SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 28, 1995 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 OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 866-3600
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF
CHANGED SINCE LAST REPORT: NONE
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past
90 days.
Yes: X No:
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest
practicable date: 52,350,238 shares, $1.00 par value per
share, of common stock outstanding as of December 6,
1995.
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (unaudited)
Statements of Net Assets in Liquidation
- October 28, 1995 and January 28,
1995 . . . . . . . . . . . . . . . . . . 3
Statements of Changes in Net Assets in
Liquidation - For the Three Months
and Nine Months Ended October 28,
1995 . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations -
For the Three Months and Nine
Months Ended October 29, 1994 . . . . . 5
Consolidated Statement of Cash Flows -
For the Nine Months Ended October
29, 1994 . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . 18
PETRIE STORES CORPORATION
STATEMENTS OF NET ASSETS IN LIQUIDATION (NOTE 2)
(IN THOUSANDS)
OCTOBER 28, 1995 JANUARY 28,
(UNAUDITED) 1995
Assets
Cash and cash equivalents $ 85,357 $ 11,854
Investment in Toys "R" Us, Inc. common
stock 156,105 1,262,293
Total assets 241,462 1,274,147
Liabilities
Accrued expenses and other liabilities 21,699 9,495
Deferred income taxes 37,878 428,182
Total liabilities 59,577 437,677
Commitments and contingencies
Net assets in liquidation $ 181,885 $ 836,470
See accompanying notes.
PETRIE STORES CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (NOTE 2)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 28, 1995 OCTOBER 28, 1995
Net assets in liquidation at
beginning of period $ 340,524 $ 836,470
Investment income 291 658
Corporate overhead (17,681) (20,433)
Net realized and unrealized
loss on Toys "R" Us, Inc.
common stock (78,051) (241,167)
Loss before income tax
credit (95,441) (260,942)
Income tax credit 21,970 85,956
Net loss for the period (73,471) (174,986)
Distributions of 5,235,035
and 31,410,144,
respectively, shares
of Toys "R" Us, Inc. common
stock, net of taxes (85,168) (479,599)
Decrease in net assets (158,639) (654,585)
Net assets in liquidation at
October 28, 1995 $ 181,885 $ 181,885
Net loss per share $ (1.40) $ (3.34)
Weighted average number of shares 52,350 52,350
See accompanying notes.
PETRIE STORES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTES 2 AND 3)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 29, 1994* OCTOBER 29, 1994*
Interest expense $ (2,492) $ (7,524)
Loss from continuing
operations before
income taxes (2,492) (7,524)
Income tax benefit - 2,013
Loss from continuing
operations (2,492) (5,511)
Loss from discontinued
operations, net
of income taxes (32,083) (43,007)
Loss on disposal of
discontinued operations (358,996) (358,996)
(391,079) (402,003)
Net loss $ (393,571) $ (407,514)
Loss per share:
Loss from continuing
operations $ (.05) $ (.12)
Loss from discontinued
operations (.69) (.92)
Loss on disposal of
discontinued operations (7.67) (7.67)
Net loss $ (8.41) $ (8.71)
Weighted average number of
shares 46,792 46,792
* Restated
See accompanying notes.
PETRIE STORES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS
ENDED OCTOBER 29, 1994
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(407,514)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for loss on disposal of discontinued operations 358,996
Depreciation and amortization of property and equipment 41,076
Other amortization 2,344
Common stock issued as compensation 451
Deferred taxes (2,176)
Changes in assets and liabilities:
(Increase) in:
Accounts receivable (3,968)
Merchandise inventories (68,392)
Prepaid expenses and sundry receivables (11,624)
Other assets (85)
Increase (decrease) in:
Accounts payable 12,205
Accrued expenses and other liabilities (2,271)
Other long-term liabilities (480)
Proceeds from sale of investment in common stock-trading
securities 36,076
Net cash used in operating activities (45,362)
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions to property and equipment (39,808)
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings 79,177
Cash dividends (7,021)
Net cash provided by financing activities 72,156
Net (decrease) in cash and short-term investments (13,014)
Cash and cash equivalents - beginning of period 39,290
Cash and cash equivalents - end of period $ 26,276
See accompanying notes.
PETRIE STORES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 29, 1994
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 6,471
Income taxes $ 1,571
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
$1,386,000 of Convertible Subordinated Debentures were exchanged for
62,621 shares of Petrie's common stock during the nine months ended
October 29, 1994.
See accompanying notes.
PETRIE STORES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 28, 1995
1. INTERIM REPORTING
The accompanying unaudited consolidated financial statements
of Petrie Stores Corporation ("Petrie") have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of Petrie, all adjustments
(consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the nine months ended October 28, 1995 are not
necessarily indicative of the results that may be expected for
the current fiscal year. For further information, reference is
made to the consolidated financial statements and footnotes
thereto included in Petrie's Annual Report on Form 10-K for the
fiscal year ended January 28, 1995.
