the lower of cost or market as
determined by the retail method (average cost basis) and consist of finished
goods.
Store opening costs are charged to earnings in the year the store is opened.
Depreciation and amortization of property and equipment are provided by
charges to earnings based on the estimated useful lives of the assets, as
follows:
<TABLE>
<S> <C>
BUILDINGS AND IMPROVEMENTS 10-40 years--straight-
line and declining-
balance
LEASEHOLD COSTS AND IMPROVEMENTS Term of lease or
estimated useful life,
whichever is less--
straight-line
STORE FIXTURES AND EQUIPMENT 3-15 years--straight-line
</TABLE>
The excess of cost over the fair value of net assets acquired is being
amortized by the straight-line method over 40 years. Recoverability of goodwill
is assessed by management by reviewing the current and expected cash flows of
the assets acquired.
Unamortized debt issuance costs are being amortized by the straight-line
method over the term of the debentures.
Effective January 29, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", which requires the Company's
investments in common stock to be classified as either "trading" (securities
the Company expects to sell in the near term) or "available for sale" and to be
carried at market value with the unrealized gain or loss associated with
trading securities to be included in the current year's statement of
operations, and the unrealized gain or loss associated with available for sale
securities to be presented as a separate component of shareholders' equity, net
of applicable deferred taxes (see Note B).
Effective January 31, 1993, the Company adopted the provisions of SFAS No.
109, "Accounting for Income Taxes", which requires a change from the deferred
method to the asset and liability method of accounting for income taxes. Under
this approach, deferred taxes are recognized for the estimated taxes ultimately
payable or recoverable based on enacted tax laws. Changes in enacted tax rates
will be reflected in the tax provision as they occur (see Note F).
Effective January 31, 1993, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
SFAS No. 106 requires that
F-9
<PAGE>
PETRIE STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
the projected future cost of providing postretirement benefits, such as
healthcare and life insurance, be recognized as an expense as employees render
service instead of when benefits are paid, as the Company historically had done
(see Note I).
NOTE B--INVESTMENTS IN COMMON STOCK
Effective January 29, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Accordingly, investments in
common stock, classified as trading securities and included in current assets
in the accompanying Consolidated Balance Sheet at January 29, 1994, are being
carried at market value of $35,740,000, with the unrealized gain of
$13,685,000, net of deferred income taxes of $5,800,000 included in the
Consolidated Statement of Operations for the fiscal year ended January 29, 1994
as "Cumulative Effect of Changes in Accounting for Investments and Income
Taxes, Net". Investments in common stock classified as available for sale
securities are being carried at market value of $1,481,937,000 with the
unrealized gain of $1,326,777,000, net of deferred income taxes of
$565,000,000, being credited to shareholders' equity at January 29, 1994.
The Company's investments in common stock consist of the following:
Toys "R" Us, Inc. ("Toys") (40,402,488 shares--13.95%)--A chain of toy
specialty retail stores (see Note N) and Deb Shops, Inc. ("Debs") (2,781,800
shares--17.84%)--a chain of specialty retail stores
In late May 1993, the Board of Directors authorized appropriate officers of
the Company to sell, from time to time, if they consider market conditions
suitable, all or a portion of the Company's investment in Debs. The Board also
determined that, to the extent the Company realizes losses on the sale of its
Debs stock, the Company will sell Toys shares in an amount (currently estimated
at approximately 500,000 shares) sufficient to offset such loss. The Company
expects such sales to take place in April or May 1994, and these investments
are classified as trading securities. The balance of the Toys shares are
classified as available for sale securities. The Company wrote down its
investment in Debs as of May 1, 1993 to market value pursuant to the provisions
of SFAS No. 12, which requires that if there is a change in the classification
of a marketable equity security between current and noncurrent portfolios, the
security must be transferred between the corresponding portfolios at the lower
of cost or market. If the market value is less than cost, the difference must
be accounted for as if it were a realized loss. This write-down resulted in a
charge to operations of $13,661,000 in the accompanying Consolidated Statement
of Operations for the fiscal year ended January 29, 1994.
The Company accounted for its investment in the common stock of Toys on the
equity method of accounting (cost plus its equity in undistributed earnings
since dates of acquisition) through April 30, 1988. Equity in net earnings was
adjusted for the straight-line amortization over a forty-year period for the
difference between the Company's cost over its proportionate share of the net
assets at the dates of acquisition. Subsequent to April 30, 1988, its ownership
percentage was reduced to approximately 14%. The Company's remaining investment
was being reflected by the cost method of accounting, as was its investment in
Debs, through the date of its adoption of SFAS No. 115. At January 30, 1993,
the unrealized pretax gain on the Company's investments in common stock
amounted to approximately $1,387,000,000.
F-10
<PAGE>
- --------------------------------------------------------------------------------
Condensed financial information of Toys "R" Us, Inc. is presented below:
<TABLE>
<CAPTION>
January 29, January 30,
1994 1993
------------ ------------
(In thousands of dollars)
<S> <C> <C>
Balance sheet data:
Current assets.................................... $2,708,396 $2,384,508
Current liabilities............................... 2,075,051 1,587,649
---------- ----------
Working capital................................... 633,345 796,859
Property and equipment--net (including leased
property under capital leases)................... 3,184,467 2,803,550
Other assets...................................... 256,746 134,794
Long-term liabilities and deferred taxes.......... (926,276) (846,182)
---------- ----------
Shareholders' equity.............................. $3,148,282 $2,889,021
========== ==========
Petrie Stores Corporation's investment............ $1,499,942 $ 157,047
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------
January 29, January 30, February 1,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Income statement data:
Net sales.............................. $7,946,067 $7,169,290 $6,124,209
Cost of sales.......................... 5,494,766 4,968,333 4,286,639
Net earnings........................... $ 482,953 $ 437,824 $ 339,529
</TABLE>
The Company's equity in undistributed earnings of Toys, net of deferred
taxes, included in retained earnings, amounted to $117,636,000 at January 29,
1994, January 30, 1993 and February 1, 1992.
NOTE C--CREDIT AGREEMENT
As at January 29, 1994, the Company has borrowed $20,000,000 under a short-
term borrowing agreement with a broker. Such borrowings are collateralized by
certain of the Company's investments in common stock which are held in a margin
account with the broker with interest at a floating rate (tied to broker call
rates) which has been 5% throughout the current fiscal year. Due to seasonal
cash requirements, the Company's short-term borrowings fluctuate during the
year. The maximum amount of short-term borrowings outstanding at any month-end
was $109,000,000 in fiscal 1994 and $33,100,000 in fiscal 1993, and averaged
$30,500,000 and $5,100,000, respectively. The weighted average short-term
interest rate was 4.4% for fiscal 1994 and 4.5% for fiscal 1993.
NOTE D--CONVERTIBLE SUBORDINATED DEBENTURES
The Company's 8% Convertible Subordinated Debentures are due December 2010.
The Debentures are convertible at any time prior to maturity into shares of
common stock of the Company at a conversion price of $22.125 per share. The
Debentures may be redeemed at any time, in whole or in part, at the option of
the Company at scheduled redemption prices.
The Company will pay to a Trustee, on December 15 in each of the years 1996
through 2009, an amount sufficient to redeem $6,250,000 in principal amount of
such Debentures. Such mandatory sinking fund payments will be sufficient to
retire 70% of the Debentures prior to maturity.
The Debentures are subordinated to all Senior Indebtedness (as defined) of
the Company.
NOTE E--SHAREHOLDERS' EQUITY
In May 1992, the Shareholders approved the Company's 1992 Stock Option Plan
(the "Plan"). The Plan provides that 350,000 shares of common stock of the
Company are reserved for issuance upon the exercise of options or stock
appreciation rights ("SAR's"), which may be granted to employees of the
Company. The options may be either incentive ("ISO") or nonqualified ("NQSO")
options. Generally, the exercise price of each ISO under the Plan may not be
less than the fair market value of a share of common stock on the date the
option is granted and the initial exercise price of each NQSO may not be less
than $14.00 per share.
In August 1992, pursuant to the Plan, the Company granted each of two
executive officers and directors of the Company nonqualified stock options in
tandem with SAR's to acquire 150,494 shares of common stock at $14 per share
(300,988 shares in the aggregate), exercisable until August 2002. The grant of
these options resulted in a charge against earnings in fiscal 1993 amounting to
approximately $3,400,000, which represented the excess of the market value of
the shares at January 30, 1993 over the exercise price of $14 per share. The
charge is included under the caption "Selling, General and Administrative
Expenses" in the accompanying
F-11
<PAGE>
PETRIE STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Consolidated Statement of Operations for the fiscal year ended January 30,
1993. These options replaced options that had been granted in November 1982,
for a similar amount of shares at the same exercise price, which expired on
August 31, 1992. The Company had made no charge to operations in connection
with these expired options.
In April 1993, the two executive officers exercised their stock options and
each received approximately $1,900,000 in cash under the stock appreciation
right feature of the Plan. The charge against earnings in connection with this
Plan amounted to approximately $339,000 in fiscal 1994, which represented the
excess of the market value of the shares at the date of exercise over the
January 30, 1993 market value. The aforementioned options were the only options
granted under this Plan, and, accordingly, there are currently no outstanding
stock options.