2. BASIS OF PRESENTATION
For financial statement presentation purposes, a liquidation
basis of accounting was implemented as of January 28, 1995. The
application of a liquidation basis had no effect on Petrie's net
assets as of October 28, 1995 and January 28, 1995. The
statements of net assets in liquidation at October 28, 1995 and
January 28, 1995 do not distinguish between current and long-term
balances as would be reflected if such statements had been
prepared on a going-concern basis. The accompanying consolidated
statements of operations for the three months and nine months
ended October 29, 1994, and the consolidated statement of cash
flows for the nine months then ended, are presented on a going-
concern basis.
In December 1994, as part of the reorganization of Petrie's
retail operations in connection with their sale, all of Petrie's
former subsidiaries with retail operations were transferred to
Petrie Retail, Inc. ("Petrie Retail"), then a wholly-owned
subsidiary of Petrie, and all of the shares of Toys "R" Us, Inc.
("Toys 'R' Us") common stock, par value $.10 per share ("Toys
Common Stock"), held by Petrie's former subsidiaries were
transferred to Petrie. Thereafter, Petrie Retail was sold (the
"Sale") to PS Stores Acquisition Corp. (hereafter, including its
subsidiaries and affiliates unless the context requires
otherwise, "PS Stores"). As a result of the reorganization,
Petrie has no subsidiaries.
Pursuant to Petrie's Plan of Liquidation and Dissolution
(the "Plan of Liquidation"), adopted at Petrie's Reconvened
Annual Meeting of Shareholders on January 24, 1995, and the
Agreement and Declaration of Trust, dated as of December 6, 1995
(the "Liquidating Trust Agreement"), by and between Petrie and
the trustees named therein (a form of which was approved at
Petrie's Reconvened Annual Meeting of Shareholders on January 24,
1995), Petrie will transfer its remaining assets to, and its
remaining fixed and contingent liabilities will be assumed by
(the "Succession"), the Petrie Stores Liquidating Trust (the
"Liquidating Trust"), effective as of the close of business on
January 22, 1996, unless the Succession is postponed as set forth
below or in the Liquidating Trust Agreement (the "Succession
Date"). Application will be made to the Securities and Exchange
Commission (the "Commission") to register the Liquidating Trust's
beneficial interests on Form 8-B pursuant to the Securities
Exchange Act of 1934, as amended. In the event that the
Commission has not declared the Form 8-B effective prior to
January 22, 1996, the Succession Date will be postponed until the
effective date of the Form 8-B.
3. DISCONTINUED OPERATIONS
On December 9, 1994, pursuant to the terms of a Stock
Purchase Agreement, as amended, Petrie completed the Sale. In
the Sale, the stock of Petrie Retail was sold to PS Stores for a
net cash purchase price of approximately $177.5 million and the
assumption by PS Stores of various liabilities including, but not
limited to, all of the leases to which Petrie or any of its
subsidiaries was a party (Note 5).
During the third fiscal quarter ended October 29, 1994,
Petrie recorded a charge of $359 million for the estimated loss
on disposal of the retail operations. The estimated loss
represents the loss on the Sale, plus estimated transaction costs
and expenses for the Sale and a provision for estimated operating
losses through the disposal date.
The results of the retail operations are accounted for as
discontinued operations in the accompanying Consolidated
Statements of Operations. Amounts in the Consolidated Statements
of Operations and the notes thereto have been restated to reflect
the discontinuance of the retail operations.
Components of loss from discontinued operations for the three
months and nine months ended October 29, 1994 are as follows:
THREE MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 29, OCTOBER 29,
1994 1994
Net sales $ 328,334 $1,028,692
Loss from discontinued retail
operations before income taxes (32,083) (50,290)
Income tax benefit -- 7,283
Loss from discontinued retail
operations $ (32,083) $ (43,007)
4. INVESTMENTS IN COMMON STOCK
Petrie's investments in common stock consist of shares of
Toys Common Stock, which are being carried at market value.
As disclosed in Petrie's Annual Report on Form 10-K for the
fiscal year ended January 28, 1995 and Petrie's Quarterly Reports
on Form 10-Q for the three months ended April 29, 1995 and the
three months ended July 29, 1995, Petrie has placed 3,493,450
shares of its Toys Common Stock that in an escrow account (the
"Escrow Account") pursuant to the terms of an Escrow Agreement,
dated as of January 24, 1995, between Petrie and Custodial Trust
Company, as Escrow Agent (the "Escrow Agreement"). The shares of
Toys Common Stock placed into the Escrow Account pursuant to the
Escrow Agreement secure the payment of certain of Petrie's
obligations to Toys "R" Us arising (i) under (x) the Acquisition
Agreement dated April 20, 1994 between Petrie and Toys "R" Us,
(y) the Seller Indemnification Agreement, dated as of December 9,
1994, among Petrie, Toys "R" Us, Petrie Retail, PS Stores, and
certain subsidiaries of PS Stores and (z) the Stock Purchase
Agreement, and (ii) otherwise.