There were 49,012 shares available for future option grants at January 30,
1993 and January 29, 1994.
NOTE F--INCOME TAXES
(a) Effective January 31, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes", resulting in the recording of a deferred tax benefit of
$2,800,000 or $.06 per share, which amount represents the decrease in the net
deferred tax liability as of such date. Such amount is included in the
accompanying Consolidated Statement of Operations for the fiscal year ended
January 29, 1994 as "Cumulative Effect of Changes in Accounting for Investments
and Income Taxes, Net". The effect of this change on fiscal 1994 earnings
(loss) before cumulative effect of changes in accounting principles was not
material. Prior years' financial statements have not been restated to apply the
provisions of SFAS No. 109.
Deferred income taxes, resulting from timing differences in the recognition
of income and expense for tax and financial statement purposes, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- --------
(In thousands of dollars)
<S> <C> <C> <C>
Investments in common stock..................... $ (5,202) $ -- $ 6,058
Difference between tax and book depreciation.... (4,112) (3,989) (7,320)
Difference between the tax and book basis of
certain assets, including those of acquired
subsidiaries................................... 1,316 1,789 131
Income and expenses reported for tax purposes on
cash basis .................................... 1,837 (1,185) (345)
Restructuring charge............................ (8,001) -- --
Alternative minimum tax credit carryforward..... (5,518) -- --
Net operating loss carryforwards................ (1,711) -- --
General business and other tax credit
carryforwards.................................. (2,260) -- --
Undistributed earnings of Puerto Rican
subsidiaries................................... 1,200 1,200 1,300
Other........................................... (745) 14 14
--------- -------- --------
$(23,196) $(2,171) $ (162)
========= ======== ========
</TABLE>
(b) The following is a summary of the significant components of the Company's
deferred tax liabilities and assets at January 29, 1994 (in thousands of
dollars):
<TABLE>
<S> <C>
Deferred tax liabilities:
Investments in common stock......................................... $581,498
Difference between tax and book depreciation........................ 10,040
Difference between the tax and book basis of certain assets,
including those of acquired subsidiaries........................... 13,731
Undistributed earnings of Puerto Rican subsidiaries................. 12,596
Other............................................................... 2,362
--------
Total............................................................... 620,227
--------
Deferred tax assets:
Merchandise inventories............................................. 4,795
Restructuring charge................................................ 8,001
Alternative minimum tax credit carryforward......................... 5,518
Net operating loss and tax credit carryforwards..................... 8,321
Other............................................................... 3,870
--------
30,505
Valuation allowance.................................................. (3,500)
--------
Total............................................................... 27,005
--------
Net deferred tax liability........................................... $593,222
========
</TABLE>
F-12
<PAGE>
- --------------------------------------------------------------------------------
The valuation allowance relates principally to tax credit carryforwards, as
well as various states' net operating loss carryforwards. Under the provisions
of SFAS No. 109, the valuation allowance has been allocated between current and
noncurrent deferred tax assets on a pro-rata basis.
(c) The effective tax rate for the Company is reconcilable to the federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ---- ----
<S> <C> <C> <C>
Statutory rate............................................. (35.0)% 34.0% 34.0%
State and local income taxes - net of federal income tax
benefit................................................... (5.4) .9 2.4
Valuation allowance - SFAS
No. 109................................................... 4.5 -- --
Dividends and tax-free interest............................ (.5) (3.4) (4.6)
Deferred taxes on undistributed earnings (see Note F(e))... 1.6 5.2 5.1
Expenses producing no tax benefit.......................... 1.2 2.2 2.2
Miscellaneous items........................................ (3.5) (3.3) (1.6)
----- ---- ----
(37.1)% 35.6% 37.5%
===== ==== ====
</TABLE>
(d) The Company has approximately a $5,500,000 alternative minimum tax credit
carryforward which is not limited by an expiration date, approximately
$4,300,000 of general business and other tax credits (expiring in fiscal 1996
to 2009), as well as various state net operating loss carryforwards of
approximately $50,000,000 with expiration dates through fiscal 2009.
(e) A portion of undistributed earnings of Puerto Rican subsidiaries,
amounting to approximately $27,300,000 at January 29, 1994, were considered by
management to be permanently reinvested; consequently, no provision was made
for the taxes which would be withheld by Puerto Rico if these undistributed
earnings were remitted to the parent company. Deferred taxes have been provided
on the balance of undistributed earnings which management believes are not
permanently invested in Puerto Rican subsidiaries.
NOTE G--COMMITMENTS AND CONTINGENCIES
(a) As at January 29, 1994, the Company and its subsidiaries were committed
under operating leases for its stores and warehouse facilities, and equipment
leases having initial terms of one year or more expiring on various dates to
2009 with many of the store leases having renewal options for periods of five
years or longer. In most instances, these leases provide for additional rentals
based on a percentage of sales. Certain leases also provide for additional
payments covering real estate taxes, common area charges and other occupancy
costs.
A summary of rental expense under all leases were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- -------
(In thousands of dollars)
<S> <C> <C> <C>
Fixed minimum......................................... $ 90,365 $ 82,645 $76,996
Percentage rentals.................................... 12,610 12,945 11,045
Equipment rentals..................................... 4,586 4,869 5,140
-------- -------- -------
$107,561 $100,459 $93,181
======== ======== =======
</TABLE>
Minimum annual lease commitments under noncancelable operating leases are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
Fiscal Year
Ending In
-----------
<S> <C>
1995.................... $ 93,707
1996.................... 86,643
1997.................... 77,814
1998.................... 67,588
1999.................... 60,341
2000-2009............... 179,867
--------
$565,960
========
</TABLE>
(b) The Internal Revenue Service ("IRS") has conducted examinations of the
Company's federal income tax returns for fiscal 1985 and 1986 and has proposed
certain adjustments. The Company strongly disagrees with the proposed
adjustments and is currently contesting them in the Appellate Division of the
IRS. Although the outcome cannot be predicted with certainty, management
believes it has adequately provided for the resolution of this matter, and if
any additional amounts were ultimately determined to be due, such amount would
not have a material adverse effect on the Company's consolidated financial
condition.
(c) The Company makes payments in the ordinary course of business by means of
letters of credit in favor of suppliers. At January 29, 1994, the amount of
unused balances of such letters of credit was approximately $22,000,000.
(d) The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company believes that no litigation to which it is
a party will have a material adverse effect on its consolidated financial
condition.
F-13
<PAGE>
PETRIE STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE H--EMPLOYEE BENEFIT PLANS
(a) The Company and a subsidiary have pension plans that cover substantially
all full-time employees, except those of G & G Shops, Inc. Benefits under these
plans generally are based on the employee's years of service and compensation
during the years preceding retirement. The Company's funding policy is to
contribute amounts deductible for federal income tax purposes.
Net periodic pension expense for these plans for fiscal 1994, 1993 and 1992
includes the following components (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost for benefits earned during the year..... $ 1,803 $ 1,726 $ 1,631
Interest cost on projected benefit obligation........ 3,715 3,610 3,417
Actual return on plan assets......................... (4,581) (4,922) (4,475)
Net amortization and deferral........................ 1,402 1,935 1,974
------- ------- -------
Net pension expense................................ $ 2,339 $ 2,349 $ 2,547
======= ======= =======
</TABLE>
The funded status of these plans is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
January 29, January 30,
1994 1993
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits...................................... $(39,446) $(34,377)
Nonvested benefits................................... (2,237) (990)
-------- --------
Accumulated benefit obligation........................ (41,683) (35,367)
Effect of projected future salary increases........... (9,886) (8,310)
-------- --------
Projected benefit obligation.......................... (51,569) (43,677)
Fair value of plan assets............................. 48,246 45,088
-------- --------
Plan assets (less than) in excess of projected benefit
obligation........................................... (3,323) 1,411
Unrecognized net loss (gain).......................... 2,542 (2,929)
Unrecognized net (asset) at transition................ (1,551) (1,781)
Unrecognized prior service cost....................... 5,103 5,982
-------- --------
Prepaid pension expense............................... $ 2,771 $ 2,683
======== ========
</TABLE>
Actuarial assumptions used to determine the projected benefit obligation at
January 29, 1994 and January 30, 1993 were:
<TABLE>
<CAPTION>
Company's Subsidiary's
Plan Plan
---------- ---------------
1994 1993 1994 1993
---- ---- ------ ------
<S> <C> <C> <C> <C>
Assumed discount rate............................. 7.5% 8.5% 7.5% 8.5%
Assumed rate of compensation increase:
Employees........................................ 5.0% 6.0% 5.5% 5.5%
Executives....................................... 5.0% 6.0% 5.5% 5.5%
Expected rate of return on plan assets............ 7.5% 8.5% 7.0% 9.0%
</TABLE>
The Plans' assets are invested primarily in government securities.
(b) G & G Shops, Inc. has a profit sharing plan which covers substantially
all full-time employees. Profit sharing expense was $110,000, $250,000 and
$350,000 for the fiscal years ended January 29, 1994, January 30, 1993 and
February 1, 1992, respectively.
(c) Certain of the Company's employees are covered be either of two union
sponsored, collectively-bargained, multiemployer, defined benefit pension
plans. The Company's contributions to these plans, as determined in accordance
with negotiated labor contracts, amounted to $599,000, $563,000 and $584,000
for the fiscal years ended January 29, 1994, January 30, 1993 and February 1,
1992, respectively.
The Company has been notified by one of the plans ("the Plan") that the Plan
has an accumulated funding deficiency and the trustees of the Plan have applied
to the IRS for a waiver of the minimum funding standard for each of the plan
years ending January 31, 1993 and 1994, and that the approval of such
application was uncertain. In the event that the waivers are not granted, the
amount of the deficiency plus any penalties would be assessed against the
Plan's contributing employers. Information pertaining to the Company's share of
this deficiency is not currently available. Provisions of the Multiemployer
Pension Plan Amendments Act ("Act") of 1980 require contributing employers to a
multiemployer pension plan to pay "withdrawal liability" in the event of
"withdrawal" (as defined in the Act) from such plan. The Plan's administrator
has estimated that the Company's withdrawal liability would be approximately
$4,800,000 calculated as if the Company withdrew from the Plan prior to
February 1,
F-14
<PAGE>
- --------------------------------------------------------------------------------
1993, the latest date for which such information is available. The Company has
no current intention of withdrawing from the Plan but is reviewing all its
options. In the opinion of management, the resolution of this matter will not
have a material adverse effect on the Company's consolidated financial
position.
The Company has not received any information from the other plan's
administrator to determine its share, if any, of unfunded vested benefits or
its withdrawal liability.
(d) The Company adopted a voluntary 401(k) savings plan in February 1992,
which covers substantially all full-time employees. The Plan was amended in
August 1993, whereby the Company makes contributions based on a specified
percentage of employee contributions with certain defined limitations. The
provision for expense in connection with this plan amounted to approximately
$500,000 for the fiscal year ended January 29, 1994. The Company's cash
contributions will be invested in accordance with the Plan provisions in common
stock of the Company.
NOTE I--POSTRETIREMENT BENEFITS
Effective January 31, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The adoption of
this standard had no material effect on either the Company's operations or
financial condition. The Company has elected to amortize the transition
obligation amounting to approximately $3,700,000 over a twenty-year period. The
unamortized transition obligation of approximately $3,500,000 is included in
"Other Assets" and the accumulated postretirement benefit obligation of
approximately $3,600,000 is included in "Other Long-term Liabilities" in the
accompanying Consolidated Balance Sheet as at January 29, 1994. These
postretirement benefits cover a closed group of former employees with no
current or future employees being eligible for coverage. The incremental annual
expense of accounting for postretirement benefits under the new accounting
standard amounted to approximately $100,000 in fiscal 1994. The new accounting
method has no effect on the Company's cash outlay.
NOTE J--RESTRUCTURING CHARGE
In May 1993, the Company implemented a restructuring of its senior
management, and, as a result, new management made the decision to adopt a
restructuring plan. As part of their review of the Company's operations,
management identified approximately 290 stores it expects to close over the
next few years. The Company has recorded a restructuring charge amounting to
$35,000,000 which relates primarily to the write-down of property and equipment
(approximately $27,600,000) and lease settlements (approximately $3,700,000)
associated with these expected store closings, with the balance representing
severance payments. A restructuring reserve amounting to approximately
$4,100,000 is included in "Accrued Expenses and Other Liabilities" in the
accompanying Consolidated Balance Sheet as at January 29, 1994. This reserve
relates primarily to anticipated lease settlements (approximately $3,200,000)
associated with these expected store closings, with the balance representing
scheduled severance payments. An additional $2,100,000 relating to severance
payments, which are being paid in monthly installments with the final
installment projected to be in fiscal 2008, is included in "Other Long-term
Liabilities". Through January 29, 1994, 121 of the above-mentioned stores have
been closed.
NOTE K--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments", the following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate that value:
CASH, SHORT-TERM INVESTMENTS AND SHORT-TERM BORROWINGS
The carrying amount approximates fair value because of the short maturity of
those instruments.
INVESTMENTS
The fair value of investments is based on quoted market prices for those
investments.
F-15
<PAGE>
PETRIE STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
CONVERTIBLE SUBORDINATED DEBENTURES
The fair value of the Company's Convertible Subordinated Debentures is based
on the quoted market price of the debentures.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
January 29, January 30,
1994 1993
--------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- -------- ----------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Cash and short-term investments....... $ 39,290 $ 39,290 $ 82,270 $ 82,270
Investments........................... 1,517,677 1,517,677 196,062 1,583,639
Short-term borrowings................. 20,000 20,000 -- --
Convertible subordinated debentures... 124,952 158,064 124,974 148,719
</TABLE>
NOTE L--RELATED PARTY TRANSACTIONS
Milton Petrie, Chairman of the Board of Directors, maintains an account with
the Company from which he regularly makes gifts, including to former employees
of the Company, and other payments. Although Mr. Petrie ordinarily prefunded
such account, during a recent illness he became indebted to the Company in such
account for as much as $1,091,000, substantially all of which was repaid by Mr.
Petrie in January 1994 with interest at 5% per annum.
NOTE M--EARNINGS PER SHARE
Primary earnings per share has been computed based on the weighted average
number of shares outstanding. Shares issuable upon the exercise of stock
options have not been included in the primary earnings per share computation
because the effect of such would not be material or would be anti-dilutive.
Fully diluted earnings per share has been computed based on the weighted
average number of common and common equivalent shares outstanding, assuming
exercise of dilutive stock options computed by the treasury stock method and
the conversion of the 8% Convertible Subordinated Debentures after elimination
of interest (net of taxes) on the convertible debentures. Fully diluted
earnings per share are not presented as the effect would be anti-dilutive.
The number of shares used in the determination of fully diluted earnings per
share was as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------
January 29, January 30, February 1,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average common shares outstanding. 46,768,000 46,758,000 46,756,000
Common shares resulting from:
Assumed conversion of 8% Convertible
Subordinated Debentures.................. 5,648,000 5,649,000 5,649,000
Stock options............................. 23,000 134,000 109,000
---------- ---------- ----------
52,439,000 52,541,000 52,514,000
========== ========== ==========
</TABLE>
NOTE N--SUBSEQUENT EVENT
On April 20, 1994, the Company entered into an acquisition agreement with
Toys (see Note B) to exchange all of the approximately 40 million shares of
Toys common stock and cash (up to $250 million) for newly issued shares of Toys
common stock, less $115 million. Promptly after the closing of the transaction,
which is anticipated to occur in the Fall of 1994, the Company will liquidate
and distribute to its shareholders all the newly issued Toys common stock,
except an amount to be held in a liquidating trust covering the Company's
contingent liabilities at the time of the closing.
The closing of the transaction is conditioned on the Company (i) disposing of
its retail operations in a manner to be determined by the Company's Board of
Directors and in a form acceptable to Milton Petrie; (ii) receiving from the
IRS a ruling that the transaction will be tax free to the Company, its
shareholders and Toys; and (iii) reducing its contingent liabilities, including
lease guarantees, to less than $200 million.
The transaction, which may be terminated if it is not consummated by January
28, 1995 (or by November 15, 1994 if either a favorable ruling has not been
received by then from the IRS or the
F-16
<PAGE>
- --------------------------------------------------------------------------------
Company has not adequately reduced its contingent liabilities), is also subject
to the approval by holders of two-thirds of the Company's outstanding shares of
common stock.
In connection with the transaction, the Company is obligated to call its 8%
Convertible Subordinated Debentures due 2010 (see Note D).
As of April 20, 1994, the quoted market value of the Company's investment in
common stock of Toys decreased approximately $167,000,000 from the carrying
amount at January 29, 1994 of $1,499,943,000.
NOTE O--QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands of dollars except per share amounts)
FISCAL YEAR ENDED JANUARY 29, 1994:
<TABLE>
<CAPTION>
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales...................... $331,782 $362,331 $348,830 $437,128
Cost of goods sold, buying
and occupancy costs........... 244,823 291,278 267,561 343,307
-------- -------- -------- --------
Gross profit................... $ 86,959 $ 71,053 $ 81,269 $ 93,821
======== ======== ======== ========
Other income................... $ 1,916 $ 1,576 $ 1,619 $ 1,452
======== ======== ======== ========
(Loss) before cumulative
effect of changes in
accounting principles......... $ (6,478) $(32,395) $ (5,151) $ (4,659)
======== ======== ======== ========
Net earnings (loss)............ $ (3,678)(1) $(32,395)(2) $ (5,151) $ 3,226(3)
======== ======== ======== ========
(Loss) per share before
cumulative effect of changes
in accounting principles...... $(.14) $(.69) $(.11) $(.10)
===== ===== ===== =====
Net earnings (loss) per share.. $(.08)(1) $(.69)(2) $(.11) $.07(3)
===== ===== ===== ====
</TABLE>
<TABLE>
FISCAL YEAR ENDED JANUARY 30, 1993:
<CAPTION>
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales................................. $322,958 $354,978 $332,073 $428,151
Cost of goods sold, buying and occupancy
costs.................................... 234,640 268,628 251,269 315,941
-------- -------- -------- --------
Gross profit.............................. $ 88,318 $ 86,350 $ 80,804 $112,210
======== ======== ======== ========
Other income.............................. $ 2,563 $ 2,023 $ 1,758 $ 1,760
======== ======== ======== ========
Net earnings (loss)....................... $ 6,860 $ 1,507 $ (4,349) $ 10,824
======== ======== ======== ========
Net earnings (loss) per share............. $.15 $.03 $(.09) $.23
======== ======== ======== ========
</TABLE>
(1) The first quarter of fiscal 1994 includes a deferred tax benefit of
$2,800,000, or $.06 per share, as a result of the adoption of SFAS No. 109,
"Accounting for Income Taxes". In addition, the quarter was adversely affected
by the write-down of the Company's carrying value of its investment in Debs,
amounting to $8,261,000 (net), or $.18 per share, after taxes.