In addition, Petrie has placed 3,200,082 shares of its Toys
Common Stock in a collateral account (the "Collateral Account")
pursuant to the terms of an Amended and Restated Cash Collateral
and Pledge Agreement, dated as of December 9, 1994 and amended as
of January 24, 1995, among Petrie, PS Stores, certain
subsidiaries of PS Stores, and Custodial Trust Company, as
Collateral Agent (the "Amended and Restated Cash Collateral
Agreement"). The shares of Toys Common Stock placed in the
Collateral Account pursuant to the Amended and Restated Cash
Collateral Agreement secure the payment of certain of Petrie's
obligations to PS Stores arising under (i) the Stock Purchase
Agreement and (ii) the Cross-Indemnification and Procedure
Agreement, dated as of December 9, 1994, between Petrie and PS
Stores.
The shares of Toys Common Stock placed into the Escrow
Account and the Collateral Account are also subject to the terms
of a letter agreement, dated as of January 24, 1995, pursuant to
which Petrie has agreed with Toys "R" Us that, until such time as
a hedge or similar arrangement is in place, Petrie will retain,
either individually or in combination, (i) cash in an amount of
at least $177.5 million (the "Reserved Amount") or (ii) shares of
Toys Common Stock having a market value (as of January 20, 1995)
of at least twice the Reserved Amount, to secure the payment of
Petrie's contingent liabilities (Note 5). At October 28, 1995,
Petrie is required to retain substantially all of the 7,055,576
shares of Toys Common Stock it holds (including the 3,493,450
shares of Toys Common Stock held in the Escrow Account and the
3,200,082 shares of Toys Common Stock held in the Collateral
Account).
In connection with the Plan of Liquidation, Petrie made an
initial liquidating distribution, on March 24, 1995, of
26,173,718 shares of Toys Common Stock (market value of
approximately $644.5 million). Petrie subsequently distributed
1,391 shares of Toys Common Stock to certain former shareholders
of Winkelman Stores Incorporated (a former subsidiary of Petrie)
in respect of their interests in the March 24, 1995 distribution.
On August 15, 1995, Petrie made a second liquidating distribution
of 5,235,035 shares of Toys Common Stock (market value of
approximately $139.4 million).
On May 26, 1995, Petrie sold 610,700 shares of Toys Common
Stock in open market transactions for approximately $15 million
after commissions. On October 25 and 26, 1995, Petrie sold an
aggregate of 3,000,000 shares of Toys Common Stock for
approximately $66 million after commissions.
5. COMMITMENTS AND CONTINGENCIES
As has been reported, on October 12, 1995, Petrie Retail
filed a voluntary petition for bankruptcy protection under
Chapter 11 of the Federal Bankruptcy Code. Since filing its
petition, Petrie Retail has announced plans to close
approximately 300 of its roughly 1600 stores. Petrie is a
guarantor of leases relating to approximately 50 of those stores,
and its aggregate guarantee liability on those leases is expected
to be no more than approximately $15 million, which Petrie has
accrued in its financial statements at October 28, 1995.
Petrie's liability will be reduced by, among other things, the
extent to which Petrie Retail assigns closed store leases instead
of rejecting such leases in bankruptcy or, if the leases are
rejected, new rent-paying tenants are found for the closed
stores. Subject to bankruptcy court approval, Petrie Retail has
retained Keen Realty Services, Inc. to market approximately 150
of the roughly 300 leases relating to stores to be closed. In
conjunction with this process, with the consent of Petrie Retail,
but subject to bankruptcy court approval, Petrie intends to also
retain Keen Realty to negotiate transactions to reduce Petrie's
potential liability under any of those leases where Petrie is a
guarantor.
Petrie is not aware of any plans that Petrie Retail may have
to close additional stores; however, no assurance can be given
that Petrie Retail will not close additional stores for which
Petrie has guarantee liability. Based on motions currently
pending before the bankruptcy court, Petrie Retail will likely
have until at least August 1996 to decide whether to assume or
reject the majority of the leases it currently holds. Were
Petrie Retail to close every store for which a landlord might
claim that Petrie has liability as a lease guarantor and no
mitigation or defense were successful, Petrie believes that its
maximum theoretical exposure relating to such leases, without
giving effect to any present value discount, would be
approximately $95 million (including the $15 million accrued at
October 28, 1995), with approximately $18 million due in 1996,
approximately $16 million due in 1997, approximately $14 million
due in 1998 and approximately $47 million due thereafter.
In addition, since Petrie Retail's bankruptcy filing, a
dispute has arisen between Petrie, on the one hand, and Petrie
Retail and its affiliates, on the other, as to whether Petrie, or
Petrie Retail and its affiliates, is responsible as guarantor of
certain additional leases. The maximum theoretical exposure
relating to such leases, based on the same assumptions as set
forth in the preceding paragraph and without giving effect to any
present value discount, would be approximately $35 million, with
approximately $5 million due in 1996, approximately $5 million
due in 1997, approximately $5 million due in 1998 and
approximately $20 million due thereafter. To date, Petrie Retail
has not announced plans to close any of the stores relating to
such leases, and as a result there is currently no guarantor
liability with respect thereto.
A substantial number of leases under which a landlord might
claim that Petrie has liability as a lease guarantor either
expressly contain mitigation provisions or relate to property in
states that imply such provisions as a matter of law. Mitigation
generally requires, among other things, that a landlord of a
closed store seek to reduce its damages, including by attempting
to locate a new tenant.
Effective January 31, 1995, Petrie Retail withdrew from the
United Auto Workers District 65 Security Plan Pension Fund (the
"Multiemployer Plan"). Due to underfunding of the Multiemployer
Plan, Petrie Retail and its affiliates have incurred withdrawal
liability under the Employee Retirement Income Security Act of
1974, as amended. Based upon preliminary discussions with the
administrators and trustees of the Multiemployer Plan, Petrie
believes that the withdrawal liability allocated to Petrie Retail
and its affiliates, as a result of the withdrawal, will be
approximately $12 million, with an additional liability allocated
to Petrie Retail and its affiliates of approximately $3 million
attributable to the Multiemployer Plan's failure to meet certain
Internal Revenue Code minimum funding standards. In the event of
a mass withdrawal by contributing employers from the
Multiemployer Plan, the withdrawal liability allocated to Petrie
Retail and its affiliates may be higher. Pursuant to the Stock
Purchase Agreement, Petrie Retail and its affiliates are
responsible for the first $10 million in withdrawal and related
liabilities, with the next $50 million of such liabilities
allocated 75 percent to Petrie and 25 percent to Petrie Retail
and its affiliates. It is unclear what effect, if any, Petrie
Retail's bankruptcy filing may have upon the timing and amount of
any payments Petrie may be required to make under the agreement
with respect to the Multiemployer Plan, but in no event will
Petrie's maximum contractual liability be increased as a result
of Petrie Retail's bankruptcy filing.
The Internal Revenue Service ("IRS") has raised an issue
regarding the manner pursuant to which Petrie computed the basis
of Toys Common Stock disposed of in connection with the exchange
of certain of its exchangeable subordinated debentures during its
fiscal year ended January 28, 1989. Petrie is contesting the
IRS' proposed adjustment in administrative proceedings. It is
expected that this matter will not be finally resolved for at
least several months, and perhaps longer if Petrie and the IRS
are unable to resolve this matter in administrative proceedings
and Petrie is forced to litigate its position.
Petrie, its directors and certain former members of its
senior management are defendants in a consolidated class action
brought on behalf of Petrie's shareholders. The plaintiffs in
the action have alleged (i) that Petrie's directors violated
their fiduciary duties of loyalty and fair dealing by exclusively
negotiating with PS Stores for the sale of the retail operations,
(ii) that Petrie's directors failed to adequately explore third-
party interest and thus did not maximize shareholder value and
(iii) that PS Stores was in possession of non-public information
that allowed it to purchase the retail operations at an
inadequate price. The plaintiffs seek, among other things, (i) a
declaratory judgment that the individual defendants breached
their fiduciary duties and/or (ii) to recover unspecified
damages. Petrie continues to believe that the claims asserted in
such complaints are without merit and not probable of resulting
in a material adverse effect on Petrie's financial position.
Petrie plans to contest this suit vigorously and on August 22,
1995 filed a motion to dismiss the consolidated amended
complaint. Briefing of the motion is currently ongoing.
Petrie is also a defendant in an action brought by the
landlord for a retail store operated by Central Park Apparel,
Inc., a former subsidiary of Petrie, alleging, among other
things, that (i) such landlord was fraudulently induced to
release Petrie from its obligation as a guarantor of such store's
lease through the execution of a substitute guaranty (the
"Substitute Guaranty"), (ii) Petrie conspired with Petrie Retail
and Petrie's real estate advisor, Jones Lang Wootton USA, to
commit such fraud utilizing the instrumentalities of interstate
commerce such as to give rise to cause of action under the
federal RICO statute, and (iii) Petrie has breached its agreement
to serve as a guarantor with respect to Central Park Apparel,
Inc. The plaintiff seeks (i) a declaratory judgment with respect
to the Substitute Guaranty and (ii) actual damages, punitive
damages and attorneys' fees. Petrie plans to contest this suit
vigorously. As of December 6, 1995, Petrie has not filed its
answer with respect to this action.
While no assurance can be given, Petrie believes that, based
on currently available information, adequate accruals have been
established in the accompanying financial statements to provide
for any losses that may be incurred with respect to the
aforementioned contingencies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with
the Financial Statements provided herein.