(2) The second quarter of fiscal 1994 includes a restructuring charge
amounting to $20,383,000 (net), or $.44 per share, after taxes.
(3) The fourth quarter of fiscal 1994 includes a net gain of $7,885,000, or
$.17 per share, after taxes as a result of the adoption of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". A decrease
in the Company's annual effective tax rate reduced fourth quarter earnings by
$.04 per share and was associated with prior quarters.
F-17
<PAGE>
SCHEDULE I
PETRIE STORES CORPORATION AND SUBSIDIARIES
MARKETABLE SECURITIES -- OTHER INVESTMENTS
JANUARY 29, 1994
- --------------------------------------------------------------------------------
(In thousands of dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------------- ---------- ------------- ------------------
Amount at Which
Each Portfolio
Number of Shares of Equity Security
or Issues and Each
Units -- Market Value Other Security
Principal of Each Issue Issue Carried
Name of Issuer and Amount of Bonds Cost of at Balance in the Balance
Title of Each Issue and Notes Each Issue Sheet Date Sheet (1)
------------------- ---------------- ---------- ------------- ------------------
<S> <C> <C> <C> <C>
INVESTMENTS IN COMMON
STOCK
CURRENT:
Toys "R" Us, Inc...... 485,000 shs. $ 325 $ 18,006 $ 18,006
Deb Shops, Inc........ 2,781,800 shs. 33,985 17,734 17,734
------- ---------- ----------
TOTAL INVESTMENTS IN
COMMON STOCK--
CURRENT............ 34,310 35,740 35,740
NONCURRENT:
Toys "R" Us, Inc...... 39,917,488 shs. 26,881 1,481,937 1,481,937
------- ---------- ----------
TOTAL INVESTMENTS IN
COMMON STOCK....... $61,191 $1,517,677 $1,517,677
======= ========== ==========
</TABLE>
- ------
(1) Effective January 29, 1994, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". Accordingly,
investments in common stock are being carried at market value.
F-18
<PAGE>
SCHEDULE II
PETRIE STORES CORPORATION AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND
EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEAR ENDED JANUARY 29, 1994
- --------------------------------------------------------------------------------
(In thousands of dollars)
<TABLE>
<S> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
-------- ------------ --------- ---------- ----------
Balance at Balance At
Beginning of End of
Description Period Additions Deductions Period
----------- ------------ --------- ---------- ----------
Milton Petrie...................... $57 $3,785 $3,825 $17
=== ====== ====== ===
</TABLE>
Amounts due from Milton Petrie, Chairman of the Board of Directors of the
Company, represents advances made with no specific repayments terms, inclusive
of interest at 5% per annum.
Columns D(2) and E(2) are not applicable.
F-19
<PAGE>
SCHEDULE V
PETRIE STORES CORPORATION AND SUBSIDIARIES
PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
- --------------------------------------------------------------------------------
(In thousands of dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column F
-------- ------------ --------- ----------- ----------
Balance at Balance at
Beginning of Additions End of
Classification Period at Cost Retirements Period
-------------- ------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED JANUARY 29, 1994:
Land........................... $ 2,777 $ -- $ -- $ 2,777
Buildings and improvements..... 15,069 1,088 -- 16,157
Leasehold costs and
improvements.................. 341,786 26,393 66,342 301,837
Store fixtures and equipment... 306,952 36,454 56,793 286,613
-------- ------- -------- --------
$666,584 $63,935 $123,135 $607,384
======== ======= ======== ========
YEAR ENDED JANUARY 30, 1993:
Land........................... $ 2,777 $ -- $ -- $ 2,777
Buildings and improvements..... 14,717 352 -- 15,069
Leasehold costs and
improvements.................. 320,655 33,728 12,597 341,786
Store fixtures and equipment... 280,084 39,164 12,296 306,952
Equipment under capital lease.. 1,246 -- 1,246 --
-------- ------- -------- --------
$619,479 $73,244 $ 26,139 $666,584
======== ======= ======== ========
YEAR ENDED FEBRUARY 1, 1992:
Land........................... $ 2,777 $ -- $ -- $ 2,777
Buildings and improvements..... 14,717 -- -- 14,717
Leasehold costs and
improvements.................. 315,681 20,206 15,232 320,655
Store fixtures and equipment... 266,328 27,187 13,431 280,084
Equipment under capital lease.. 1,246 -- -- 1,246
-------- ------- -------- --------
$600,749 $47,393 $ 28,663 $619,479
======== ======= ======== ========
</TABLE>
Column E not applicable.
F-20
<PAGE>
SCHEDULE VI
PETRIE STORES CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
- --------------------------------------------------------------------------------
(In thousands of dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column F
-------- ------------ ---------- ----------- ----------
Additions
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Retirements Period
----------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED JANUARY 29, 1994:
Buildings and improvements.... $ 3,800 $ 514 $ -- $ 4,314
Leasehold costs and
improvements................. 207,292 27,335 50,879 183,748
Store fixtures and equipment.. 165,394 28,955 43,002 151,347
-------- ------- ------- --------
$376,486 $56,804 $93,881 $339,409
======== ======= ======= ========
YEAR ENDED JANUARY 30, 1993:
Buildings and improvements.... $ 3,352 $ 448 $ -- $ 3,800
Leasehold costs and
improvements................. 187,338 29,121 9,167 207,292
Store fixtures and equipment.. 145,865 28,234 8,705 165,394
Equipment under capital lease. 1,246 -- 1,246 --
-------- ------- ------- --------
$337,801 $57,803 $19,118 $376,486
======== ======= ======= ========
YEAR ENDED FEBRUARY 1, 1992:
Buildings and improvements.... $ 2,934 $ 418 $ -- $ 3,352
Leasehold costs and
improvements................. 169,058 29,231 10,951 187,338
Store fixtures and equipment.. 128,345 26,783 9,263 145,865
Equipment under capital lease. 1,246 -- -- 1,246
-------- ------- ------- --------
$301,583 $56,432 $20,214 $337,801
======== ======= ======= ========
</TABLE>
Column E not applicable.
F-21
<PAGE>
SCHEDULE VIII
PETRIE STORES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
- --------------------------------------------------------------------------------
(In thousands of dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ------------ ---------- ----------- ----------
Additions
----------
(1)
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions* Period
----------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL AC-
COUNTS:
Year ended January 29,
1994................... $1,365 $2,244 $1,159 $2,450
====== ====== ====== ======
Year ended January 30,
1993................... $1,215 $1,061 $ 911 $1,365
====== ====== ====== ======
Year ended February 1,
1992................... $1,215 $ 986 $ 986 $1,215
====== ====== ====== ======
</TABLE>
- ------
* Write-offs of specific uncollectible accounts.
Column C(2) not applicable.
F-22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO.
------- ----
<C> <S> <C>
3.1 Restated Certificate of Incorporation of the Company, as
amended to date (incorporated herein by reference to Exhibit
3.1 to the Company's Annual Report on Form 10-K for the year
ended January 31, 1986).
3.2 By-laws of the Company (incorporated by reference to Exhibit
3.2 to the Company's Annual Report on Form 10-K for the year
ended January 30, 1993).
3.3 Amendments to the By-laws of the Company.
4.1 Form of Indenture dated as of August 15, 1985 between the
Company and the Trustee with respect to the 8% Convertible
Subordinated Debentures due 2010 (incorporated herein by
reference to Exhibit 4(a) to the Company's Registration
Statement No. 2-99517 on Form S-3 dated August 7, 1985).
4.2 Form of 8% Convertible Subordinated Debenture due 2010 of the
Company (incorporated herein by reference to Exhibit 4(b) to
Amendment No. 1 to the Company's Registration Statement No. 2-
99517 on Form S-3 dated August 15, 1985).
10.1 Employment Agreement dated August 6, 1985 between the Company
and Jay Galin (the "Galin Agreement") (incorporated herein by
reference to Exhibit 28(b) to Amendment No. 1 to the Company's
Registration Statement No. 2-99517 on Form S-3 dated August
15, 1985).
10.2 Amendment dated December 14, 1988 to the Galin Agreement
(incorporated herein by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended
January 28, 1989).
10.3 Amendment dated April 10, 1992 to the Galin Agreement
(incorporated herein by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
February 1, 1992).