RESULTS OF OPERATIONS
As previously disclosed, in December 1994, as part of the
reorganization of the retail operations of Petrie Stores
Corporation ("Petrie") in connection with their sale, all of
Petrie's former subsidiaries with retail operations were
transferred to Petrie Retail, Inc. ("Petrie Retail"), then a
wholly-owned subsidiary of Petrie, and all of the shares of Toys
"R" Us, Inc. ("Toys 'R' Us") common stock, par value $.10 per
share ("Toys Common Stock"), held by Petrie's former subsidiaries
were transferred to Petrie. Thereafter, Petrie Retail was sold
(the "Sale") to PS Stores Acquisition Corp. (hereafter, including
its subsidiaries and affiliates unless the context requires
otherwise, "PS Stores"). On January 24, 1995, Petrie's
shareholders approved a Plan of Liquidation and Dissolution (the
"Plan of Liquidation"), and Petrie commenced its liquidation
shortly thereafter. As a result, effective January 28, 1995,
Petrie changed its basis of accounting from a going-concern basis
to a liquidation basis. Since January 24, 1995, Petrie's
activities have been limited to winding up its affairs in
furtherance of the Plan of Liquidation.
The results of the retail operations provided herein for the
three- and nine-month periods ended October 29, 1994 have been
restated so that they may be presented as discontinued operations
in Petrie's Consolidated Statement of Operations. The net loss
for the three- and nine-month periods ended October 28, 1995 was
$(73,471,000) and $(174,986,000), respectively, as compared to a
loss from continuing operations for the three- and nine-month
periods ended October 29, 1994 of $(2,492,000) and $(5,511,000),
respectively.
The market price per share of Toys Common Stock has
fluctuated during fiscal 1996 as follows:
DATE CLOSING PRICE
January 28, 1995 $30
April 29, 1995 $25 3/8
July 29, 1995 $28 3/4
October 28, 1995 $22 1/8
As of December 6, 1995, the closing price per share of
Toys Common Stock as reported on the New York Stock Exchange
Composite Tape was $23 5/8 per share. In applying a liquidation
basis of accounting, Petrie has given effect in its results of
operations to the fluctuation in the market price of Toys Common
Stock held by Petrie and the sale of 3,610,700 shares during the
period and has recorded a net realized and unrealized loss on the
Toys Common Stock for the three- and nine-month periods ended
October 28, 1995 of $(78,052,000) and $(241,167,000),
respectively. As a result of the net realized and unrealized
loss, Petrie recorded an income tax credit for the three- and
nine-month periods ended October 28, 1995 of $21,970,000 and
$85,956,000, respectively. Prior to adopting a liquidation basis
of accounting, unrealized gains/losses on the Toys Common Stock,
net of related deferred taxes, resulted in adjustments to
shareholders' equity.
Corporate overhead of $17,681,000 and $20,433,000 for the
three- and nine-month periods ended October 28, 1995,
respectively, consists primarily of the costs and expenses
related to the liquidation and dissolution of Petrie including,
but not limited to, lease contingencies, legal fees, insurance,
accounting fees, salaries, real estate advisory fees, transfer
agent fees, exchange listing fees and printing and shareholder
communications expenses. Included in corporate overhead for the
nine-month period ended October 28, 1995 is $15 million related
to Petrie's liability as a guarantor of certain leases to which
Petrie Retail or one of its subsidiaries is a party, $2 million
related to certain other liabilities Petrie may have incurred as
a result of Petrie Retail's bankruptcy filing and $618,000 related
to premiums for directors' and officers' liability insurance. In
connection with Petrie's liquidation basis of accounting, directors'
and officers' liability insurance premiums were expensed upon payment.
Although certain overhead costs and expenses were also incurred by
Petrie during the three- and nine-month periods ended October 29, 1994
in connection with its public reporting requirements, corporate
overhead has been included in discontinued operations for such period.
In the opinion of management, corporate overhead was not material to
either continuing or discontinued operations for the three- and
nine-month periods ended October 29, 1994.
During the three- and nine-month periods ended October 28,
1995, Petrie earned $291,000 and $658,000, respectively, in
investment income. Investment income for the three- and nine-
month periods ended October 29, 1994 related to the retail
operations and is included in discontinued operations.
Petrie's 8% Convertible Subordinated Debentures due
December 31, 2010 were fully redeemed or converted in the fiscal
year ended January 28, 1995. As a result, no interest expense
was incurred by Petrie for the nine months ended October 28,
1995.
LIQUIDITY AND CAPITAL RESOURCES
As previously disclosed, Petrie has placed 3,493,450 and
3,200,082 shares of Toys Common Stock into an escrow account and
a collateral account, respectively. The shares were placed into
these accounts to secure the payment of Petrie's contingent
liabilities pursuant to the terms of an Acquisition Agreement
with Toys "R" Us, the Stock Purchase Agreement and other
agreements with Toys "R" Us and/or PS Stores. Such liabilities
primarily include contingent liabilities relating to (i)
guarantees of certain retail store leases, expiring at various
times through 2011 to which Petrie Retail or a subsidiary thereof
is a party; (ii) Petrie's agreement with Petrie Retail to
indemnify it for certain liabilities relating to Petrie Retail's
withdrawal from the United Auto Workers District 65 Security Plan
Pension Fund (the "Multiemployer Plan"), and (iii) an ongoing
dispute with the Internal Revenue Service relating to the manner
in which Petrie computed the basis of shares of Toys Common Stock
transferred pursuant to the conversion of certain exchangeable
subordinated debentures in fiscal year 1989.