10.4 Amendment dated August 19, 1992 to the Galin Agreement
(incorporated herein by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended
January 30, 1993).
10.5 Employment Agreement dated as of July 1, 1992 between the
Company and Peter A. Left (incorporated herein by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-K for
the year ended January 30, 1993).
10.6 Employment Agreement dated as of July 1, 1992 between the
Company and Daniel Maresca (incorporated herein by reference
to Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the year ended January 30, 1993).
10.7 Employment Agreement dated as of July 1, 1992 between the
Company and Jean Roberts (incorporated by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the year
ended January 30, 1993).
10.8 Employment Agreement dated as of July 1, 1992 between the
Company and Hilda Kirschbaum Gerstein (incorporated herein by
reference to Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the year ended January 30, 1993).
10.9 Employment Agreement dated as of July 1, 1992 between the
Company and Dorothy Fink Stern (incorporated herein by
reference to Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the year ended January 30, 1993).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO.
------- ----
<C> <S> <C>
10.10 Employment Agreement dated as of July 1, 1992 between the
Company and Allan Laufgraben (incorporated herein by reference
to Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the year ended January 30, 1993).
10.10 1992 Stock Option Plan (incorporated by reference to Exhibit A
to the Company's Proxy Statement dated May 5, 1992, for its
annual meeting held on May 28, 1992) (incorporated herein by
reference to Exhibit A to the Company's Proxy Statement dated
May 5, 1992, for its annual meeting held on May 28, 1992).
10.11 Acquisition Agreement dated April 20, 1994 between the Company
and Toys "R" Us, Inc. (incorporated herein by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K,
dated April 20, 1994).
10.12 Employment Agreement dated as of November 4, 1993 between the
Company and Richard Pesce.
10.13 Employment Agreement dated as of July 31, 1993 between the
Company and Jeffrey Zelenko.
21.1 List of subsidiaries.
</TABLE>
<PAGE>
PETRIE STORES CORPORATION
Certificate of Secretary
Peter A. Left, the Secretary of Petrie Stores
Corporation (the "Company"), certifies that annexed
hereto is a true and complete copy of a resolution
approved and adopted by the Board of Directors of the
Company at a special meeting held on July 16, 1993, which
resolution is in full force and effect as of the date
hereof.
Dated: July 30, 1993
Peter A. Left
Secretary
<PAGE>
Petrie Stores Corporation
Amendments to Bylaws
RESOLVED, that the sections of the Bylaws set
forth below are amended as follows:
Section 4.1 shall be amended to read in its
entirety as follows:
4.1 Number. The executive officers of the
Corporation shall be the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer,
President, one or more Vice Presidents, a Secretary and a
Treasurer. The executive officers may also include a
chief operating officer and a chief financial officer.
Any two or more offices may be held by the same person,
except the offices of Chief Executive Officer and
Secretary.
Section 4.7 shall be amended to read in its
entirety as follows:
4.7 Chief Executive Officer, President and
Chief Operating Officer. Subject to the control of the
Board, the Chief Executive Officer shall have general
supervision over the business of the Corporation and
shall have such other powers and duties as the Board
assigns to him. Subject to the control of the Board, the
President shall have such powers and duties as the Board
or the Chief Executive Officer assigns to him. If the
President shall not also be the Chief Executive Officer,
subject to the control of the Board, the President shall
have general supervision over the daily operations and
administration of the Company and shall have such other
powers and duties as the Board assigns to him. If the
President shall also be the Chief Executive Officer,
subject to the control of the Board, the Chief Operating
Officer shall have general supervision over the daily
operations and administration of the Company and shall
have such other powers and duties as the Board assigns to
him. If the President shall not also be the Chief
Executive Officer, the Chief Operating Officer shall have
such powers and duties as the Board, the President or the
Chief Executive Officer assigns to him.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of November 4, 1993 between
PETRIE STORES CORPORATION, a New York corporation having
its principal office at 70 Enterprise Avenue, Secaucus,
New Jersey 07094 (the "Company") and Richard Pesce,
residing at 6 Winchester Avenue, Budd Lake, New Jersey
07828 (the "Executive").
1. The Company hereby employs Executive as a
Senior Vice President-Operations for the Company with
such duties and responsibilities of an executive nature
as may be assigned to him from time to time by, and
subject to the direction and control of, the senior
executive officers of the Company and its Board of
Directors.
2. Executive hereby accepts such employment
and agrees that throughout the period of his employment
hereunder, he will devote substantially all of his
working time, attention, knowledge and skills,
faithfully, diligently, and to the best of his ability in
furtherance of the business of the Company. During the
period of his employment hereunder, Executive will not,
without the prior written approval of the Board of
Directors in each instance, directly or indirectly,
accept employment or compensation from or perform
services of any nature for any business enterprise other
than the Company.
3. This Agreement shall become effective upon
the date hereof and shall remain in effect for a term
expiring on October 31, 1994 (the "Term"), unless sooner
terminated pursuant to the provisions hereof.
4. As full compensation for his services
hereunder, the Company will pay to Executive a salary,
payable in equal installments no less frequently than
semi-monthly, at the rate of $177,000 per annum.
5. In addition to the salary payable to
Executive pursuant to Paragraph 4 hereof, Executive shall
be entitled to (a) reimbursement for all reasonable
expenses incurred by him in connection with his duties
hereunder in accordance with the usual procedures of the
Company and (b) participate in, and receive benefits in
accordance with, the Company's employee benefit plans and
programs at the time maintained by the Company for its
executives, subject to the provisions of such plans and
programs.
6. (a) In the event that Executive's
employment hereunder shall be terminated prior to October
31, 1994 for any reason (other than (i) the death or
disability of Executive, (ii) by the Company for "cause"
(as hereinafter defined) or (iii) by Executive for any
reason other than a material breach by the Company of its
<PAGE>
obligations hereunder), the Company shall pay to
Executive $177,000, in two equal installments on the date
of termination and on the six-month anniversary thereof;
provided, however, that Executive shall have an
obligation to mitigate damages by seeking employment of a
comparable nature and, if Executive obtains employment of
any kind during the one year period commencing with the
date of termination, the amount payable to Executive
under this Paragraph 7(a) shall be reduced by 50% of the
compensation receivable by Executive with respect to such
period from such other employment.
(b) In the event that Executive continues to
be employed by the Company after October 31, 1994, if at
any time prior to October 31, 1998 Executive's employment
by the Company is terminated for any reason (other than
(i) the death or disability of Executive, (ii) by the
Company for "cause" or (iii) by Executive for any reason
other than a material breach by the Company of its
obligations hereunder), the Company shall pay to
Executive an amount equal to $177,000, in two equal
installments on the date of termination and on the six-
month anniversary thereof; provided, however, that
Executive shall have an obligation to mitigate damages by
seeking other employment of a non-competitive nature (or,
if the Company waives Paragraph 7 hereof) a comparable
nature and, if Executive obtains any such employment
during the one-year period commencing on the date of
termination, the amount payable to Executive under this
Paragraph 6(b) shall be reduced by 50% of the
compensation receivable by Executive with respect to such
period from such other employment.
(c) The Company may terminate Executive's
employment hereunder at any time, effective immediately
upon notice to Executive, for "cause". For purposes of
this Agreement, "cause" means: (i) the willful failure or
neglect or unreasonable refusal by Executive to perform
his duties hereunder (including, without limitation, his
inability to perform his duties hereunder as a result of
alcohol abuse, chronic alcoholism or drug addiction);
(ii) any willful, intentional or grossly negligent act by
Executive having the effect of injuring the reputation or
business of the Company; (iii) Executive's conviction of
a felony or a crime involving moral turpitude (including
the entry of a nolo contendere plea); and (iv) any other
material default, nonperformance or violation by
Executive of any of the covenants, provisions or terms of
this Agreement after having received notice and an
opportunity to cure. In the event of termination of
Executive's employment for "cause," the salary payable
pursuant to Paragraph 4 hereof shall be prorated and
payable to the date of termination.
(d) If the Company shall breach this
Agreement in any material respect, Executive shall be
entitled to terminate this Agreement and to receive from
the Company (as severance pay and liquidated damages, in
lieu of any other rights or remedies which might
<PAGE>
otherwise be available to him under this Agreement) an
amount equal to (and payable in the same manner and at
the same time as) the compensation which Executive would
otherwise have been entitled to receive pursuant to
Paragraph 4 of this Agreement had he served throughout
the full remaining Term; provided, however, that
Executive shall have an obligation to mitigate damages by
seeking other employment of a non-competitive nature (or,
if the Company waives Paragraph 7 hereof) a comparable
nature and, if Executive obtains any such employment
during the remainder of the Term, the amount payable to
Executive under this Paragraph 6(d) shall be reduced by
50% of the compensation receivable by Executive with
respect to the remainder of the Term from such other
employment.
(e) Except as expressly provided in this
Paragraph 6, upon termination of Executive's employment
hereunder, Executive shall not be entitled to any further
payment of his salary pursuant to Paragraph 4 hereof or
any benefits pursuant to Paragraph 5 hereof.