The shares of Toys Common Stock placed in the escrow
account and the collateral account are also subject to the terms
of a letter agreement dated as of January 24, 1995 (the "Side
Letter Agreement"), pursuant to which Petrie has agreed with Toys
"R" Us that, until such time as a hedge or similar arrangement is
in place, Petrie will retain, either individually or in
combination, (i) cash in an amount of at least $177.5 million
(the "Reserved Amount") or (ii) shares of Toys Common Stock
having a market value (as of January 20, 1995) of at least twice
the Reserved Amount, to secure the payment of Petrie's contingent
liabilities. Pursuant to the terms of the Side Letter Agreement,
Petrie is presently required to retain substantially all of the
7,055,576 shares of Toys Common Stock that it holds (including
the 3,493,450 shares of Toys Common Stock held in the escrow
account and the 3,200,082 shares of Toys Common Stock held in the
collateral account).
On May 26, 1995, Petrie sold 610,700 shares of Toys Common
Stock in open market transactions for approximately $15 million.
On August 15, 1995, Petrie made a second liquidating
distribution (the "Distribution") to its shareholders of an
aggregate of 5,235,035 shares of Toys Common Stock, or
approximately 34.2% of the Toys Common Stock held by Petrie,
pursuant to Petrie's Plan of Liquidation and Dissolution. In the
Distribution, Petrie's shareholders received 0.1 of a share of
Toys Common Stock for every share of Petrie Common Stock held of
record at the close of business on August 7, 1995. In addition,
Petrie distributed an aggregate of 1,391 shares of Toys Common
Stock to certain former shareholders of Winkelman Stores
Incorporated (a former subsidiary of Petrie) in respect of their
interests in Petrie's initial liquidating distribution made on
March 24, 1995.
As has been reported, on October 12, 1995, Petrie Retail
filed a voluntary petition for bankruptcy protection under
Chapter 11 of the Federal Bankruptcy Code. Since filing its
petition, Petrie Retail has announced plans to close
approximately 300 of its roughly 1600 stores. Petrie is a
guarantor of leases relating to approximately 50 of those stores,
and its aggregate guarantee liability on those leases is expected
to be no more than approximately $15 million. Petrie's liability
will be reduced by, among other things, the extent to which
Petrie Retail assigns closed store leases instead of rejecting
such leases in bankruptcy or, if the leases are rejected, new
rent-paying tenants are found for the closed stores. Subject to
bankruptcy court approval, Petrie Retail has retained Keen Realty
Services, Inc. to market approximately 150 of the roughly 300
leases relating to stores to be closed. In conjunction with this
process, with the consent of Petrie Retail, but subject to
bankruptcy court approval, Petrie intends to also retain Keen
Realty to negotiate transactions to reduce Petrie's potential
liability under any of those leases where Petrie is a guarantor.
Petrie is not aware of any plans that Petrie Retail may
have to close additional stores; however, no assurance can be
given that Petrie Retail will not close additional stores for
which Petrie has guarantee liability. Based on motions currently
pending before the bankruptcy court, Petrie Retail will likely
have until at least August 1996 to decide whether to assume or
reject the majority of the leases it currently holds. Were
Petrie Retail to close every store for which a landlord might
claim that Petrie has liability as a lease guarantor and no
mitigation or defense were successful, Petrie believes that its
maximum theoretical exposure relating to such leases, without
giving effect to any present value discount, would be
approximately $95 million, with approximately $18 million due in
1996, approximately $16 million due in 1997, approximately $14
million due in 1998 and approximately $47 million due thereafter.
In addition, since the filing by Petrie Retail of its
voluntary petition for bankruptcy protection a dispute has arisen
between Petrie, on the one hand, and Petrie Retail and its
affiliates, on the other, as to whether Petrie, or Petrie Retail
and its affiliates, is responsible as guarantor of certain
additional leases. The maximum theoretical exposure relating to
such leases, based on the same assumptions as set forth in the
preceding paragraph and without giving effect to any present
value discount, would be approximately $35 million, with
approximately $5 million due in 1996, approximately $5 million
due in 1997, approximately $5 million due in 1998 and
approximately $20 million due thereafter. To date, Petrie Retail
has not announced plans to close any of the stores relating to
such leases, and as a result there is currently no guarantor
liability with respect thereto.
A substantial number of leases under which a landlord
might claim that Petrie is a lease guarantor either expressly
contain mitigation provisions or relate to property in states
that imply such provisions as a matter of law. Mitigation
generally requires, among other things, that a landlord of a
closed store seek to reduce its damages, including by attempting
to locate a new tenant.
On October 25 and October 26, 1995, in order to diversify
its assets in light of Petrie Retail's bankruptcy filing and a
decline in the price per share of Toys Common Stock, Petrie sold
19,300 and 2,980,700 shares of Toys Common Stock, respectively,
for approximately $66 million.
As of December 6, 1995, the closing price per share of
Toys Common Stock as reported on the New York Stock Exchange
Composite Tape was $23 5/8 per share, and during the fifty-two
weeks prior to the date of this report, the price per share of
Toys Common Stock has fluctuated from a high of $35 1/2 to a low
of $21 5/8. No assurance can be given as to the future market
prices of Toys Common Stock.
Pursuant to the Plan of Liquidation and the Agreement and
Declaration of Trust, dated as of December 6, 1995 (the
"Liquidating Trust Agreement"), by and between Petrie and the
trustees named therein (a form of which was approved at Petrie's
Reconvened Annual Meeting of Shareholders on January 24, 1995),
Petrie will transfer its remaining assets to, and its remaining
fixed and contingent liabilities will be assumed by (the
"Succession"), the Petrie Stores Liquidating Trust (the
"Liquidating Trust"), effective as of the close of business on
January 22, 1996, unless the Succession is postponed as set forth
below or in the Liquidating Trust Agreement (the "Succession
Date"). Application will be made to the Securities and Exchange
Commission (the "Commission") to register the Liquidating Trust's
beneficial interests on Form 8-B pursuant to the Securities
Exchange Act of 1934, as amended. In the event that the
Commission has not declared the Form 8-B effective prior to
January 22, 1996, the Succession Date will be postponed until the
effective date of the Form 8-B.
The Liquidating Trust's ability to make future
distributions of Toys Common Stock and cash to the holders of the
Liquidating Trust's beneficial interests will depend on the
extent to which the Liquidating Trust's contingent liabilities
become fixed in amount. Distributions from the Liquidating Trust
will only be made to the extent not necessary to satisfy the
liabilities of the Liquidating Trust, and then only as directed
and approved by the Liquidating Trust's trustees. Accordingly,
no assurance can be given as to the timing or the amounts of any
future distributions.
As of December 6, 1995, Petrie has approximately $85
million in cash and cash equivalents. Petrie believes that its
cash and cash equivalents will be adequate to meet all
anticipated liquidity requirements. Costs and expenses related
to the liquidation and the administration of the Liquidating
Trust include legal fees, insurance, accounting fees, salaries,
real estate advisory fees, transfer agent fees, trustee fees,
exchange listing fees, Commission filing fees, and printing and
shareholder communications expenses.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) LIST OF EXHIBITS
Exhibit 27 -- Financial Data Schedule
Exhibit 99 -- Press Release, dated December 7, 1995
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K, dated as of October
26, 1995, reporting the sale of 3,000,000 shares
of Toys "R" Us, Inc. Common Stock.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PETRIE STORES CORPORATION
Dated: December 11, 1995 By /s/ STEPHANIE R. JOSEPH
-----------------------------
Stephanie R. Joseph
Secretary and Principal Legal Officer
Dated: December 11, 1995 By /s/ H. BARTLETT BROWN
_______________________________
H. Bartlett Brown
Treasurer, Principal Financial
Officer and Principal Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
PETRIE STORES CORPORATION
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted
from Petrie's statement of net assets in liquidation at October
28, 1995 and Petrie's statement of changes in net assets in
liquidation for the nine months ended October 28, 1995, and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-END> OCT-28-1995
<CASH> 85,357
<SECURITIES> 156,105
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 241,462
<CURRENT-LIABILITIES> 21,699
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 181,885
<TOTAL-LIABILITY-AND-EQUITY> 241,462
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 20,433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (260,942)
<INCOME-TAX> 85,956
<INCOME-CONTINUING> (174,986)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (174,986)
<EPS-PRIMARY> (3.34)
<EPS-DILUTED> (3.34)
</TABLE>
EXHIBIT 99
PETRIE STORES CORPORATION
70 ENTERPRISE AVENUE
SECAUCUS, NEW JERSEY 07094
FOR IMMEDIATE RELEASE
Contact: John Quirk
(212) 484-7699
John Franklin III
(212) 484-7693
PETRIE STORES TO ESTABLISH LIQUIDATING TRUST ON JANUARY 22, 1996
SECAUCUS, NEW JERSEY, DECEMBER 7, 1995 -- Petrie Stores
Corporation (NYSE: PST) announced today that its board of
directors has approved the transfer of all of Petrie Stores'
remaining assets and its remaining fixed and contingent
liabilities to the Petrie Stores Liquidating Trust. The
succession will be effective as of the close of business on
January 22, 1996, at which time Petrie Stores shareholders of
record on such date will become holders of beneficial interests
in the Petrie Stores Liquidating Trust.
As previously announced, Petrie Stores shareholders approved
a plan of liquidation and dissolution on January 24, 1995 and,
since that date, Petrie Stores has distributed 31,408,753 shares
of Toys "R" Us, Inc. (NYSE: TOY) common stock to its
shareholders pursuant to the plan. Petrie Stores currently holds
7,055,576 shares of Toys "R" Us common stock and approximately
$85 million in cash and cash equivalents.