7. Executive acknowledges that (i) the
business in which the Company is engaged is intensely
competitive and that his employment by the Company will
require that he have access to and knowledge of
confidential information of the Company, all of which are
of vital importance to the success of the Company's
business; (ii) the disclosure of any of the foregoing to
existing or potential competitors of the Company would
place the Company at a serious competitive disadvantage
and would do serious damage, financial and otherwise, to
the Company's business; and (iii) by his training,
experience and expertise, his services to the Company
will be special and unique. Accordingly, Executive
agrees that:
(a) During the Term and for a period of
five years thereafter, he will not communicate, divulge
or disclose to any other person or use for his own
benefit or purposes any such confidential information.
(b) During his employment hereunder and,
if Executive's employment is terminated prior to October
31, 1994 by the Company for cause or by Executive for any
reason other than material breach of this Agreement by
the Company, for a period of one year after the date of
such termination, he will not engage, directly or
indirectly, in any capacity (whether as officer,
director, stockholder, partner, associate, employee,
consultant, owner or otherwise) or have an interest in,
or be associated with, any Competitive Business or any
corporation, firm or enterprise carrying on a Competitive
Business without the prior written consent of the Board
of Directors of the Company; provided, however, that
nothing in the foregoing provision shall prohibit him
from owning up to 1% of the outstanding shares of any
class of securities registered under the Securities
Exchange Act of 1934 so long as such ownership does not
<PAGE>
create any conflict of interest with his duties
hereunder. The term "Competitive Business" means (x) any
business engaged in the retail sale of girls' or women's
clothing or (y) any other business conducted by or the
conduct of which is definitely planned by the Company or
any of its affiliates at the time of termination of
Executive's employment, excluding in each case domestic
and/or foreign design amd manufacture of women's clothing
and wholesale distribution thereof.
(c) The covenant contained in paragraph
(a) above shall remain in full force and effect for the
period specified therein after the termination of
Executive's employment hereunder, notwithstanding the
expiration or termination of this Agreement.
(d) The parties acknowledge and agree
that the services to be rendered by Executive hereunder
are of irreplaceable value, for the loss of which the
Company could not be reasonably or adequately compensated
in damages. Executive acknowledges and agrees that a
breach by him of the covenants of this Paragraph 8 would
cause the Company irreparable injury and damage.
Therefore, Executive expressly agrees that the Company
shall be entitled, in addition to any other right or
remedy to an injunction, without the posting of any bond
or security, enjoining or restraining Executive from any
violation or threatened violation of this Paragraph 7,
and Executive hereby consent to the issuance of such
injunction. Executive will pay all costs and expenses,
including attorneys fees, incurred by the Company in
enforcing the covenants contained in this Paragraph 7 if
the Company is successful in so doing after final
adjudication of the matter.
8. Executive represents and warrants to the
Company that he has the legal right to enter this
Agreement and to perform all of the obligations on his
part to be performed hereunder in accordance with its
terms and that he is not a party to any agreement or
understanding, written or oral, which prevents him from
entering into this Agreement or performing all of his
obligations hereunder. In the event of a breach of such
representation on his part or if there is any other legal
impediment which prevents him from entering into this
Agreement or performing all of his obligations hereunder,
the Company shall have the right to terminate this
Agreement forthwith without liability to it.
9. This Agreement shall be governed by and
construed under the laws of the State of New York
applicable to agreements made and to be performed in that
State.
10. Any dispute or controversy arising under
or in connection with this Agreement shall be settled
exclusively by arbitration in the City of New York by a
panel of three qualified independent arbitrators, one of
whom shall be selected by Executive, the second by the
<PAGE>
Company and the third by the first two selected. If no
arbitrator can be agreed upon by the first two
arbitrators, such arbitrator shall be selected in
accordance with the rules for commercial arbitration of
the American Arbitration Association. Judgment may be
entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall
be entitled to seek a restraining order or injunction in
any court of competent jurisdiction to prevent, or to
prevent any continuation of, any violation of Paragraph
8. The fees and expenses of such arbitration shall be
fixed by the arbitrators and paid in accordance with
their determination.
11. In the event that any one or more of the
provisions of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in
any way be affected or impaired thereby. Moreover, if
any one or more of the provisions contained in this
Agreement shall be held to be excessively broad as to
duration, geographical scope, activity or subject, such
provisions shall be construed by limiting and reducing
them so as to be enforceable to the maximum extent
compatible with applicable laws.
12. This Agreement constitutes the entire
agreement of the parties hereto and no amendment or
modification hereof shall be valid or binding unless made
in writing and signed by the party against whom
enforcement thereof is sought.
13. Any notice required, permitted or desired
to be given pursuant to any of the provisions of this
Agreement shall be deemed to have been sufficiently given
or served for all purposes if delivered in person or sent
by certified or registered mail, return receipt
requested, postage and fees prepaid to the parties at
their addresses as set forth above. Either of the
parties hereto may at any time and from time to time
hereafter change the address to which notice shall be
sent hereunder by notice to the other party given under
this paragraph. The date of the giving of any notice
sent by mail shall be the date of the posting of the
mail.
14. This Agreement shall be binding upon
Executive, his heirs, executors and administrators and
upon the Company, its successors and assigns.
15. No course of dealing or delay on the part
of the Company or Executive exercising any rights
hereunder shall operate as a waiver of any such rights.
No waiver of any default or breach of this Agreement shall
be deemed a continuing waiver or a waiver of any other
breach or defaults.
PETRIE STORES CORPORATION
By:
Peter A. Left, Executive
Vice President
Richard Pesce
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 31, 1993 between
PETRIE STORES CORPORATION, a New York corporation having
its principal office at 70 Enterprise Avenue, Secaucus,
New Jersey 07094 (the "Company") and Jeffrey Zelenko,
residing at 1178 Waterwheel Drive, Yardley, Pennsylvania
10967 (the "Executive").
1. The Company hereby employs Executive as a
Senior Vice President and General Merchandise Manager for
the Company's Junior Division with such duties and
responsibilities of an executive nature as may be
assigned to him from time to time by, and subject to the
direction and control of, the senior executive officers
of the Company and its Board of Directors.
2. Executive hereby accepts such employment
and agrees that throughout the period of his employment
hereunder, he will devote substantially all of his
working time, attention, knowledge and skills,
faithfully, diligently, and to the best of his ability in
furtherance of the business of the Company. During the
period of his employment hereunder, Executive will not,
without the prior written approval of the Board of
Directors in each instance, directly or indirectly,
accept employment or compensation from or perform
services of any nature for any business enterprise other
than the Company.
3. This Agreement shall become effective upon
the date hereof and shall remain in effect for a term
expiring on July 31, 1994 (the "Term"), unless sooner
terminated pursuant to the provisions hereof.
4. As full compensation for his services
hereunder, the Company will pay to Executive a salary,
payable in equal installments no less frequently than
semi-monthly, at the rate of $225,000 per annum. In the
event this Agreement is extended for a further period,
the rate of compensation hereunder would be increased to
$250,000 per year.
5. In addition to the salary payable to
Executive pursuant to Paragraph 4 hereof, Executive shall
be entitled to (a) reimbursement for all reasonable
expenses incurred by him in connection with his duties
hereunder in accordance with the usual procedures of the
Company and (b) participate in, and receive benefits in
accordance with, the Company's employee benefit plans and
programs at the time maintained by the Company for its
executives, subject to the provisions of such plans and
programs.
6. (a) In the event that Executive's
employment hereunder shall be terminated prior to July
31, 1994 for any reason (other than (i) the death or
disability of Executive, (ii) by the Company for "cause"
(as hereinafter defined) or (iii) by Executive for any
reason other than a material breach by the Company of its
<PAGE>
obligations hereunder), the Company shall pay to
Executive $250,000, in two equal installments on the date
of termination and on the six-month anniversary thereof;
provided, however, that Executive shall have an
obligation to mitigate damages by seeking employment of a
comparable nature and, if Executive obtains employment of
any kind during the one year period commencing with the
date of termination, the amount payable to Executive
under this Paragraph 7(a) shall be reduced by 50% of the
compensation receivable by Executive with respect to such
period from such other employment.
(b) In the event that Executive continues to
be employed by the Company after July 31, 1994, if at any
time prior to July 31, 1998 Executive's employment by the
Company is terminated for any reason (other than (i) the
death or disability of Executive, (ii) by the Company for
"cause" or (iii) by Executive for any reason other than a
material breach by the Company of its obligations
hereunder), the Company shall pay to Executive an amount
equal to $250,000, in two equal installments on the date
of termination and on the six-month anniversary thereof;
provided, however, that Executive shall have an
obligation to mitigate damages by seeking other
employment of a non-competitive nature (or, if the
Company waives Paragraph 7 hereof) a comparable nature
and, if Executive obtains any such employment during the
one-year period commencing on the date of termination,
the amount payable to Executive under this Paragraph 6(b)
shall be reduced by 50% of the compensation receivable by
Executive with respect to such period from such other
employment.