Petrie Stores expects that the liquidating trust will
distribute its assets to holders of beneficial interests as
quickly as is reasonably practicable, but notes that the timing
and size of distributions will depend upon the extent to which
Petrie Stores reduces its contingent liabilities.
Petrie Stores' remaining contingent liabilities primarily
relate to (i) guarantees by Petrie Stores of certain retail store
leases to which Petrie Retail, Inc. or its subsidiaries are
parties and which expire at various times through the year 2011,
(ii) an ongoing dispute with the Internal Revenue Service
relating to the manner in which Petrie Stores computed the basis
of shares of Toys "R" Us common stock transferred pursuant to the
conversion of certain exchangeable subordinated debentures in
fiscal year 1989, and (iii) Petrie Stores' agreement to indemnify
Petrie Retail for certain multiemployer plan withdrawal
liabilities.
As has been reported, on October 12, 1995, Petrie Retail
filed a voluntary petition for bankruptcy protection under
Chapter 11 of the Federal Bankruptcy Code. Since filing its
petition, Petrie Retail has announced plans to close
approximately 300 out of its roughly 1600 stores. Petrie Stores
is a guarantor of leases relating to approximately 50 of those
stores, and its aggregate guarantee liability on those leases is
expected to be no more than approximately $15 million. Petrie
Stores' liability will be reduced by, among other things, the
extent to which Petrie Retail assigns closed store leases instead
of rejecting such leases in bankruptcy or, if the leases are
rejected, new rent-paying tenants are found for the closed
stores. Subject to bankruptcy court approval, Petrie Retail has
retained Keen Realty Services, Inc. to market approximately 150
of the roughly 300 leases relating to stores to be closed. In
conjunction with this process, with the consent of Petrie Retail,
but subject to bankruptcy court approval, Petrie Stores intends
to retain Keen Realty to negotiate transactions to reduce
liability under any of those leases where Petrie Stores has
guarantee liability.
Petrie Stores is not aware of any plans that Petrie Retail
may have to close additional stores; however, no assurance can be
given that Petrie Retail will not close additional stores for
which Petrie Stores has guarantee liability. Based on motions
currently pending before the bankruptcy court, Petrie Retail will
likely have until at least August 1996 to decide whether to
assume or reject the majority of the leases it currently holds.
Were Petrie Retail to close every store for which a landlord
might claim that Petrie Stores is a lease guarantor and no
mitigation or defense were successful, Petrie Stores believes
that its maximum theoretical exposure relating to such leases,
without giving effect to any present value discount, would be
approximately $95 million.
In addition, since the filing by Petrie Retail of its
voluntary petition for bankruptcy protection a dispute has arisen
between Petrie Stores, on the one hand, and Petrie Retail and its
affiliates, on the other, as to whether Petrie Stores, or Petrie
Retail and its affiliates, is responsible as guarantor of certain
additional leases. The maximum theoretical exposure relating to
such leases, based on the same assumptions as set forth in the
preceding paragraph and without giving effect to any present
value discount, would be approximately $35 million. To date,
Petrie Retail has not announced plans to close any of the stores
relating to such leases, and as a result there is currently no
guarantor liability.
A substantial number of leases referred to above under which
a landlord might claim that Petrie Stores is a lease guarantor
either expressly contain mitigation provisions or relate to
property in states that imply such provisions as a matter of law.
Mitigation generally requires, among other things, that a
landlord of a closed store seek to reduce its damages, including
by attempting to locate a new tenant.
As to the ongoing dispute with the IRS, Petrie Stores is
contesting the IRS' proposed adjustment in administrative
proceedings.
As previously disclosed, effective January 31, 1995, Petrie
Retail withdrew from the multiemployer pension plan in which it
had participated. Due to underfunding of the multiemployer plan,
Petrie Retail has incurred withdrawal liability under the
Employee Retirement Income Security Act of 1974, as amended.
Pursuant to the agreement by which Petrie Stores sold its retail
operations, Petrie Retail and its affiliates are responsible for
the first $10 million in withdrawal and related liabilities, with
the next $50 million of such liabilities allocated 75 percent to
Petrie Stores and 25 percent to Petrie Retail and its affiliates.
It is unclear what effect, if any, Petrie Retail's bankruptcy
filing may have upon the timing and amounts of any payments
Petrie Stores may be required to made under the agreement with
respect to the multiemployer plan, but in no event will Petrie
Stores' maximum contractual liability be increased as a result of
Petrie Retail's bankruptcy filing.
Petrie Stores expects to mail an information statement to
its shareholders, which will further detail items relating to the
Petrie Stores Liquidation Trust, its anticipated assets, fixed
and contingent liabilities and tax treatment on or about December
18, 1995. Shareholders are encouraged to carefully read this
information statement in its entirety.