(c) The Company may terminate Executive's
employment hereunder at any time, effective immediately
upon notice to Executive, for "cause". For purposes of
this Agreement, "cause" means: (i) the willful failure or
neglect or unreasonable refusal by Executive to perform
his duties hereunder (including, without limitation, his
inability to perform his duties hereunder as a result of
alcohol abuse, chronic alcoholism or drug addiction);
(ii) any willful, intentional or grossly negligent act by
Executive having the effect of injuring the reputation or
business of the Company; (iii) Executive's conviction of
a felony or a crime involving moral turpitude (including
the entry of a nolo contendere plea); and (iv) any other
material default, nonperformance or violation by
Executive of any of the covenants, provisions or terms of
this Agreement after having received notice and an
opportunity to cure. In the event of termination of
Executive's employment for "cause," the salary payable
pursuant to Paragraph 4 hereof shall be prorated and
payable to the date of termination.
(d) If the Company shall breach this
Agreement in any material respect, Executive shall be
<PAGE>
entitled to terminate this Agreement and to receive from
the Company (as severance pay and liquidated damages, in
lieu of any other rights or remedies which might
otherwise be available to him under this Agreement) an
amount equal to (and payable in the same manner and at
the same time as) the compensation which Executive would
otherwise have been entitled to receive pursuant to
Paragraph 4 of this Agreement had he served throughout
the full remaining Term; provided, however, that
Executive shall have an obligation to mitigate damages by
seeking other employment of a non-competitive nature (or,
if the Company waives Paragraph 7 hereof) a comparable
nature and, if Executive obtains any such employment
during the remainder of the Term, the amount payable to
Executive under this Paragraph 6(d) shall be reduced by
50% of the compensation receivable by Executive with
respect to the remainder of the Term from such other
employment.
(e) Except as expressly provided in this
Paragraph 6, upon termination of Executive's employment
hereunder, Executive shall not be entitled to any further
payment of his salary pursuant to Paragraph 4 hereof or
any benefits pursuant to Paragraph 5 hereof.
7. Executive acknowledges that (i) the
business in which the Company is engaged is intensely
competitive and that his employment by the Company will
require that he have access to and knowledge of
confidential information of the Company, all of which are
of vital importance to the success of the Company's
business; (ii) the disclosure of any of the foregoing to
existing or potential competitors of the Company would
place the Company at a serious competitive disadvantage
and would do serious damage, financial and otherwise, to
the Company's business; and (iii) by his training,
experience and expertise, his services to the Company
will be special and unique. Accordingly, Executive
agrees that:
(a) During the Term and for a period of
five years thereafter, he will not communicate, divulge
or disclose to any other person or use for his own
benefit or purposes any such confidential information.
(b) During his employment hereunder and,
if Executive's employment is terminated prior to July 31,
1994 by the Company for cause or by Executive for any
reason other than material breach of this Agreement by
the Company, for a period of one year after the date of
such termination, he will not engage, directly or
indirectly, in any capacity (whether as officer,
director, stockholder, partner, associate, employee,
consultant, owner or otherwise) or have an interest in,
or be associated with, any Competitive Business or any
corporation, firm or enterprise carrying on a Competitive
Business without the prior written consent of the Board
of Directors of the Company; provided, however, that
nothing in the foregoing provision shall prohibit him
<PAGE>
from owning up to 1% of the outstanding shares of any
class of securities registered under the Securities
Exchange Act of 1934 so long as such ownership does not
create any conflict of interest with his duties
hereunder. The term "Competitive Business" means (x) any
business engaged in the retail sale of girls' or women's
clothing or (y) any other business conducted by or the
conduct of which is definitely planned by the Company or
any of its affiliates at the time of termination of
Executive's employment, excluding in each case domestic
and/or foreign design amd manufacture of women's clothing
and wholesale distribution thereof.
(c) The covenant contained in paragraph
(a) above shall remain in full force and effect for the
period specified therein after the termination of
Executive's employment hereunder, notwithstanding the
expiration or termination of this Agreement.
(d) The parties acknowledge and agree
that the services to be rendered by Executive hereunder
are of irreplaceable value, for the loss of which the
Company could not be reasonably or adequately compensated
in damages. Executive acknowledges and agrees that a
breach by him of the covenants of this Paragraph 8 would
cause the Company irreparable injury and damage.
Therefore, Executive expressly agrees that the Company
shall be entitled, in addition to any other right or
remedy to an injunction, without the posting of any bond
or security, enjoining or restraining Executive from any
violation or threatened violation of this Paragraph 7,
and Executive hereby consent to the issuance of such
injunction. Executive will pay all costs and expenses,
including attorneys fees, incurred by the Company in
enforcing the covenants contained in this Paragraph 7 if
the Company is successful in so doing after final
adjudication of the matter.
8. Executive represents and warrants to the
Company that he has the legal right to enter this
Agreement and to perform all of the obligations on his
part to be performed hereunder in accordance with its
terms and that he is not a party to any agreement or
understanding, written or oral, which prevents him from
entering into this Agreement or performing all of his
obligations hereunder. In the event of a breach of such
representation on his part or if there is any other legal
impediment which prevents him from entering into this
Agreement or performing all of his obligations hereunder,
the Company shall have the right to terminate this
Agreement forthwith without liability to it.
9. This Agreement shall be governed by and
construed under the laws of the State of New York
applicable to agreements made and to be performed in that
State.
10. Any dispute or controversy arising under
or in connection with this Agreement shall be settled
<PAGE>
exclusively by arbitration in the City of New York by a
panel of three qualified independent arbitrators, one of
whom shall be selected by Executive, the second by the
Company and the third by the first two selected. If no
arbitrator can be agreed upon by the first two
arbitrators, such arbitrator shall be selected in
accordance with the rules for commercial arbitration of the
American Arbitration Association. Judgment may be
entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall
be entitled to seek a restraining order or injunction in
any court of competent jurisdiction to prevent, or to
prevent any continuation of, any violation of Paragraph
8. The fees and expenses of such arbitration shall be
fixed by the arbitrators and paid in accordance with
their determination.
11. In the event that any one or more of the
provisions of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in
any way be affected or impaired thereby. Moreover, if
any one or more of the provisions contained in this
Agreement shall be held to be excessively broad as to
duration, geographical scope, activity or subject, such
provisions shall be construed by limiting and reducing
them so as to be enforceable to the maximum extent
compatible with applicable laws.
12. This Agreement constitutes the entire
agreement of the parties hereto and no amendment or
modification hereof shall be valid or binding unless made
in writing and signed by the party against whom
enforcement thereof is sought.
13. Any notice required, permitted or desired
to be given pursuant to any of the provisions of this
Agreement shall be deemed to have been sufficiently given
or served for all purposes if delivered in person or sent
by certified or registered mail, return receipt
requested, postage and fees prepaid to the parties at
their addresses as set forth above. Either of the parties
hereto may at any time and from time to time
hereafter change the address to which notice shall be
sent hereunder by notice to the other party given under
this paragraph. The date of the giving of any notice
sent by mail shall be the date of the posting of the
mail.
14. This Agreement shall be binding upon
Executive, his heirs, executors and administrators and
upon the Company, its successors and assigns.
15. No course of dealing or delay on the part
of the Company or Executive exercising any rights
hereunder shall operate as a waiver of any such rights.
No waiver of any default or breach of this Agreement
shall be deemed a continuing waiver or a waiver of any
other breach or defaults.
PETRIE STORES CORPORATION
By:
Peter A. Left, Executive
Vice President
Jeffrey Zelenko
<PAGE>
PETRIE STORES CORPORATION
SCHEDULE OF DIRECTLY AND INDIRECTLY OWNED SUBSIDIARIES*
SURVIVING CORPORATIONS
AS OF JANUARY 29, 1994
State of
Corporations Incorporation
------------ -------------
Petrie Stores Corporation New York
Brockwood Apparel Corporation Alabama
Tuscon Ladies Apparel Corporation Arizona
Petrie's Arkansas Corporation Arkansas
Carlsbad Apparel Corporation California
Stuarts Apparel, Inc. Colorado
Trumbull Marianne Corporation Connecticut
Marianne Wilmington Corporation Delaware
Sunny Isle-lockhart Corp. Delaware
Petrie Island Corporation Delaware
Marianne Clearwater Corporation Florida
Marianne Columbia Corporation Georgia
Petrie's Hawaiian Apparel Corporation Hawaii
M.J. Petrie, Inc. Illinois
Mundelein Apparel Corporation Illinois
Peoria Apparel Corporation Illinois
Matteson Apparel Corporation Illinois
Peru Ladies Apparel Corporation Illinois
Stuarts High Fashion, Inc. Illinois
6322 Halsted Corporation Illinois
McKinley Apparel, Inc. Indiana
Crossroads Apparel Corporation Iowa
Stuarts Wichita Apparel Corporation Kansas
Mall 242 Corporation Kentucky
Bashford Apparel Corporation Kentucky
Stuarts Clearview Apparel Corporation Louisiana
Bangor Apparel Corporation Maine
Glen Burnie Apparel Corporation Maryland
Dartmouth Plaza Apparel Corporation Massachusetts
M.J. Petrie Highland Park Corporation Michigan
<PAGE>
-2-
Mari-Ann St. Clair Corporation Michigan
Rosedale Apparel Corporation Minnesota
Stuarts Tupelo Apparel Corporation Mississippi
Ozark Apparel Corporation Missouri
Stuarts Westroads Apparel Corporation Nebraska
Las Vegas Apparel Corporation Nevada
New Hampshire Apparel Corporation New Hampshire
Cherry Hill Marianne Corporation New Jersey
Hoboken Apparel Corporation New Jersey
Marianne Newark Corporation New Jersey
Rio West Apparel Corporation New Mexico
Staten Island Apparel Corporation New York
Vernon Park Apparel Corporation North Carolina
Circle Apparel Corporation North Carolina
West Acres Apparel Corporation North Dakota
Red Robin 1900 West 25th Street Corporation Ohio
Mayfield Apparel Corporation Ohio
Heritage Apparel Corporation Oklahoma
Marianne Ladies Apparel Corporation Oregon
M.J. Todd, Inc. Pennsylvania
Marianne Estrella Corporation Puerto Rico
Marianne Plaza Apparel Corporation Puerto Rico
Caribe Apparel Corporation Puerto Rico
Fajardo-MPA Corporation Puerto Rico
Cruz-Ponce Corporation Puerto Rico
183 Jose De Diego Corporation Puerto Rico
Munoz MPA Corporation Puerto Rico
157 De Diego Corporation Puerto Rico
Vidal Georgetty Corporation Puerto Rico
Noya-Carolina Corporation Puerto Rico
Trujillo MPA Corporation Puerto Rico
McKinley-Rosa Corporation Puerto Rico
N.Calimano MPA Corporation Puerto Rico
Veve-Americas Corporation Puerto Rico
Del Carmen Hondo Corporation Puerto Rico
<PAGE>
-3-
Progreso Corchado Corporation Puerto Rico
305 De Diego Corporation Puerto Rico
Mayaguez MPA Corporation Puerto Rico
61 Dr. Veve Corporation Puerto Rico
19 Plaza Munoz Corporation Puerto Rico
14 San Carlos Corporation Puerto Rico
Atlantico MPA Corporation Puerto Rico
San Patricio MPA Corporation Puerto Rico
58 Once De Agosto Corporation Puerto Rico
Plaza Carolina MPA Corporation Puerto Rico
Bayamon MPA Corporation Puerto Rico
Las Americas MPA Corporation Puerto Rico
Cumbres Apparel Corporation Puerto Rico
Corollera Apparel Corporation Puerto Rico
Caguas Apparel Corporation Puerto Rico
Centro Apparel Corporation Puerto Rico
Manati Apparel Corporation Puerto Rico
Bayamon Apparel Corporation Puerto Rico
Ensenada Apparel Corporation Puerto Rico
Palmas Altas Apparel Corporation Puerto Rico
Carraizo Alto Apparel Corporation Puerto Rico
Canas Apparel Corporation Puerto Rico
Fajardo Apparel Corporation Puerto Rico
Ponce Apparel Corporation Puerto Rico
Trujillo Alto Apparel Corporation Puerto Rico
El Canton Apparel Corporation Puerto Rico
Guanajibo Apparel Corporation Puerto Rico
Ponce de Leon Apparel Corporation Puerto Rico
Rave Apparel of Bayamon Corporation Puerto Rico
Rave Apparel Corporation of Arecibo Puerto Rico
Rave Apparel Corporation of Humacao Puerto Rico
Midland Apparel Corporation Rhode Island
Myrtle Beach Apparel Corporation South Carolina
Stuarts Clarksville Apparel Corporation Tennessee
Shelby Apparel Corporation Tennessee
<PAGE>
-4-
Central Park Apparel Corporation Texas
Wichita Falls apparel Corporation Texas
Petrie's Valley Fair Corporation Utah
Burlington Apparel Corporation Vermont
Pyramid-Burlington Apparel Corporation Vermont
Regency Apparel Corporation Virginia
Vancouver Apparel Corporation Washington
Tacoma Apparel Corporation Washington
West Virginia Apparel Corporation West Virginia
Huntington Apparel Corporation West Virginia
Beloit Plaza Apparel Corporation Wisconsin
Hartfield Stores, Inc. Delaware
Ranch Stores, Inc. Louisiana
PSL, Inc. Delaware
The following stores were acquired from Davids Specialty Shops, Inc. as of
- --------------------------------------------------------------------------
1/31/80:
--------
Davids Woodbridge, Inc. New Jersey
Davids Wheaton Corporation Maryland
Davids Springfield Corporation Massachusetts
Davids Livingston Corporation New Jersey
Davids Fayetteville Mall, Inc. New York
Davids Pittsford, Inc. New York
Davids of Ithaca, Inc. New York
Davids Lake Forest Corporation New York
Airport of Perimeter Mall, Inc. New York
Davids Lycoming Mall Corporation Pennsylvania
Daysons Carolina, Inc. Puerto Rico
Cristinas Senorial, Inc. Puerto Rico
Daysons Cupey Corporation Puerto Rico
Daysons Puerto Rico Corporation Puerto Rico
Daysons Las Americas Corporation Puerto Rico
Daysons of Ponce, Inc. Puerto Rico
Davids Springfield Mall, Inc. New York
Davids Tysons Corner Corporation Virginia
<PAGE>
-5-
Landmark, Inc. Virginia
Davids Security Square Corporation Maryland
Davids Prince Georges Corporation Maryland
Davids Transit Road Corporation New York
Davids Summit Park Mall Corporation New York
Davids Columbia Mall, Inc. New York
Frank Georgetown Corporation New York
The following stores were acquired from G&G Shops, Inc. as of 7/1/80:
- ---------------------------------------------------------------------
PSC Holding Corporation Delaware
G&G Shops, Inc. Delaware
G&G Shops of Brooklyn, Inc. New York
Sco-Jef Mercantile Corporation New York
78 Nassau Street Corporation New York
G&G Shops of Pennsylvania, Inc. Pennsylvania
G&G Shops of Woodbridge, Inc. New Jersey
G&G Shops of Mid-Island Corporation New York
G&G Shops of North Carolina, Inc. North Carolina
G&G Shops of Nanuet, Inc. New York
G&G Shops of Maryland, Inc. Maryland
G&G Shops of New England, Inc. Connecticut
458 Seventh Avenue Corporation New York
American High, Inc. New York
G&G Island Corporation Delaware
Direct Sub of PSC Parent
Clothseteria New York
The following stores were acquired from Franklin Stores Corporation as of May
- -----------------------------------------------------------------------------
19, 1981:
---------
Petrie Acquisition Corporation Delaware
Franklin Stores Corporation Delaware
Franklin 228 Corporation Delaware
Franklin 145 Corporation Delaware
<PAGE>
-6-
Petrie Holding (Texas) Corporation Delaware
Franklin Stores Holding Corporation Delaware
Franklin Stores Texas Corporation Delaware
Mayfair of Houston, Inc. Delaware
Franklin North Mesa Corporation Delaware
Petrie Holding P.R. Corporation Delaware
Franklin Stores Corporation P.R. Delaware
Franklin Stores Corporation of Santurce Delaware
Franklin Stores Corporation of Bayamon Delaware
Franklin Stores Corporation of Rio Piedras Delaware
Franklin Stores Corporation of Caguas Delaware
Franklin Stores Corporation of Ponce Delaware
Franklin 187 Corporation Delaware
Franklin Fortaleza Corporation Delaware
Franklin Metro Corporation Delaware
Franklin St. Augustine Corporation Delaware
Franklin 193 Corporation Delaware
Franklin Center Corporation Delaware
Franklin Thirty-Four Rio Corporation Delaware
Franklin Plaza Corporation Delaware
Franklin 197 Corporation Delaware
Franklin 198 Corporation Delaware
Franklin 201 Corporation Delaware
Franklin 202 Corporation Delaware
Franklin 203 Corporation Delaware
Franklin 205 Corporation Delaware
Franklin 206 Corporation Delaware
Mayfair 207 Corporation Delaware
Franklin 211 Corporation Delaware
Franklin 212 Corporation Delaware
Franklin 213 Corporation Delaware
Franklin 214 Corporation Delaware
Franklin 215 Corporation Delaware
Franklin 251 Corporation Delaware
Franklin 253 Corporation Delaware
<PAGE>
-7-
Franklin 221 Corporation Delaware
Franklin Four Winds Corporation Delaware
Franklin 218 Corporation Delaware
Franklin 220 Corporation Delaware
The following stores were acquired from Whitney Stores, Inc. as of December
- ---------------------------------------------------------------------------
31, 1983:
---------
Whitney Stores, Inc. New York
Rosaine's, Inc. North Carolina
Hollywood Shop, Inc. Delaware
The following stores were acquired from The Miller Wohl Company as of June 24,
- ------------------------------------------------------------------------------
1984:
-----
The Miller-Wohl Co., Inc. Delaware
Miller-Wohl Investments, Inc. Florida
Jean-Nicole, Inc. Delaware
Anita Shops, Inc. Delaware
Morrisons & Arthurs, Inc. Delaware
Morrisons Castelton Square, Inc. Indiana
N. Bro, Inc. New Jersey
Winkleman Stores, Inc. Michigan
Winkleman Stores Credit Corporation Michigan
